EXHIIBIT
      4.1

     

    THIS
      WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
      AND
      THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
      COUNSEL REASONABLY SATISFACTORY TO DATA SYSTEMS & SOFTWARE INC. THAT SUCH
      REGISTRATION IS NOT REQUIRED.

    


    Void
      after 5:00 P.M. New York City time on the last day of the Exercise
      Period,

     

    as
      defined in this Warrant

     

    COMMON
      STOCK PURCHASE WARRANT

    OF

    DATA
      SYSTEMS & SOFTWARE INC.

     

    This
      is
      to certify that, FOR VALUE RECEIVED, ______________________________ (the
“Holder”),
      is
      entitled to purchase, subject to the provisions of this Warrant, from DATA
      SYSTEMS & SOFTWARE INC., a Delaware corporation (the “Company”),
      at an
      exercise price per share of Two Dollars and Seventy-eight Cents ($2.78), subject
      to adjustment as provided in this Warrant (the “Warrant
      Exercise Price”),
      __________________ (___________) shares of common stock, par value $0.01 per
      share, of the Company (the “Common
      Stock”).
      The
      shares of Common Stock deliverable upon such exercise, and as adjusted from
      time
      to time, are hereinafter sometimes referred to as the “Warrant
      Shares.”
      

     

    1.  ISSUANCE
      OF WARRANT/DEFINITIONS.
      This
      Warrant is being issued pursuant to that certain Subscription Agreement between
      the Company and the Holder (the “Subscription
      Agreement”).
      Capitalized terms used but not otherwise defined herein shall have the meanings
      ascribed thereto in the Subscription Agreement or the Memorandum (hereinafter
      defined). In addition, the following terms shall have the meanings set forth
      below: 

     

    “Convertible
      Securities”
shall
      mean evidences of indebtedness, shares of stock or other securities, which
      are
      convertible into or exchangeable, with or without payment of additional
      consideration in cash and/or property, for shares of Common Stock, either
      immediately or upon the occurrence of a specified date or a specified
      event.

     

    “Exercise
      Period”
shall
      mean the period commencing on the date hereof and ending at 5:00 p.m., Eastern
      Time on July 13, 2011. 

     

    “Fair
      Market Value”
of
      a
      share of Common Stock as of a particular date (the "Determination Date") shall
      mean: 

    


    (a) If
      the
      Company's Common Stock is traded on an exchange, then the closing or last sale
      price, reported for the last business day immediately preceding the
      Determination Date. 

    


    (b) If
      the
      Company's Common Stock is not traded on an exchange but is traded on the NASD
      OTC Bulletin Board, the Pink Sheets, or other public trading market, then the
      mean of the average of the closing bid and asked prices on such market reported
      for the last business day immediately preceding the Determination
      Date.


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


    


    “Memorandum”
shall
      mean the Company’s Confidential Private Placement Memorandum dated as of June
      12, 2006 (as amended or supplemented, and together with all exhibits attached
      thereto). 

     

    “Permitted
      Issuances”
shall
      mean (i) Common Stock issuable or issued to employees, consultants, officers,
      directors, or advisors of the Company directly or pursuant to a stock purchase
      plan or other compensation arrangement approved by the Board of Directors of
      the
      Company which are issued at fair market value at the date of issuance, (ii)
      capital stock, debt instruments convertible into capital stock or warrants
      or
      options to purchase capital stock issued in connection with bona fide
      acquisitions, mergers, or purchases, corporate partnering agreements, joint
      ventures or
      similar transactions, the terms of which are approved by the Board of Directors
      of the Company, and (iii) Common Stock issued or issuable upon exercise or
      conversion of any warrants, options or any other securities exercisable or
      exchangeable for, or convertible into shares of Common Stock outstanding as
      of
      June 7, 2006.

     

    “Placement”
means
      the private placement by the Company of of Common Stock and Warrants, including
      this Warrant, as described in the Memorandum.

     

    “Securities
      Act”
      means
      the Securities Act of 1933, as amended, and all rules and regulations
      promulgated thereunder.

