Document:

EXHIBIT 10.53

                            ON TRACK INNOVATIONS LTD.

                       NOTE AND WARRANT PURCHASE AGREEMENT

                                   Dated as of

                                September 8, 2003

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                       NOTE AND WARRANT PURCHASE AGREEMENT

         This NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of September 8, 2003, by and among On Track Innovations Ltd., an
Israeli company (the "Company"), and the other parties listed on Schedule 1
hereto (each a "Lender" and collectively, the "Lenders").

         WHEREAS, subject to the terms and conditions herein, the Lenders desire
to acquire from the Company, and the Company desires to issue to the Lenders,
Convertible Promissory Notes of the Company in the aggregate principal face
amount of $999,000 and warrants to purchase Ordinary Shares of the Company, par
value NIS 0.1 each (each, a "Share"), as set forth herein.

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Lenders hereby
agree as follows:

1. PURCHASE AND SALE OF NOTES AND WARRANTS.

         1.1 Subject to the  satisfaction of the terms and conditions  described
in Section 6 of this  Agreement,  at the Closing (as defined  below) the Company
agrees to sell to each Lender, and each Lender severally agrees to purchase from
the  Company,  a  Convertible  Promissory  Note  in the  form  attached  to this
Agreement  as Exhibit A (each,  a "Note" and  collectively,  the "Notes") in the
principal  amount set forth  opposite such  Lender's name in the column  labeled
"Loan" on Schedule 1 hereto.

         1.2 Subject to the  satisfaction of the terms and conditions  described
in Section 6 of this Agreement,  at the Closing,  the Company agrees to issue to
each Lender:

         1.2.1 A warrant, in the form of Exhibit B-1 attached hereto, to acquire
     that number of Shares set forth  opposite  such Lender's name in the column
     labeled  "Warrants"  on  Schedule 1 (each,  a "Warrant"  and  collectively,
     "Warrants");

         1.2.2 A warrant, in the form of Exhibit B-2 attached hereto, to acquire
     that number of Shares set forth  opposite  such Lender's name in the column
     labeled  "Payback  Warrants" on Schedule 1 (each,  a "Payback  Warrant" and
     collectively,  "Payback Warrants"). If the Payback Warrants have expired in
     accordance  with their terms,  they shall be of no further  force or effect
     and will be returned to or as directed by the Company.

2. CLOSING.

         2.1 The  purchase  and sale of the Notes will take place at the offices
of ZAG/S&W LLP, counsel to the Company, located at 1 Post Office Square, Boston,
Massachusetts  02109 at 4:00 p.m., Eastern time, on the date that the conditions
set forth in Section 6 are satisfied in full or waived by the appropriate  party
thereunder,  or at such other place or different  time or day as may be mutually
acceptable to the Lenders and the Company  (which time and place are referred to
as the  "Closing").  At the Closing,  each Lender  shall  deliver to the Company
payment in full for the Note to be  purchased  by such  Lender in the amount set
forth  opposite such Lender's
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name  in the  column  labeled  "Loan"  on  Schedule  1,  via  wire  transfer  of
immediately  available  funds or bank or cashier's  check.  At the Closing,  the
Company will deliver to each Lender a duly executed Note in the principal amount
set forth  opposite such Lender's name in the column  labeled "Loan" on Schedule
1.

         2.2 The issuance of the Warrants  and the Payback  Warrants  shall take
place at the Closing.  At the Closing,  each Lender shall be delivered a Warrant
to acquire that number of Shares set forth  opposite  such  Lender's name in the
column  labeled  "Warrants"  on Schedule 1 and Payback  Warrant to acquire  that
number of Shares set forth  opposite such  Lender's  name in the column  labeled
"Payback Warrants" on Schedule 1.

3. USE OF PROCEEDS.  The Company  shall use the proceeds  from the  transactions
contemplated hereby to enhance the general working capital of the Company.

4. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. To induce each of the Lenders
to enter into this Agreement and to purchase the Notes, Warrants and Payback
Warrants, the Company hereby represents and warrants to each Lender that, except
as set forth on the Schedule of Exceptions attached hereto as Schedule 2 (the
"Schedule of Exceptions"), which Schedule of Exceptions describes exceptions to
these representations and warranties and is arranged in paragraphs corresponding
to the numbered and lettered paragraphs in this Section 4:

         4.1  Organization.  The Company is a  corporation  duly  organized  and
validly  existing  and in good  standing  under the laws of Israel,  and has the
corporate  power to own its properties and to carry on its business as now being
conducted  and as  currently  proposed to be  conducted as set forth in its most
recent 20-F filed with the Securities and Exchange  Commission  (the "SEC") (the
"Exchange Act Documents").  The Company is qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business transacted by it or the character of the properties owned or leased
by it requires such licensing or  qualification,  except where the failure so to
qualify would not have a materially  adverse effect on its business or financial
condition. The Company has the corporate power and authority to execute, deliver
and perform each of the Transaction  Documents (as defined below) to which it is
a party.  The  execution,  delivery and  performance  of this  Agreement and all
Exhibits hereto (the  "Transaction  Documents") have been duly authorized by the
Company.

         4.2 Due Authorization and Valid Issuance. The Company has all requisite
power and authority to execute,  deliver and perform its  obligations  under the
Transaction  Documents,  all of which  have been  duly  authorized  and  validly
executed and delivered by the Company and  constitute  legal,  valid and binding
agreements of the Company  enforceable  against the Company in  accordance  with
their terms,  except (i) as rights to indemnity and  contribution may be limited
by state or federal  securities laws or the public policy  underlying such laws,
(ii)  enforceability  may  be  limited  by  applicable  bankruptcy,  insolvency,
reorganization,  moratorium or similar laws affecting creditors' and contracting
parties'  rights  generally and (iii)  enforceability  may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a  proceeding  in equity or at law).  The Notes,  the  Warrants  and the Payback
Warrants being purchased by the Lenders hereunder and the Shares  convertible or
issuable  (as the case may be)  pursuant  to the Notes,  Warrants or the Payback
Warrants (as the case may be),  will,

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upon conversion or issuance (as the case may be) and payment  therefor  pursuant
to the terms hereof and thereof, be duly authorized,  validly issued, fully-paid
and nonassessable.

         4.3  Non-Contravention.  The execution and delivery of the  Transaction
Documents, the conversion,  issuance and sale of the Notes, the Warrants and the
Payback Warrants under the Agreements and the Shares convertible or issuable (as
the case may be) under the Notes, Warrants or the Payback Warrants in accordance
with their terms,  the  fulfillment of the terms of the Agreement,  the Note the
Warrants  and the Payback  Warrants  and the  consummation  of the  transactions
contemplated  thereby  do not and will not (A)  conflict  with or  constitute  a
violation of, or default (with the passage of time or otherwise)  under, (i) any
agreement or instrument of the Company or any of its subsidiaries,  including as
have been filed or  incorporated  by reference as an exhibit to the Exchange Act
Documents,  (ii) the Articles of  Association,  by-laws or other  organizational
documents of the Company, or (iii) any law, administrative regulation, ordinance
or order of any court or  governmental  agency,  arbitration  panel or authority
applicable  to the  Company  or any of its  subsidiaries,  or (iv) the rules and
regulations  of the Nasdaq  Stock  Market or any other  stock  market or trading
facility on which the Ordinary Shares are listed for trading, except in the case
of clauses (i) and (iii) for any such  conflicts,  violations or defaults  which
are not  reasonably  likely  to have  (A) a  material  adverse  effect  upon the
condition  (financial or otherwise),  earnings,  business or business prospects,
properties or operations of the Company and its subsidiaries  (taken as a whole)
(a "Material  Adverse  Effect"),  or (B) result in the creation or imposition of
any lien,  encumbrance,  claim, security interest or restriction whatsoever upon
any of the material  properties or assets of the Company or its  subsidiaries or
an  acceleration  of  indebtedness  pursuant to any  obligation,  agreement.  No
consent,   approval,   authorization   or  other  order  of,  or   registration,
qualification or filing with, any regulatory  body,  administrative  agency,  or
other  governmental  body in the United  States or Israel or any other person is
required  for the  execution  and  delivery of the  Agreements,  the Notes,  the
Warrants and the Payback  Warrants in accordance with their terms, and the valid
issuance  and sale of the  Shares,  Warrants  and  Payback  Warrants  to be sold
pursuant to the Agreements,  and the valid  conversion or issuance of the Shares
under the Notes,  Warrants  or the  Payback  Warrants  (as the case may be),  in
accordance  with their  terms,  other  than such as have been made or  obtained,
except for (a) the filing of one or more  Registration  Statements in accordance
with the  Registration  Rights  Agreement,  (b) the filing of a Form D under the
Securities  Act, (c)  necessary  state law  securities  filings  permitted to be
delivered  post  Closing  and  (d)  approvals  (if  any)  of  the   transactions
contemplated  by this  Agreement  under the rules and  regulations of the Nasdaq
Stock Market.

         4.4  Capitalization.  The  authorized  share  capital  of  the  Company
consists of 5,000,000  shares,  all of which are Ordinary Shares,  par value NIS
0.1 per  share,  of which  2,715,526  shares are  issued  and  outstanding.  The
Schedule of Exceptions sets forth the Company's complete capitalization chart on
a  fully  diluted  basis  as of  the  date  of  this  Agreement,  including  all
outstanding  share  options,  share  purchase  warrants  and any other rights to
acquire  shares  of  the  Company.  Except  as set  forth  in  the  Schedule  of
Exceptions,  there  are  no  material  outstanding  rights  (including,  without
limitation,  preemptive rights),  warrants or options to acquire, or instruments
convertible  into or  exchangeable  for, any  unissued  shares of the Company or
other equity interest in the Company,  or any contract,  commitment,  agreement,
understanding  or  arrangement of any kind to which the Company is a party or of
which the  Company has  knowledge  and  relating to the  issuance or sale of any
share capital of the Company, any such convertible or exchangeable securities or
any such  rights,  warrants or  options.  Without  limiting

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the  foregoing,  no preemptive  right,  co-sale  right,  right of first refusal,
registration right, or other similar right exists with respect to the Notes, the
Warrants,  the Payback  Warrants or the Shares  issuable upon  conversion of the
Notes or the  exercise of Warrants or the Payback  Warrants (as the case may be)
or the  issuance  and sale  thereof,  other than as provided in the  Transaction
Documents. Except as set forth in the Transaction Documents, no further approval
or authorization  of any  shareholder,  the Board of Directors of the Company or
others is required for the issuance and sale of the Notes,  the Warrants and the
Warrant Shares (pursuant to their terms). Except as disclosed in the Schedule of
Exceptions,  there are no shareholders  agreements,  voting  agreements or other
similar  agreements  with  respect to the Shares to which the Company is a party
or, to the  knowledge  of the  Company,  between  or among any of the  Company's
shareholders.

         4.5  Legal  Proceedings.   Except  as  disclosed  in  the  Schedule  of
Exceptions, there is no material legal or governmental proceeding pending or, to
the  knowledge  of the Company,  threatened  to which the Company is or may be a
party or of which the business or property of the Company is subject.

         4.6 No  Violations.  The Company is not in violation of its Articles of
Association,  bylaws, or other organizational  document,  or in violation of any
law, administrative regulation,  ordinance or order of any court or governmental
agency,  arbitration  panel  or  authority  applicable  to  the  Company,  which
violation,  individually  or in the  aggregate,  would have a  Material  Adverse
Effect.

         4.7 Governmental  Permits, Etc. With the exception of the matters which
are dealt  with  separately  in  Sections  4.1,  4.12,  4.13,  and 4.14,  to the
Company's  best   knowledge,   it  has  all  necessary   franchises,   licenses,
certificates and other authorizations from any foreign,  federal, state or local
government  or  governmental  agency,  department,  or body  that are  currently
necessary  for  the  operation  of the  business  of the  Company  as  currently
conducted  and as  described in the  Exchange  Act  Documents,  except where the
failure to currently possess could not reasonably be expected to have a Material
Adverse Effect.

         4.8 Intellectual Property. The Company,  either directly or through its
subsidiaries,  owns or possesses  sufficient rights to use all material patents,
patent rights,  trademarks,  copyrights,  licenses,  inventions,  trade secrets,
trade names and know-how  (collectively,  "Intellectual  Property") described or
referred to in the  Exchange  Act  Documents as owned or possessed by it or that
are necessary for the conduct of its business as now conducted or as proposed to
be  conducted as  described  in the  Exchange  Act  Documents,  except where the
failure to currently  own or possess would not have a Material  Adverse  Effect,
(ii)  to the  knowledge  of the  Company,  neither  the  Company  nor any of its
Subsidiaries is infringing,  or has received any notice of, or has any knowledge
of, any asserted  infringement by the Company or any of its subsidiaries of, any
rights  of a  third  party  with  respect  to any  Intellectual  Property  that,
individually or in the aggregate, would have a Material Adverse Effect and (iii)
neither the Company nor any of its  subsidiaries  has received any notice of, or
has  any  knowledge  of,  infringement  by a third  party  with  respect  to any
Intellectual  Property  rights  of  the  Company  or  of  any  subsidiary  that,
individually or in the aggregate, would have a Material Adverse Effect.

                                      -4-
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         4.9 Financial  Statements.  The financial statements of the Company and
the related notes  contained in the Exchange Act Documents  present  fairly,  in
accordance with generally accepted accounting principles, the financial position
of the Company and its subsidiaries as of the dates  indicated,  and the results
of its operations and cash flows for the periods  therein  specified  consistent
with the books and records of the Company and its  subsidiaries  except that the
unaudited  interim  financial  statements  were or are  subject  to  normal  and
recurring year-end  adjustments which are not expected to be material in amount.
Such  financial  statements  (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis  throughout the periods therein  specified,  except as may be disclosed in
the notes to such financial statements,  or in the case of unaudited statements,
as may be permitted by the SEC and except as disclosed in the filing the Company
made in connection with such unaudited statements, if any.

         4.10 No Material  Adverse  Change.  Since June 30, 2003,  there has not
been (i) any material  adverse change in the financial  condition or earnings of
the Company and its subsidiaries considered as one enterprise, (ii) any material
adverse event affecting the Company or its  subsidiaries,  (iii) any obligation,
direct or  contingent,  that is material  to the  Company  and its  subsidiaries
considered  as one  enterprise,  incurred  by the  Company,  except  obligations
incurred in the ordinary  course of business,  (iv) any dividend or distribution
of any kind declared,  paid or made on the share capital of the Company,  or (v)
any loss or damage  (whether  or not  insured) to the  physical  property of the
Company which has been sustained which has a Material Adverse Effect.

         4.11  Disclosure.  The  representations  and  warranties of the Company
contained in this Section 4 as of the date hereof and as of the Closing Date, do
not contain any untrue  statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements  therein,
in light of the circumstances under which they were made, not misleading. Except
with  respect  to  the  material  terms  and   conditions  of  the   transaction
contemplated by the Agreements, which shall be publicly disclosed by the Company
pursuant to Section 16 hereof,  the  Company  confirms  that  neither it nor any
person acting on its behalf has provided the Lenders with any  information  that
the Company believes constitutes material,  non-public information.  The Company
understands   and  confirms   that  the  Lenders  will  rely  on  the  foregoing
representations in effecting transactions in securities of the Company.

         4.12 NASDAQ  Compliance.  The Company's  Ordinary Shares are registered
pursuant to Section  12(g) of the Exchange Act and is listed on The Nasdaq Stock
Market,  Inc. Small-Cap Market (the "Nasdaq Market"),  and the Company has taken
no  action  designed  to,  or  likely to have the  effect  of,  terminating  the
registration of the Company's  Ordinary Shares under the Securities and Exchange
Act of 1934 as  amended  (the  "Exchange  Act"),  or  de-listing  the  Company's
Ordinary  Shares  from the  Nasdaq  Market,  nor has the  Company  received  any
notification that the SEC or the Nasdaq Stock Market is currently  contemplating
terminating such  registration or that the Company is in violation of any of the
rules or regulations of the Nasdaq Stock Market.

         4.13 Reporting Status. To the Company's best knowledge, the Company has
filed in a timely  manner all  documents  that the  Company is  required to file
under the  Exchange  Act as a foreign  private  issuer.  As of their  respective
dates,  the Exchange Act  Documents  complied in all

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material  respects with the  requirements of the Securities Act and the Exchange
Act and the rules and regulations of the SEC promulgated thereunder, and none of
the Exchange Act  Documents,  when filed,  contained  any untrue  statement of a
material fact or omitted to state a material fact required to be stated  therein
or  necessary  in  order  to  make  the  statements  therein,  in  light  of the
circumstances under which they were made, not misleading.

         4.14  Listing.  The Company shall comply with all  requirements  of the
Nasdaq Stock Market with respect to the issuance of the Notes, the Warrant,  the
Payback  Warrants and the Shares  convertible or issuable  under the Notes,  the
Warrants or the Payback  Warrants  (as the case may be),  and the listing of the
Shares  convertible  or issuable  under the Notes,  the  Warrants or the Payback
Warrants (as the case may be).

         4.15 No Manipulation of Shares. The Company has not taken and will not,
in violation  of  applicable  law,  take,  any action  designed to or that might
reasonably be expected to cause or result in  stabilization  or  manipulation of
the price of the  Shares to  facilitate  the sale or resale of the Shares or the
exercise of the Payback Warrants (if any).

         4.16  "Investment  Company".  The Company has been advised of the rules
and  requirements  under the  Investment  Company Act of 1940,  as amended  (the
"Investment  Company Act"). The Company is not, and immediately after receipt of
payment for the Notes,  the Warrants and the Payback  Warrants (and the exercise
of such warrants) will not be, an "investment company" or an entity "controlled"
by an "investment  company" within the meaning of the Investment Company Act and
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.

         4.17  Foreign  Corrupt  Practices.  Neither  the  Company,  nor  to the
knowledge  of the  Company,  any agent or other  person  acting on behalf of the
Company,  has (i) directly or  indirectly,  used any corrupt  funds for unlawful
contributions,  gifts,  entertainment  or other  unlawful  expenses  related  to
foreign  or  domestic  political  activity,  (ii) made any  unlawful  payment to
foreign or  domestic  government  officials  or  employees  or to any foreign or
domestic  political  parties or campaigns from corporate funds,  (iii) failed to
disclose  fully any  contribution  made by the  Company  (or made by any  person
acting on its behalf of which the Company is aware) that is in violation of law,
or (iv) violated in any material  respect any  provision of the Foreign  Corrupt
Practices Act of 1977, as amended.

         4.18 Contracts.  The contracts  described in the Exchange Act Documents
that are  material  to the  Company  are in full  force  and  effect on the date
hereof, and neither the Company nor, to the Company's knowledge, any other party
to such contracts is in breach of or default under any of such  contracts  which
would have a Material Adverse Effect.

         4.19  Taxes.  The Company has filed all  necessary  federal,  state and
foreign income and franchise tax returns and has paid or accrued all taxes shown
as due thereon,  and the Company has no knowledge of a tax  deficiency  that has
been or might reasonably be asserted or threatened against it which would have a
Material Adverse Effect.

         4.20 Transfer  Taxes. On the Closing Date, all taxes (other than income
taxes) which are required to be paid in connection with the sale and issuance of
the Notes,  the  Warrants  and

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the Payback  Warrants to be sold to the Lenders  hereunder will be, or will have
been, fully paid or provided for by the Company and all laws imposing such taxes
will be or will have been fully complied  with.  Upon the issuance of the Shares
pursuant to the Notes,  Warrants or Payback  Warrants  (as the case may be), all
stamp duty or other taxes (other than income taxes) that are required to be paid
in connection  therewith will be, or will have been,  fully paid or provided for
by the Company and all laws  imposing such taxes will be or will have been fully
complied with.

         4.21 Private Offering.  Assuming the correctness of the representations
and warranties of the Lenders set forth in Section 5 hereof,  the offer and sale
of Notes,  the Warrants  and the Payback  Warrants  hereunder  is and,  upon the
conversion of the Notes or the exercise of the Warrants or the Payback  Warrants
(as  the  case  may  be),  the  issuance  of the  Shares  will  be  exempt  from
registration  under the  Securities  Act of 1933,  as amended  (the  "Securities
Act").  The Company has not  distributed  and will not  distribute  prior to the
Closing any offering  material in connection  with this offering and sale of the
Notes,  Warrants and the Payback Warrants other than the documents of which this
Agreement  is a part or and filing by the Company  required  under the  Exchange
Act.  The  Company  has not in the past nor will it  hereafter  take any  action
independent of the placement agent to sell,  offer for sale or solicit offers to
buy any securities of the Company which would bring the offer,  issuance or sale
of the Notes,  Warrants and Payback  Warrants as contemplated by this Agreement,
or the  issuance of the Shares  pursuant  to the Notes,  Warrants or the Payback
Warrants,  within the provisions of Section 5 of the Securities Act, unless such
offer,  issuance or sale was or shall be within the  exemptions  of Section 3 or
Section  4 of the  Securities  Act.  Except  as set  forth  in the  Schedule  of
Exceptions,   the  Company  will  not  conduct  any  offering   other  than  the
transactions  contemplated  hereby that it believes,  upon consultation with its
securities  counsel,  will be  integrated  with  the  offer or  issuance  of the
securities issuable under the Transaction  Documents,  provided,  however,  that
this  provision  set forth in this  sentence  shall  not apply if such  proposed
offering has been approved by the  Shareholders  of the Company and as a result,
neither  the  transaction  contemplated  by  this  Agreement  nor  the  proposed
transaction  will violate the rules of the Nasdaq Stock Market  (including  Rule
4350 thereof).

         4.22 Disclosure  Controls and  Procedures;  Internal  Controls.  At all
times since first required by all applicable  Exchange Act rules,  the Company's
has established  disclosure  controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and designed such  disclosure  controls
and  procedures  to ensure that  material  information  relating to the Company,
including its subsidiaries,  is made known to the certifying  officers by others
within those entities, particularly during the period in which the Form 20-F, is
being   prepared.   The  Company's   certifying   officers  have  evaluated  the
effectiveness of the Company's  disclosure  controls and procedures as of a date
within  ninety  (90) days prior to the filing  date of its most recent Form 20-F
for which such evaluation was required by applicable  Exchange Act rules, as the
case may be (each such date, the "Evaluation  Date").  The Company  presented in
such Form 20-F, as the case may be, the  conclusions of the certifying  officers
about the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation  Date.  Since the most recent  Evaluation Date,
there have been no significant  changes in the Company's  internal  controls (as
such term is used in Item 307(b) of  Regulation  S-K under the Exchange Act) or,
to the Company's knowledge, in other factors that could significantly affect the
Company's internal controls.

                                      -7-
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         4.23  Transactions  With  Affiliates.  None of the current  officers or
directors  of the  Company  is  presently  a party to any  transaction  with the
Company  or any of its  subsidiaries  (other  than for  services  as  employees,
officers and directors),  including any contract, agreement or other arrangement
providing for the furnishing of services to or by,  providing for rental of real
or personal property to or from, or otherwise  requiring payments to or from any
officer or director or, to the knowledge of the Company, any entity in which any
officer or director  has a  substantial  interest  or is an  officer,  director,
trustee or partner.

