Document:

EXHIBIT 4.8

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

                         RADA ELECTRONIC INDUSTRIES LTD.

                         SENIOR SECURED CONVERTIBLE NOTE

Issuance Date: December 10, 2007                      Principal: U.S. $3,000,000

     FOR VALUE RECEIVED, RADA Electronic Industries Ltd., a corporation
organized under the laws of the State of Israel (the "COMPANY"), hereby promises
to pay to the order of Howard P. L. Yeung or registered assigns ("HOLDER") the
amount set out above as the Principal (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("INTEREST") on any outstanding Principal at a rate per annum equal to the
Interest Rate, from the date set out above as the Issuance Date (the "ISSUANCE
DATE") until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof). Certain
capitalized terms are defined in Section 26 hereof.

     (1) MATURITY. On the Maturity Date, the Holder shall surrender this Note to
the Company and the Company shall pay to the Holder an amount in cash
representing all outstanding Principal, accrued and unpaid Interest and accrued
and unpaid Penalty Interest (as defined below), if any. The "MATURITY DATE"
shall be October 14, 2010, as may be extended at the option of the Holder in the
event that, and for so long as, an Event of Default (as defined below) shall
have occurred and be continuing or any event shall have occurred and be
continuing which with the passage of time and the failure to cure would result
in an Event of Default.

     (2) INTEREST; INTEREST RATE. Interest on this Note shall commence accruing
on the Issuance Date and shall be computed on the basis of a 365-day year and
actual days elapsed and shall be payable in arrears on the first day of each
Calendar Quarter during the period beginning on the Issuance Date and ending on,
and including, the Maturity Date (each, an "INTEREST DATE") with the first
Interest Date being January 1, 2008. Interest shall be payable on each Interest
Date in cash. Prior to the payment of Interest on an Interest Date, Interest on
this Note shall accrue at the Interest Rate and be payable by way of inclusion
of the Interest in the Conversion Amount in accordance with Section 3(b)(i).
From and after the occurrence of an Event of Default, the Interest Rate shall be
increased to the Penalty Interest. In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Penalty
Interest as calculated during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default.

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     (3) CONVERSION OF THE NOTE. This Note shall be convertible into Ordinary
Shares of the Company, NIS 0.15 nominal value per share (the "ORDINARY SHARES"),
on the terms and conditions set forth in this Section 3.

          (a) CONVERSION RIGHT. Subject to the provisions of Section 3(d), at
     any time or times on or after the Issuance Date, the Holder shall be
     entitled to convert any portion of the outstanding and unpaid Conversion
     Amount (as defined below) into fully paid and nonassessable Ordinary Shares
     in accordance with Section 3(c), at the Conversion Rate (as defined below).
     The Company shall not issue any fraction of an Ordinary Share upon any
     conversion. If the issuance would result in the issuance of a fraction of
     an Ordinary Share, the Company shall round such fraction of an Ordinary
     Share to the nearest whole share. The Company shall pay any and all taxes
     that may be payable with respect to the issuance and delivery of Ordinary
     Shares upon conversion of any Conversion Amount.

          (b) CONVERSION RATE. The number of Ordinary Shares issuable upon
     conversion of any Conversion Amount pursuant to Section 3(a) shall be
     determined by dividing (x) such Conversion Amount by (y) the Conversion
     Price (the "CONVERSION RATE").

               (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the
          Principal to be converted, redeemed or otherwise with respect to which
          this determination is being made, (B) accrued and unpaid Interest with
          respect to such Principal and (C) accrued and unpaid Penalty Interest
          with respect to such Principal (if applicable).

               (ii) "CONVERSION PRICE" means, as of any Conversion Date (as
          defined below) or other date of determination, and subject to
          adjustment as provided herein, U.S. $2.09.

          (c) MECHANICS OF CONVERSION.