     

    2. EXERCISE
      OF WARRANT.
      

     

    (a) This
      Warrant may be exercised in whole or in part at any time or from time to time
      from the date hereof until the end of the Exercise Period by presentation and
      surrender of this Warrant to the Company at its principal office, or at the
      office of its stock transfer agent, if any, with the Purchase Form annexed
      hereto duly executed and accompanied by payment of the Warrant Exercise Price
      (or in certain events, by “cashless” exercise as provided in Sections 2(b) and
      2(c) below) for the number of shares of Common Stock specified in such form.
      If
      this Warrant should be exercised in part only, the Company shall, upon surrender
      of this Warrant for cancellation, execute and deliver a new Warrant evidencing
      the rights of the Holder to purchase the balance of the shares of Common Stock
      purchasable hereunder. Upon receipt by the Company of this Warrant at its
      office, or by the stock transfer agent of the Company at its office, in proper
      form for exercise, the Holder shall be deemed to be the holder of record of
      the
      shares of Common Stock issuable upon such exercise, notwithstanding that the
      stock transfer books of the Company shall then be closed or that certificates
      representing such shares of Common Stock shall not then actually be delivered
      to
      the Holder. As soon as practicable after each exercise of this Warrant, in
      whole
      or in part, and in any event within five (5) days thereafter, the Company at
      its
      expense (including the payment by it of any applicable issue taxes) will cause
      to be issued in the name of and delivered to the Holder hereof or, subject
      to
      Section 10 hereof, as the Holder (upon payment by the Holder of any applicable
      transfer taxes) may direct, a certificate or certificates (with appropriate
      restrictive legends, as applicable) for the number of duly authorized, validly
      issued, fully paid and non-assessable shares of Common Stock to which the Holder
      shall be entitled upon exercise. All issuances of Common Stock pursuant to
      the
      exercise of this Warrant shall be rounded down to the nearest whole share.
      

     


    
      
         

      

      
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    (b)
      If a
      Registration Statement (as defined in the Subscription Agreement) is effective
      and the Holder may utilize it to sell the Warrant Shares, this Warrant may
      be
      exercisable in whole or in part for cash only as set forth in Section 2 above.
      Commencing six months after the Closing Date, if no such Registration Statement
      is then effective, then commencing six months after the Closing Date, payment
      upon exercise may be made at the option of the Holder either in (i) cash, wire
      transfer or by certified or official bank check payable to the order of the
      Company equal to the applicable aggregate Warrant Exercise Price, (ii) by
      surrender of all or a portion of this Warrant in accordance with Sections 2(b)
      and 2(c) below ("cashless exercise") or (iii) by a combination of any of the
      foregoing methods, for the number of Common Stock specified in such form and
      the
      Holder shall thereupon be entitled to receive the number of duly authorized,
      validly issued, fully paid and nonassessable shares of Common Stock (or Other
      Securities) determined as provided herein.

    


       (c)
      If
      the Fair Market Value of one share of Common Stock is greater than the Exercise
      Price (at the date of calculation as set forth below) and no Registration
      Statement relating to the shares of Common Stock underlying this Warrant is
      effective, in lieu of exercising this Warrant for cash, the holder may elect
      to
      receive shares equal to the value (as determined below) of this Warrant (or
      the
      portion thereof being cancelled) by surrender of this Warrant at the principal
      office of the Company together with the properly endorsed Subscription Form,
      in
      which event the Company shall issue to the holder a number of shares of Common
      Stock computed using the following formula:

    


    X
      = Y
      (A-B)

            
        A

     

    Where X= the
      number of shares of Common Stock to be issued to the Holder

    


    
      	 	
              Y=

            	
              the
                number of shares of Common Stock purchasable under the Warrant or,
                if only
                a portion of the Warrant is being exercised, the portion of the Warrant
                being exercised (at the date of such
                calculation)

            


    

     

    
      	 	
              A=

            	
              the
                Fair Market Value of one share of the Company’s Common Stock (at the date
                of such calculation)

            


    

     

    B=    Warrant
      Exercise Price (as adjusted to the date of such calculation)

     


    
      
         

      