5.  REPRESENTATIONS OF THE LENDERS.  Each of the Lenders severally represents to
the Company that:

         5.1 Enforceability. If a Lender is a corporation,  partnership, limited
liability company, trust or other entity, (i) it is authorized and qualified and
has full right and power to become a Lender to and Investors in the Company, and
is  authorized  to purchase  the Notes,  Warrants  and Payback  Warrants and the
Shares  convertible  and  exercisable  thereunder and to perform its obligations
pursuant to the  provisions  hereof,  (ii) the person  signing  the  Transaction
Documents, to which such Lender is a party and any other instrument executed and
delivered  herewith  on behalf of such Lender has been duly  authorized  by such
entity and has full power and  authority to do so, and (iii) such Lender has not
been formed for the  specific  purpose of  acquiring an interest in the Company,
unless each owner of such Lender is an accredited investor under Regulation D of
the SEC under the 1933 Act.

         5.2 Restrictions on Transferability.

                  5.2.1 Such Lender  understands  that the Notes,  Warrants  and
         Payback  Warrants and the Shares  issuable upon conversion of the Notes
         and exercise of the  Warrants or the Payback  Warrants (as the case may
         be) have not yet been registered under the Securities Act, or under the
         laws of any other jurisdiction. Each Lender understands and agrees that
         the Notes,  Warrants and Payback  Warrants and the Shares issuable upon
         conversion of the Notes and the exercise of the Warrants or the Payback
         Warrants (as the case may be) must be held indefinitely unless they are
         subsequently  registered  under the Securities Act and, where required,
         under  the laws of other  jurisdictions  or unless  an  exemption  from
         registration is available.

                  5.2.2 Such Lender acknowledges and agrees that the certificate
         representing  the Notes,  the  Warrants,  the Payback  Warrants and the
         Shares  convertible or exercisable  thereunder shall bear a restrictive
         legend  as  counsel  to the  Company  may  determine  is  necessary  or
         appropriate  under  applicable  securities  laws  substantially  to the
         effect of the following:

                  The Securities  represented by this  certificate have not been
                  registered  under the Securities Act of 1933, as amended,  and
                  may not be sold,  transferred,  pledged or hypothecated unless
                  subsequently  registered  under  said  Securities  Act  or  an
                  exemption from registration is available.

                                      -8-
<PAGE>

         5.3  Investment  Purposes.  The Notes,  the  Warrants  and the  Payback
Warrants  are being  acquired  solely  for the such  Lender's  own  account  for
investment  and  are  not  being  purchased  with  a  view  to  or  for  resale,
distribution or other  disposition,  and the undersigned has no present plans to
enter into any  contract,  undertaking,  agreement or  arrangement  for any such
resale,  distribution  or  other  disposition,   except  as  set  forth  in  the
Transaction Documents.

         5.4 Information and Advice.

                  5.4.1 Such Lender has carefully  reviewed and  understands the
         risks of a purchase of the Notes,  Warrants,  Payback  Warrants and the
         Shares convertible and exercisable thereunder.  In connection with such
         Lender's  investment in the Company,  it has obtained the advice of its
         own investment advisors,  counsel and accountants (the "Advisors").  It
         and the Advisors  have been  furnished  all  materials  relating to the
         Company or the offering of Notes,  Warrants,  Payback  Warrants and the
         Shares convertible and exercisable  thereunder (the "Offering") that it
         and its Advisors have requested. Such Lender and its Advisors have been
         afforded the opportunity to ask questions of the Company concerning the
         terms and  conditions  of the  Offering  and to obtain  any  additional
         information  necessary to verify the accuracy of any representations or
         information set forth about the Notes,  Warrants,  Payback Warrants and
         the Shares.

                  5.4.2 The Company has answered all inquiries  that such Lender
         and its Advisors have made  concerning the Company or any other matters
         relating to the  creation and  operations  of the Company and the terms
         and conditions of the Offering. The foregoing,  however, does not limit
         the  representations  and  warranties  of the Company  under  Section 4
         hereof or the right of the Lenders to rely thereon.

         5.5 Sophistication and Risk.

                  5.5.1 It has such  knowledge  and  experience in financial and
         business  matters that it is capable of evaluating,  and has evaluated,
         the merits and risks of the Offering.  By reason of the its business or
         financial  experience,  it has the capacity to protect its interests in
         connection with an investment in the Company.

                  5.5.2 Such Lender  understands that no federal or state agency
         has passed upon the Notes or  Warrants or Payback  Warrants or made any
         finding  or  determination  as to  the  fairness  of  the  transactions
         contemplated in the Transaction Documents.

                  5.5.3 Such Lender understands that the Notes, the Warrants and
         the Payback Warrants are speculative  investments  which involve a high
         degree of risk,  including  the risk that such  Lender  might  lose its
         entire amount loaned or invested in the Company, as the case may be.

                  5.5.4 Such  Lender  understands  that any  federal  income tax
         benefits  that may be  available  to such  Lender  may be lost  through
         adoption of new laws,  amendments to existing laws or  regulations,  or
         changes in the interpretation of existing laws and regulations.

                                      -9-
<PAGE>

                  5.5.5 It has the  financial  ability to bear the economic risk
         of its loan to and investment in the Company and has adequate net worth
         and means of providing for the Lender's current needs and contingencies
         to sustain a complete loss of the Lender's  investment  and has no need
         for liquidity in the Lender's loan to and investment in the Company.

                  5.5.6 It is an "accredited  investor," as that term is defined
         in Rule  501 of  Regulation  D under  the  1933  Act.  The  information
         provided  by it in  the  Investor  Suitability  Questionnaire  and  the
         Transaction  Documents  delivered  by the such Lender to the Company is
         incorporated  herein  by  reference  and made a part  hereof,  and such
         Lender  represents  and  warrants  that  such  information  is true and
         complete  and fairly  reflects  the  current  financial  condition  and
         affairs of the undersigned.

         5.6  Jurisdiction.  The only jurisdiction in which an offer to sell the
Notes,  Warrants,  Payback  Warrants  and the  Shares  convertible  or  issuable
thereunder was made to such Lender is the  jurisdiction  in which such residence
or principal place of business is situated. Such Lender has no present intention
of becoming a resident  of (or moving its  principal  place of business  to) any
other state or jurisdiction.

         5.7 No  solicitation.  At no time was  such  Lender  presented  with or
solicited  by any leaflet,  public  promotional  meeting,  newspaper or magazine
article,  radio  or  television  advertisement  or any  other  form  of  general
advertising or general solicitation concerning the Offering.

         5.8 NASD  Rules.  It is not  registered  as a  broker-dealer  under the
Exchange Act.

         5.9 Further Indebtedness.  Such Lender acknowledge that no provision of
this Agreement or of any other  Transaction  Document  executed and delivered by
the Company in connection with this Agreement  restricts,  or shall be construed
to restrict,  in any way the ability of the Company to incur  indebtedness or to
issue share capital or other equity  securities (or securities  convertible into
equity securities) of the Company or to grant liens on its property and assets.

6. CONDITIONS OF EACH LENDER'S OBLIGATION AT THE CLOSING. The obligation of each
Lender to purchase  its  respective  Note,  Warrant  and Payback  Warrant at the
Closing is subject to the  fulfillment  or waiver by such Lender  prior to or on
the date of the Closing (the "Closing Date") of the conditions set forth in this
Section  6. In the  event  that  any  such  condition  is not  satisfied  to the
satisfaction of a Lender, then such non-satisfied  Lender shall not be obligated
to  proceed  with the  purchase  of such  securities.

         6.1 Representations and Warranties.  The representations and warranties
of the Company under this Agreement shall be true in all material respects as of
the Closing, with the same effect as though made on and as of such date.

         6.2 Compliance  with  Agreements.  The Company shall have performed and
complied in all respects  with all  agreements  or  conditions  required by this
Agreement and the Transaction  Documents to be performed and complied with by it
prior to or as of the Closing.

                                      -10-
<PAGE>

         6.3  Qualification  under State  Securities  Laws.  All  registrations,
qualifications, permits and approvals required under applicable state securities
laws for the lawful  execution  and  delivery of this  Agreement  and the offer,
sale,  issuance  and  delivery of the  securities  to the Lenders at the Closing
shall have been obtained or will be obtained by the Company in  compliance  with
such laws.

         6.4 Registration Rights Agreement.  As of the Closing, the Registration
Right  Agreement  in the form  attached  hereto as Exhibit C (the  "Registration
Rights Agreement") shall have been executed and delivered by the Company.

         6.5 Voting  Undertaking.  As of the Closing,  the Voting Undertaking in
the form attached  hereto as Exhibit D shall have been executed and delivered by
Oded Bashan and Ronnie Gilboa (the "Voting Undertaking").

         6.6 Nasdaq  Approvals.  The Lenders (and their counsel) and the Company
(and their counsel), shall have received a reasonably satisfactory statement via
telephone of an  appropriate  official of the Nasdaq Stock  Market  stating,  in
substance,  that the Nasdaq  Stock  Market will not object,  as contrary to Rule
4350 (including  official Nasdaq Stock Market  interpretations)  or other Nasdaq
rules and regulations  relating to the listing of securities,  to the listing of
the Ordinary  Shares  issuable upon conversion of the Notes and upon exercise of
the Warrants and Payback  Warrants,  in the manner set forth in the  Transaction
Documents.

         6.7 The Ordinary  Shares shall not have been  suspended from trading at
any time prior to the Closing Date from the Nasdaq SmallCap Market.

         6.8 No events or circumstances shall have occurred prior to the Closing
Date that would,  individually  or in the  aggregate,  reasonably be expected to
have or result in a Material Adverse Effect.

7. CONDITIONS OF THE COMPANY'S  OBLIGATION AT THE CLOSING. The obligation of the
Company to issue to the Lenders the Notes,  Warrants and Payback Warrants at the
Closing is subject to the  fulfillment  or waiver by the Company  prior to or on
the Closing of the conditions set forth in this Section 7. In the event that any
such  condition is not satisfied to the  satisfaction  of the Company,  then the
Company shall not be obligated to proceed with the sale of the securities  under
this Agreement.

         7.1 Representations and Warranties.  The representations and warranties
of all Lenders under this Agreement shall be true in all material respects as of
the Closing Date, with the same effect as though made on and as of such date.

         7.2 Compliance  with  Agreements.  All Lenders shall have performed and
complied in all respects  with all  agreements  or  conditions  required by this
Agreement and the Transaction  Documents to be performed and complied with by it
prior to or as of the Closing.

         7.3 Registration Rights Agreement.  As of the Closing, the Registration
Rights Agreement shall have been executed and delivered by all the Lenders.

                                      -11-
<PAGE>

         7.4 Voting Agreement.  Each Lender shall have executed and delivered to
Oded Bashan a Proxy in the form attached hereto as Exhibit E.

8. AFFIRMATIVE COVENANTS OF THE COMPANY.

         8.1 Shareholders  Meeting.  The Company shall,  within  twenty-one (21)
days after the Closing Date,  convene a  shareholders  meeting,  which will take
place no later than sixty (60) days from the Closing  Date, or if such period is
legally  impracticable,  as soon as  practicable  thereafter,  for,  among other
things, the performance of the Transaction Documents and for the issuance to the
Lenders of the securities issuable thereunder,  and any actions related thereto.
If the  shareholders  shall not provide such approval at the said  shareholders'
meeting,  the Company shall use  commercially  reasonable  efforts to obtain the
necessary vote until the Maturity Date of the Notes (as defined therein).

         8.2 Not later than the 14th day following  the date of this  Agreement,
the  Company  shall  prepare  and  deliver to the Nasdaq  Stock  Market a letter
requesting guidance on whether a vote of the Company's shareholders as described
in  Section  8.1  above  is  required  in  order to  complete  the  transactions
contemplated  by the  Transaction  Documents  in  accordance  with the rules and
regulations of the Nasdaq Stock Market.

         8.3  After  the  Closing,   the  Company  shall  use  its  commercially
reasonable  efforts to cause the Shares  convertible  or  exercisable  under the
Notes,  the  Warrants  or the  Payback  Warrants to be listed for trading on the
Nasdaq Small Cap Market.

         8.4  After  the  Closing,   the  Company  shall  use  its  commercially
reasonable  efforts to cause the Shares  convertible  or  exercisable  under the
Notes,  the  Warrants  or the  Payback  Warrants to be listed for trading on the
Nasdaq Small Cap Market.

         8.5 As long as any Lender owns any securities issuable  hereunder,  the
Company  covenants to timely file (or obtain  extensions in respect  thereof and
file within the applicable grace period) all reports required to be filed by the
Company  after the date hereof  pursuant to the Exchange  Act. If the Company is
not required to file reports  pursuant to such laws, it will prepare and furnish
to the Lenders and make publicly  available in accordance  with Rule 144(c) such
information  as is required for the Lenders to sell such  securities  under Rule
144.

         8.6 The  Company  covenants  and agrees  that  neither it nor any other
Person  acting on its behalf  will  provide  any Lender or its agents or counsel
with any information that the Company believes  constitutes  material non-public
information,  unless prior  thereto  such Lender  shall have  executed a written
agreement regarding the confidentiality and use of such information. The Company
understands  and  confirms  that each Lender  shall be relying on the  foregoing
representations in effecting transactions in securities of the Company.

9. MISCELLANEOUS.

         9.1 Waivers,  Amendments and Approvals.  In each case in which approval
of the  Lenders is  required by the terms of this  Agreement,  such  requirement
shall be satisfied  by a vote or the written  action of a majority of the Shares
issuable  upon  conversion  of the  Notes  (the  "Majority  in  Interest  of the
Lenders").  With the written consent of Majority in Interest of the

                                      -12-
<PAGE>

Lenders,  the  obligations  of the Company  under this  Agreement  may be waived
(either  generally  or in a  particular  instance  and either  retroactively  or
prospectively)  or the Company  and the  Lenders may enter into a  supplementary
agreement for the purpose of adding any  provisions to or changing in any manner
or eliminating any of the provisions of this Agreement or any other  Transaction
Document.  Written notice of any such waiver, consent or agreement of amendment,
modification or supplement shall be given to the record holders of the Notes who
have not previously consented thereto in writing.

         9.2  Oral  Changes,  Waivers,  Etc.  Neither  this  Agreement  nor  any
provision hereof may be changed,  waived,  discharged or terminated  orally, but
only by a statement in writing signed by the party against which  enforcement of
the change,  waiver,  discharge or termination  is sought,  except to the extent
provided in Section 9.1.

         9.3  Notice.  Any notice that is required or provided to be given under
this Agreement shall be deemed to have been sufficiently  given and received for
all purposes when delivered in writing by hand, facsimile,  or five (5) business
days after  being sent by  certified  or  registered  mail,  postage and charges
prepaid,  return receipt requested,  or three (3) business days after being sent
by  internationally  overnight  delivery  providing receipt of delivery,  to the
following  addresses:  if to the Company,  On Track  Innovations Ltd., P.O.B 32,
Rosh Pina, Israel, 12000, attn. Oded Bashan, facsimile: (972) 4 6868-000, with a
copy to ZAG/S&W LLP, 1 Post Office Square,  Boston,  MA 02109,  attn.  Audrey M.
Roth, Esq., facsimile: (617) 338-2880; or at any other address designated by the
Company,  to the Lenders; if to a Lender, to its address listed on Schedule 1 or
at any other address designated by the Lender to the Company in writing.

         (a) Copies of all correspondence to the Lenders shall be delivered to

                  Eric L. Cohen, Esq.
                  Bryan Cave LLP
                  1290 Avenue of the Americas
                  New York, NY  10104
                  Facsimile No.: (212) 541-1432

         9.4 Survival of Representations and Warranties. All representations and
warranties,  contained herein or in any Transaction Document shall survive after
the execution and delivery of this Agreement or such certificate or document, as
the case may be, for a period of 24 months from the date hereof.  All  covenants
and agreements in any Transaction Documents shall survive in accordance with its
terms.

         9.5 Delays or Omissions.  Except as expressly provided herein, no delay
or omission to exercise any right,  power or remedy  accruing to any party under
this  Agreement  shall impair any such right,  power or remedy of such party nor
shall it be  construed  to be a waiver  of any such  breach  or  default,  or an
acquiescence  thereto,  or of a similar breach or default thereafter  occurring;
nor shall any waiver of any  single  breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or  character on the part of any party hereto of
any breach or default  under  this  Agreement,  or any waiver on the part of any
party of any provisions or conditions of this

                                      -13-
<PAGE>

Agreement,  must be in  writing  and  shall  be  effective  only  to the  extent
specifically set forth in such writing.

         9.6 Other  Remedies.  Any and all remedies herein  expressly  conferred
upon a party shall be deemed  cumulative  with,  and not exclusive of, any other
remedy  conferred  hereby or by law on such party,  and the  exercise of any one
remedy shall not preclude the exercise of any other.

         9.7 Entire  Agreement.  This Agreement,  the Transaction  Documents and
other  documents  referenced  therein and the exhibits  thereto,  constitute the
entire  understanding  and  agreement of the parties  hereto with respect to the
subject  matter hereof and thereof and  supersede all prior and  contemporaneous
agreements or  understandings,  inducements or  conditions,  express or implied,
written or oral, between the parties with respect hereto and thereto,  including
without  limitation  the August 26, 2003 term sheet.  The express  terms  hereof
control  and  supersede  any  course  of  performance  or  usage  of  the  trade
inconsistent with any of the terms hereof.

         9.8  Severability.  Should  any one or more of the  provisions  of this
Agreement  or of any  agreement  entered  into  pursuant  to this  Agreement  be
determined  to be  illegal  or  unenforceable,  all  other  provisions  of  this
Agreement and of each other  agreement  entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions  determined to
be illegal or  unenforceable  and shall not be  affected  thereby.  The  parties
further agree to replace such void or unenforceable  provision of this Agreement
with a valid  and  enforceable  provision  which  will  achieve,  to the  extent
possible, the economic, business and other purposes of the void or unenforceable
provision.

         9.9 Successors and Assigns.  The terms and conditions of this Agreement
shall  inure to the  benefit of and be binding  upon and be  enforceable  by the
respective  heirs,  successors and assigns of the parties hereto,  including the
holder or holders from time to time of any of the Shares issued upon  conversion
of the Notes or exercise of the  Warrants or the Payback  Warrants  (as the case
may be).

         9.10  Governing  Law. This  Agreement  shall be construed in accordance
with and governed by the internal laws of the State of New York,  without regard
to conflict of laws  provisions.  Each party  agrees that all  actions,  claims,
suits,   investigations  or  proceedings  (including,   without  limitation,  an
investigation or partial proceeding, such as a deposition), whether commenced or
threatened (each a "Proceeding" and, collectively, the "Proceedings") concerning
the interpretations, enforcement and defense of the transactions contemplated by
this  Agreement  and  any  other   Transaction   Documents  shall  be  commenced
exclusively  in the state and  federal  courts  sitting in the City of New York,
Borough  of  Manhattan  (the  "New  York  Courts").  Each  party  hereto  hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication  of any dispute  hereunder  or in  connection  herewith or with any
transaction  contemplated  hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives,  and  agrees not to assert in any  Proceeding,  any claim that it is not
personally  subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient  forum.  Each party
hereto hereby  irrevocably  waives  personal  service of process and consents to

                                      -14-
<PAGE>

process  being  served in any such  Proceeding  by  mailing a copy  thereof  via
registered or certified  mail or overnight  delivery (with evidence of delivery)
to such party at the  address in effect for  notices to it under this  Agreement
and agrees that such service shall  constitute  good and  sufficient  service of
process and notice thereof.  Each party hereto hereby irrevocably waives, to the
fullest extent  permitted by applicable  law, any and all right to trial by jury
in any legal  proceeding  arising out of or relating  to this  Agreement  or the
transactions contemplated hereby. If either party shall commence a Proceeding to
enforce any provisions of a Transaction  Document,  then the prevailing party in
such  Proceeding  shall be reimbursed by the other party for its attorney's fees
and other costs and expenses  incurred with the  investigation,  preparation and
prosecution of such Proceeding.

         9.11 Counterparts.  This Agreement may be executed  concurrently in two
(2) or more counterparts,  each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

         9.12 Legal Fees. The Company shall bear its own expenses  incurred with
respect to the  transactions  set forth herein and shall pay $5,000 of the legal
fees and expenses of the lead Lender.

         9.13  Independent  Nature of Purchasers'  Obligations  and Rights.  The
obligations  of each Lender under any  Transaction  Document are several and not
joint  with  the  obligations  of any  other  Lender,  and no  Lender  shall  be
responsible  in any way for the  performance  of the  obligations  of any  other
Lender  under  any  Transaction  Document.  Nothing  contained  herein or in any
Transaction Document,  and no action taken by any Lender pursuant thereto, shall
be deemed to constitute the Lenders as a partnership,  an  association,  a joint
venture or any other kind of entity,  or create a  presumption  that the Lenders
are in any way acting in concert or as a group with respect to such  obligations
or the transactions  contemplated by the Transaction Document. Each Lender shall
be entitled to independently  protect and enforce its rights,  including without
limitation  the  rights  arising  out of  this  Agreement  or  out of the  other
Transaction  Documents,  and (except with respect to actions independently taken
as required by a  Majority-in-Interest)  it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.

                   (Balance of page intentionally left blank.)

                                      -15-
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement
as of the date first set forth above.

ON TRACK INNOVATIONS LTD.

By: /s/ Oded Bashan
     Name: Oded Bashan
     Title: CEO, Chairman and President

PLATINUM PARTNERS VALUE ARBITRAGE FUND          PLATINUM GLOBAL MACRO FUND

By: /s/ Frank Giorgie                           By: /s/ Frank Giorgie
     Name: Frank Giorgie                            Name: Frank Giorgie
     Title: CFO                                     Title: CFO

WEST END CONVERTIBLE FUND L.P.                  WEC PARTNERS LLC

By: /s/ Ethan Benovitz                          By: /s/ Ethan Benovitz
     Name: Ethan Benovitz                           Name: Ethan Benovitz
     Title: Managing Member                         Title: Managing Member

MICHAEL H. WEISS

/s/ MICHAEL H. WEISS

                                      -16-
<PAGE>

<TABLE>
<CAPTION>

                                               Schedule 1

LENDERS AND ADDRESS                      LOAN                     WARRANTS               PAYBACK
                                                                                         WARRANTS
<S>                                     <C>                      <C>                    <C>

PLATINUM PARTNERS VALUE ARBITRAGE FUND   $500,000                 90,000                  235,294
c/o Platinum Partners LLC
152 West 57th Street
54th Floor
New York, New York 10019
Tel. 212-581-0500 Fax. 212-581-0002

PLATINUM GLOBAL MACRO FUND               $250,000                 45,090                  117,647
c/o Platinum Partners LLC
152 West 57th Street
54th Floor
New York, New York 10019
Tel. 212-581-0500 Fax. 212-581-0002

WEST END CONVERTIBLE FUND L.P.            $75,000                 13,500                   35,294
c/o WEC Partners LLC
145 Huguenot Street
Suite 404
New Rochelle, NY 10801
Tel. 914-831-9950
Fax. 914-632-9797

WEC PARTNERS LLC                          $75,000                 13,500                   35,294
145 Huguenot Street
Suite 404
New Rochelle, NY 10801
Tel. 914-831-9950
Fax. 914-632-9797

MICHAEL H. WEISS                          $99,000                 17,820                   46,588
25 Briarwood Lane
Lawrence, NY 11559
Tel. 516-569-7492
Fax. 516-569-7492
</TABLE>

                                      -17-

<PAGE>

                              SCHEDULE OF EXCEPTION

The Schedule of Exceptions has been omitted and will be furnished to the
Securities and Exchange Commission upon request.
<PAGE>

                                    EXHIBIT A
                           CONVERTIBLE PROMISSORY NOTE

<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND IS SUBJECT TO CERTAIN
INVESTMENT REPRESENTATIONS. THIS SECURITY MAY NOT BE SOLD, OFFERED FOR SALE OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT AND
APPLICABLE BLUE SKY LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.