               (i) OPTIONAL CONVERSION. To convert any Conversion Amount into
          Ordinary Shares on any date (a "CONVERSION DATE"), the Holder shall
          (A) transmit by facsimile (or otherwise deliver), for receipt on or
          prior to 11:59 p.m., New York Time, on such date, a copy of an
          executed notice of conversion in the form attached hereto as EXHIBIT I
          (the "CONVERSION NOTICE") to the Company and (B) if required by
          Section 3(c)(iii), surrender this Note to a common carrier for
          delivery to the Company as soon as practicable on or following such
          date. On or before the first Business Day following the date of
          receipt of a Conversion Notice, the Company shall transmit by
          facsimile a confirmation of receipt of such Conversion Notice to the
          Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or
          before the second Business Day following the date of receipt of a
          Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (X)
          provided the Transfer Agent is participating in the Depository Trust
          Company ("DTC") Fast Automated Securities Transfer Program and the
          Ordinary Shares do not require any legends, credit such aggregate
          number of Ordinary Shares to which the Holder shall be entitled to the
          Holder's or its designee's balance account with DTC through DTC's
          Deposit Withdrawal Agent Commission system or (Y) if the Transfer
          Agent is not participating in the DTC Fast Automated Securities
          Transfer Program, issue and deliver to the address as specified in the
          Conversion Notice, a certificate, registered in the share register of
          the Company in the name of the Holder or its designee, for the number
          of Ordinary Shares to which the Holder shall be entitled. If this Note
          is physically surrendered for conversion as required by Section
          3(c)(iii) and the outstanding Principal of this Note is greater than
          the Principal portion of the Conversion Amount being converted, then
          the Company shall as soon as practicable and in no event later than
          five (5) Business Days after receipt of this Note and at its own
          expense, issue and deliver to the holder a new Note representing the
          outstanding Principal not converted. The Person or Persons entitled to
          receive the Ordinary Shares issuable upon a conversion of this Note
          shall be treated for all purposes as the record holder or holders of
          such Ordinary Shares on the Conversion Date.

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               (ii) COMPANY'S FAILURE TO TIMELY CONVERT. If the Company shall
          fail to register in the Company's share registry and issue a
          certificate to the Holder or credit the Holder's balance account with
          DTC for the number of Ordinary Shares to which the Holder is entitled
          upon conversion of any Conversion Amount on or prior to the date which
          is five Business Days after the Conversion Date (a "CONVERSION
          FAILURE"), then (A) the Company shall pay damages to the Holder for
          each date of such Conversion Failure in an amount equal to 1.0% of the
          product of (I) the sum of the number of Ordinary Shares not issued to
          the Holder on or prior to the Share Delivery Date and to which the
          Holder is entitled, and (II) the Closing Sale Price of the Ordinary
          Shares on the Share Delivery Date, and (B) the Holder, upon written
          notice to the Company, may void its Conversion Notice with respect to,
          and retain or have returned, as the case may be, any portion of this
          Note that has not been converted pursuant to such Conversion Notice;
          provided that the voiding of a Conversion Notice shall not affect the
          Company's obligations to make any payments which have accrued prior to
          the date of such Conversion Notice pursuant to this Section 3(c)(ii)
          or otherwise.

               (iii) BOOK-ENTRY. Notwithstanding anything to the contrary set
          forth herein, upon conversion of any portion of this Note in
          accordance with the terms hereof, the Holder shall not be required to
          physically surrender this Note to the Company unless (A) the full
          Conversion Amount represented by this Note is being converted or (B)
          the Holder has provided the Company with prior written notice (which
          notice may be included in a Conversion Notice) requesting physical
          surrender and reissue of this Note. The Holder and the Company shall
          maintain records showing the Principal, Interest and Penalty Interest
          converted and the dates of such conversions or shall use such other
          method, reasonably satisfactory to the Holder and the Company, so as
          not to require physical surrender of this Note upon conversion.

               (iv) DISPUTES. In the event of a dispute as to the number of
          Ordinary Shares issuable to the Holder in connection with a conversion
          of this Note, the Company shall issue to the Holder the number of
          Ordinary Shares not in dispute and resolve such dispute in accordance
          with Section 21.

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     (4) RIGHTS UPON EVENT OF DEFAULT.

          (a) EVENT OF DEFAULT. Each of the events detailed in EXHIBIT II,
     attached to this Note and incorporated herein, shall constitute an "EVENT
     OF DEFAULT".