      
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    (d) Call
      Provision.
      If
      at
      anytime during the Exercise Period the volume weighted average price for each
      of
      20 consecutive Trading Days (the "Measurement Period") exceeds $5.00 (subject
      to
      adjustment for forward and reverse stock splits, recapitalizations, stock
      dividends and the like) (the "Threshold Price"), then the Company may, within
      five Trading Days of the end of such period, call for cancellation of all or
      any
      portion of this Warrant for which a Notice of Exercise has not yet been
      delivered (such right, a "Call"). To exercise this right, the Company must
      deliver to the Holder an irrevocable written notice (a "Call Notice"),
      indicating therein the portion of unexercised portion of this Warrant to which
      such notice applies. If the conditions set forth below for such Call are
      satisfied from the period from the date of the Call Notice through and including
      the Call Date (as defined below), then any portion of this Warrant subject
      to
      such Call Notice for which a Notice of Exercise shall not have been received
      by
      the Call Date will be cancelled
      at 6:30 p.m. (New York City time) on the 20th Trading Day after the date the
      Call Notice is received by the Holder (such date, the "Call Date"). Any
      unexercised portion of this Warrant to which the Call Notice does not pertain
      will be unaffected by such Call Notice. In furtherance thereof, the Company
      covenants and agrees that it will honor all Notice of Exercise with respect
      to
      Warrant Shares subject to a Call Notice that are tendered through 6:30 p.m.
      (New
      York City time) on the Call Date. The parties agree that any Notice of Exercise
      delivered following a Call Notice shall first reduce to zero the number of
      Warrant Shares subject to such Call Notice prior to reducing the remaining
      Warrant Shares available for purchase under this Warrant. Subject to the
      provisions of this Section 2(f), the Company may deliver subsequent Call Notices
      for any portion of this Warrant for which the Holder shall not have delivered
      a
      Notice of Exercise. Notwithstanding anything to the contrary set forth in this
      Warrant, the Company may not deliver a Call Notice or require the cancellation
      of this Warrant (and any Call Notice will be void), unless, from the beginning
      of the 20th consecutive Trading Days used to determine whether the Common Stock
      has achieved the Threshold Price through the Call Date, (i) the Company shall
      have honored in accordance with the terms of this Warrant all Notices of
      Exercise delivered by 6:30 p.m. (New York City time) on the Call Date and (ii)
      the Registration Statement shall be effective as to all Warrant Shares and
      the
      prospectus thereunder available for use by the Holder for the resale of all
      such
      Warrant Shares. The Company's right to Call the Warrant shall be exercised
      ratably among the Holders based on each Holder's initial purchase of Common
      Stock pursuant to the Purchase Agreement.

     

    (e) Common
      Stock Legend.
      The
      Holder acknowledges and agrees that until such time as the Warrant Shares has
      been registered and sold in accordance with an effective registration statement,
      or pursuant to an exemption from registration, certificates and other
      instruments representing any of the Warrant Shares shall bear a restrictive
      legend in substantially the following form (and a stop-transfer order may be
      placed against transfer of any such securities):

    


    “THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO DATA SYSTEMS
&
SOFTWARE INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

    


    3. RESERVATION
      OF SHARES/FRACTIONAL SHARES.
      The
      Company hereby agrees that at all times there shall be reserved for issuance
      and/or delivery upon exercise of this Warrant such number of shares of Common
      Stock as shall be required for issuance and delivery upon exercise of this
      Warrant. No fractional shares or script representing fractional shares shall
      be
      issued upon the exercise of this Warrant. Instead, the Company will round up
      to
      the nearest whole share.

     


    
      
         

      

      
        4

        
          

        

      

      
         

      

    


    


     

    4. EXCHANGE,
      TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
      This
      Warrant is exchangeable, without expense, at the option of the Holder, upon
      presentation and surrender of this Warrant to the Company for other Warrants
      of
      different denominations entitling the Holder thereof to purchase in the
      aggregate the same number of shares of Common Stock purchasable hereunder.
      Upon
      surrender of this Warrant to the Company or at the office of its stock transfer
      agent, if any, with the Assignment Form annexed hereto duly executed and funds
      sufficient to pay any applicable transfer tax, the Company shall, without
      charge, execute and deliver a new Warrant in the name of the assignee named
      in
      such instrument of assignment and this Warrant shall promptly be canceled.
      This
      Warrant may be divided or combined with other Warrants which carry the same
      rights upon presentation of this Warrant at the office of the Company or at
      the
      office of its stock transfer agent, if any, together with a written notice
      specifying the names and denominations in which new Warrants are to be issued
      and signed by the Holder hereof. The term “Warrant” as used herein includes any
      Warrants into which this Warrant may be divided or for which it may be
      exchanged. Upon receipt by the Company of evidence satisfactory to it of the
      loss, theft, destruction or mutilation of this Warrant, (and, in the case of
      loss, theft or destruction, of a reasonably satisfactory surety bond), and
      upon
      surrender and cancellation of this Warrant, the Company will execute and deliver
      a new Warrant of like tenor. Any such new Warrant executed and delivered shall
      constitute an additional contractual obligation on the part of the Company,
      whether or not this Warrant so lost, stolen, destroyed, or mutilated shall
      be at
      any time enforceable by anyone; provided, however, that if the original Warrant
      shall be presented for transfer by a protected purchaser (as defined in Section
      8-303 of the Uniform Commercial Code), then in addition to any rights on the
      surety bond or indemnity, the Company may recover the new Warrant in accordance
      with the provisions of Section 8-405 of the Uniform Commercial Code.