                            ON TRACK INNOVATIONS LTD.

                           CONVERTIBLE PROMISSORY NOTE

$------------                                                  September 8, 2003

         FOR VALUE RECEIVED,  On Track Innovations Ltd., an Israeli company (the
"Company"), promises to pay to the order of ___________________,  its successors
and assigns (the  "Holder"),  at the address set forth on Annex 1 hereto,  or at
such other place designated at any time by the Holder hereof, in lawful money of
the United States of America and in immediately  available  funds, the principal
sum  of  ___________________  Dollars  ($___________),  together  with  interest
thereon as set forth in this  Convertible  Promissory  Note (this "Note").  This
Note is one of a  series  of Notes  issued  pursuant  to the  Note  and  Warrant
Purchase  Agreement  dated as the date  hereof  (to which a form of this Note is
attached  as  Exhibit  A) (the  "Purchase  Agreement"),  which are  collectively
referred to as the "Notes."

         1.  Definitions.  For the purposes of this Note,  the  following  terms
shall have the definitions set forth below:

         (a)      "Acquisition  Transaction"  means the occurrence of any one of
                  the following  (exclusive of any transfer or assignment by the
                  Holder to any affiliate of the Holder):  (i) any consolidation
                  or merger to which the  Company is a party other than a merger
                  or  consolidation  in  which  the  Company  is the  continuing
                  corporation; (ii) any sale, lease, exclusive license, transfer
                  or  conveyance   to  another   entity  or  person  of  all  or
                  substantially   all  of  the  assets  of  the   Company  or  a
                  liquidation  of the Company;  (iii) any statutory  exchange of
                  securities  with another  entity  (except where the Company is
                  the acquiring  entity);  (iv) the  acquisition of ownership by
                  any person or group (except as a result of one or more private
                  placement financings) of more than 50% of the Company's voting
                  shares  (whether  or not  approved by the  Company's  Board of
                  Directors)   after  the  date  hereof  (whether  or  not  such
                  acquisition  is by the Company or its existing  shareholders);
                  (v) the  "Continuity  Directors"  (as defined  below) cease to
                  constitute a majority of the Company's Board of Directors;  or
                  (vi) any other change of control (except as a result of one or
                  more private  placement  financings) that would be required by
                  the Securities  and Exchange  Commission to be reported by the
                  Company, including successive series of such transactions. The
                  term "Continuity  Directors"  includes any individuals who are
                  members of the  Company's  Board of  Directors  as of the date
                  hereof and any individual who subsequently becomes a member of
                  the Company's Board of Directors whose
<PAGE>

                  election,   or  nomination  for  election,  by  the  Company's
                  shareholders  was approved by a vote of at least a majority of
                  the Continuity Directors.

         (b)      "Approvals"   means   either   (A)(i)  the   approval  of  the
                  shareholders  of the  Company  pursuant to Israeli law and the
                  NASDAQ Rules of the transaction pursuant to which this Note is
                  issued,  together  with (ii) any other  approvals and consents
                  under any and all applicable laws,  rules and regulation,  all
                  of which are  required to allow the lawful  conversion  of all
                  the Notes issued under the Purchase  Agreement into Shares (as
                  defined  below)  and the  exercisability  of all the  Warrants
                  issued under the Purchase Agreement;  or (B)(i) the receipt of
                  written  confirmation  from the  Nasdaq  Stock  Market  to the
                  effect that the approval of the shareholders of the Company is
                  not  required  in order for the Company to issue the Notes and
                  Warrants or to honor exercises of the Warrants and conversions
                  of the  Notes)  and (ii) the  expiration  of the 15 day notice
                  period for the listing of the Shares  pursuant to the rules of
                  the Nasdaq Stock Market.  In the event the Company obtains the
                  Approvals,  it shall  forthwith  provide a notice with respect
                  thereto to the Holder.

         (c)      "Conversion  Price"  shall  mean $2.75 per Share  (subject  to
                  equitable  adjustment for any share splits,  share  dividends,
                  recapitalizations,  or the like  with  respect  to the  Shares
                  prior to the date of the  conversion  of this Note pursuant to
                  Section 6 hereof).

         (d)      "Shares" means the Ordinary  Shares of the Company,  par value
                  NIS 0.1 per share.

         2. Maturity. The entire outstanding principal balance hereof,  together
with all accrued and unpaid interest  thereon (the "Note Amount"),  shall be due
and payable at 5:00 P.M.,  Israel time,  on May 8, 2004 (the  "Maturity  Date"),
unless  the  Note  Amount  has  been  automatically  converted  pursuant  to the
provisions of Section 6 below.

         3. Interest. This Note shall bear interest on the outstanding principal
amount at four  percent (4%) per annum from the date of this Note until the date
that this Note is paid in full.

         4. No Security. This Note is not secured by a security interest.

         5. No Prepayment.  This Note may not be prepaid by the Company prior to
the Maturity  Date without the written  consent of a Majority in Interest of the
Lenders,  as such term is  defined  in the  Purchase  Agreement  (the  "Majority
Interest").  Any  payments  made by the Company  with regard to any of the Notes
will be  made  simultaneously  with  regard  to all of the  Notes  in an  amount
prorated  among the Notes in proportion to the principal  amounts of each of the
Notes and shall be first applied to accrued but unpaid  interest and then to the
principal amounts due.

         6. Automatic Conversion.

         (a)      On the date that the  Approvals  are  obtained by the Company,
                  the Note shall be  converted  into that number of whole Shares
                  as is equal to the  quotient  of which is

                                      -2-
<PAGE>

                  (x) the Note Amount divided by (y) the Conversion  Price.  Any
                  remainder shall be paid by check to the Holder.

         (b)      Concurrently with its receipt of the Shares issuable upon such
                  conversion,  the Holder shall  surrender this Note in exchange
                  for share certificates  representing the appropriate number of
                  Shares. The number of such Shares shall be rounded down to the
                  nearest whole number,  such that no fractional shares shall be
                  issued.

         7.  Events of Default and  Acceleration.  Upon notice to the Company of
the  occurrence of any of the following  events of default  (each,  an "Event of
Default") by a Majority Interest,  any part or all of the Note Amount due to the
Holder hereunder shall become  immediately due and payable;  provided,  however,
that the occurrence of any event  described in paragraphs  (d), (e), (f) and (h)
below shall be an automatic Events of Default and shall not require the delivery
of any notice:

         (a)      the Company fails to make the payment of principal or interest
                  under this Note when the same  becomes  due and payable on the
                  Maturity Date; or

         (b)      any  representation  or  warranty  set  forth  in the Note and
                  Warrant  Purchase  Agreement,  shall be untrue in any material
                  respect on the date as of which the facts set forth are stated
                  or certified; or

         (c)      the Company  violates any  material  provision of the Note and
                  Warrant Purchase Agreement; or

         (d)      the Company  shall  generally  fail to pay or admit in writing
                  its  inability  to pay its debts as they  become  due;  or the
                  Company  shall  apply for,  consent  to, or  acquiesce  in the
                  appointment  of a trustee,  receiver  or other  custodian  for
                  itself or any of its  property,  or make a general  assignment
                  composition,   or  similar  device  for  the  benefit  of  its
                  creditors;  or a trustee,  receiver or other  custodian  shall
                  otherwise be  appointed  for the Company or any of its assets;
                  an attachment  or  receivership  of assets or any  bankruptcy,
                  reorganization,  debt arrangement, or other case or proceeding
                  under any bankruptcy or insolvency  law, or any dissolution or
                  liquidation  proceeding  shall be  commenced by or against the
                  Company;  or the Company  shall take any  corporate  action to
                  authorize, or in furtherance of, any of the foregoing.

         (e)      the Company  shall enter into or there shall have occurred any
                  Acquisition Transaction; or

         (f)      there  shall  occur  any  Event of  Default  under  any  other
                  Convertible  Promissory  Note of the Series to which this Note
                  is a part; or

         (g)      the Company's  Ordinary  Shares are suspended from trading on,
                  or delisted  from, the Nasdaq Stock Market for more than three
                  business days; or

         (h)      the  Nasdaq  Stock  Market   notifies  the  Company  that  the
                  transactions  under  which  this Note was issued  violate  the
                  rules  and  regulations  of the  Nasdaq  Stock  Market

                                      -3-
<PAGE>

                  or the Securities and Exchange Commission notifies the Company
                  that the offer or issuance of this Note violates any provision
                  of the  Securities  Act of 1933, as amended,  or the rules and
                  regulations promulgated thereunder; or

         8.  Remedies.  The  remedies of the Holder as provided  herein shall be
cumulative and concurrent  with all other remedies  provided by law or in equity
and may be pursued singly, successively or together at the sole direction of the
Holder and may be exercised as often as occasion therefor shall arise. No act or
omission or commission by the Holder,  including,  specifically,  any failure to
exercise any right,  remedy or recourse,  shall be deemed a waiver or release of
the same,  such waiver or release to be effective only as set forth in a written
document executed by the Holder and then only to the extent specifically recited
therein.  A waiver or release with reference to one event shall not be construed
as continuing as a bar to, or as a waiver or release of, any  subsequent  right,
remedy or recourse as to any subsequent event.

         9. Waiver, Consent and Enforcement.

         (a)      All  payments  by the  Company  under  this Note shall be made
                  without setoff,  defense or counterclaim and be free and clear
                  and without any deduction or withholding for any taxes or fees
                  of any nature  whatever,  unless the  obligation  to make such
                  deduction or withholding is imposed by law.

         (b)      No delay or omission  on the part of the Holder in  exercising
                  any right  under this Note  shall  operate as a waiver of such
                  right or of any  other  right of the  Holder,  nor  shall  any
                  delay,  omission or waiver on any one occasion be deemed a bar
                  to or  waiver  of the same or any  other  right on any  future
                  occasion.

         (c)      The Company hereby  represents and warrants that the issue and
                  performance  of  this  Note  by  the  Company  has  been  duly
                  authorized by all necessary action on the part of the Company,
                  and that this Note  constitutes  the legal  obligation  of the
                  Company,  binding  upon the  Company  in  accordance  with its
                  terms.

         10.  Governing Law. This Note shall be construed in accordance with and
governed  by the  internal  laws of the  State of New  York,  without  regard to
conflict  of laws  provisions.  Each  party  agrees  that all legal  proceedings
concerning  this Note shall be  commenced  exclusively  in the state and federal
courts  sitting  in the City of New York,  Borough of  Manhattan  (the "New York
Courts").  Each  party  hereto  hereby  irrevocably  submits  to  the  exclusive
jurisdiction  of the New York Courts for any such legal  proceeding,  and hereby
irrevocably  waives, and agrees not to assert in any such legal proceeding,  any
claim  that it is not  personally  subject to the  jurisdiction  of any New York
Court  or  that a New  York  Court  is an  inconvenient  forum  for  such  legal
proceeding.  Each party hereto hereby  irrevocably  waives  personal  service of
process and  consents to process  being served in any such legal  proceeding  by
mailing a copy thereof via  registered or certified  mail or overnight  delivery
(with  evidence of  delivery) to such party at the address in effect for notices
to it under this Note and agrees that such  service  shall  constitute  good and
sufficient service of process and notice thereof.  Each of the Company,  and the
Holder by its acceptance of this Note, hereby irrevocably waives, to the fullest
extent  permitted by  applicable  law, any and all right to trial by jury in any
legal  proceeding.  The prevailing party in a legal  proceeding  concerning this
Note shall be  reimbursed by the other party for its  attorney's

                                      -4-
<PAGE>

fees and other costs and expenses incurred with the  investigation,  preparation
and prosecution of such legal proceeding.

         11. No Conversion  upon  Registration.  Subject to the Holder's  rights
under Section 6, neither the filing of the registration  statement  covering the
Shares  issuable  upon  conversion  of this Note nor the  effectiveness  of such
registration statement shall be interpreted to permit the conversion of the Note
in the absence of the Approvals.

         12. Miscellaneous Provisions.

         (a)      This Note shall be binding upon the  successors and assigns of
                  the  Company  and  inure to the  benefit  of the  Holder,  its
                  successors, endorsees and assigns. If any term or provision of
                  this Note is deemed  invalid,  the validity of all other terms
                  and  provisions  hereof  shall in no way be affected  thereby.
                  This  Note may not be  changed  orally,  but only by a written
                  agreement  signed by the party against whom enforcement of any
                  waiver, change, modification or discharge is sought.

         (b)      The Company  covenants  that it will at all times  reserve and
                  keep  available  out of the  aggregate of its  authorized  but
                  unissued and otherwise unreserved Ordinary Shares,  solely for
                  the  purpose  of  enabling  it to  issue  Shares  as  required
                  hereunder,  the number of Shares  which are then  issuable and
                  deliverable  upon the  conversion of (and otherwise in respect
                  of) this entire Note, free from preemptive rights or any other
                  contingent  purchase  rights of persons other than the Holder.
                  The  Company   covenants  that  all  Shares  so  issuable  and
                  deliverable  shall, upon issuance in accordance with the terms
                  hereof, be duly and validly authorized,  issued and fully paid
                  and nonassessable.

         (c)      In case any one or more of the  provisions  of this Note shall
                  be invalid or unenforceable  in any respect,  the validity and
                  enforceability  of the remaining  terms and provisions of this
                  Note shall not in any way be affected or impaired  thereby and
                  the parties  will  attempt in good faith to agree upon a valid
                  and  enforceable  provision  which  shall  be  a  commercially
                  reasonable  substitute therefor,  and upon so agreeing,  shall
                  incorporate such substitute provision in this Note.

         13.  Notice.  Any notice that is required or provided to be given under
this Note shall be deemed to have been  sufficiently  given and received for all
purposes when delivered in writing by hand, facsimile, or five (5) business days
after being sent by certified or registered  mail,  postage and charges prepaid,
return  receipt  requested,  or three (3)  business  days  after  being  sent by
internationally  overnight  delivery,  to  the  following  addresses:  if to the
Company,  On Track Innovations Ltd., P.O.B 32, Rosh Pina,  Israel,  12000, attn.
Oded  Bashan,  facsimile:  (972) 4 6868-000,  with a copy to ZAG/S&W LLP, 1 Post
Office Square,  Boston, MA 02109, attn. Audrey M. Roth, Esq.,  facsimile:  (617)
338-2880;  or at any other address  designated by the Company,  to Holder; if to
Holder,  to the address for notice set forth on Annex A to this Note,  or at any
other address designated by Holder to the Company in writing.

                                      -5-
<PAGE>

         IN WITNESS WHEREOF, the Company has signed this Note as of the date
written above.

                                      ON TRACK INNOVATIONS LTD.

                                      By: _________________________
                                          Name:  __________________
                                          Title: __________________

Agreed and Accepted:

By: __________________________
     Name:  __________________
     Title: __________________

                                      -6-
<PAGE>

                                                                     Annex A

Holder's Address for Notice:

                                      -7-
<PAGE>

                                   EXHIBIT B-1
                                 FORM OF WARRANT

<PAGE>

                       WARRANT TO PURCHASE ORDINARY SHARES
                                       OF
                            ON TRACK INNOVATIONS LTD.

THIS  WARRANT  AND THE  UNDERLYING  SECURITIES  ISSUABLE  UPON  EXERCISE OF THIS
WARRANT HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED
(THE  "SECURITIES  ACT"),  OR ANY STATE  SECURITIES LAWS AND MAY NOT BE OFFERED,
SOLD,  TRANSFERRED,  HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION  STATEMENT WITH RESPECT TO SUCH  SECURITIES THAT IS EFFECTIVE UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE  SECURITIES  ACT  RELATING  TO THE  DISPOSITION  OF  SECURITIES  AND  (2) IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

THIS  WARRANT  AND THE  UNDERLYING  SECURITIES  ISSUABLE  UPON  EXERCISE OF THIS
WARRANT ARE SUBJECT TO THE  PROVISIONS  OF A CERTAIN  NOTE AND WARRANT  PURCHASE
AGREEMENT,  DATED AS OF SEPTEMBER 8, 2003,  INCLUDING  CERTAIN  RESTRICTIONS  ON
TRANSFER SET FORTH  THEREIN.  A COMPLETE  AND CORRECT COPY OF SUCH  AGREEMENT IS
AVAILABLE  FOR  INSPECTION  AT THE  PRINCIPAL  OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.

Warrant No. ___                                               September 8, 2003

         On Track Innovations,  Ltd., an Israeli company (the "Company"), hereby
certifies that, for value received and pursuant to the Note and Warrant Purchase
Agreement, dated as of the date hereof, by and among the Company and the Lenders
named therein (the "Purchase Agreement"),  _____________________  (together with
its  successors  and  assigns  and  any  transferee  of  this  Warrant,  and its
successors  and assigns,  the "Holder"),  is entitled,  subject to the terms and
conditions  set forth in this warrant  (this  "Warrant"),  to purchase  from the
Company, at any time or times on or after the Exercisability Date (as defined in
Section 5.14 below), but not after the earlier of: (i) 5:00 P.M., Israel time on
the fifth anniversary of the  Exercisability  Date, or (ii) the occurrence of an
Acquisition  Transaction (as defined in the Convertible  Promissory Notes issued
pursuant to the Purchase  Agreement),  (the "Expiration Date"),  __________ duly
authorized,  validly  issued,  fully  paid,  nonassessable  Ordinary  Shares (as
defined  below) (the  "Warrant  Shares"),  which shall be adjusted or readjusted
from time to time as provided in this Warrant,  at an initial purchase price per
share equal to $5.75 (the "Initial Warrant  Price"),  which shall be adjusted or
readjusted  from time to time as provided  in this  Warrant  (as  adjusted,  the
"Warrant Price").

         Notwithstanding  anything to the contrary herein,  if the Approvals (as
defined in the  Convertible  Promissory  Notes  issued  pursuant to the Purchase
Agreement),  shall not be obtained  by May 8, 2004,  this  Warrant  shall not be
exercisable at all and shall expire immediately.

         This  Warrant  is one of  the  warrants  to  purchase  Ordinary  Shares
(collectively,  the  "Warrants"  such term to  include  any  warrants  issued in
substitution  therefor)  issued  pursuant  to the  Purchase  Agreement,  and the
holders  of the  Warrants  shall  be  collectively  referred  to  herein

<PAGE>

as the  "Holders".  The  Warrants  evidence  rights to purchase an  aggregate of
________ of the Company's ordinary shares, par value NIS 0.1 per share (each, an
"Ordinary  Share"),  subject to adjustment as provided  herein and therein.  All
capitalized  terms used herein and not otherwise  defined herein,  either within
the text in which it first appears or in Section  5.14,  shall have the meanings
set forth in the Purchase Agreement.

Section 1. EXERCISE; EXCHANGE OF WARRANT

         1.1. Manner of Exercise; Exchange.

              (a) Exercise. The Holder may exercise this Warrant, in whole or in
part (except as to a fractional share), at any time and from time to time during
normal business hours on any Business Day on or prior to the Expiration Date, by
(i) delivering to the Company a written  notice,  in the form attached hereto as
Schedule A (the "Exercise Notice"), duly executed by the Holder,  specifying the
number of Warrant Shares (without giving effect to any adjustment thereto) to be
issued to the  Holder  as a result  of such  exercise,  (ii)  surrendering  this
Warrant to the Company,  properly endorsed by the Holder (or if this Warrant has
been  destroyed,  stolen or has otherwise been  misplaced,  by delivering to the
Company an affidavit of loss and  indemnification  undertaking  duly executed by
the Holder),  and (iii) unless the Holder is  exercising  its cashless  exercise
option  pursuant to the terms  hereof,  by  tendering  payment for the shares of
Ordinary Shares  designated by the Exercise Notice in lawful money of the United
States in the form of cash, bank or certified check made payable to the order of
the Company,  or by wire  transfer of  immediately  available  funds,  or in any
combination  thereof, of an amount equal to the product of (A) the Warrant Price
and (B) the number of Warrant  Shares  (without  giving effect to any adjustment
thereof) as to which this Warrant is being exercised.

         1.2.  When Exercise  Effective.  Each exercise of this Warrant shall be
deemed to have been effected  immediately  prior to the close of business on the
Business Day on which this Warrant shall be deemed to have been  surrendered  to
the Company as provided in Section  1.1,  and at such time the Person or Persons
in whose name or names any  certificate or  certificates  for shares of Ordinary
Shares shall be issuable  upon such exercise as provided in Section 1.3 shall be
deemed to have become the Holder or Holders of record thereof.

         1.3.  Delivery  of  Share  Certificates  Upon  Exercise.   As  soon  as
practicable  after  exercise of this Warrant in accordance  with this Section 1,
but in no event later than ten (10) Business Days (as defined  below) after such
exercise,  the Company  shall at its expense,  cause to be issued in the name of
and  delivered to the Holder or,  subject to Section 5 of this  Warrant,  as the
Holder may direct:  (a) a certificate or certificates  for the number of Warrant
Shares, determined as provided in Section 2 of this Warrant, to which the Holder
shall be entitled upon such exercise and, (b) unless this Warrant has expired or
has been  exercised in full, a new Warrant (or  Warrants)  substantially  in the
form of, and on the terms in,  this  Warrant,  for the number of Warrant  Shares
remaining  following  such exercise  (without  giving  effect to any  adjustment
thereto),  and shall be subject to adjustment as provided for in this Warrant as
of the date hereof.  For the purpose of this Agreement,  the term "Business Day"
shall mean any day which is neither a  Saturday  or Sunday nor legal  holiday on
which  commercial  banks are authorized or required to be closed in the State of
New York or the State of Israel.

                                      -2-
<PAGE>

         1.4. If by the tenth  Business Day after a date of exercise the Company
fails to deliver the required  number of Warrant  Shares in the manner  required
pursuant to Section  5(a),  then the Holder will have the right to rescind  such
exercise.

         1.5. If by the tenth  Business Day after a date of exercise the Company
fails to deliver the required  number of Warrant  Shares in the manner  required
pursuant to the terms hereof,  and if after such tenth Business Day and prior to
the receipt of such  Warrant  Shares,  the Holder  purchases  (in an open market
transaction or otherwise)  Ordinary  Shares to deliver in satisfaction of a sale
by the Holder of the Warrant Shares which the Holder anticipated  receiving upon
such exercise (a "Buy-In"), then the Company shall (1) pay in cash to the Holder
the amount by which (x) the Holder's total purchase price  (including  brokerage
commissions, if any) for the Ordinary Shares so purchased exceeds (y) the amount
obtained by  multiplying  (A) the number of Warrant  Shares that the Company was
required to deliver to the Holder in  connection  with the  exercise at issue by
(B) the  closing  bid price of the  Common  Stock at the time of the  obligation
giving  rise to such  purchase  obligation  and (2) at the option of the Holder,
either  reinstate  the portion of the Warrant and  equivalent  number of Warrant
Shares  for which  such  exercise  was not  honored or deliver to the Holder the
number of shares of Common  Stock that would  have been  issued had the  Company
timely complied with its exercise and delivery obligations hereunder. The Holder
shall provide the Company  written notice  indicating the amounts payable to the
Holder in respect of the Buy-In.