          (b) REDEMPTION RIGHT. Promptly after the occurrence of an Event of
     Default with respect to this Note, the Company shall deliver written notice
     thereof via facsimile and overnight courier (an "EVENT OF DEFAULT NOTICE")
     to the Holder. At any time after the earlier of the Holder's receipt of an
     Event of Default Notice and the Holder becoming aware of an Event of
     Default, the Holder may require the Company to redeem all or any portion of
     this Note by delivering written notice thereof (the "EVENT OF DEFAULT
     REDEMPTION NOTICE") to the Company, which Event of Default Redemption
     Notice shall indicate the portion of this Note the Holder is electing to
     redeem. Each portion of this Note subject to redemption by the Company
     pursuant to this Section 4(b) shall be redeemed by the Company at a price
     equal to the greater of (i) the product of (x) the Conversion Amount to be
     redeemed and (y) the Redemption Premium and (ii) the product of (A) the
     Conversion Rate with respect to such Conversion Amount in effect at such
     time as the Holder delivers an Event of Default Redemption Notice and (B)
     the Closing Sale Price of the Ordinary Shares on the date immediately
     preceding such Event of Default (the "EVENT OF DEFAULT REDEMPTION PRICE").
     Redemptions required by this Section 4(b) shall be made in accordance with
     the provisions of Section 12.

     (5) RIGHTS UPON FUNDAMENTAL TRANSACTION. The Company shall not enter into
or be party to a Fundamental Transaction, unless (i) the Person formed by or
surviving any such Fundamental Transaction (if other than the Company) or the
Person to which such Fundamental Transaction shall have been made assumes all
the obligations of the Company under this Note and the other Transaction
Documents pursuant to written agreements in form and substance satisfactory to
the Holder and approved by the Holder prior to such Fundamental Transaction,
including an agreement to deliver to the Holder in exchange for this Note, a
security of the Person formed by or surviving any such Fundamental Transaction
(if other than the Company) or the Person to which such Fundamental Transaction
shall have been made evidenced by a written instrument substantially similar in
form and substance to this Note, including, without limitation, having a
principal amount and interest rate equal to the principal amounts and the
interest rate of this Note and having similar security as this Note, and
satisfactory to the Holder, and (ii) the company of the Person formed by or
surviving any such Fundamental Transaction or to which such Fundamental
Transaction shall have been made is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market. Upon any
Fundamental Transaction, the successor company to such Fundamental Transaction
shall succeed to, and be substituted for (so that from and after the date of
such Fundamental Transaction, the provisions of this Note referring to such
"Company" shall refer instead to the successor company or, if so elected by the
Holder, by the company or entity that, directly or indirectly, controls such
successor company), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Note with the same
effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from its
obligations under the Transaction Documents except in the case of a Fundamental
Transaction that meets the requirements of this Section. The provision of this
Section shall apply similarly and equally to successive Fundamental Transactions
and Corporate Events.

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     (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

          (a) PURCHASE RIGHTS. If at any time, the Company grants, issues or
     sells any Options, Convertible Securities or rights to purchase stock,
     warrants, or other securities pro rata to the record holders of any class
     of Ordinary Shares (the "PURCHASE RIGHTS"), then the Holder will be
     entitled to acquire, upon the terms applicable to such Purchase Rights, the
     aggregate Purchase Rights which the Holder could have acquired if the
     Holder had held the Ordinary Shares acquirable upon complete conversion of
     this Note (without taking into account any limitations or restrictions on
     the convertibility of this Note) immediately before the date on which a
     record is taken for the grant, issuance or sale of such Purchase Rights,
     or, if no such record is taken, the date as of which the record holders of
     Ordinary Shares are to be determined for the grant, issue or sale of such
     Purchase Rights.

          (b) OTHER CORPORATE EVENTS. In addition to and not in substitution for
     any other rights hereunder, prior to the consummation of any Fundamental
     Transaction pursuant to which holders of Ordinary Shares are entitled to
     receive securities or other assets with respect to or in exchange for
     Ordinary Shares (a "CORPORATE EVENT"), the Company shall make appropriate
     provision to insure that the Holder will thereafter have the right to
     receive upon a conversion of this Note, (i) in addition to the Ordinary
     Shares receivable upon such conversion, such securities or other assets to
     which the Holder would have been entitled with respect to such Ordinary
     Shares had such Ordinary Shares been held by the Holder upon the
     consummation of such Corporate Event (without taking into account any
     limitations or restrictions on the convertibility of this Note) or (ii) in
     lieu of the Ordinary Shares otherwise receivable upon such conversion, such
     securities or other assets received by the holders of Ordinary Shares in
     connection with the consummation of such Corporate Event in such amounts as
     the Holder would have been entitled to receive had this Note initially been
     issued with conversion rights for the form of such consideration (as
     opposed to Ordinary Shares) at a conversion rate for such consideration
     commensurate with the Conversion Rate. Provision made pursuant to the
     preceding sentence shall be in a form and substance satisfactory to the
     Holder.