     

    5. RIGHTS
      AND OBLIGATIONS OF THE HOLDER.
      The
      Holder shall not, by virtue of this Warrant, be entitled to any rights of a
      stockholder of the Company, either at law or equity, and the rights of the
      Holder are limited to those expressed in this Warrant and are not enforceable
      against the Company except to the extent set forth herein. In addition,
      no
      provision hereof, in the absence of affirmative action by the Holder to purchase
      shares of Common Stock, and no enumeration herein of the rights or privileges
      of
      the Holder hereof shall give rise to any liability of such Holder for the
      purchase price of any Common Stock or as a stockholder of the Company, whether
      such liability is asserted by the Company or by creditors of the
      Company.

     

    6. ANTI-DILUTION
      PROVISIONS.
      

     

    The
      Warrant Exercise Price in effect at any time and the number and kind of
      securities purchasable upon exercise of each Warrant, shall be subject to
      adjustment as follows. The Company shall give each Holder notice of any event
      described below which requires an adjustment pursuant to this Section 6 at
      the
      time of such event:

     

    (a)  Stock
      Dividends, Subdivisions and Combinations.
      If at
      any time the Company shall:

     

    (i)  take
      a
      record of the holders of its Common Stock for the purpose of entitling them
      to
      receive a dividend payable in, or other distribution of, shares of Common
      Stock,

     

    (ii)  subdivide
      or reclassify its outstanding shares of Common Stock into a larger number of
      shares of Common Stock, or 

     

    (iii)  combine
      or reclassify its outstanding shares of Common Stock into a smaller number
      of
      shares of Common Stock or otherwise effect a reverse stock split, then:


     

    (A)
      the
      number of shares of Common Stock for which this Warrant is exercisable
      immediately after the occurrence of any such event shall be adjusted to equal
      the number of shares of Common Stock which a record holder of the same number
      of
      shares of Common Stock for which this Warrant is exercisable immediately prior
      to the occurrence of such event, would own or be entitled to receive after
      the
      happening of such event, and (B) the Warrant Exercise Price shall be adjusted
      to
      equal: (x) the Warrant Exercise Price immediately prior to such event multiplied
      by the number of shares of Common Stock for which this Warrant is exercisable
      immediately prior to the adjustment divided by (y) the number of shares for
      which this Warrant is exercisable immediately after such
      adjustment.

     


    
      
         

      

      
        5

        
          

        

      

      
         

      

    


    


     

    (b)  Certain
      Other Distributions and Adjustments.
      

     

    (i)  If
      at any
      time the Company shall take a record of the holders of its Common Stock for
      the
      purpose of entitling them to receive any dividend or other distribution of:
      

     

    (A)  cash,
      

     

    (B)  any
      evidences of its indebtedness, any shares of its capital stock or any other
      securities or property of any nature whatsoever (other than Convertible
      Securities or shares of Common Stock), or

     

    (C)
       any
      warrants or other rights to subscribe for or purchase any evidences of its
      indebtedness, any shares of its stock or any other securities or property of
      any
      nature whatsoever (other than Convertible Securities or shares of Common
      Stock),

    


    then,
      in
      the case of (A) the Warrant Exercise Price shall be reduced by the amount of
      such cash dividend when paid, or in the case of (B) or (C) the Warrant Holder
      shall be given notice as provided by Section 8 of this Warrant and the
      opportunity to exercise the Warrant prior to any such distribution.

    


    A
      reclassification of the Common Stock (other than a change in par value, or
      from
      par value to no par value or from no par value to par value) into shares of
      Common Stock and shares of any other class of stock shall be deemed a
      distribution by the Company to the holders of its Common Stock of such shares
      of
      such other class of stock and in such event the Holder shall be entitled to
      receive such distribution as if the Holder had exercised this Warrant and,
      if
      the outstanding shares of Common Stock shall be changed into a larger or smaller
      number of shares of Common Stock as a part of such reclassification, such change
      shall be deemed a subdivision or combination, as the case may be, of the
      outstanding shares of Common Stock within the meaning of Section
      6(a).

     

    (c)  Issuance
      of Additional Shares of Common Stock.
      

     

    (i) Except
      in
      connection with Permitted Issuances, if, at any time prior to the date which
      is
      six months from the original issue date of this Warrant (the “Issuance Date”),
      the Company shall issue or sell any shares of Common Stock for no consideration
      or for consideration in an amount per share of Common Stock less than the Share
      Price (as defined in the Subscription Agreement) (a “Discounted
      Price”),
      the
      Warrant Exercise Price then in effect shall immediately, and without any further
      action by the Company or the Holder required, be adjusted, concurrently with
      such issuance, to a price equal to 105% of the Discounted Price.