Section 2. ADJUSTMENTS TO WARRANT PRICE AND WARRANT SHARES

         2.1.  General.  The number of Warrant  Shares that the Holder  shall be
entitled  to receive  upon  exercise  of this  Warrant  shall be  determined  by
multiplying  the number of Warrant  Shares  which would  otherwise  (but for the
provisions of this Section 2) be issuable upon such  exercise,  as designated by
the Holder in the Exercise  Notice,  by a fraction,  (i) the  numerator of which
shall be the Initial  Warrant Price,  and (ii) the denominator of which shall be
Warrant  Price in effect on the date of such  exercise,  after giving  affect to
this Section 2.

         2.2. Adjustments.

              (a) Subdivision or Combination of Ordinary Shares.  If the Company
shall at any time after the date  hereof  subdivide  its  outstanding  shares of
Ordinary  Shares  into a greater  number of shares  (by any share  split,  share
dividend or otherwise),  then the Warrant Price in effect  immediately  prior to
such subdivision  shall be  proportionately  reduced,  and,  conversely,  if the
Company shall at any time after the date hereof combine its  outstanding  shares
of Ordinary  Shares into a smaller  number of shares (by any reverse share split
or  otherwise),  then the  Warrant  Price in  effect  immediately  prior to such
combination shall be proportionately increased.

              (b)   Reorganization   or   Reclassification.   If   any   capital
reorganization or  reclassification of the share capital of the Company shall be
effected  in such a way that  Holders of  Ordinary  Shares  shall be entitled to
receive shares, securities or assets with respect to or in exchange for Ordinary
Shares, then, as a condition of such reorganization or reclassification,  lawful
and adequate  provisions  shall be made whereby the Holder shall  thereupon have
the right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the

                                      -3-
<PAGE>

Warrant  Shares  immediately  theretofore  receivable  upon the exercise of this
Warrant in full, as the case may be, such shares, securities or assets as may be
issued or payable  with  respect to or in exchange  for a number of  outstanding
shares of such  Ordinary  Shares equal to the number of shares of such  Ordinary
Shares immediately  theretofore receivable upon such exercise of this Warrant in
full had such  reorganization  or  reclassification  not taken place, and in any
such case  appropriate  provisions  shall be made with respect to the rights and
interests  of the  Holder  to the end that  the  provisions  hereof  (including,
without  limitation,  provisions  for  adjustments  of the Warrant  Price) shall
thereafter  be  applicable,  as  nearly as may be, in  relation  to any  shares,
securities or assets thereafter deliverable upon the exercise of such conversion
rights.

              (c)  Dividends  and  Distributions.  If the Company  shall make or
issue,  or shall fix a record date for the  determination  of  eligible  holders
entitled  to  receive,  a dividend  or other  distribution  with  respect to the
Warrant  Shares (or any shares or other  securities  at the time  issuable  upon
exercise of the Warrant)  payable in (a) securities of the Company or (b) assets
(excluding  cash  dividends  paid or payable  solely out of retained  earnings),
then,  in each such case,  the Holder of this Warrant on exercise  hereof at any
time after the  consummation,  effective date or record date of such dividend or
other  distribution,  shall receive,  in addition to the Warrant Shares (or such
other shares or  securities)  issuable on such exercise  prior to such date, and
without the payment of additional consideration therefor, the securities or such
other assets of the Company to which such Holder would have been  entitled  upon
such date if such Holder had  exercised  this Warrant on the date hereof and had
thereafter,  during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional shares available
by it as aforesaid  during such period giving effect to all  adjustments  called
for by this Section 2.

              (d)   Adjustment   for   Capital    Reorganization,    Merger   or
Consolidation. In case of any capital reorganization of the share capital of the
Company (other than a combination, reclassification,  exchange or subdivision of
shares  otherwise  provided for herein),  or any merger or  consolidation of the
Company with or into another  corporation,  or the sale of all or  substantially
all the assets of the  Company  then,  and in each such case,  as a part of such
reorganization,  merger, consolidation, sale or transfer, lawful provision shall
be made so that the Holder of this  Warrant  shall  thereafter  be  entitled  to
receive upon exercise of this Warrant,  during the period  specified  herein and
upon payment of the Warrant Price then in effect,  the number of shares or other
securities  or  property  of  the  successor  corporation  resulting  from  such
reorganization,  merger,  consolidation,  sale or transfer  that a holder of the
shares  deliverable  upon  exercise of this Warrant  would have been entitled to
receive in such reorganization,  consolidation, merger, sale or transfer if this
Warrant  had been  exercised  immediately  before such  reorganization,  merger,
consolidation,  sale or transfer,  all subject to further adjustment as provided
in this Section 2.2 and Section 2.1 shall not apply in such event. The foregoing
provisions  of  this  Section  2.2(d)  shall   similarly   apply  to  successive
reorganizations,  consolidations, mergers, sales and transfers and to the shares
or securities of any other  corporation that are at the time receivable upon the
exercise of this Warrant. If the per-share  consideration  payable to the Holder
hereof for shares in  connection  with any such  transaction  is in a form other
than cash or marketable  securities,  then the value of such consideration shall
be determined in good faith by the Company's Board of Directors.  In all events,
appropriate  adjustment (as  determined in good faith by the Company's  Board of
Directors)  shall be made in the  application  of the provisions of this Warrant
with respect to the rights and interests of the

                                      -4-
<PAGE>

Holder after the  transaction,  to the end that the  provisions  of this Warrant
shall be applicable  after that event, as near as reasonably may be, in relation
to any shares or other  property  deliverable  after that event upon exercise of
this Warrant.

Section 3. COVENANTS OF THE COMPANY

         3.1. The Company covenants and agrees that:

              (a) all  Ordinary  Shares that may be issued upon the  exercise of
the  rights  represented  by this  Warrant  shall,  upon  issuance  and  payment
therefore by the Holder,  be duly  authorized,  validly  issued,  fully paid and
nonassessable;

              (b) during the period  within which this Warrant may be exercised,
it will at all  times  have  authorized  and  reserved  a  sufficient  number of
Ordinary  Shares to  provide  for the  exercise  of rights  represented  by this
Warrant;

              (c) if any Ordinary  Shares  reserved or to be reserved to provide
for the exercise of this Warrant  require  registration  with or approval of any
governmental  or  self-regulatory  authority  under any  federal or state law or
stock exchange or NASDAQ rule before such Shares may be validly issued,  then it
shall in good faith and as  expeditiously  as  possible  endeavor to secure such
registration  or approval,  as the case may be, all as set forth in the Purchase
Agreement;

              (d) if it shall have filed a  registration  statement  pursuant to
the  requirements  of Section 12 of the  Securities and Exchange Act of 1934, as
amended  (the  "Exchange  Act"),  or a  registration  statement  pursuant to the
requirements of the Securities Act of 1933, as amended (the  "Securities  Act"),
the Company  shall  comply with the  reporting  requirements  of Sections 13 and
15(d) of the Exchange  Act and shall  comply with all other  public  information
reporting  requirements the securities and exchange  commission  (including Rule
144 promulgated by such  commission  under the Securities Act) from time to time
in effect and relating to the  availability  of an exemption from the Securities
Act for the sale of any restricted securities; and

              (e) it shall not, by  amendment  to its  Articles  of  Association
(whether by way of merger,  operation  of law, or  otherwise)  or through  other
reorganization, transfer of assets, consolidation, merger, dissolution, issuance
or sale of securities, agreement or any other voluntary action, avoid or seek to
avoid  the  observance  or  performance  of any of the terms to be  observed  or
performed  hereunder  by the Company and shall at all times in good faith assist
in the carrying out of all the provisions of this Warrant.  Any successor to the
Company shall agree in writing, as a condition to such succession,  to carry out
and  observe  the  obligations  of the  Company  hereunder  with  respect to the
Warrants.

Section 4. RESTRICTIONS ON TRANSFER

          4.1. Restrictive Legend.

                                      -5-
<PAGE>

              (a) This Warrant and the Warrant  Shares  issuable  upon  exercise
thereof,  are  subject to certain  restrictions  on transfer as set forth in the
Purchase  Agreement.  Each  certificate  representing the Ordinary Shares issued
upon  exercise of this Warrant and each  certificate  representing  the Ordinary
Shares issued to any  subsequent  transferee of any such  certificate,  shall be
stamped  or  otherwise  imprinted  with a legend  in  substantially  the form as
follows:

              THE SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN REGISTERED UNDER
              THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES  ACT"), OR
              ANY  STATE   SECURITIES  LAWS  AND  MAY  NOT  BE  OFFERED,   SOLD,
              TRANSFERRED,   HYPOTHECATED  OR  OTHERWISE   ASSIGNED  EXCEPT  (1)
              PURSUANT  TO  A  REGISTRATION   STATEMENT  WITH  RESPECT  TO  SUCH
              SECURITIES  WHICH IS EFFECTIVE  UNDER THE  SECURITIES ACT OR TO AN
              AVAILABLE  EXEMPTION FROM  REGISTRATION  UNDER THE ACT RELATING TO
              THE   DISPOSITION  OF  SECURITIES  AND  (2)  IN  ACCORDANCE   WITH
              APPLICABLE STATE SECURITIES LAWS.

              THIS WARRANT AND THE UNDERLYING  SECURITIES ISSUABLE UPON EXERCISE
              OF THIS  WARRANT ARE SUBJECT TO THE  PROVISIONS  OF A CERTAIN NOTE
              AND  WARRANT  PURCHASE  AGREEMENT,  DATED AS OF THE  DATE  HEREOF,
              INCLUDING  CERTAIN  RESTRICTIONS ON TRANSFER SET FORTH THEREIN.  A
              COMPLETE  AND CORRECT  COPY OF SUCH  AGREEMENT  IS  AVAILABLE  FOR
              INSPECTION  AT THE  PRINCIPAL  OFFICE OF THE  COMPANY  AND WILL BE
              FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.

If at any time any  securities  other than  shares of Ordinary  Shares  shall be
issuable upon the exercise of this Warrant,  such securities shall bear a legend
similar to the one set forth above.  Whenever the legend requirement  imposed by
the Note and Warrant  Purchase  Agreement shall  terminate,  the Holder shall be
entitled  to receive  within five (5)  Business  Days from the  Company,  at the
Company's  expense,  a new Warrant  certificate  or  certificates  and new share
certificates  representing  the  Ordinary  Shares  issued upon  exercise of this
Warrant, in each case, without such legends.

Section 5. MISCELLANEOUS

        5.1. Notice of Adjustments.

              (a) In each case of any adjustment or  readjustment in the Warrant
Price and the Warrant Shares issuable upon exercise of this Warrant, the Company
shall promptly  thereafter compute such adjustment or readjustment in accordance
with the terms of this Warrant and provide  written report thereof  certified by
the Chief  Financial  Officer of the Company to the Holder stating the number of
Warrant Shares and the Warrant Price,  after giving effect to such adjustment or
readjustment,  and setting forth in reasonable  detail the method of calculation
and the facts upon which such calculation is based.

                                      -6-
<PAGE>

              (b) The  Company  shall,  within (10) days of receipt of a written
request by Holder or Holders who retain the right to receive  greater than fifty
percent  (50%) of the Ordinary  Shares  issuable  upon exercise of this Warrant,
cause independent  certified public accountants of recognized national standing,
which may be the  regular  auditors of the  Company,  selected by the Company to
verify such  computations  reported  pursuant to Section 5.1(a),  other than any
computation that pursuant to the provisions of this Warrant are to be determined
reasonably  and in good  faith by the  Board of  Directors.  The  Company  shall
promptly prepare,  and remit to Holder, a copy of such independent  accountant's
report  setting  forth such  adjustment or  readjustment,  showing in reasonable
detail  the  method  of  calculation  thereof  and the  facts  upon  which  such
adjustment or readjustment is based.

              (c) The  Company  shall  also  keep  copies  of all  such  reports
generated  pursuant to this Section 5.1 at its principal  offices and will cause
the same to be available for inspection at such offices  during normal  business
hours by Holder any prospective purchaser of this Warrant designated by Holder.

        5.2. Notice of Certain Events. If at any time:

              (a) The Company obtains the Approvals by May 8, 2004;

              (b)  the  Company  shall  pay  any  dividend  upon,  or  make  any
distribution in respect of, its shares of the Company;

              (c) there shall be any capital reorganization, or reclassification
of the share capital,  of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another person;

              (d)  there  shall  be  a  voluntary  or  involuntary  dissolution,
liquidation or winding up of the Company; or

              (e) the occurrence of an Acquisition Transaction.

then, in any one or more of said cases,  the Company shall give notice to Holder
of the date on which (i) the Approvals have been obtained, (ii) the books of the
Company shall close or a record shall be taken for such  dividend,  distribution
or   subscription   rights,   (iii)   such   reorganization,   reclassification,
consolidation,  merger, sale, dissolution,  liquidation or winding up shall take
place, or (iv) the Acquisition Transaction shall take place, as the case may be.
Such notice  shall be given within five (5) days after the  Approvals  have been
obtained;  not less than five (5) days prior to the  record  date or the date on
which the transfer  books of the Company are to be closed in respect  thereto in
the case of an action  specified in clause (ii), at least ten (10) days prior to
the action in question in the case of an action  specified in clause (iii),  and
at least thirty (30) days prior to the occurrence of an Acquisition  Transaction
specified in clause (iv).

         5.3. Notice.  Any notice that is required or provided to be given under
this Warrant  shall be deemed to have been  sufficiently  given and received for
all purposes when delivered in writing by hand, facsimile,  or five (5) business
days after  being sent by  certified  or  registered  mail,  postage and charges
prepaid,  return receipt requested,  or three (3) business days after being sent
by  internationally  overnight  delivery  providing receipt of delivery,  to the
following

                                      -7-
<PAGE>

addresses:  if to the Company,  On Track  Innovations Ltd., P.O.B 32, Rosh Pina,
Israel, 12000, attn. Oded Bashan,  facsimile:  (972) 4 6868-000,  with a copy to
ZAG/S&W LLP, 1 Post Office Square, Boston, MA 02109, attn. Audrey M. Roth, Esq.,
facsimile: (617) 338-2880; or at any other address designated by the Company, to
Holder;  if to  Holder,  at to the  address  set  forth  for such  Holder in the
Purchase Agreement,  or at any other address designated by Holder to the Company
in writing.

         5.4.  No Change in Warrant  Terms on  Adjustment.  Irrespective  of any
adjustment in the Warrant Price or the number of Ordinary Shares,  this Warrant,
whether  theretofore or thereafter  issued or reissued,  may continue to express
the same Warrant Price and Ordinary  Shares as are stated herein and the Warrant
Price and such number of Ordinary  Shares  specified  herein  shall be deemed to
have been so adjusted.

         5.5.  Issuance and Transfer  Taxes.  The issuance of  certificates  for
Ordinary  Shares upon any exercise of this Warrant shall be made without  charge
to Holder for any issuance tax in respect  thereto;  provided,  that the Company
shall not be  required  to pay any tax that may be  payable  in  respect  of any
transfer  involved in the  issuance and  delivery of any  certificate  in a name
other than that of Holder or upon any transfer of this Warrant.

         5.6.  Exchange of Warrant.  This Warrant is  exchangeable at no cost to
Holder  upon the  surrender  hereof by  Holder  at such  office or agency of the
Company, for a new warrant of like tenor representing in the aggregate the right
to subscribe  for and purchase the number of shares that may be  subscribed  for
and  purchased  hereunder  from  time to time  after  giving  effect  to all the
provisions hereof, each of such new warrants to represent the right to subscribe
for and  purchase  such number of shares as shall be  designated  by said Holder
hereof at the time of such surrender.

         5.7. Lost, Stolen,  Mutilated or Destroyed Warrant.  If this Warrant is
lost,  stolen,  mutilated  or  destroyed,  the  Company  shall at no cost to the
Holder,  on such terms as to indemnity or otherwise as it may in its  discretion
impose (which shall, in the case of a mutilated  Warrant,  include the surrender
thereof),  issue a new warrant of like  denomination and tenor as the Warrant so
lost, stolen,  mutilated or destroyed.  Any such new warrant shall constitute an
original  contractual  obligation  of the Company,  whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.

         5.8.  Governing Law. This Warrant shall be deemed to be a contract made
under, and shall be construed in accordance with, the internal laws of the State
of New York, without giving effect to conflict of laws principles thereof.

         5.9. Section Headings;  Construction.  The descriptive headings in this
Warrant have been inserted for convenience only and shall not be deemed to limit
or otherwise  affect the  construction of any provision  thereof or hereof.  The
parties  have  participated  jointly in the  negotiation  and  drafting  of this
Warrant  and the  other  agreements,  documents  and  instruments  executed  and
delivered in  connection  herewith  with  counsel  sophisticated  in  investment
transactions.  In the event an ambiguity or question of intent or interpretation
arises, this Warrant shall be construed as if drafted jointly by the parties and
no presumption or burden of proof shall arise favoring or disfavoring  any party
by  virtue  of  the  authorship  of any  provisions  of  this

                                      -8-
<PAGE>

Warrant and the agreements,  documents and instruments executed and delivered in
connection herewith.

         5.10.  Integration.  This Warrant,  including the exhibits  referred to
herein,  constitutes  the  entire  agreement  and  supersedes  all  other  prior
agreements  and  understandings,  both written and oral,  among the parties with
respect to the subject matter hereof.

         5.11. No Rights or Liabilities as Shareholder.  Except as expressly set
forth herein, nothing contained in this Warrant shall be construed as conferring
upon  Holder any rights as a  shareholder  of the  Company  or as  imposing  any
obligation on Holder to purchase any  securities or as imposing any  liabilities
on  Holder  as  a  shareholder  of  the  Company,  whether  such  obligation  or
liabilities are asserted by the Company or creditors of the Company.

         5.12. Waivers and Consents; Amendments.

              (a) For the  purposes of this Warrant and all  documents  executed
pursuant hereto, no course of dealing between or among any of the parties hereto
and no delay on the part of any party hereto in exercising any rights  hereunder
or  thereunder  shall  operate as a waiver of the rights  hereof or thereof.  No
covenant  or  provision  hereof  may  be  waived  otherwise  than  by a  written
instrument  signed by the party or  parties so waiving  such  covenant  or other
provision contemplated herein.

              (b) No  amendment  to this Warrant may be made without the written
consent of the Company and a Majority Interest of the Lenders.

              (c) Any  actions  required to be taken with  respect to  consents,
approvals  or waivers  required  or  contemplated  to be given by Holder,  shall
require the vote of a Majority  Interest of the Lenders,  and any such action by
such majority interest vote shall bind all Holders.

         5.13.  No  Exercise  upon  Registration.  Neither  the  filing  of  the
registration  statement  covering the Warrant  Shares issued upon  conversion of
this  Warrant nor the  effectiveness  of such  registration  statement  shall be
interpreted to permit the exercise of this Warrant.

         5.14. Certain Definitions.  The following terms as used in this Warrant
shall have the following meanings:

              (a)  "Affiliate"  means any person that  directly  or  indirectly,
through  one or more  intermediaries,  controls,  is  controlled  by or is under
common  control  with the first  mentioned  person.  A person shall be deemed to
control another person if such first person possesses directly or indirectly the
power to direct,  or cause the direction of, the  management and policies of the
second person,  whether through the ownership of voting securities,  by contract
or otherwise.

              (b)  "Continuity  Directors"  includes  any  individuals  who  are
members  of the  Company's  Board of  Directors  as of the date  hereof  and any
individual who subsequently becomes a member of the Company's Board of Directors
whose election,  or nomination for election,  by the Company's  shareholders was
approved by a vote of at least a majority of the Continuity Directors.

                                      -9-
<PAGE>

              (c)  "Exercisability  Date" means the date when the Approvals were
obtained,  provided, however, that such date shall be no later than eight months
after the date of this Warrant.

         5.15. Other Definitional Provisions.

              (a) Except as otherwise specified herein, all references herein:

                  (i) to any person other than the  Company,  shall be deemed to
         include such person's successors and assigns;

                  (ii) to the Company  shall be deemed to include the  Company's
         successors; and

                  (iii) to any  applicable  law  defined or  referred to herein,
         shall be deemed  references to such applicable law as the same may have
         been or may be amended or supplemented from time to time.

              (b) When used in this Warrant,  the words  "herein",  "hereof' and
"hereunder", and words of similar import, shall refer to this Warrant as a whole
and not to any provision of this Warrant,  and the words "Section" and "Exhibit"
shall refer to Sections  of, and  Exhibits  to, this  Warrant  unless  otherwise
specified.

              (c) Whenever the context so requires  the neuter  gender  includes
the masculine or feminine, and the singular number includes the plural, and vice
versa.

         5.16. Payment of Warrant Price. The Holder may pay the Warrant Price in
one of the following manners:

              (a) Cash Exercise.  The Holder may deliver  immediately  available
funds; or

              (b) Cashless  Exercise.  If the Warrant  Shares are not registered
under an effective registration statement,  the Holder may notify the Company in
an Exercise Notice of its election to utilize cashless exercise,  in which event
the Company shall issue to the Holder the number of Warrant Shares determined as
follows:

                    X = Y [(A-B)/A]

           where:

                    X = the number of Warrant Shares to be issued to the Holder.

                    Y = the number of Warrant Shares with
                    respect to which this Warrant is being
                    exercised.

                    A = the average of the closing prices for
                    the Common Stock for the five Trading Days
                    immediately prior to (but not including) the
                    Exercise Date.

                            -10-
<PAGE>

                    B = the Warrant Price.

         For purposes of Rule 144  promulgated  under the Securities  Act, it is
intended that the Warrant Shares issued in a cashless exercise transaction shall
be deemed to have been  acquired by the Holder,  and the holding  period for the
Warrant Shares shall be deemed to have  commenced,  on the date this Warrant was
originally issued.

         5.17. Limitations on Exercise. Notwithstanding anything to the contrary
contained  herein,  the number of shares of Common Stock that may be acquired by
the Holder upon any  exercise of this Warrant (or  otherwise in respect  hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or  other  issuance),   the  total  number  of  shares  of  Common  Stock  then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial  ownership of Common Stock would be aggregated  with the Holder's for
purposes of Section  13(d) of the Exchange  Act,  does not exceed  4.999% of the
total number of issued and  outstanding  shares of Common Stock  (including  for
such purpose the shares of Common Stock issuable upon such  exercise).  For such
purposes,  beneficial  ownership  shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations  promulgated thereunder.
Each delivery of an Exercise Notice  hereunder will constitute a  representation
by the Holder that it has evaluated the  limitation  set forth in this paragraph
and determined  that issuance of the full number of Warrant Shares  requested in
such Exercise Notice is permitted under this paragraph. This provision shall not
restrict  the number of shares of Common  Stock  which a Holder  may  receive or
beneficially  own in  order to  determine  the  amount  of  securities  or other
consideration  that such  Holder  may  receive in the event of a merger or other
business  combination  or  reclassification  involving  the Company.  By written
notice to the Company,  the Holder may waive the  provisions of this Section but
(i) any such waiver will not be  effective  until the 61st day after such notice
is  delivered  to the  Company,  and (ii) any such waiver will apply only to the
Holder and not to any other holder of Warrants.