     (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

          (a) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ORDINARY SHARES.
     If and whenever on or after the Issuance Date, the Company issues or sells,
     or in accordance with this Section 7(a) is deemed to have issued or sold,
     any Ordinary Shares (including the issuance or sale of Ordinary Shares
     owned or held by or for the account of the Company, but excluding Ordinary
     Shares deemed to have been issued or sold by the Company in connection with
     any Excluded Security) for a consideration per share less than a price (the
     "APPLICABLE PRICE") equal to the Conversion Price in effect immediately
     prior to such issue or sale (the foregoing a "DILUTIVE ISSUANCE"), then
     immediately after such Dilutive Issuance, the Conversion Price then in
     effect shall be reduced to an amount equal to the product of (A) the
     Conversion Price in effect immediately prior to such Dilutive Issuance and
     (B) the quotient determined by dividing (1) the sum of (I) the product
     derived by multiplying the Conversion Price in effect immediately prior to
     such Dilutive Issuance and the number of Ordinary Shares Deemed Outstanding
     immediately prior to such Dilutive Issuance plus (II) the consideration, if
     any, received by the Company upon such Dilutive Issuance, by (2) the
     product derived by multiplying (I) the Conversion Price in effect
     immediately prior to such Dilutive Issuance by (II) the number of Ordinary
     Shares Deemed Outstanding immediately after such Dilutive Issuance. For
     purposes of determining the adjusted Conversion Price under this Section
     7(a), the following shall be applicable:

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               (i) ISSUANCE OF OPTIONS. If the Company in any manner grants or
          sells any Options and the lowest price per share for which one
          Ordinary Share is issuable upon the exercise of any such Option or
          upon conversion or exchange or exercise of any Convertible Securities
          issuable upon exercise of such Option is less than the Applicable
          Price, then such Ordinary Share shall be deemed to be outstanding and
          to have been issued and sold by the Company at the time of the
          granting or sale of such Option for such price per share. For purposes
          of this Section 7(a)(i), the "lowest price per share for which one
          Ordinary Share is issuable upon the exercise of any such Option or
          upon conversion or exchange or exercise of any Convertible Securities
          issuable upon exercise of such Option" shall be equal to the sum of
          the lowest amounts of consideration (if any) received or receivable by
          the Company with respect to any one Ordinary Share upon granting or
          sale of the Option, upon exercise of the Option and upon conversion or
          exchange or exercise of any Convertible Security issuable upon
          exercise of such Option. No further adjustment of the Conversion Price
          shall be made upon the actual issuance of such Ordinary Share or of
          such Convertible Securities upon the exercise of such Options or upon
          the actual issuance of such Ordinary Share upon conversion or exchange
          or exercise of such Convertible Securities.

               (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
          manner issues or sells any Convertible Securities and the lowest price
          per share for which one Ordinary Share is issuable upon such
          conversion or exchange or exercise thereof is less than the Applicable
          Price, then such Ordinary Share shall be deemed to be outstanding and
          to have been issued and sold by the Company at the time of the
          issuance of sale of such Convertible Securities for such price per
          share. For the purposes of this Section 7(a)(ii), the "price per share
          for which one Ordinary Shares is issuable upon such conversion or
          exchange or exercise" shall be equal to the sum of the lowest amounts
          of consideration (if any) received or receivable by the Company with
          respect to any one Ordinary Share upon the issuance or sale of the
          Convertible Security and upon the conversion or exchange or exercise
          of such Convertible Security. No further adjustment of the Conversion
          Price shall be made upon the actual issuance of such Ordinary Share
          upon conversion or exchange or exercise of such Convertible
          Securities, and if any such issue or sale of such Convertible
          Securities is made upon exercise of any Options for which adjustment
          of the Conversion Price had been or are to be made pursuant to other
          provisions of this Section 7(a), no further adjustment of the
          Conversion Price shall be made by reason of such issue or sale.

               (iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the
          purchase price provided for in any Options, the additional
          consideration, if any, payable upon the issuance, conversion, exchange
          or exercise of any Convertible Securities, or the rate at which any
          Convertible Securities are convertible into or exchangeable or
          exercisable for Ordinary Shares changes at any time, the Conversion
          Price in effect at the time of such change shall be adjusted to the
          Conversion Price which would have been in effect at such time had such
          Options or Convertible Securities provided for such changed purchase
          price, additional consideration or changed conversion rate, as the
          case may be, at the time initially granted, issued or sold. For
          purposes of this Section 7(a)(iii), if the terms of any Option or
          Convertible Security that was outstanding as of the Issuance Date are
          changed in the manner described in the immediately preceding sentence,
          then such Option or Convertible Security and the Ordinary Shares
          deemed issuable upon exercise, conversion or exchange thereof shall be
          deemed to have been issued as of the date of such change. No
          adjustment shall be made if such adjustment would result in an
          increase of the Conversion Price then in effect.