     

    (ii)
       The
      provision of paragraph (i) of this Section 6(c) shall not apply to any issuance
      of shares of Common Stock for which an adjustment is provided under Section
      6(a)
      or 6(b). No adjustment of the number of shares of Common Stock for which this
      Warrant shall be exercisable shall be made under paragraph (i) of this Section
      6(c) upon the issuance of any shares of Common Stock which are issued pursuant
      to the exercise of any warrants or other subscription or purchase rights or
      pursuant to the exercise of any conversion or exchange rights in any Convertible
      Securities, if any such adjustment shall previously have been made upon the
      issuance of such warrants or other rights or upon the issuance of such
      Convertible Securities (or upon the issuance of any warrant or other rights
      therefor) pursuant to Section 6(d). 


    
      
         

      

      
        6

        
          

        

      

      
         

      

    


     

    


    


     

    (d)
       Issuance
      of Warrants or Other Rights.
      

     

    (i)  Except
      in
      connection with any Permitted Issuances, if at any time prior to the date that
      which is six months from the Issuance Date, the Company shall distribute to
      the
      holders of its Common Stock for the purpose of entitling them to receive a
      distribution of, or shall in any manner (whether directly or by assumption
      in a
      merger in which the Company is the surviving corporation) issue or sell, any
      warrants or other rights to subscribe for or purchase any shares of Common
      Stock
      or any Convertible Securities, whether or not the rights to exchange or convert
      thereunder are immediately exercisable, and the price per share for which Common
      Stock is issuable upon the exercise of such warrants or other rights or upon
      conversion or exchange of such Convertible Securities shall be less than the
      Exercise Price, then the Warrant Exercise Price shall be adjusted to such price.
      No further adjustment of the Warrant Exercise Price shall be made upon the
      actual issue of such Common Stock or of such Convertible Securities upon
      exercise of such warrants or other rights or upon the actual issuance of such
      Common Stock upon such conversion or exchange of such Convertible
      Securities.

     

    (e)  Superseding
      Adjustment.
      If at
      any time after any adjustment of the Warrant Exercise Price shall have been
      made
      pursuant to Section 6(d) as the result of any issuance of warrants, rights
      or
      other Convertible Securities, 

     

    (i)  such
      warrants or rights, or the right of conversion or exchange in such other
      Convertible Securities, shall expire, and all or a portion of such warrants
      or
      rights, or the right of conversion or exchange with respect to all or a portion
      of such other Convertible Securities, as the case may be, shall not have been
      exercised, or

     

    (ii)  the
      consideration per share for which shares of Common Stock are issuable pursuant
      to such warrants or rights, or the terms of such other Convertible Securities,
      shall be increased solely by virtue of provisions therein contained for an
      automatic increase in such consideration per share upon the occurrence of a
      specified date or event,

     

     

    then
      for
      each outstanding Warrant such previous adjustment shall be rescinded and
      annulled and the shares of Common Stock which were deemed to have been issued
      by
      virtue of the computation made in connection with the adjustment so rescinded
      and annulled shall no longer be deemed to have been issued by virtue of such
      computation made in connection with the adjustment so rescinded and annulled
      shall no longer be deemed to have been issued by virtue of such computation.
      Thereupon, a re-computation shall be made of the effect of the issuance of
      such
      rights or options or other Convertible Securities on the basis of:

     

    (A)  treating
      the number of shares of Common Stock or other property, if any, theretofore
      actually issued or issuable pursuant to the previous exercise of any such
      warrants or rights or any such right of conversion or exchange, as having been
      issued on the date or dates of any such exercise and for the consideration
      actually received and receivable therefor, and

     

    (B) treating
      any such warrants or rights or any such other Convertible Securities which
      then
      remain outstanding as having been granted or issued immediately after the time
      of such increase of the consideration per share for which shares of Common
      Stock
      or other property are issuable under such warrants or rights or other
      convertible Securities; whereupon a new adjustment of the number of shares
      of
      Common Stock for which this Warrant is exercisable and the Warrant Exercise
      Price(s) shall be made, which new adjustment shall supersede the previous
      adjustment so rescinded and annulled.

     


    
      
         

      

      
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    (f)  No
      adjustment in the Warrant Exercise Price shall be required unless such
      adjustment would require an increase or decrease of at least One Cent ($0.01)
      in
      such price; provided, however, that any adjustments which by reason of this
      Section 6(f) are not required to be made shall be carried forward and taken
      into
      account in any subsequent adjustment. All calculations under this Section 6(f)
      shall be made to the nearest cent or to the nearest one-hundredth of a share,
      as
      the case may be. 