                   REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

                                      -11-
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its duly authorized as of the date first written above.

                                         ON TRACK INNOVATIONS LTD.

                                         By:      _____________________________
                                                  Name:
                                                  Title:

                                      -12-

<PAGE>

                                   SCHEDULE A
                             FORM OF EXERCISE NOTICE

    [To be executed only upon exercise of Warrant pursuant to Section 1.1(a)]

To On Track Innovations Ltd.

         The  undersigned  registered  Holder of the Warrant hereby  irrevocably
exercises such Warrant for, and purchases  thereunder,  ____ Ordinary Shares and
herewith  makes  payment  of  $__________   therefor,   and  requests  that  the
certificates  for  such  shares  be  issued  in the name of,  and  delivered  to
___________________, whose address is ________________________.

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

                                    _______________________________________
                                     (Street Address)

                                    _______________________________________
                                     (City) (State)      (Zip Code)

                                      -13-
<PAGE>

                                   EXHIBIT B-2
                             FORM OF PAYBACK WARRANT
<PAGE>
                       WARRANT TO PURCHASE ORDINARY SHARES
                                       OF
                            ON TRACK INNOVATIONS LTD.

THIS  WARRANT  AND THE  UNDERLYING  SECURITIES  ISSUABLE  UPON  EXERCISE OF THIS
WARRANT HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED
(THE  "SECURITIES  ACT"),  OR ANY STATE  SECURITIES LAWS AND MAY NOT BE OFFERED,
SOLD,  TRANSFERRED,  HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION  STATEMENT WITH RESPECT TO SUCH  SECURITIES THAT IS EFFECTIVE UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE  SECURITIES  ACT  RELATING  TO THE  DISPOSITION  OF  SECURITIES  AND  (2) IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

THIS  WARRANT  AND THE  UNDERLYING  SECURITIES  ISSUABLE  UPON  EXERCISE OF THIS
WARRANT ARE SUBJECT TO THE  PROVISIONS  OF A CERTAIN  NOTE AND WARRANT  PURCHASE
AGREEMENT,  DATED AS OF SEPTEMBER 8, 2003,  INCLUDING  CERTAIN  RESTRICTIONS  ON
TRANSFER SET FORTH  THEREIN.  A COMPLETE  AND CORRECT COPY OF SUCH  AGREEMENT IS
AVAILABLE  FOR  INSPECTION  AT THE  PRINCIPAL  OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.

Warrant No. ___                                               September 8, 2003

         On Track Innovations,  Ltd., an Israeli company (the "Company"), hereby
certifies that, for value received and pursuant to the Note and Warrant Purchase
Agreement, dated as of the date hereof, by and among the Company and the Lenders
named therein (the "Purchase  Agreement"),  ________________  (together with its
successors  and assigns and any  transferee of this Warrant,  and its successors
and assigns, the "Holder"), is entitled, subject to the terms and conditions set
forth in this warrant (this  "Warrant"),  to purchase  from the Company,  at any
time or times on or after 5:00 P.M.,  Israel time on May 8, 2004, if and only if
the Approvals (as defined in the Convertible Promissory Notes issued pursuant to
the Purchase Agreement) have not been obtained (the "Exercise Date"),  until the
Expiration Date (as defined below). The Expiration Date of this Warrant shall be
the earliest to occur of: (i) 5:00 P.M., Israel time on the third anniversary of
the Exercise Date, (ii) the termination of a seven (7) day period after delivery
of a written  notice by the  Company to the Holder of an notice  indicating  the
occurrence of an Acceleration  Date (as defined in Section 5.14 below), or (iii)
the  occurrence of an  Acquisition  Transaction  (as defined in the  Convertible
Promissory  Notes issued  pursuant to the Purchase  Agreement),  __________ duly
authorized,  validly issued, fully paid, nonassessable shares of Ordinary Shares
(as defined below) (the "Warrant Shares"), which shall be adjusted or readjusted
from time to time as provided in this Warrant,  at an initial purchase price per
share equal to $______ (the "Initial Warrant Price"), which shall be adjusted or
readjusted  from time to time as provided  in this  Warrant  (as  adjusted,  the
"Warrant Price").

         Notwithstanding anything to the contrary herein, if the Approvals, have
been obtained by or before May 8, 2004,  the Warrant shall not be exercisable at
all and shall expire immediately upon obtaining the Approvals.
<PAGE>

         This  Warrant  is one of  the  warrants  to  purchase  Ordinary  Shares
(collectively,  the  "Warrants"  such term to  include  any  warrants  issued in
substitution  therefor)  issued  pursuant  to the  Purchase  Agreement,  and the
holders  of the  Warrants  shall  be  collectively  referred  to  herein  as the
"Holders".  The Warrants evidence rights to purchase an aggregate of ________ of
the Company's  ordinary shares,  par value NIS 0.1 per share (each, an "Ordinary
Share"),  subject to adjustment as provided herein and therein.  All capitalized
terms used herein and not otherwise  defined  herein,  either within the text in
which it first appears or in Section 5.14,  shall have the meanings set forth in
the Purchase Agreement.

         Section 1. EXERCISE; EXCHANGE OF WARRANT

         1.1. Manner of Exercise; Exchange.

              (a) Exercise. The Holder may exercise this Warrant, in whole or in
part (except as to a fractional share), at any time and from time to time during
normal business hours on any Business Day on or prior to the Expiration Date, by
(i) delivering to the Company a written  notice,  in the form attached hereto as
Schedule A (the "Exercise Notice"), duly executed by the Holder,  specifying the
number of Warrant Shares (without giving effect to any adjustment thereto) to be
issued to the  Holder  as a result  of such  exercise,  (ii)  surrendering  this
Warrant to the Company,  properly endorsed by the Holder (or if this Warrant has
been  destroyed,  stolen or has otherwise been  misplaced,  by delivering to the
Company an affidavit of loss and  indemnification  undertaking  duly executed by
the Holder),  and (iii) unless the Holder is  exercising  its cashless  exercise
option  pursuant to the terms  hereof,  by  tendering  payment for the shares of
Ordinary Shares  designated by the Exercise Notice in lawful money of the United
States in the form of cash, bank or certified check made payable to the order of
the Company,  or by wire  transfer of  immediately  available  funds,  or in any
combination  thereof, of an amount equal to the product of (A) the Warrant Price
and (B) the number of Warrant  Shares  (without  giving effect to any adjustment
thereof) as to which this Warrant is being exercised.

         1.2.  When Exercise  Effective.  Each exercise of this Warrant shall be
deemed to have been effected  immediately  prior to the close of business on the
Business Day on which this Warrant shall be deemed to have been  surrendered  to
the Company as provided in Section  1.1,  and at such time the Person or Persons
in whose name or names any  certificate or  certificates  for shares of Ordinary
Shares shall be issuable  upon such exercise as provided in Section 1.3 shall be
deemed to have become the Holder or Holders of record thereof.

         1.3.  Delivery  of  Share  Certificates  Upon  Exercise.   As  soon  as
practicable  after  exercise of this Warrant in accordance  with this Section 1,
but in no event later than ten (10) Business Days (as defined  below) after such
exercise,  the Company  shall at its expense,  cause to be issued in the name of
and  delivered to the Holder or,  subject to Section 5 of this  Warrant,  as the
Holder may direct:  (a) a certificate or certificates  for the number of Warrant
Shares, determined as provided in Section 2 of this Warrant, to which the Holder
shall be entitled upon such exercise and, (b) unless this Warrant has expired or
has been  exercised in full, a new Warrant (or  Warrants)  substantially  in the
form of, and on the terms in,  this  Warrant,  for the number of Warrant  Shares
remaining  following  such exercise  (without  giving  effect to any  adjustment
thereto),  and shall be subject to adjustment as provided for in this Warrant as
of the

                                      -2-
<PAGE>

date hereof.  For the purpose of this  Agreement,  the term "Business Day" shall
mean any day which is  neither a Saturday  or Sunday nor legal  holiday on which
commercial  banks are  authorized  or  required to be closed in the State of New
York or the State of Israel.

         1.4. If by the tenth  Business Day after a date of exercise the Company
fails to deliver the required  number of Warrant  Shares in the manner  required
pursuant to Section  5(a),  then the Holder will have the right to rescind  such
exercise.

         1.5. If by the tenth  Business Day after a date of exercise the Company
fails to deliver the required  number of Warrant  Shares in the manner  required
pursuant to the terms hereof,  and if after such tenth Business Day and prior to
the receipt of such  Warrant  Shares,  the Holder  purchases  (in an open market
transaction or otherwise)  Ordinary  Shares to deliver in satisfaction of a sale
by the Holder of the Warrant Shares which the Holder anticipated  receiving upon
such exercise (a "Buy-In"), then the Company shall (1) pay in cash to the Holder
the amount by which (x) the Holder's total purchase price  (including  brokerage
commissions, if any) for the Ordinary Shares so purchased exceeds (y) the amount
obtained by  multiplying  (A) the number of Warrant  Shares that the Company was
required to deliver to the Holder in  connection  with the  exercise at issue by
(B) the  closing  bid price of the  Common  Stock at the time of the  obligation
giving  rise to such  purchase  obligation  and (2) at the option of the Holder,
either  reinstate  the portion of the Warrant and  equivalent  number of Warrant
Shares  for which  such  exercise  was not  honored or deliver to the Holder the
number of shares of Common  Stock that would  have been  issued had the  Company
timely complied with its exercise and delivery obligations hereunder. The Holder
shall provide the Company  written notice  indicating the amounts payable to the
Holder in respect of the Buy-In.

         Section 2. ADJUSTMENTS TO WARRANT PRICE AND WARRANT SHARES

         2.1.  General.  The number of Warrant  Shares that the Holder  shall be
entitled  to receive  upon  exercise  of this  Warrant  shall be  determined  by
multiplying  the number of Warrant  Shares  which would  otherwise  (but for the
provisions of this Section 2) be issuable upon such  exercise,  as designated by
the Holder in the Exercise  Notice,  by a fraction,  (i) the  numerator of which
shall be the Initial  Warrant Price,  and (ii) the denominator of which shall be
Warrant  Price in effect on the date of such  exercise,  after giving  affect to
this Section 2.

         2.2. Adjustments.

              (a) Subdivision or Combination of Ordinary Shares.  If the Company
shall at any time after the date  hereof  subdivide  its  outstanding  shares of
Ordinary  Shares  into a greater  number of shares  (by any share  split,  share
dividend or otherwise),  then the Warrant Price in effect  immediately  prior to
such subdivision  shall be  proportionately  reduced,  and,  conversely,  if the
Company shall at any time after the date hereof combine its  outstanding  shares
of Ordinary  Shares into a smaller  number of shares (by any reverse share split
or  otherwise),  then the  Warrant  Price in  effect  immediately  prior to such
combination shall be proportionately increased.

              (b)   Reorganization   or   Reclassification.   If   any   capital
reorganization or  reclassification of the share capital of the Company shall be
effected  in such a way that  Holders of  Ordinary  Shares  shall be entitled to
receive shares, securities or assets with respect to or in

                                      -3-
<PAGE>

exchange for Ordinary  Shares,  then, as a condition of such  reorganization  or
reclassification,  lawful and  adequate  provisions  shall be made  whereby  the
Holder shall  thereupon  have the right to receive,  upon the basis and upon the
terms  and  conditions  specified  herein  and in  lieu  of the  Warrant  Shares
immediately theretofore receivable upon the exercise of this Warrant in full, as
the case may be, such shares,  securities  or assets as may be issued or payable
with  respect  to or in  exchange  for a number  of  outstanding  shares of such
Ordinary  Shares  equal  to  the  number  of  shares  of  such  Ordinary  Shares
immediately  theretofore  receivable  upon such exercise of this Warrant in full
had such  reorganization  or  reclassification  not taken place, and in any such
case  appropriate  provisions  shall be made  with  respect  to the  rights  and
interests  of the  Holder  to the end that  the  provisions  hereof  (including,
without  limitation,  provisions  for  adjustments  of the Warrant  Price) shall
thereafter  be  applicable,  as  nearly as may be, in  relation  to any  shares,
securities or assets thereafter deliverable upon the exercise of such conversion
rights.

              (c)  Dividends  and  Distributions.  If the Company  shall make or
issue,  or shall fix a record date for the  determination  of  eligible  holders
entitled  to  receive,  a dividend  or other  distribution  with  respect to the
Warrant  Shares (or any shares or other  securities  at the time  issuable  upon
exercise of the Warrant)  payable in (a) securities of the Company or (b) assets
(excluding  cash  dividends  paid or payable  solely out of retained  earnings),
then,  in each such case,  the Holder of this Warrant on exercise  hereof at any
time after the  consummation,  effective date or record date of such dividend or
other  distribution,  shall receive,  in addition to the Warrant Shares (or such
other shares or  securities)  issuable on such exercise  prior to such date, and
without the payment of additional consideration therefor, the securities or such
other assets of the Company to which such Holder would have been  entitled  upon
such date if such Holder had  exercised  this Warrant on the date hereof and had
thereafter,  during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional shares available
by it as aforesaid  during such period giving effect to all  adjustments  called
for by this Section 2.

              (d)   Adjustment   for   Capital    Reorganization,    Merger   or
Consolidation. In case of any capital reorganization of the share capital of the
Company (other than a combination, reclassification,  exchange or subdivision of
shares  otherwise  provided for herein),  or any merger or  consolidation of the
Company with or into another  corporation,  or the sale of all or  substantially
all the assets of the  Company  then,  and in each such case,  as a part of such
reorganization,  merger, consolidation, sale or transfer, lawful provision shall
be made so that the Holder of this  Warrant  shall  thereafter  be  entitled  to
receive upon exercise of this Warrant,  during the period  specified  herein and
upon payment of the Warrant Price then in effect,  the number of shares or other
securities  or  property  of  the  successor  corporation  resulting  from  such
reorganization,  merger,  consolidation,  sale or transfer  that a holder of the
shares  deliverable  upon  exercise of this Warrant  would have been entitled to
receive in such reorganization,  consolidation, merger, sale or transfer if this
Warrant  had been  exercised  immediately  before such  reorganization,  merger,
consolidation,  sale or transfer,  all subject to further adjustment as provided
in this Section 2.2 and Section 2.1 shall not apply in such event. The foregoing
provisions  of  this  Section  2.2(d)  shall   similarly   apply  to  successive
reorganizations,  consolidations, mergers, sales and transfers and to the shares
or securities of any other  corporation that are at the time receivable upon the
exercise of this Warrant. If the per-share  consideration  payable to the Holder
hereof for shares in  connection  with any such  transaction  is in a form other
than cash or marketable  securities,  then the value of such consideration shall
be

                                      -4-
<PAGE>

determined  in good faith by the Company's  Board of  Directors.  In all events,
appropriate  adjustment (as  determined in good faith by the Company's  Board of
Directors)  shall be made in the  application  of the provisions of this Warrant
with respect to the rights and interests of the Holder after the transaction, to
the end that the  provisions  of this  Warrant  shall be  applicable  after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.

Section 3. COVENANTS OF THE COMPANY

         3.1. The Company covenants and agrees that:

              (a) all  Ordinary  Shares that may be issued upon the  exercise of
the  rights  represented  by this  Warrant  shall,  upon  issuance  and  payment
therefore by the Holder,  be duly  authorized,  validly  issued,  fully paid and
nonassessable;

              (b) during the period  within which this Warrant may be exercised,
it will at all  times  have  authorized  and  reserved  a  sufficient  number of
Ordinary  Shares to  provide  for the  exercise  of rights  represented  by this
Warrant;

              (c) if any Ordinary  Shares  reserved or to be reserved to provide
for the exercise of this Warrant  require  registration  with or approval of any
governmental  or  self-regulatory  authority  under any  federal or state law or
stock exchange or NASDAQ rule before such Shares may be validly issued,  then it
shall in good faith and as  expeditiously  as  possible  endeavor to secure such
registration  or approval,  as the case may be, all as set forth in the Purchase
Agreement;

              (d) if it shall have filed a  registration  statement  pursuant to
the  requirements  of Section 12 of the  Securities and Exchange Act of 1934, as
amended  (the  "Exchange  Act"),  or a  registration  statement  pursuant to the
requirements of the Securities Act of 1933, as amended (the  "Securities  Act"),
the Company  shall  comply with the  reporting  requirements  of Sections 13 and
15(d) of the Exchange  Act and shall  comply with all other  public  information
reporting  requirements the securities and exchange  commission  (including Rule
144 promulgated by such  commission  under the Securities Act) from time to time
in effect and relating to the  availability  of an exemption from the Securities
Act for the sale of any restricted securities; and

              (e) it shall not, by  amendment  to its  Articles  of  Association
(whether by way of merger,  operation  of law, or  otherwise)  or through  other
reorganization, transfer of assets, consolidation, merger, dissolution, issuance
or sale of securities, agreement or any other voluntary action, avoid or seek to
avoid  the  observance  or  performance  of any of the terms to be  observed  or
performed  hereunder  by the Company and shall at all times in good faith assist
in the carrying out of all the provisions of this Warrant.  Any successor to the
Company shall agree in writing, as a condition to such succession,  to carry out
and  observe  the  obligations  of the  Company  hereunder  with  respect to the
Warrants.

                                      -5-
<PAGE>

Section 4. RESTRICTIONS ON TRANSFER

         4.1. Restrictive Legend.

              (a) This Warrant and the Warrant  Shares  issuable  upon  exercise
thereof,  are  subject to certain  restrictions  on transfer as set forth in the
Purchase  Agreement.  Each  certificate  representing the Ordinary Shares issued
upon  exercise of this Warrant and each  certificate  representing  the Ordinary
Shares issued to any  subsequent  transferee of any such  certificate,  shall be
stamped  or  otherwise  imprinted  with a legend  in  substantially  the form as
follows:

              THE SECURITIES  REPRESENTED  HEREBY HAVE NOT BEEN REGISTERED UNDER
              THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES  ACT"), OR
              ANY  STATE   SECURITIES  LAWS  AND  MAY  NOT  BE  OFFERED,   SOLD,
              TRANSFERRED,   HYPOTHECATED  OR  OTHERWISE   ASSIGNED  EXCEPT  (1)
              PURSUANT  TO  A  REGISTRATION   STATEMENT  WITH  RESPECT  TO  SUCH
              SECURITIES  WHICH IS EFFECTIVE  UNDER THE  SECURITIES ACT OR TO AN
              AVAILABLE  EXEMPTION FROM  REGISTRATION  UNDER THE ACT RELATING TO
              THE   DISPOSITION  OF  SECURITIES  AND  (2)  IN  ACCORDANCE   WITH
              APPLICABLE STATE SECURITIES LAWS.

              THIS WARRANT AND THE UNDERLYING  SECURITIES ISSUABLE UPON EXERCISE
              OF THIS  WARRANT ARE SUBJECT TO THE  PROVISIONS  OF A CERTAIN NOTE
              AND  WARRANT  PURCHASE  AGREEMENT,  DATED AS OF THE  DATE  HEREOF,
              INCLUDING  CERTAIN  RESTRICTIONS ON TRANSFER SET FORTH THEREIN.  A
              COMPLETE  AND CORRECT  COPY OF SUCH  AGREEMENT  IS  AVAILABLE  FOR
              INSPECTION  AT THE  PRINCIPAL  OFFICE OF THE  COMPANY  AND WILL BE
              FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.

If at any time any  securities  other than  shares of Ordinary  Shares  shall be
issuable upon the exercise of this Warrant,  such securities shall bear a legend
similar to the one set forth above.  Whenever the legend requirement  imposed by
the Note and Warrant  Purchase  Agreement shall  terminate,  the Holder shall be
entitled  to receive  within five (5)  Business  Days from the  Company,  at the
Company's  expense,  a new Warrant  certificate  or  certificates  and new share
certificates  representing  the  Ordinary  Shares  issued upon  exercise of this
Warrant, in each case, without such legends.

Section 5. MISCELLANEOUS

         5.1. Notice of Adjustments.

              (a) In each case of any adjustment or  readjustment in the Warrant
Price and the Warrant Shares issuable upon exercise of this Warrant, the Company
shall promptly  thereafter compute such adjustment or readjustment in accordance
with the terms of this Warrant and provide  written report thereof  certified by
the Chief  Financial  Officer of the Company to the Holder stating the number of
Warrant Shares and the Warrant Price,  after giving effect to such

                                      -6-
<PAGE>

adjustment or readjustment, and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

              (b) The  Company  shall,  within (10) days of receipt of a written
request by Holder or Holders who retain the right to receive  greater than fifty
percent  (50%) of the Ordinary  Shares  issuable  upon exercise of this Warrant,
cause independent  certified public accountants of recognized national standing,
which may be the  regular  auditors of the  Company,  selected by the Company to
verify such  computations  reported  pursuant to Section 5.1(a),  other than any
computation that pursuant to the provisions of this Warrant are to be determined
reasonably  and in good  faith by the  Board of  Directors.  The  Company  shall
promptly prepare,  and remit to Holder, a copy of such independent  accountant's
report  setting  forth such  adjustment or  readjustment,  showing in reasonable
detail  the  method  of  calculation  thereof  and the  facts  upon  which  such
adjustment or readjustment is based.

              (c) The  Company  shall  also  keep  copies  of all  such  reports
generated  pursuant to this Section 5.1 at its principal  offices and will cause
the same to be available for inspection at such offices  during normal  business
hours by Holder any prospective purchaser of this Warrant designated by Holder.

         5.2. Notice of Certain Events. If at any time:

              (a) The Company obtains the Approvals by May 8, 2004;

              (b)  the  Company  shall  pay  any  dividend  upon,  or  make  any
distribution in respect of, its shares of the Company;

              (c) there shall be any capital reorganization, or reclassification
of the share capital,  of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another person;

              (d)  there  shall  be  a  voluntary  or  involuntary  dissolution,
liquidation or winding up of the Company; or

              (e) the occurrence of an Acquisition Transaction;

then, in any one or more of said cases,  the Company shall give notice to Holder
of the date on which (i) the Approvals have been obtained, (ii) the books of the
Company shall close or a record shall be taken for such  dividend,  distribution
or   subscription   rights,   (iii)   such   reorganization,   reclassification,
consolidation,  merger, sale, dissolution,  liquidation or winding up shall take
place, or (iv) the Acquisition Transaction shall take place, as the case may be.
Such notice  shall be given within five (5) days after the  Approvals  have been
obtained;  not less than five (5) days prior to the  record  date or the date on
which the transfer  books of the Company are to be closed in respect  thereto in
the case of an action  specified in clause (ii), at least ten (10) days prior to
the action in question in the case of an action  specified in clause (iii),  and
at least thirty (30) days prior to the occurrence of an Acquisition  Transaction
specified in clause (iv).