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               (iv) CALCULATION OF CONSIDERATION RECEIVED. In case any Option is
          issued in connection with the issue or sale of other securities of the
          Company, together comprising one integrated transaction in which no
          specific consideration is allocated to such Options by the parties
          thereto, the Options will be deemed to have been issued for a
          consideration of $.01. If any Ordinary Shares, Options or Convertible
          Securities are issued or sold or deemed to have been issued or sold
          for cash, the consideration received therefor will be deemed to be the
          net amount received by the Company therefor. If any Ordinary Shares,
          Options or Convertible Securities are issued or sold for a
          consideration other than cash, the amount of the consideration other
          than cash received by the Company will be the fair value of such
          consideration, except where such consideration consists of securities,
          in which case the amount of consideration received by the Company will
          be the Closing Sale Price of such securities on the date of receipt.
          If any Ordinary Shares, Options or Convertible Securities are issued
          to the owners of the non-surviving entity in connection with any
          merger in which the Company is the surviving entity, the amount of
          consideration therefor will be deemed to be the fair value of such
          portion of the net assets and business of the non-surviving entity as
          is attributable to such Ordinary Shares, Options or Convertible
          Securities, as the case may be. The fair value of any consideration
          other than cash or securities will be determined jointly by the
          Company and the Holder. If such parties are unable to reach agreement
          within ten (10) days after the occurrence of an event requiring
          valuation (the "VALUATION EVENT"), the fair value of such
          consideration will be determined within five (5) Business Days after
          the tenth day following the Valuation Event by an independent,
          reputable appraiser jointly selected by the Company and the Holder.
          The determination of such appraiser shall be deemed binding upon all
          parties absent manifest error and the fees and expenses of such
          appraiser shall be borne by the Company.

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

               (vi) LIMITATION. Notwithstanding the above, no adjustment
          pursuant to Sections 7(a) or 7(c) shall cause the Conversion Price to
          be less than $1.90, as adjusted for any stock dividend, stock split,
          stock combination, reclassification or similar transaction.

          (b) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF
     ORDINARY SHARES. If the Company at any time on or after the Issuance Date
     subdivides (by any stock split, stock dividend, recapitalization or
     otherwise) one or more classes of its outstanding Ordinary Shares into a
     greater number of shares, the Conversion Price in effect immediately prior
     to such subdivision will be proportionately reduced. If the Company at any
     time on or after the Issuance Date combines (by combination, reverse stock
     split or otherwise) one or more classes of its outstanding Ordinary Shares
     into a smaller number of shares, the Conversion Price in effect immediately
     prior to such combination will be proportionately increased.

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          (c) OTHER EVENTS. If any event occurs of the type contemplated by the
     provisions of this Section 7 but not expressly provided for by such
     provisions (including, without limitation, the granting of stock
     appreciation rights, phantom stock rights or other rights with equity
     features), then the Company's Board of Directors will make an appropriate
     adjustment in the Conversion Price so as to protect the rights of the
     Holder under this Note; provided that no such adjustment will increase the
     Conversion Price as otherwise determined pursuant to this Section 6.

     (8) INTENTIONALLY DELETED.

     (9) SECURITY. This Note is secured to the extent and in the manner set
forth in the Debenture attached hereto as EXHIBIT III and incorporated herein by
this reference.

     (10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Association, Memorandum of
Association or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Note, and will at all times in good faith carry out all
of the provisions of this Note and take all action as may be required to protect
the rights of the Holder of this Note.

     (11) RESERVATION OF AUTHORIZED SHARES.

          (a) RESERVATION. So long as this Note is outstanding, the Company
     shall take all action necessary to reserve and keep available out of its
     authorized and unissued Ordinary Shares, solely for the purpose of
     effecting the conversion of this Note sufficient number of Ordinary Shares
     as shall from time to time be necessary to effect the conversion of the
     Note.