     

    (g)  The
      Company may retain a firm of independent public accountants of recognized
      standing selected by the Board (who may be the regular accountants employed
      by
      the Company) to make any computation required by this Section 6.

     

    (h)  In
      the
      event that at any time, as a result of an adjustment made pursuant to Section
      6(a), (b) or (c) of this Warrant, the Holder of any Warrant thereafter shall
      become entitled to receive any shares of the Company’s capital stock, other than
      Common Stock, thereafter the number of such other shares so receivable upon
      exercise of this Warrant shall be subject to adjustment from time to time in
      a
      manner and on terms as nearly equivalent as practicable to the provisions with
      respect to the Common Stock contained in Sections 6(a) through (h), inclusive,
      of this Warrant.

     

    (i)  Notwithstanding
      the foregoing, no adjustment pursuant to this Section 6 shall be effected due
      to, or as a result of, any Permitted Issuances.

     

    7. OFFICER’S
      CERTIFICATE.
      Whenever the Warrant Exercise Price(s) shall be adjusted as required by the
      provisions of Section 6 of this Warrant, the Company shall forthwith file in
      the
      custody of its Secretary or an Assistant Secretary at its principal office
      and
      with its stock transfer agent, if any, an officer’s certificate showing the
      adjusted Warrant Exercise Price(s) and the adjusted number of shares of Common
      Stock issuable upon exercise of this Warrant, determined as herein provided,
      setting forth in reasonable detail the facts requiring such adjustment,
      including a statement of the number of additional shares of Common Stock, if
      any, and such other facts as shall be necessary to show the reason for and
      the
      manner of computing such adjustment. Each such officer’s certificate shall be
      forwarded to the Holder in the manner provided in Section 12 hereof.


     

    8. NOTICES
      TO WARRANT HOLDERS.
      So long
      as this Warrant shall be outstanding, (a) if the Company shall pay any dividend
      or make any distribution upon Common Stock, or (b) if the Company shall offer
      to
      the holders of Common Stock for subscription or purchase by them any share
      of
      any class or any other rights, or (c) if any capital reorganization of the
      Company, reclassification of the capital stock of the Company, consolidation
      or
      merger of the Company with or into another entity, tender offer transaction
      for
      the Company’s Common Stock, sale, lease or transfer of all or substantially all
      of the property and assets of the Company, or voluntary or involuntary
      dissolution, liquidation or winding up of the Company shall be effected, or
      (d)
      if the Company shall file a registration statement under the Securities Act,
      on
      any form other than on Form S-4 or S-8 or any successor form, then in any such
      case, the Company shall cause to be mailed by certified mail to the Holder,
      at
      least ten (10) days prior to the date specified in clauses (a), (b), (c) or
      (d),
      as the case may be, of this Section 9 a notice containing a brief description
      of
      the proposed action and stating the date on which (i) a record is to be taken
      for the purpose of such dividend, distribution or rights, or (ii) such
      reclassification, reorganization, consolidation, merger, tender offer
      transaction, conveyance, lease, dissolution, liquidation or winding up is to
      take place and the date, if any is to be fixed, as of which the holders of
      Common Stock or other securities shall receive cash or other property
      deliverable upon such reclassification, reorganization, consolidation, merger,
      conveyance, dissolution, liquidation or winding up, or (iii) such registration
      statement is to be filed with the SEC.

     


    
      
         

      

      
        8

        
          

        

      

      
         

      

    


    


     

    9. RECLASSIFICATION,
      REORGANIZATION OR MERGER.
      In case
      of any reclassification, capital reorganization or other change of outstanding
      shares of Common Stock of the Company, or in case of any consolidation or merger
      of the Company with or into another corporation (other than a merger with a
      subsidiary in which merger the Company is the continuing or surviving
      corporation and which does not result in any reclassification, capital
      reorganization or other change of outstanding shares of Common Stock of the
      class issuable upon exercise of this Warrant) or in case of any sale, lease
      or
      conveyance of all or substantially all of the assets of the Company, the Company
      shall, as a condition precedent to such transaction, cause effective provisions
      to be made so that (i) the Holder shall have the right thereafter by exercising
      this Warrant, to purchase the kind and amount of shares of stock and other
      securities and property receivable upon such reclassification, capital
      reorganization and other change, consolidation, merger, sale or conveyance
      by a
      holder of the number of shares of Common Stock which could have been purchased
      upon exercise of this Warrant immediately prior to such reclassification,
      change, consolidation, merger, sale or conveyance, and (ii) the successor or
      acquiring entity shall expressly assume the due and punctual observance and
      performance of each covenant and condition of this Warrant to be performed
      and
      observed by the Company and all obligations and liabilities hereunder (including
      but not limited to the provisions of Section 6 regarding the increase in the
      number of Warrant Shares potentially issuable hereunder). Any such provision
      shall include provision for adjustments which shall be as nearly equivalent
      as
      possible to the adjustments provided for in this Warrant. The foregoing
      provisions of this Section 9 shall similarly apply to successive
      reclassifications, capital reorganizations and changes of shares of Common
      Stock
      and to successive consolidations, mergers, sales or conveyances. In the event
      that in connection with any such capital reorganization or reclassification,
      consolidation, merger, sale or conveyance, additional shares of Common Stock
      shall be issued in exchange, conversion, substitution or payment, in whole
      in
      part, for a security of the Company other than Common Stock, any such issue
      shall be treated as an issuance of Common Stock covered by the provisions of
      Section 6 of this Warrant. 