         5.3. Notice.  Any notice that is required or provided to be given under
this Warrant  shall be deemed to have been  sufficiently  given and received for
all purposes when delivered in

                                      -7-
<PAGE>

writing  by hand,  facsimile,  or five (5)  business  days  after  being sent by
certified  or  registered  mail,  postage and charges  prepaid,  return  receipt
requested,  or three (3)  business  days  after  being  sent by  internationally
overnight delivery providing receipt of delivery, to the following addresses: if
to the Company,  On Track Innovations Ltd., P.O.B 32, Rosh Pina, Israel,  12000,
attn. Oded Bashan,  facsimile:  (972) 4 6868-000,  with a copy to ZAG/S&W LLP, 1
Post Office Square,  Boston, MA 02109,  attn.  Audrey M. Roth, Esq.,  facsimile:
(617) 338-2880; or at any other address designated by the Company, to Holder; if
to  Holder,  at to the  address  set  forth  for  such  Holder  in the  Purchase
Agreement,  or at any other  address  designated  by Holder  to the  Company  in
writing.

         5.4.  No Change in Warrant  Terms on  Adjustment.  Irrespective  of any
adjustment in the Warrant Price or the number of Ordinary Shares,  this Warrant,
whether  theretofore or thereafter  issued or reissued,  may continue to express
the same Warrant Price and Ordinary  Shares as are stated herein and the Warrant
Price and such number of Ordinary  Shares  specified  herein  shall be deemed to
have been so adjusted.

         5.5.  Issuance and Transfer  Taxes.  The issuance of  certificates  for
Ordinary  Shares upon any exercise of this Warrant shall be made without  charge
to Holder for any issuance tax in respect  thereto;  provided,  that the Company
shall not be  required  to pay any tax that may be  payable  in  respect  of any
transfer  involved in the  issuance and  delivery of any  certificate  in a name
other than that of Holder or upon any transfer of this Warrant.

         5.6.  Exchange of Warrant.  This Warrant is  exchangeable at no cost to
Holder  upon the  surrender  hereof by  Holder  at such  office or agency of the
Company, for a new warrant of like tenor representing in the aggregate the right
to subscribe  for and purchase the number of shares that may be  subscribed  for
and  purchased  hereunder  from  time to time  after  giving  effect  to all the
provisions hereof, each of such new warrants to represent the right to subscribe
for and  purchase  such number of shares as shall be  designated  by said Holder
hereof at the time of such surrender.

         5.7. Lost, Stolen,  Mutilated or Destroyed Warrant.  If this Warrant is
lost,  stolen,  mutilated  or  destroyed,  the  Company  shall at no cost to the
Holder,  on such terms as to indemnity or otherwise as it may in its  discretion
impose (which shall, in the case of a mutilated  Warrant,  include the surrender
thereof),  issue a new warrant of like  denomination and tenor as the Warrant so
lost, stolen,  mutilated or destroyed.  Any such new warrant shall constitute an
original  contractual  obligation  of the Company,  whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.

         5.8.  Governing Law. This Warrant shall be deemed to be a contract made
under, and shall be construed in accordance with, the internal laws of the State
of New York, without giving effect to conflict of laws principles thereof.

         5.9. Section Headings;  Construction.  The descriptive headings in this
Warrant have been inserted for convenience only and shall not be deemed to limit
or otherwise  affect the  construction of any provision  thereof or hereof.  The
parties  have  participated  jointly in the  negotiation  and  drafting  of this
Warrant  and the  other  agreements,  documents  and  instruments  executed  and
delivered in  connection  herewith  with  counsel  sophisticated  in  investment

                                      -8-
<PAGE>

transactions.  In the event an ambiguity or question of intent or interpretation
arises, this Warrant shall be construed as if drafted jointly by the parties and
no presumption or burden of proof shall arise favoring or disfavoring  any party
by  virtue  of  the  authorship  of any  provisions  of  this  Warrant  and  the
agreements,  documents  and  instruments  executed and  delivered in  connection
herewith.

         5.10.  Integration.  This Warrant,  including the exhibits  referred to
herein,  constitutes  the  entire  agreement  and  supersedes  all  other  prior
agreements  and  understandings,  both written and oral,  among the parties with
respect to the subject matter hereof.

         5.11. No Rights or Liabilities as Shareholder.  Except as expressly set
forth herein, nothing contained in this Warrant shall be construed as conferring
upon  Holder any rights as a  shareholder  of the  Company  or as  imposing  any
obligation on Holder to purchase any  securities or as imposing any  liabilities
on  Holder  as  a  shareholder  of  the  Company,  whether  such  obligation  or
liabilities are asserted by the Company or creditors of the Company.

         5.12. Waivers and Consents; Amendments.

              (a) For the  purposes of this Warrant and all  documents  executed
pursuant hereto, no course of dealing between or among any of the parties hereto
and no delay on the part of any party hereto in exercising any rights  hereunder
or  thereunder  shall  operate as a waiver of the rights  hereof or thereof.  No
covenant  or  provision  hereof  may  be  waived  otherwise  than  by a  written
instrument  signed by the party or  parties so waiving  such  covenant  or other
provision contemplated herein.

              (b) No  amendment  to this Warrant may be made without the written
consent of the Company and a Majority Interest of the Lenders.

              (c) Any  actions  required to be taken with  respect to  consents,
approvals  or waivers  required  or  contemplated  to be given by Holder,  shall
require the vote of a Majority  Interest of the Lenders,  and any such action by
such majority interest vote shall bind all Holders.

         5.13.  No  Exercise  upon  Registration.  Neither  the  filing  of  the
registration  statement  covering the Warrant  Shares issued upon  conversion of
this  Warrant nor the  effectiveness  of such  registration  statement  shall be
interpreted to permit the exercise of this Warrant.

         5.14. Certain Definitions.  The following terms as used in this Warrant
shall have the following meanings:

              (a)  "Acceleration  Date"  means the date upon  which the  closing
price on the Nasdaq  Small Cap  Market of  Warrants  Shares for ten  consecutive
trading  days is at least two times the Initial  Warrant  Price,  provided  that
there is a  registration  statement  in  effect,  naming  the  Holder as selling
shareholder thereunder, for the resale of the Warrants Shares.

              (b)  "Affiliate"  means any person that  directly  or  indirectly,
through  one or more  intermediaries,  controls,  is  controlled  by or is under
common  control  with the first  mentioned  person.  A person shall be deemed to
control another person if such first person possesses directly or indirectly the
power to direct,  or cause the direction of, the  management

                                      -9-
<PAGE>

and  policies of the second  person,  whether  through the  ownership  of voting
securities, by contract or otherwise.

              (c)  "Continuity  Directors"  includes  any  individuals  who  are
members  of the  Company's  Board of  Directors  as of the date  hereof  and any
individual who subsequently becomes a member of the Company's Board of Directors
whose election,  or nomination for election,  by the Company's  shareholders was
approved by a vote of at least a majority of the Continuity Directors.

5.15.    Other Definitional Provisions.

              (a) Except as otherwise specified herein, all references herein:

                  (i) to any person other than the  Company,  shall be deemed to
         include such person's successors and assigns;

                  (ii) to the Company  shall be deemed to include the  Company's
         successors; and

                  (iii) to any  applicable  law  defined or  referred to herein,
         shall be deemed  references to such applicable law as the same may have
         been or may be amended or supplemented from time to time.

              (b) When used in this Warrant,  the words  "herein",  "hereof' and
"hereunder", and words of similar import, shall refer to this Warrant as a whole
and not to any provision of this Warrant,  and the words "Section" and "Exhibit"
shall refer to Sections  of, and  Exhibits  to, this  Warrant  unless  otherwise
specified.

              (c) Whenever the context so requires  the neuter  gender  includes
the masculine or feminine, and the singular number includes the plural, and vice
versa.

         5.16. Payment of Warrant Price. The Holder may pay the Warrant Price in
one of the following manners:

              (a) Cash Exercise.  The Holder may deliver  immediately  available
funds; or

              (b)  Cashless  Exercise.  The Holder may notify the  Company in an
Exercise Notice of its election to utilize cashless exercise, in which event the
Company  shall issue to the Holder the number of Warrant  Shares  determined  as
follows:

               X = Y [(A-B)/A]

      where:

               X = the number of Warrant Shares to be issued to the Holder.

               Y = the number of Warrant Shares with
               respect to which this Warrant is being
               exercised.

                                      -10-
<PAGE>

               A = the average of the closing prices for
               the Common Stock for the five Trading Days
               immediately prior to (but not including) the
               Exercise Date.

               B = the Warrant Price.

         For purposes of Rule 144  promulgated  under the Securities  Act, it is
intended that the Warrant Shares issued in a cashless exercise transaction shall
be deemed to have been  acquired by the Holder,  and the holding  period for the
Warrant Shares shall be deemed to have  commenced,  on the date this Warrant was
originally issued.

         5.17. Limitations on Exercise. Notwithstanding anything to the contrary
contained  herein,  the number of shares of Common Stock that may be acquired by
the Holder upon any  exercise of this Warrant (or  otherwise in respect  hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or  other  issuance),   the  total  number  of  shares  of  Common  Stock  then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial  ownership of Common Stock would be aggregated  with the Holder's for
purposes of Section  13(d) of the Exchange  Act,  does not exceed  4.999% of the
total number of issued and  outstanding  shares of Common Stock  (including  for
such purpose the shares of Common Stock issuable upon such  exercise).  For such
purposes,  beneficial  ownership  shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations  promulgated thereunder.
Each delivery of an Exercise Notice  hereunder will constitute a  representation
by the Holder that it has evaluated the  limitation  set forth in this paragraph
and determined  that issuance of the full number of Warrant Shares  requested in
such Exercise Notice is permitted under this paragraph. This provision shall not
restrict  the number of shares of Common  Stock  which a Holder  may  receive or
beneficially  own in  order to  determine  the  amount  of  securities  or other
consideration  that such  Holder  may  receive in the event of a merger or other
business  combination  or  reclassification  involving  the Company.  By written
notice to the Company,  the Holder may waive the  provisions of this Section but
(i) any such waiver will not be  effective  until the 61st day after such notice
is  delivered  to the  Company,  and (ii) any such waiver will apply only to the
Holder and not to any other holder of Warrants.

                   REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

                                      -11-
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its duly authorized as of the date first written above.

                                         ON TRACK INNOVATIONS LTD.

                                         By:      _____________________________
                                                  Name:
                                                  Title:

                                      -12-
<PAGE>

                                   SCHEDULE A
                             FORM OF EXERCISE NOTICE

    [To be executed only upon exercise of Warrant pursuant to Section 1.1(a)]

To On Track Innovations Ltd.

         The  undersigned  registered  Holder of the Warrant hereby  irrevocably
exercises such Warrant for, and purchases  thereunder,  ____ Ordinary Shares and
herewith  makes  payment  of  $__________   therefor,   and  requests  that  the
certificates  for  such  shares  be  issued  in the name of,  and  delivered  to
___________________, whose address is _____________________.

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

                                    _______________________________________
                                     (Street Address)

                                    _______________________________________
                                     (City) (State)      (Zip Code)

                                      -13-

<PAGE>

                                    EXHIBIT C
                          REGISTRATION RIGHTS AGREEMENT
<PAGE>

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT dated as of the 8th day of September 2003
(this "Agreement") by and between ON TRACK INNOVATIONS LTD., an Israeli company
(the "Company"), and the lenders identified on Exhibit 1 hereto (each a "Lender"
and together, the "Lenders").

         WHEREAS, the Lenders and the Company have entered into a Note and
Warrant Purchase Agreement (the "Purchase Agreement") pursuant to which
concurrently herewith the Lenders own or have the right to purchase or otherwise
acquire shares of the Ordinary Shares (as hereinafter defined) of the Company;

         WHEREAS, the Company and the Lenders deem it to be in their respective
best interests to set forth the rights of the Lenders in connection with the
public offerings and sales of the Ordinary Shares;

         NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, the Company and the Lender hereby agree
as follows:

         SECTION 1. DEFINITIONS.

         As used in this Agreement the following terms shall have the following
meanings:

         (a)  "Commission"  means the Securities and Exchange  Commission or any
other Federal agency at the time administering the Securities Act.

         (b)  "Exchange  Act" means the  Securities  Exchange Act of 1934 or any
successor  Federal  statute,  and the rules and  regulations  of the  Commission
promulgated thereunder, all as the same shall be in effect from time to time.

         (c) "Lenders" means the persons identified on Exhibit 1 hereto.

         (d) "Ordinary Shares" means the ordinary shares of the Company, NIS 0.1
nominal value.

         (e) "Other  Shares"  means at any time those shares of Ordinary  Shares
that do not constitute Primary Shares or Registrable Shares.

         (f)  "Primary  Shares"  means at any time the  authorized  but unissued
shares of Ordinary Shares held by the Company in its treasury.

         (g) "Registrable  Shares" means Ordinary Shares issuable to the Lenders
upon  conversion  of the Notes  and  exercise  of the  Warrants  or the  Payback
Warrants  (as the  case may be),  as such  terms  are  defined  in the  Purchase
Agreement,  all as  described  on  Exhibit 1. As to any  particular  Registrable
Shares,  such Registrable  Shares shall cease to be Registrable  Shares when (i)
they have been registered under the Securities Act, the  registration  statement
in connection  therewith has been declared effective and they have been disposed
of pursuant to
<PAGE>

such  effective  registration  statement,  (ii) they are  eligible to be sold or
distributed  without volume  limitations  pursuant to Rule 144(k), or (iii) they
shall have ceased to be outstanding.

         (h) "Rule 144" means Rule 144  promulgated  under the Securities Act or
any  successor  rule thereto or any  complementary  rule  thereto  (such as Rule
144A).

         (i) "Securities  Act" means the Securities Act of 1933 or any successor
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect from time to time.

         SECTION 2. REQUIRED REGISTRATION.

         2.1 The Company shall include all the  Registrable  Shares in the first
Form F-1 registration  statement under the Securities Act that the Company shall
file after the date  hereof and in any event no later than 5 business  days from
the  date  hereof  (the  "Registration  Statement"),  to  the  extent  that  all
Registrable Shares can be included in such registration  statement in accordance
with  applicable  securities  laws,  and shall use its  commercially  reasonable
efforts to cause such  registration  statement  to become  effective  as soon as
practicable  thereafter  but in any  event  later  than 90 days  after  the date
hereof.

         2.2 Notwithstanding the provisions of Section 2.1 above, the Company
shall not be obligated to file any registration under the Securities Act except
in accordance with the following provisions:

         (a)  the  Company  may  delay  the  filing  or   effectiveness  of  any
registration  statement  for a period of up to 90 days if the Company is engaged
in a firm commitment underwritten public offering of Primary Shares in which the
holders of Registrable Shares may include Registrable Shares pursuant to Section
3.

         (b) With respect to any  registration  pursuant to this Section 2.2(a),
the Company shall give notice of such  registration  to the holders of all Other
Shares that are entitled to  registration  rights and the Company may include in
such registration any Primary Shares or Other Shares; provided, however, that if
the  managing  underwriter  advises  the  Company  that  the  inclusion  of  all
Registrable  Shares,  Primary Shares and/or Other Shares proposed to be included
in such registration  would interfere with the successful  marketing  (including
pricing) of the Registrable Shares proposed to be included in such registration,
then the number of  Registrable  Shares,  Primary  Shares  and/or  Other  Shares
proposed to be included in such registration  shall be included in the following
order:

                  (i) first, the Registrable Shares;

                  (ii) second, the Primary Shares; and

                  (iii)   third,   the  Other   Shares  which  are  entitled  to
         registration rights.

         (c) At any time before the registration  statement covering Registrable
Shares becomes effective,  the holder/s of a majority of such shares may request
the  Company to  withdraw  or not to file the  registration  statement.  In that
event,  if such request of withdrawal  shall not have been caused by, or made in
response to an event having material adverse effect on the business, properties,
conditions,  financial or otherwise,  or operations of the Company,  the

                                       2
<PAGE>

holders
shall have used their  demand  registration  right under this  Section 2 and the
Company shall no longer be obligated to register  Registrable Shares pursuant to
the exercise of such  registration  right pursuant to this Section 2, unless the
remaining  holders shall pay to the Company the expenses incurred by the Company
through the date of such request.

         SECTION 3. HOLDBACK AGREEMENT.

         If the Company at any time shall  register  Ordinary  Shares  under the
Securities  Act pursuant to Section 2 for sale to the public  pursuant to a firm
commitment  public  offering for proceeds in excess of  $5,000,000,  the Lenders
shall not sell  publicly,  make any short  sale of,  grant  any  option  for the
purchase of, or otherwise  dispose  publicly of, any  Registrable  Shares (other
than those Ordinary Shares included in such registration  pursuant to Section 2)
as required by any underwriter in connection with such registration, without the
prior  written  consent of the  Company,  for up to 90 days.  The Company  shall
obtain  the  agreement  of any person  permitted  to sell  Ordinary  Shares in a
registration  to be bound by and to comply with this Section 3 as if such person
was a Lender hereunder.

         SECTION 4. PREPARATION AND FILING.

         If and  whenever  the  Company is under an  obligation  pursuant to the
provisions of this Agreement to use its best efforts to effect the  registration
of any Registrable Shares, the Company shall, as expeditiously as practicable:

         (a)  use its  best  efforts  to  cause a  registration  statement  that
registers such Registrable Shares to become and remain effective for a period of
365 days or until  all of such  Registrable  Shares  have been  disposed  of (if
earlier);  it being  understood  that such  registration  statement  may, in the
Company's  discretion,  be on any form that the  Company is  eligible  to use to
register the resale of the Registrable  Shares; it being further understood that
before or following the effectiveness of a registration  statement  covering the
Registrable  Shares,  the  Company  may change to another  form of  registration
statement  for which the Company is then  eligible to register  its  securities,
provided  that at least one  registration  statement  covering  the  Registrable
Shares not yet sold remains effective during such 365 day period or until all of
such Registrable Shares have been disposed of (if earlier).  In addition,  by or
before the  conclusion  of such 365 day period the Company may take such actions
for any such  registration  statement  covering  Registrable  Shares (or, in the
Company's discretion,  a registration statement on another form that the Company
is eligible to use to register  its  securities)  to remain  effective  for such
additional time period as the Company shall decide in its sole discretion;

         (b)  prepare  and  file  with  the  Commission   such   amendments  and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such  registration  statement  (or, in the
Company's discretion,  a registration statement on another form that the Company
is eligible to use to register  its  securities)  effective  for a period of 365
days or until all of such Registrable  Shares have been disposed of (if earlier)
and to comply with the provisions of the Securities Act with respect to the sale
or other  disposition of such  Registrable  Shares,  or such longer period as is
determined by the Company pursuant to Section 4(a) hereof;

         (c) use its best efforts to register or qualify such Registrable Shares
under  such  other  securities  or blue  sky laws of such  jurisdictions  as the
Lenders  reasonably request and do any and all other acts and things that may be
reasonably  necessary  or  advisable  to enable the  Lenders to

                                       3
<PAGE>

consummate the disposition in such jurisdictions of the Registrable Shares owned
by the  Lenders;  provided,  however,  that the Company  will not be required to
qualify generally to do business,  subject itself to general taxation or consent
to general service of process in any  jurisdiction  where it would not otherwise
be  required  to do so but for this  paragraph  (c) or to provide  any  material
undertaking or make any changes in its By-laws or Articles of Association  which
the Board of Directors  determines  to be contrary to the best  interests of the
Company or to modify any of its contractual relationships then existing;

         (d) furnish to the Lenders holding such Registrable  Shares such number
of copies of a summary  prospectus,  if any,  or other  prospectus,  including a
preliminary  prospectus,  in conformity with the  requirements of the Securities
Act, and such other documents as such Lenders may reasonably request in order to
facilitate the public sale or other disposition of such Registrable Shares;

         (e) without  limiting  subsection  (c) above,  use its best  efforts to
cause such  Registrable  Shares to be registered  with or approved by such other
governmental  agencies  or  authorities  as may be  necessary  by  virtue of the
business  and  operations  of the  Company to enable the  Lenders  holding  such
Registrable Shares to consummate the disposition of such Registrable Shares;

         (f) notify the  Lenders  holding  such  Registrable  Shares on a timely
basis at any time  when a  prospectus  relating  to such  Registrable  Shares is
required to be delivered under the Securities Act within the appropriate  period
mentioned in  subparagraph  (a) of this Section 4, of the happening of any event
as a result of which the prospectus included in such registration  statement, as
then in effect,  includes  an untrue  statement  of a material  fact or omits to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein not misleading in light of the  circumstances  then existing
and,  at the  request  of an  Lender,  prepare  and  furnish  to such  Lender  a
reasonable  number  of  copies  of a  supplement  to or  an  amendment  of  such
prospectus as may be necessary so that, as thereafter  delivered to the offerees
of such  shares,  such  prospectus  shall not include an untrue  statement  of a
material fact or omit to state a material fact required to be stated  therein or
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances then existing;

         (g) use its best  efforts  to  obtain  from its  independent  certified
public  accountants  "cold  comfort"  letters  addressed  to the Company and any
selling Lender in customary form and at customary times and covering  matters of
the type customarily covered by cold comfort benefits;

         (h) use its best  efforts  to obtain  from its  counsel  an  opinion or
opinions in customary form addressed to the Company and any selling Lender;

         (i)  provide a  transfer  agent and  registrar  (which  may be the same
entity and which may be the Company) for such Registrable Shares;

         (j) issue to any  underwriter  to which the  Lenders may sell shares in
such offering certificates evidencing such Registrable Shares;

         (k) list such Registrable  Shares on the automated  quotation system of
the National Association of Securities Dealers, Inc. (the "NASD"), and any other
national  securities  exchange  on which any shares of the  Ordinary  Shares are
listed;

                                       4
<PAGE>

         (l) subject to all the other provisions of this Agreement, use its best
efforts to take all other steps  accessory  to effect the  registration  of such
Registrable Shares contemplated hereby.

         The  Lenders,  upon receipt of any notice from the Company of any event
of the kind  described  in Section  4(f)  hereof,  shall  forthwith  discontinue
disposition of the  Registrable  Shares pursuant to the  registration  statement
covering such Registrable Shares until the Lenders' receipt of the copies of the
supplemented or amended prospectus  contemplated by Section 4(g) hereof, and, if
so directed by the Company, the Lenders shall deliver to the Company all copies,
other  than  permanent  file  copies  then in the  Lenders'  possession,  of the
prospectus  covering  such  Registrable  Shares at the time of  receipt  of such
notice.

         SECTION 5. EXPENSES

         All  expenses  (other  than  underwriting   discounts  and  commissions
relating to the  Registrable  Shares,  as provided in the last  sentence of this
Section 5) incurred  by the  Company in  complying  with  Section 4,  including,
without  limitation,  all  registration  and filing fees (including all expenses
incident  to  filing  with  the  NASD),  fees and  expenses  of  complying  with
securities and blue sky laws,  printing  expenses,  and fees and expenses of the
Company's  counsel and  accountants;  provided,  however,  that all underwriting
discounts and selling commissions applicable to the Registrable Shares and Other
Shares shall be borne by the holders selling such  Registrable  Shares and Other
Shares, in proportion to the number of Registrable  Shares and Other Shares sold
by each such holder.

         SECTION 6. INDEMNIFICATION.

         (a) In connection with any registration of any Registrable Shares under
the Securities Act pursuant to this  Agreement,  the Company shall indemnify and
hold harmless each Lender,  each underwriter,  broker or any other person acting
on behalf of the holders of  Registrable  Shares and each other person,  if any,
who controls any of the foregoing  persons  within the meaning of the Securities
Act against any losses,  claims,  damages or  liabilities,  joint or several (or
actions in respect  thereof),  to which any of the foregoing  persons may become
subject under the Securities Act or otherwise,  insofar as such losses,  claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue  statement  or  allegedly  untrue  statement  of a material  fact
contained in the registration statement under which such Registrable Shares were
registered  under  the  Securities  Act,  any  preliminary  prospectus  or final
prospectus  contained  therein  or  otherwise  filed  with the  Commission,  any
amendment or  supplement  thereto or any document  incident to  registration  or
qualification of any Registrable  Shares,  or arise out of or are based upon the
omission or alleged  omission to state  therein a material  fact  required to be
stated  therein or necessary to make the  statements  therein not misleading or,
with  respect to any  prospectus,  necessary to make the  statements  therein in
light of the  circumstances  under which they were made not  misleading,  or any
violation by the Company of the Securities  Act or state  securities or blue sky
laws  applicable  to the Company and relating to action or inaction  required of
the Company in connection  with such  registration or  qualification  under such
state  securities  or blue sky  laws;  and shall  reimburse  each  Lender,  such
underwriter, such broker or such other person acting on behalf of the holders of
Registrable  Shares  and each  such  controlling  person  for any legal or other
expenses  reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,  however,
that the  Company  shall not be liable in any such case to the  extent  that any
such loss,  claim,  damage,  liability or action  (including  any legal or other
expenses  incurred)  arises  out of or is  based  upon

                                       5
<PAGE>

an untrue  statement  or  allegedly  untrue  statement  or  omission  or alleged
omission made in said  registration  statement,  preliminary  prospectus,  final
prospectus,  amendment  supplement  or  document  incident  to  registration  or
qualification of any Registrable  Shares in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by an  Lender  or  his  counsel  or  underwriter  specifically  for  use  in the
preparation  thereof;  provided further,  however,  that the foregoing indemnity
agreement is subject to the condition that,  insofar as it relates to any untrue
statement,  omission or alleged omission made in any preliminary  prospectus but
eliminated or remedied in the final  prospectus  (filed  pursuant to Rule 424 of
the Securities Act), such indemnity  agreement shall not inure to the benefit of
any Lender,  underwriter,  broker or other person acting on behalf of holders of
the Restricted  Shares from whom the person asserting any loss,  claim,  damage,
liability  or expense  purchased  the  Restricted  Shares  which are the subject
thereof,  if a copy of such final  prospectus  had been made  available  to such
person and such Lender, underwriter,  broker or other person acting on behalf of
holders of the Registrable Shares and such final prospectus was not delivered to
such  person  with or  prior  to the  written  confirmation  of the sale of such
Registrable Shares to such person.

         (b) In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement,  the Lenders,  jointly and severally,
shall  indemnify and hold harmless (in the same manner and to the same extent as
set forth in the  preceding  paragraph  of this  Section  6) the  Company,  each
director  of the  Company,  each  officer  of the  Company  who shall  sign such
registration  statement,  each  representative  of the  Company,  including  the
Company's counsel, each underwriter,  broker or other person acting on behalf of
the  holders of  Registrable  Shares and each  person  who  controls  any of the
foregoing  persons  within the meaning of the Securities Act with respect to any
statement  or  omission  from  such  registration  statement,   any  preliminary
prospectus or final  prospectus  contained  therein or otherwise  filed with the
Commission,  any  amendment or  supplement  thereto or any document  incident to
registration or  qualification of any Registrable  Shares,  if such statement or
omission was made in reliance  upon and in conformity  with written  information
furnished to the Company or such underwriter  specifically for use in connection
with the preparation of such  registration  statement,  preliminary  prospectus,
final prospectus, amendment, supplement or document.

         (c) Promptly  after  receipt by an  indemnified  party of notice of the
commencement  of any  action  involving  a claim  referred  to in the  preceding
paragraphs of this Section 6, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the  commencement  of such action.  The failure of any  indemnified  party to
notify an  indemnifying  party of any such action shall not (unless such failure
shall have a material  adverse  effect on the  indemnifying  party)  relieve the
indemnified  party on  account  of this  Section  6. In case any such  action is
brought against an indemnified party, the indemnifying party will be entitled to
participate  in and to  assume  the  defense  thereof,  jointly  with any  other
indemnifying  party  similarly  notified  to the extent  that it may wish,  with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying  party to such  indemnified  party of its election so to assume
the defense  thereof,  the  indemnifying  party shall not be responsible for any
legal  or other  expenses  subsequently  incurred  by the  indemnified  party in
connection with the defense thereof; provided,  however, that if any indemnified
party  shall have  reasonably  concluded  that there may be one or more legal or
equitable  defenses  available to such indemnified party which are additional to
or conflict with those available to the  indemnifying  party, or that such claim
or litigation  involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 6, the indemnifying party shall
not have the  right to  assume  the  defense  of such  action  on behalf of such
indemnified party (but shall have the right to participate  therein with counsel
of its choice) and such  indemnifying

                                       6
<PAGE>

party shall reimburse such  indemnified  party and any person  controlling  such
indemnified  party for that  portion  of the fees and  expenses  of any  counsel
retained by the  indemnified  party which is  reasonably  related to the matters
covered  by  the  indemnity  agreement  provided  in  this  Section  6.  If  the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim,  it will not be  obligated  to pay the fees and expenses of more than one
counsel with respect to such claim.

         (d) If the indemnification  provided for in this Section 6 is held by a
court of competent  jurisdiction to be unavailable to an indemnified  party with
respect to any loss, claim, damage, liability or action referred to herein, then
the  indemnifying   party,  in  lieu  of  indemnifying  such  indemnified  party
hereunder,  shall  contribute to the amounts paid or payable by such indemnified
party as a result  of such  loss,  claim,  damage,  liability  or action in such
proportion as is appropriate  to reflect the relative fault of the  indemnifying
party on the one hand and of the  indemnified  party on the other in  connection
with the  statements or omissions  which resulted in such loss,  claim,  damage,
liability or action as well as any other relevant equitable considerations.  The
relative fault of the indemnifying  party and of the indemnified  party shall be
determined by reference  to, among other  things,  whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information  supplied by the indemnifying party or by
the indemnified  party and the parties'  relative intent,  knowledge,  access to
information  and  opportunity  to correct or prevent such statement or omission.
The  parties  agree  that it would  not be just and  equitable  if  contribution
pursuant hereto were determined by pro rata allocation or by any other method or
allocation which does not take account of the equitable  considerations referred
to herein. No person guilty of fraudulent misrepresentation shall be entitled to
contribution from any person.

         SECTION 7. UNDERWRITING AGREEMENT.

         Notwithstanding  the  provisions  of Sections 3, 4 and 5, to the extent
that the Lenders shall enter into an  underwriting or similar  agreement,  which
agreement  contains  provisions  covering  one or more issues  addressed in such
Sections,  the provisions  contained in such agreement  addressing such issue or
issues shall control;  provided,  however,  that any such agreement to which the
Company is not a party  shall not be  binding  upon the  Company.  No holder may
participate in any  underwritten  registration  hereunder unless such holder (a)
agrees to such  holder's  securities on the basis  provided in any  underwriting
arrangements  and (b)  completes  and  executes  all  questionnaires,  powers of
attorney,  indemnities,  underwriting  agreements and other documents reasonably
and customarily required under the terms of such underwriting arrangements.

         SECTION 8. INFORMATION BY HOLDER.

         Each Lender  shall  furnish to the  Company  such  written  information
regarding such Lender and the distribution proposed by the Lender as the Company
may  reasonably  request  in  writing  and as shall be  reasonably  required  in
connection with any  registration,  qualification  or compliance  referred to in
this Agreement.

         SECTION 9. EXCHANGE ACT COMPLIANCE.

         The Company shall comply with all of the reporting  requirements of the
Exchange Act applicable to it (whether or not it shall be required to do so, but
specifically  excluding Section 14 of the Exchange Act if not then applicable to
the  Company)  and shall  comply  with all other

                                       7
<PAGE>

public information reporting requirements of the Commission which are conditions
to the availability of Rule 144 for the sale of the Ordinary Shares. The Company
shall  cooperate  with the  Lenders  in  supplying  such  information  as may be
necessary for the Lenders to complete and file any  information  reporting forms
presently  or  hereafter  required  by  the  Commission  as a  condition  to the
availability of Rule 144.

         SECTION 10. NO CONFLICT OF RIGHTS

         The Company shall not,  after the date hereof,  grant any  registration
rights that prohibit the registration rights granted hereby.

         SECTION 11. TERMINATION.

         This  Agreement  shall  terminate  and be of no further force or effect
when there shall no longer be any Registrable Shares outstanding;  provided that
Sections 5 and 6 shall survive any termination of this Agreement.

         SECTION 12. SUCCESSORS AND ASSIGNS.

         This  Agreement  shall bind and inure to the benefit of the Company and
the Lenders and, subject to Section 13, the respective successors and assigns of
the Company and the Lenders.

         SECTION 13. ASSIGNMENT.

         A Lender may assign his rights hereunder to any purchaser or transferee
of  Registrable  Shares;  provided,  however,  that such purchaser or transferee
shall, as a condition to the  effectiveness of such  assignment,  be required to
execute a  counterpart  to this  Agreement  agreeing  to be treated as an Lender
whereupon such purchaser or transferee  shall have the benefits of, and shall be
subject to the restrictions contained in, this Agreement as if such purchaser or
transferee was originally included in the definition of an Lender herein and had
originally been a party hereto.

         SECTION 14. ENTIRE AGREEMENT

         This Agreement and the other writings  referred to herein or therein or
delivered  pursuant hereto or thereto,  contain the entire agreement between the
each of the Lenders and the Company  with respect to the subject  matter  hereof
and supersede all prior and contemporaneous  arrangements or understandings with
respect thereto.

         SECTION 15. NOTICES.

         Any  notice  that is  required  or  provided  to be  given  under  this
Agreement shall be deemed to have been  sufficiently  given and received for all
purposes when delivered in writing by hand, facsimile, or five (5) business days
after being sent by certified or registered  mail,  postage and charges prepaid,
return  receipt  requested,  or three (3)  business  days  after  being  sent by
internationally  overnight  delivery  providing  receipt  of  delivery,  to  the
following  addresses:  if to the Company,  On Track  Innovations Ltd., P.O.B 32,
Rosh Pina, Israel, 12000, attn. Oded Bashan, facsimile: (972) 4 6868-000, with a
copy to ZAG/S&W LLP, 1 Post Office Square,  Boston,  MA 02109,  attn.  Audrey M.
Roth, Esq., facsimile: (617) 338-2880; or at any other a

                                       8
<PAGE>

ddress designated by the Company, to the Lenders; if to a Lender, to its address
listed on  Schedule 1 or at any other  address  designated  by the Lender to the
Company in writing.

         SECTION 16. MODIFICATIONS; AMENDMENTS; WAIVERS.

         The terms and  provisions  of this  Agreement  may not be  modified  or
amended,  nor may any provision be waived,  except pursuant to writing signed by
the Company and the Lenders.

         SECTION 17. COUNTERPARTS.

         This Agreement may be executed in any number of counterparts,  and each
such counterpart  hereof shall be deemed to be an original  instrument,  but all
such counterparts together shall constitute but one agreement.

         SECTION 18. HEADINGS.

         The  headings  of the  various  sections  of this  Agreement  have been
inserted for  convenience of reference only and shall not be deemed to be a part
of this Agreement.

         SECTION 19. GOVERNING LAW.

         This  Agreement  shall be governed by and construed in accordance  with
the internal laws of the State of New York  applicable to contracts  made and to
be performed wholly therein.

                   REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

                                       9
<PAGE>

         IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first set forth above.

ON TRACK INNOVATIONS LTD.

By:____________________________

     Name: ____________________

     Title: ___________________

PLATINUM PARTNERS VALUE ARBITRAGE FUND      PLATINUM GLOBAL MACRO FUND

By:____________________________             By:____________________________

     Name: ____________________                 Name: _____________________

     Title: ___________________                 Title: ____________________

WEST END CONVERTIBLE FUND L.P.              WEC PARTNERS LLC

By:____________________________             By:____________________________

     Name: ____________________                Name: ______________________

     Title: ___________________                Title: _____________________

MICHAEL H. WEISS

By:____________________________

     Name: ____________________

     Title: ___________________

                                       10
<PAGE>
<TABLE>
<CAPTION>

                                                          SCHEDULE 1

LENDERS AND ADDRESS                      LOAN                     WARRANTS                PAYBACK
                                                                                          WARRANTS

<S>                                     <C>                      <C>                     <C>

PLATINUM PARTNERS VALUE ARBITRAGE FUND   $500,000                 90,000                  235,294
c/o Platinum Partners LLC
152 West 57th Street
54th Floor
New York, New York 10019
Tel. 212-581-0500 Fax. 212-581-0002

PLATINUM GLOBAL MACRO FUND               $250,000                 45,090                  117,647
c/o Platinum Partners LLC
152 West 57th Street
54th Floor
New York, New York 10019
Tel. 212-581-0500 Fax. 212-581-0002

WEST END CONVERTIBLE FUND L.P.            $75,000                 13,500                   35,294
c/o WEC Partners LLC
145 Huguenot Street
Suite 404
New Rochelle, NY 10801
Tel. 914-831-9950
Fax. 914-632-9797

WEC PARTNERS LLC                          $75,000                 13,500                   35,294
145 Huguenot Street
Suite 404
New Rochelle, NY 10801
Tel. 914-831-9950
Fax. 914-632-9797

MICHAEL H. WEISS                          $99,000                 17,820                   46,588
25 Briarwood Lane
Lawrence, NY 11559
Tel. 516-569-7492
Fax. 516-569-7492
</TABLE>

                                       11

<PAGE>

                                    EXHIBIT D
                               VOTING UNDERTAKING
<PAGE>
                               VOTING UNDERTAKING

         Reference is made to Section 6.5 of a certain Note and Warrant Purchase
Agreement dated the date hereof,  by and between On Track  Innovations  Ltd., an
Israeli company  (hereinafter  referred to as the "Company") and certain lenders
(the "Purchase Agreement").

         The undersigned,  [Oded Bashan/Ronnie  Gilboa], in consideration of the
sum of $1.00,  hereby  undertakes  in respect of all his Ordinary  Shares of the
Company,  that  he  now  or  hereafter  may  own  or  hold,  including,  without
limitation, to use his right, as a shareholder, to demand the call by any proper
officer  of  the  Company   pursuant  to  the  provisions  of  its  articles  of
association,  memorandum of association or other organizational documents and as
permitted  by law  of a  meeting  of its  shareholders  and  at any  meeting  of
shareholders,  annual,  general or special, and to vote for the approval and all
other  actions,  in his  capacity  as a  shareholder,  in  connection  with  the
conversion  of the Notes and the  exercisability  of the Warrants (as such terms
are defined in the Purchase Agreement) (the "Transaction").

         This  undertaking  shall  expire  upon  the  earlier  to  occur  of (i)
obtaining the  shareholders'  approval required for the Transaction and (ii) May
8, 2004.

         For the avoidance of doubt,  this undertaking shall not bind in any way
the  undersigned's  actions in his  capacity  as an officer  and a member of the
board of directors of the Company,  and in exercising his duties and obligations
as an  officer  and  member  of the  board of  directors  of the  Company,  this
undertaking shall not bind the undersigned in any manner.

         IN WITNESS WHEREOF,  the undersigned has executed this Undertaking this
8 day of September, 2003.

                                             Name:_______________________

                                             By:____________________________
                                                  Name:
                                                  Title:

<PAGE>

                                    EXHIBIT E
                                  FORM OF PROXY

<PAGE>
                                IRREVOCABLE PROXY

         KNOW ALL PERSONS BY THESE  PRESENTS  that the  undersigned  does hereby
make,  constitute and appoint Oded Bashan, its true and lawful attorney,  for it
and in its name,  place and stead,  to act as its proxy in respect of all of the
Ordinary Shares of On Track  Innovations  Ltd., an Israeli company  (hereinafter
referred  to as the  "Company"),  which  it now or  hereafter  may own or  hold,
including,  without limitation,  the right, on its behalf, to demand the call by
any proper officer of the Company  pursuant to the provisions of its articles of
association,  memorandum of association or other organizational documents and as
permitted  by law  of a  meeting  of its  shareholders  and  at any  meeting  of
shareholders, annual, general or special, to vote for the transaction of any and
all business that may come before such meeting,  or at any adjournment  thereof,
including, without limitation, the right to vote for the sale of all or any part
of the assets of the  Company  and/or the  liquidation  and  dissolution  of the
Company; giving and granting to his said attorney full power and authority to do
and perform  each and every act and thing  whether  necessary or desirable to be
done in and about the  premises,  as fully as it might or could do if personally
present with full power of  substitution,  appointment  and  revocation,  hereby
ratifying and  confirming  all that its said  attorneys  shall do or cause to be
done by virtue  hereof.  Notwithstanding  the  foregoing,  this Proxy  shall not
extend to any  votes or acts in which the  shares  subject  hereto  could not be
legally voted under any applicable law or regulation.

         This Proxy is given to Oded Bashan in  consideration of the performance
of the Note and Warrant Purchase Agreement dated the date hereof, by and between
the undersigned  and other lenders and the Company,  and this Proxy shall not be
revocable or revoked by the undersigned and shall be binding upon his successors
and assigns, provided, however, that this Proxy shall be null and void and shall
have no force and  effect,  in respect  of such  Ordinary  Shares  (and no other
securities)  so sold by the  undersigned in an arm's length sale (in good faith)
to a party other than an Affiliate (as defined in Rule 144 under the  Securities
Act of 1933, as amended) below) of the Lender  providing this Proxy.  This Proxy
may not be assigned by Oded Bashan.

         The undersigned shall execute and deliver such additional documents and
instruments  as the  Company  or Oded  Bashan may  require to confirm  the grant
hereby, including,  without limitation,  such instruments as may be necessary or
appropriate  under Israeli law;  provided that under no circumstances  shall the
undersigned  be required to deliver any of its Ordinary  Shares or provide stock
powers in connection with this proxy.

         IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy
this 8th day of September, 2003.

                                              Name:_______________________

                                              By:_________________________
                                                   Name:
                                                   Title:EXHIBIT 10.1

                                MAF BANCORP, INC.

                           INCENTIVE COMPENSATION PLAN

         1. Purpose. The purpose of the MAF Bancorp, Inc. Incentive Compensation
Plan is to benefit the Corporation and its Subsidiaries, including the Bank, by
enabling the Corporation to offer certain present and future officers,
employees, and directors of the Corporation and its Subsidiaries stock and
cash-based incentives and other equity interests in the Corporation, thereby
providing them a stake in the growth of the Corporation and encouraging them to
continue in the service of the Corporation and its Subsidiaries.

         2. Definitions.

                  (a) "Award" includes, without limitation, Stock Options
(including Incentive Stock Options), Stock Appreciation Rights, Performance
Share or Unit awards, Dividend or Equivalent Rights, Stock Awards, Restricted
Share or Unit awards, Cash Awards or other awards ("Other Incentive Awards")
that are valued in whole or in part by reference to, or are otherwise based on,
the Corporation's Common Stock or other factors, all on a stand alone,
combination or tandem basis, as described in or granted under this Plan.

                  (b) "Award Agreement" means a writing provided by the
Corporation to each Participant setting forth the terms and conditions of each
Award made under this Plan.

                  (c) "Bank" means Mid America Bank fsb.

                  (d) "Board" means the Board of Directors of the Corporation.

                  (e) "Cash Award" has the meaning specified in Section 6(i).

                  (f) "Change of Control" shall be deemed to have occurred upon
the happening of any of the following events:

                           (i) a change in control which would be required to be
         reported in response to Item 1 of the current report on Form 8-K, as in
         effect on the date hereof, pursuant to Section 13 or 15(d) of the
         Securities Exchange Act of 1934 (the "Exchange Act"); or

                           (ii) a change in control of the Corporation or the
         Bank within the meaning of the Home Owners Loan Act of 1933, as
         amended, and the Rules and Regulations promulgated by the Office of
         Thrift Supervision (or its predecessor agency), as in effect on the
         date hereof, including Section 574 of such regulations; or

                           (iii) without limitation, at such time as any
         "person" (as the term is used in Sections 13(d) and 14(d) of the
         Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
         13d-3 under the Exchange Act), directly or indirectly, of securities,
         or makes an offer to purchase and completes the purchase of securities,
         of the

<PAGE>

         Bank or Corporation representing 20% or more of the Bank's or
         Corporation's outstanding securities ordinarily having the right to
         vote at the election of directors except for (A) any securities
         purchased by the employee stock ownership plan and trust of the
         Corporation or a subsidiary or (B) any securities of the Bank owned by
         the Corporation; or

                           (iv) individuals who constitute either the
         Corporation's Board of Directors on the date hereof (the "Incumbent
         Board"), or the Bank's Board of Directors on the date hereof (the "Bank
         Incumbent Board"), cease for any reason to constitute at least a
         majority thereof, provided that any person becoming a director
         subsequent to the date hereof whose election was approved by a vote of
         at least three-quarters of the directors comprising the Incumbent
         Board, or whose nomination for election by the stockholders was
         approved by the Nominating Committee serving under the Incumbent Board
         or the Bank Incumbent Board, shall be, for purposes of this clause
         (iv), considered as though such individual was a member of the
         Incumbent Board or the Bank Incumbent Board, as the case may be; or

                           (v) a plan of reorganization, merger, consolidation,
         sale of all or substantially all the assets of the Bank or Corporation
         or similar transaction occurs; or

                           (vi) a proxy statement shall be distributed
         soliciting proxies from stockholders of the Corporation, by someone
         other than the current management of the Corporation, seeking
         stockholder approval of a plan of reorganization, merger or
         consolidation of the Corporation or Bank or similar transaction with
         one or more corporations as a result of which the outstanding shares of
         the class of securities then subject to such plan or transaction are
         exchanged for or converted into cash or property or securities not
         issued by the Corporation and such proxy statement proposal is approved
         by the shareholders of the Corporation; or

                           (vii) a tender offer is made and completed for 20% or
         more of the outstanding securities of the Corporation.

         However, notwithstanding anything contained in this section to the
contrary, a Change in Control shall not be deemed to have occurred as a result
of an event described in (i), (ii), (iii), (v) or (vii) above which resulted
from an acquisition or proposed acquisition of stock of the Company by a person,
as defined in the OTS' Acquisition of Control Regulations (12 C.F.R. ss. 574)
(the "Control Regulations"), who was an executive officer of the Corporation on
the date hereof and who has continued to serve as an executive officer of the
Corporation as of the date of the event described in (i), (ii), (iii), (v) or
(vii) above (an "incumbent officer"). In the event a group of individuals acting
in concert satisfies the definition of "person" under the Control Regulations,
the requirements of the preceding sentence shall be satisfied and thus a change
in control shall not be deemed to have occurred if at least one individual in
the group is an incumbent officer.

                  (g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.