     

    10. TRANSFER
      TO COMPLY WITH THE SECURITIES ACT.
      This
      Warrant, the Warrant Shares or any other security issued or issuable upon the
      exercise of this Warrant may not be sold or otherwise disposed of except as
      follows:

     

    (a) to
      a
      person who, in the opinion of counsel for the Company, is a person to whom
      this
      Warrant or Warrant Shares may legally be transferred without registration and
      without the delivery of a current prospectus under the Securities Act with
      respect thereto and then only against receipt by the Company of an agreement
      of
      such person to comply with the provisions of this Section 10 with respect to
      any
      resale or other disposition of such securities, which agreement shall be
      satisfactory in form and substance to the Company and its counsel;
      or 

     

    (b) to
      any
      person upon delivery of a prospectus then meeting the requirements of the
      Securities Act relating to such securities and the offering thereof for such
      sale or disposition.

     


    
      
         

      

      
        9

        
          

        

      

      
         

      

    


    


     

    11. GOVERNING
      LAW; JURISDICTION.
      The
      corporate laws of the State
      of New
      York shall govern all issues concerning the relative rights of the Company
      and
      its stockholders. All issues concerning the construction, validity, enforcement
      and interpretation of this Warrant shall be governed by and construed in
      accordance with the internal laws of the State of New York without giving effect
      to the principles of conflicts of law thereof. The
      parties hereto agree that venue in any and all actions and proceedings related
      to the subject matter of this Warrant shall be in the state and federal courts
      in and for New York, New York, which courts shall have exclusive jurisdiction
      for such purpose, and the parties hereto irrevocably submit to the exclusive
      jurisdiction of such courts and irrevocably waive the defense of an inconvenient
      forum to the maintenance of any such action or proceeding. Service of process
      may be made in any manner recognized by such courts. This Warrant and any term
      hereof may be changed, waived, discharged or terminated only by an instrument
      in
      writing signed by the party against which enforcement of the change, waiver,
      discharge or termination is sought.

     

    12. NOTICES.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via
      facsimile at the facsimile telephone number specified in this Section prior
      to
      5:00 p.m. (New York City time) on a Business Day, (b) the Business Day after
      the
      date of transmission, if such notice or communication is delivered via
      facsimile at the facsimile telephone number specified in this Agreement later
      than 5:00 p.m. (New York City time) on any date and earlier than 11:59 p.m.
      (New
      York City time) on such date, (c) the Business Day following the date of
      mailing, if sent by nationally recognized overnight courier service, or (d)
      upon
      actual receipt by the party to whom such notice is required to be given. The
      address for such notices and communications shall be as follows:

     

    If
      to the
      Company: Data
      Systems & Software Inc.

    200
      Route
      17

    Mahwah,
      NJ 07430

    Attn:
      John A. Moore 

    President
      and Chief Executive Officer

     

    With
      a
      copy to:  Eilenberg
      & Krause LLP

    11
      East
      44 th Street 

    New
      York,
      NY 10017

    Attn:
      Sheldon Krause, Esq.

    


    If
      to the
      Holder: To
      the
      address set forth in the records of the Company

    


    


    13.  PAYMENT
      OF TAXES.
      The
      Company will pay the cost of all applicable documentary stamp taxes, if any,
      attributable to the issuance of shares of Common Stock underlying this Warrant
      upon exercise of this Warrant; provided,
      however,
      that
      the Company shall not be required to pay any tax which may be payable in respect
      of any transfer involved in the registration of any certificate for shares
      of
      Common Stock underlying this Warrant in a name other that of the Holder. The
      Holder is responsible for all other tax liability that may arise as a result
      of
      holding or transferring this Warrant or receiving shares of Common Stock
      underlying this Warrant upon exercise hereof.