                                      -2-
<PAGE>

                  (h) "Committee" means the Administrative/Compensation
Committee of the Board or such other committee of the Board as may be designated
by the Board from time to time to administer this Plan.

                  (i) "Common Stock" means the Common Stock, no par value, of
the Corporation.

                  (j) "Corporation" means MAF Bancorp, Inc., a Delaware
corporation.

                  (k) "Director" means a director of the Corporation or a
Subsidiary.

                  (l) "Dividend or Equivalent Rights" has the meaning specified
in Section 6(f).

                  (m) "Effective Date" has the meaning specified in Section 15.

                  (n) "Employee" means an employee of the Corporation or a
Subsidiary.

                  (o) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.

                  (p) "Fair Market Value" means the average of the highest and
the lowest quoted selling prices on the NASDAQ Stock Market on the relevant
valuation date or, if there were no sales on the valuation date, on the next
preceding date on which such selling prices were recorded; provided, however,
that the Committee may modify the definition of Fair Market Value with respect
to any particular Award.

                  (q) "Incentive Stock Option" has the meaning specified in
Section 6(b).

                  (r) "Other Incentive Award" has the meaning specified in
Section 2(a).

                  (s) "Participant" means an Employee or Director who has been
granted an Award under the Plan, including the Predecessor Plan.

                  (t) "Performance-Based Award" has the meaning specified in
Section 7.

                  (u) "Performance Criteria" has the meaning specified in
Section 7.

                  (v) "Performance Share" has the meaning specified in Section
6(d).

                  (w) "Performance Unit" has the meaning specified in Section
6(e).

                  (x) "Plan" means this MAF Bancorp, Inc. Incentive Compensation
Plan, which includes the Predecessor Plan.

                  (y) "Plan Year" means a twelve-month period beginning with
January 1 of each year.

                  (z) "Predecessor Plan" means the Corporation's 2000 Stock
Option Plan.

                                      -3-
<PAGE>

                  (aa) "Previously-Acquired Shares" means shares of Common Stock
acquired by the Participant or any beneficiary of Participant other than
pursuant to an Award under this Plan, the Predecessor Plan or any similar plan
maintained by the Corporation, or if so acquired under this Plan, the
Predecessor Plan or such other plan, such shares of Common Stock have been held
for a period of not less than six months or such shorter period as the Committee
may permit.

                  (bb) "Restriction Period" means a period of time beginning as
of the date upon which an Award subject to restrictions or forfeiture provisions
is made pursuant to this Plan and ending as of the date upon which the Common
Stock subject to such Award is no longer restricted or subject to forfeiture
provisions.

                  (cc) "Restricted Share" has the meaning specified in Section
6(d).

                  (dd) "Restricted Unit" has the meaning specified in Section
6(e).

                  (ee) "Stock Appreciation Right" has the meaning specified in
Section 6(c).

                  (ff) "Stock Award" has the meaning specified in Section 6(g).

                  (gg) "Stock Option" has the meaning specified in Section 6(a).

                  (hh) "Subsidiary" means any corporation or other entity,
whether domestic or foreign, in which the Corporation has or obtains, directly
or indirectly, a proprietary interest of at least 50% by reason of stock
ownership or otherwise.

         3. Eligibility. Any Employee or Director selected by the Committee is
eligible to receive an Award.

         4.  Plan Administration.

                  (a) Except as otherwise determined by the Board, the Plan
shall be administered by the Committee. The Committee shall make determinations
with respect to the participation of Employees and Directors in the Plan and,
except as otherwise required by law or this Plan, the terms of Awards, including
vesting schedules, price, length of relevant performance, Restriction Period,
option period, dividend rights, post-retirement and termination rights, payment
alternatives such as cash, stock, contingent awards or other means of payment
consistent with the purposes of this Plan, and such other terms and conditions
as the Committee deems appropriate; provided, however, the Committee shall not
reprice or otherwise decrease the exercise price applicable to any outstanding
Stock Option, except in connection with an adjustment contemplated by Section
11.

                  (b) The Committee, by majority action thereof (whether taken
during a meeting or by written consent), shall have authority to interpret and
construe the provisions of the Plan and the Award Agreements, to decide all
questions of fact arising in its application and to make all other
determinations pursuant to any Plan provision or Award Agreement which shall be
final and binding on all persons. To the extent deemed necessary or advisable
for purposes of Section 16 of the Exchange Act or Section 162(m) of the Code, a
member or members of the

                                      -4-
<PAGE>

Committee may recuse himself or themselves from any action, in which case action
taken by the majority of the remaining members shall constitute action by the
Committee. No member of the Committee shall be liable for any action or
determination made in good faith, and the members of the Committee shall be
entitled to indemnification and reimbursement in the manner provided in the
Corporation's Certificate of Incorporation, By-Laws, by agreement or otherwise
as may be amended from time to time.

                  (c) To the extent permitted under the corporate law of the
Corporation's jurisdiction of incorporation, the Committee may, by a resolution
adopted by the Committee, authorize one or more officers of the Corporation to
do one or more of the following: (i) designate officers and employees of the
Corporation or any of its Subsidiaries to be recipients of an Award under this
Plan, (ii) determine the amount, terms, conditions, and form of any such Awards
and (iv) take such other actions which the Committee is authorized to take under
this Plan; provided, however, that the resolution so authorizing such officer or
officers shall specify the total number of shares of Common Stock or cash
payable under such Awards which such officer or officers may so award; provided,
further, however, that the Committee may not delegate to any person the
authority to grant Awards to, or take other action with respect to, Participants
who at the time of such Awards or action are subject to Section 16 of the
Exchange Act or are "covered employees" as defined in Section 162(m) of the
Code. Further, the Committee may not authorize an officer to designate himself
or herself as a recipient of any such Awards. To the extent deemed necessary or
advisable for purposes of Section 16 of the Exchange Act or otherwise, the Board
may act as the Committee hereunder.

         5. Stock Subject to the Provisions of the Plan.

                  (a) The stock subject to the provisions of this Plan may be
shares of authorized but unissued Common Stock, treasury shares held by the
Corporation or any Subsidiary, or shares acquired by the Corporation through
open market purchases or otherwise. Subject to adjustment in accordance with the
provisions of Section 11, the total number of shares of Common Stock which may
be issued under the Plan shall not exceed 800,000 shares, plus the number of
shares heretofore authorized and available (or which become available) for
issuance under the Predecessor Plan which are not issued after the Effective
Date. To the extent that shares of Common Stock subject to an outstanding Award
or an award under the Predecessor Plan are not issued by reason of the
forfeiture, termination, surrender, cancellation or expiration while unexercised
of such award, by reason of the tendering or withholding of shares (by either
actual delivery or by attestation) to pay all or a portion of the purchase price
or to satisfy all or a portion of the tax withholding obligations relating to an
award, by reason of being settled in cash in lieu of Common Stock or settled in
a manner such that some or all of the shares covered by the Award are not issued
to a Participant, or being exchanged for a grant under this Plan that does not
involve Common Stock, then such shares shall immediately again be available for
issuance under this Plan.

                  (b) The Committee may from time to time adopt and observe such
procedures concerning the counting of shares against the Plan maximum as it may
deem appropriate.

                  (c) Shares of Common Stock issued in connection with awards
that are assumed, converted or substituted pursuant to a merger, acquisition or
similar transaction entered

                                      -5-
<PAGE>

into by the Corporation or any of its Subsidiaries shall not reduce the number
of shares of Common Stock available under this Plan.

                  (d) Subject to Section 11, the following limitations shall
apply to Awards under the Plan:

                           (i) All of the shares of Common Stock that may be
         issued under this Plan may be issued pursuant to Stock Options, all of
         which may be Incentive Stock Options.

                           (ii) The maximum number of shares of Common Stock
         that may be covered by Awards granted under this Plan to any single
         Participant shall be 125,000 shares during any one Plan Year. If an
         Award is granted in tandem with a Stock Appreciation Right, such that
         the exercise of the Award right or Stock Appreciation Right with
         respect to a share of Common Stock cancels the tandem Stock
         Appreciation Right or Award right, respectively, with respect to such
         share, the tandem Award right and Stock Appreciation Right with respect
         to each share of Common Stock shall be counted as covering but one
         share of Common Stock for purposes of applying the limitations of this
         paragraph (ii).

                           (iii) Not more than 25% of the total number of shares
         of Common Stock that may be issued under this Plan may be issued
         pursuant to Awards of Restricted Shares or Restricted Share Units.

                           (iv) The maximum dollar amount for a Cash Award that
         may be earned under the Plan with respect to any Plan Year shall be
         $1,500,000. Any amount earned with respect to a Cash Award with respect
         to which performance is measured over a period greater than one Plan
         Year shall be deemed to be earned ratably over the number of full and
         partial Plan Years in the period.

         6. Awards under this Plan. As the Board or Committee may determine, the
following types of Awards may be granted under this Plan on a stand alone,
combination or tandem basis:

                  (a) Stock Option. A right to buy a specified number of shares
of Common Stock at a fixed exercise price during a specified time, all as the
Committee may determine; provided that the exercise price of any Stock Option
shall not be less than 100% of the Fair Market Value of the Common Stock on the
date of grant of such Award, and, provided, further, that in no event shall the
term of any Stock Option extend to a date which is more than ten years after the
date of grant of such Award.

                  (b) Incentive Stock Option. An Award in the form of a Stock
Option which shall comply with the requirements of Section 422 of the Code or
any successor Section of the Code as it may be amended from time to time.

                  (c) Stock Appreciation Right. A right to receive the excess of
the Fair Market Value of a share of Common Stock on the date the Stock
Appreciation Right is exercised over

                                      -6-
<PAGE>

the Fair Market Value of a share of Common Stock on the date the Stock
Appreciation Right was granted.

                  (d) Restricted and Performance Shares. A transfer of Common
Stock to a Participant, subject to such restrictions on transfer or other
incidents of ownership, and/or in the case of Performance Shares subject to
performance standards established pursuant to Section 7 below, for such periods
of time as the Committee may determine.

                  (e) Restricted and Performance Share Unit. A fixed or variable
share or dollar denominated unit subject to such conditions of vesting, and time
of payment, and/or in the case of Performance Share Units, performance standards
established pursuant to Section 7 below, as the Committee may determine, which
are valued at the Committee's discretion in whole or in part by reference to, or
otherwise based on, the Fair Market Value of Common Stock and which may be paid
in Common Stock, cash or a combination of both.

                  (f) Dividend or Equivalent Right. A right to receive dividends
or their equivalent in value in Common Stock, cash or in a combination of both
with respect to any new or previously existing Award.

                  (g) Stock Award. An unrestricted transfer of ownership of
Common Stock.

                  (h) Awards under Deferred Compensation or Similar Plans. The
right to receive Common Stock or a fixed or variable share denominated unit
granted under this Plan or any deferred compensation or similar plan established
from time to time by the Corporation.

                  (i) Cash Award. An award denominated in cash that may be
earned pursuant to the achievement of Performance Criteria set forth in Section
7 during a performance cycle period equal to one Plan Year or such other period
of time as determined by the Committee or that may be earned under the
Corporation's annual bonus, multi-year bonus or other incentive or bonus plans.

                  (j) Other Incentive Awards. Other Incentive Awards which are
related to or serve a similar function to those Awards set forth in this Section
6, including, but not limited to, Other Incentive Awards related to the
establishment or acquisition by the Corporation or any Subsidiary of a new or
start-up business or facility.

         7. Performance-Based Awards. The Committee may from time to time,
establish Performance Criteria with respect to an Award (a "Performance-Based
Award"). The Performance Criteria or standards for an Award shall be determined
by the Committee in writing, shall be measured for achievement or satisfaction
during the period in which the Committee permitted such Participant to satisfy
or achieve such Performance Criteria and may be absolute in their terms or
measured against or in relationship to other companies comparably, similarly or
otherwise situated or other external or internal measure and may be based on or
adjusted for any other objective goals, events, or occurrences established by
the Committee, provided that such criteria or standards relate to one or more of
the following: earnings, earnings per share, revenues, expenses, market share,
charge-offs, loan loss reserves, non-performing assets, return on assets, return
on equity, assets, deposits, loans, asset quality levels, interest-sensitivity
gap levels, Fair Market Value of the Common Stock or assets, investments,
regulatory

                                      -7-
<PAGE>

compliance, satisfactory internal or external audits, improvement of financial
ratings, achievement of balance sheet or income statement objectives, or other
financial, accounting or quantitative objective established by the Committee.
Performance Criteria may include or exclude extraordinary charges, losses from
discontinued operations, restatements and accounting changes and other unplanned
special charges such as restructuring expenses, acquisitions, acquisition
expenses, including expenses related to goodwill and other intangible assets,
stock offerings, stock repurchases and strategic loan loss provisions. Such
Performance Criteria may be particular to a line of business, Subsidiary or
other unit or the Corporation generally, and may, but need not be, based upon a
change or an increase or positive result. In interpreting Plan provisions
applicable to Performance Criteria and to Performance-Based Awards to
Participants who are "covered employees" under Section 162(m) of the Code, it is
the intent of the Plan to conform with the standards of Section 162(m) of the
Code and the regulations thereunder. The Committee in establishing Performance
Criteria applicable to such Performance-Based Awards, and in interpreting the
Plan, shall be guided by such standards, including, but not limited to providing
that the Performance-Based Award shall be paid, vested or otherwise delivered
solely as a function of attainment of objective Performance Criteria based on
one or more of the specific factors set forth in this Section 7 established by
the Committee not later than 90 days after the period of service applicable to
the Award has commenced (or, if such period of service is less than one year,
not later than the date on which 25% of such period has elapsed). Prior to the
payment of any compensation based on achievement of Performance Criteria to any
such "covered employee," the Committee must certify in writing the extent to
which the applicable Performance Criteria were, in fact, achieved and the
amounts to be paid, vested or delivered as a result thereof, provided the
Committee may reduce, but not increase, such amount.

         8. Award Agreements. Each Award under the Plan shall be evidenced by an
Award Agreement. Delivery of an Award Agreement to each Participant shall
constitute an agreement, subject to Section 9 hereof, between the Corporation
and the Participant as to the terms and conditions of the Award.

         9. Other Terms and Conditions.

                  (a) No Assignment; Limited Transferability of Stock Options.
Except as provided below, no Award granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution.
Notwithstanding the foregoing, the Committee may, in its discretion, authorize
all or a portion of the Stock Options (other than Incentive Stock Options)
granted to a Participant to be on terms which permit transfer by such
Participant to:

                           (i) the spouse, children or grandchildren of the
         Participant ("Immediate Family Members");

                           (ii)     a trust or trusts for the exclusive  benefit
         of such Immediate  Family Members; or

                           (iii) a partnership in which such Immediate Family
         Members are the only partners,

                                      -8-
<PAGE>

provided that:

                                    (A) there may be no consideration for any
                  such transfer;

                                    (B) the Award Agreement pursuant to which
                  such Stock Options are granted expressly provides for
                  transferability in a manner consistent with this Section 9(a);
                  and

                                    (C) subsequent transfers of transferred
                  Stock Options shall be prohibited except those in accordance
                  with this Section 9(a).

         Following transfer, any such options shall continue to be subject to
the same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of this Section 9(a) hereof the term "Participant"
shall be deemed to refer to the transferee. The provisions of the Stock Option
relating to the period of exercisability and expiration of the Stock Option
shall continue to be applied with respect to the original Participant, and the
Stock Options shall be exercisable or received by the transferee only to the
extent, and for the periods, set forth in said Stock Option.

                  (b) Beneficiary Designation. Each Participant under the Plan
may name, from time to time, any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his death before he receives any or all of such benefit. Each
designation will revoke all prior designations by the same Participant, shall be
in a form prescribed by the Committee, and will be effective only when filed by
the Participant in writing with the Committee during his lifetime. In the
absence of any such designation, benefits remaining unpaid at the Participant's
death shall be paid to his estate.

                  (c) Termination of Employment. The disposition of the grant of
each Award in the event of the retirement, disability, death or other
termination of a Participant's employment shall be as determined by the
Committee and set forth in the Award Agreement. Unless expressly provided
otherwise by the Committee, references to the "Plan" set forth in any agreement
representing an award granted under the Predecessor Plan prior to the Effective
Date shall refer to the terms of such Predecessor Plan as in effect immediately
prior to the Effective Date.

                  (d) Rights as a Shareholder. A Participant shall have no
rights as a stockholder with respect to shares covered by an Award until the
date the Participant or his nominee, guardian or legal representative is the
holder of record; provided, however, that Participants holding Restricted Shares
may exercise full voting rights with respect to those shares during the
Restriction Period.

                  (e) Dividends and Dividend Equivalents. Rights to dividends
and Dividend Equivalents may be extended to and made a part of any Award,
subject to such terms, conditions and restrictions as the Committee may
establish. The Committee may also establish rules and procedures for the
crediting of Dividend Equivalents for Awards.

                  (f) Payments by Participants. The Committee may determine that
Awards for which a payment is due from a Participant may be payable: (i) in cash
by personal check,

                                      -9-
<PAGE>

bank draft or money order payable to the order of the Corporation, by money
transfers or direct account debits; (ii) through the delivery or deemed delivery
based on attestation to the ownership of Previously Acquired Shares of Common
Stock with a Fair Market Value equal to the total payment due from the
Participant; (iii) by a combination of the methods described in (i) and (ii)
above; or (iv) by such other methods as the Committee may deem appropriate.
Notwithstanding the foregoing, the price payable with respect to the exercise of
any Stock Options by a Participant who has a deferral election in effect under
the MAF Bancorp, Inc. Stock Option Gain Deferral Plan (the "Gain Deferral Plan")
shall be made solely by tendering Previously-Acquired Shares in accordance with
clause (ii) above. In such an instance, as soon as practicable after receipt of
notice of exercise and payment, the Corporation shall deliver to the trustee of
the trust established under the Gain Deferral Plan, a certificate or
certificates representing such number of shares of Common Stock determined by
dividing (i) the excess of (A) the Fair Market Value of the shares of Common
Stock purchased pursuant to such Stock Option exercise, over (B) the aggregate
exercise price of the shares of Common Stock purchased, by (ii) the Fair Market
Value of one share of Common Stock. In addition, as soon as practicable after
receipt of such notice and payment of the Stock Option price (other than payment
by affirmation of ownership), the Corporation shall deliver to the Participant a
certificate or certificates representing shares with a Fair Market Value equal
to the aggregate exercise price paid, net of tax withholding. For purposes of
the foregoing, Fair Market Value shall be determined on the date of Stock Option
exercise.

                  (g) Withholding. Except as otherwise provided by the Committee
in the Award Agreement or otherwise (i) the deduction of withholding and any
other taxes required by law will be made from all amounts paid in cash, and (ii)
in the case of the exercise of Stock Options or payments of Awards in shares of
Common Stock, the Participant shall be required to pay the amount of any taxes
required to be withheld in cash prior to receipt of such stock, or
alternatively, to elect to have a number of shares the Fair Market Value of
which equals the amount required be withheld deducted from the shares to be
received upon such exercise or payment or deliver such number of
Previously-Acquired Shares of Common Stock. In no event shall such withholding
amount exceed the minimum amount required by law to be withheld, provided,
however, that in the event a deferral election is in effect with respect to the
shares of Common Stock deliverable upon exercise of a Stock Option, then the
Participant may only elect to have such minimum withholding made in cash or from
the Common Stock tendered to exercise such Stock Option.

                  (h) Deferral. Upon approval of the Committee, the receipt of
payment of cash or delivery of shares of Common Stock that would otherwise be
due to a Participant upon the exercise of any Stock Option or under any other
Award may be deferred pursuant to an applicable deferral plan established by the
Corporation or a Subsidiary. The Committee shall establish rules and procedures
relating to any such deferrals and the payment of any tax withholding with
respect thereto.

                  (i) Other Restrictions. The Committee shall impose such other
restrictions on any Awards granted pursuant to the Plan as it may deem
advisable, including, without limitation, restrictions under applicable Federal
or state securities laws, post-vesting or exercise holding periods, or
requirements to comply with restrictive covenants, and may legend the
certificates issued in connection with an Award to give appropriate notice of
any such restrictions.

                                      -10-

<PAGE>

         10. Amendments, Modification and Termination. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part, subject to any requirement of shareholder approval imposed by
applicable law, rule or regulation. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.

         11. Adjustment. The aggregate number of shares of Common Stock as to
which Awards may be granted to Participants, the number of shares of Common
Stock set forth in the limitations in Section 5(d), the number of shares of
Common Stock covered by each outstanding Award, and the price per share of
Common Stock in each such Award, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a subdivision, consolidation or split of shares or other capital
adjustment, or the payment of a stock dividend or other increase or decrease in
such shares, effected without receipt of consideration by the Corporation, or
other change in corporate or capital structure; provided, however, that any
fractional shares resulting from any such adjustment shall be eliminated. The
Committee may also make the foregoing changes and any other changes, including
changes in the classes of securities available, to the extent it is deemed
necessary or desirable to preserve the intended benefits of the Plan for the
Corporation and the Participants in the event of any other reorganization,
recapitalization, merger, consolidation, spinoff, extraordinary dividend or
other distribution or similar transaction.

         12. Rights as Employees or Directors. No person shall have any claim or
right to be granted an Award, and the grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of or as a
Director of the Corporation or a Subsidiary. Further, the Corporation and each
Subsidiary expressly reserve the right at any time to dismiss a Participant free
from any liability, or any claim under the Plan, except as provided herein or in
any Award Agreement issued hereunder.

         13. Change of Control. Notwithstanding anything contained in this Plan
or any Award Agreement to the contrary, in the event of a Change of Control, the
following shall occur with respect to any and all Awards outstanding as of such
Change of Control:

                  (a) Any and all Stock Options and Stock Appreciation Rights
granted hereunder shall become immediately exercisable, and shall remain
exercisable throughout their entire term;

                  (b) Any restrictions imposed on Restricted Shares and
Restricted Units shall lapse; and

                  (c) Unless otherwise specified in a Participant's Award
Agreement at time of grant, the maximum payout opportunities attainable under
all outstanding Awards of Performance Units, Performance Shares and Other
Incentive Awards shall be deemed to have been fully earned for the entire
performance period(s) as of the effective date of the Change of Control. The
vesting of all such Awards shall be accelerated as of the effective date of the
Change of Control, and in full settlement of such Awards, there shall be paid
out in cash, or in the sole discretion of the Committee, shares of Common Stock
with a Fair Market Value equal to

                                      -11-
<PAGE>

the amount of such cash, to Participants within thirty (30) days following the
effective date of the Change of Control the maximum of payout opportunities
associated with such outstanding Awards.

         14. Governing Law. To the extent that federal laws do not otherwise
control, the Plan and all Award Agreements hereunder shall be construed in
accordance with and governed by the law of the State of Delaware, provided,
however, that in the event the Corporation's state of incorporation shall be
changed, then the law of the new state of incorporation shall govern.

         15. Effective Date and Term. The effective date of this Plan is July
22, 2003 (the "Effective Date"), the date the Plan was adopted by the Board,
subject to ratification by the shareholders of the Corporation. The Plan shall
remain in effect until terminated by the Board, provided, however, that no
Incentive Stock Option shall be granted under this Plan on or after the tenth
anniversary of the Effective Date.

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