     


    
      
         

      

      
        10

        
          

        

      

      
         

      

    


    


     

    14. INCONSISTENCIES.
      To the
      extent there are any inconsistencies between the terms and provisions of this
      Warrant and the terms and provisions of the Subscription Agreement or the
      Memorandum, the terms and provisions of this Warrant shall govern and be
      controlling.

    


    15. WARRANT
      SOLICITATION FEE.
      The
      Company has agreed that First Montauk Securities Corp. (“FMSC”), a registered
      broker dealer, shall be entitled to a fee of five percent (5%) with respect
      to
      the exercise of any Warrant or portion thereof which is exercised by the Holder
      pursuant to the efforts of FMSC.

    


    [Signature
      Page Follows]


    
      
         

      

      
        11

        
          

        

      

      
         

      

    


    IN
      WITNESS WHEREOF,
      this
      Warrant has been duly executed as of this 31st day of July, 2006.

    


    


    DATA
      SYSTEMS & SOFTWARE INC.

    


    


    By:
      ____________________________________

    Name:
      John A. Moore

    Title:
      President and Chief Executive Officer

    


    


    


    


    



    
      
         

      

      
        12

        
          

        

      

      
         

        
        

      

    



    Exhibit
      A

    


    FORM
      OF
      EXERCISE NOTICE

    (To
      be
      signed only on exercise of Warrant)

    


    TO:
      Data
      Systems & Software Inc.

    


    The
      undersigned, pursuant to the provisions set forth in the attached Warrant
      (No.____), hereby irrevocably elects to purchase (check applicable
      box):

    


    ___
      shares of the Common Stock covered by such Warrant; or

    


    ___the
      maximum number of shares of Common Stock covered by such Warrant pursuant to
      the
      cashless exercise procedure set forth in Sections 2(b) and (c) of this
      Warrant.

    


    The
      undersigned herewith makes payment of the full purchase price for such shares
      at
      the price per share provided for in such Warrant, which is $___________. Such
      payment takes the form of (check applicable box or boxes):

    


    ___ $__________
      in lawful money of the United States; and/or

    


    ___ the
      cancellation of such portion of the attached Warrant as is exercisable for
      a
      total of _______ shares of Common Stock (using a Fair Market Value of $_______
      per share for purposes of this calculation); and/or

    


    ___ the
      cancellation of such number of shares of Common Stock as is necessary, in
      accordance with the formula set forth in Section 2, to exercise this Warrant
      with respect to the maximum number of shares of Common Stock purchasable
      pursuant to the cashless exercise procedure set forth in Sections 2(b) and
      (c)
      thereof. 

    


    The
      undersigned requests that the certificates for such shares be issued in the
      name
      of, and delivered to ______________________________ whose address is
      _______________________________________
      _____________________________________________________________________________________

    


    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable upon exercise of the within Warrant shall be made
      pursuant to registration of the Common Stock under the Securities Act of 1933,
      as amended (the "Securities Act") or pursuant to an exemption from registration
      under the Securities Act.

    


    Dated:___________________           _____________________________________________

     
     
                                                            (Signature
      must conform to name of holder 

                               as specified
      on the face of the Warrant) 

     

    ___________________________________________

    (Print
      or
      Type Name)

     

                                   
      _________________________________________

    (Address)

     

        ___________________________________________

        (Social
      Security or Tax I.D. Number)

    


    The
      holder acknowledges that the exercise of the warrant has been solicited by
      First
      Montauk Securities Corp. and that First Montauk securities Corp. shall be
      entitled to a warrant solicitation fee of 5% of the exercise
      proceeds.

    



    
      
         

      

      
        13

        
          

        

      

      
         

        
        

      

    



    ASSIGNMENT
      FORM

    


    


    FOR
      VALUE RECEIVED,
      _______________________________________ hereby sells, assigns and transfer
      unto:

    


    


    Name:   _______________________________________________

    (Please
      typewrite or print in block letters)

     

    


     

    Address:  _______________________________________________

     

              _______________________________________________

     

     

     

    Social
      Security or Employer Identification No.:__________________________

     

    The
      right
      to purchase Common Stock represented by this Warrant to the extent of shares
      as
      to which such right is exercisable and does hereby irrevocably constitute and
      appoint __________________________________ as attorney to transfer the same
      on
      the books of the Company with full power of substitution.

     

    


     

    Dated:
      _________________, 200_.

     

    Signature:___________________________

     

    


    Signature
      Guaranteed:

    


    


    ___________________________________