          (b) INSUFFICIENT AUTHORIZED SHARES. If at any time while this Note
     remains outstanding, the Company does not have a sufficient number of
     authorized and unreserved Ordinary Shares to satisfy its obligation to
     reserve Ordinary Shares for issuance upon conversion of this Note, then the
     Company shall immediately take all action necessary to increase the
     Company's authorized Ordinary Shares to an amount sufficient to allow the
     Company to reserve the required amount for the conversion of this Note.

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     (12) HOLDER'S REDEMPTIONS. The Company shall deliver the applicable Event
of Default Redemption Price to the Holder within five Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice. In the
event of a redemption of less than all of the Conversion Amount of this Note,
the Company shall promptly cause to be issued and delivered to the Holder a new
Note (in accordance with Section 17(d)) representing the outstanding Principal
which has not been redeemed. In the event that the Company does not pay the
Event of Default Redemption Price to the Holder within the time period required,
at any time thereafter and until the Company pays such unpaid Event of Default
Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Event of Default Redemption Price has
not been paid. Upon the Company's receipt of such notice, (x) the Event of
Default Redemption Notice shall be null and void with respect to such Conversion
Amount, (y) the Company shall immediately return this Note, or issue a new Note
(in accordance with Section 17(d)) to the Holder representing such Conversion
Amount and (z) the Conversion Price of this Note or such new Notes shall be
adjusted to the lesser of (A) the Conversion Price as in effect on the date on
which the Event of Default Redemption Notice is voided and (B) the lowest
Closing Bid Price during the period beginning on and including the date on which
the Event of Default Redemption Notice is delivered to the Company and ending on
and including the date on which the Event of Default Redemption Notice is
voided. The Holder's delivery of a notice voiding an Event of Default Redemption
Notice and exercise of its rights following such notice shall not affect the
Company's obligations to make any payments of Penalty Interest which have
accrued prior to the date of such notice with respect to the Conversion Amount
subject to such notice.

     (13) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until this Note has been
converted, redeemed or otherwise satisfied in accordance with its terms, the
Company shall not, directly or indirectly, redeem, repurchase or declare or pay
any cash dividend or distribution on its capital stock without the prior express
written consent of the Holder.

     (14) VOTING RIGHTS. The Holder shall have no voting rights as the holder of
this Note, except as required by law, including but not limited to applicable
laws of the State of Israel, and as expressly provided in this Note.

     (15) RANK; ADDITIONAL INDEBTEDNESS; LIENS.

          (a) RANK. All payments due under this Note shall be senior
     obligations, second only to the payment obligations under the Company's
     credit agreements as in effect on the Issuance Date with Bank Hapoalim B.M.
     and Bank Leumi Le-Israel B.M. (the "CURRENT DEBT FACILITIES").

          (b) INCURRENCE OF INDEBTEDNESS. So long as this Note is outstanding,
     the Company shall not, and the Company shall not permit any of its
     Subsidiaries or to, directly or indirectly, incur or guarantee, assume or
     suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced
     by this Note and (ii) Permitted Indebtedness. "PERMITTED INDEBTEDNESS"
     means (i) Indebtedness under the Current Debt Facilities, and (ii)
     Indebtedness of the Company represented by guarantees or letters of credit
     for the account of the Company in order to provide security for payment
     obligations entered into in connection with signed purchase orders received
     by the Company for its products or services.

                                       9
<PAGE>

          (c) EXISTENCE OF LIENS. So long as this Note is outstanding, the
     Company shall not, and the Company shall not permit any of its Subsidiaries
     to, directly or indirectly, allow or suffer to exist any mortgage, lien,
     pledge, charge, security interest or other encumbrance upon or in any
     property or assets (including accounts and contract rights) owned by the
     Company or any of its Subsidiaries (collectively, "LIENS") other than
     Permitted Liens and Liens securing the Company's obligations under this
     Note. For purposes of this Note: (1) "PERMITTED LIENS" means (i) the Liens
     securing the Current Debt Facilities as in effect on the Issuance Date, any
     Permitted Indebtedness or any Permitted Refinancing Indebtedness; (ii)
     Liens for taxes, assessments or similar charges and assessments not yet
     delinquent; (iii) liens of mechanics, materialmen, warehousemen, carriers
     or other like liens securing obligations incurred in the ordinary course of
     business that are not yet due and payable or that are being contested in
     good faith by appropriate proceedings; and (2) "PERMITTED REFINANCING
     INDEBTEDNESS" means any Indebtedness issued in exchange for, or used to
     extend, refinance, renew, or replace the Current Debt Facilities; provided
     that: (A) the principal amount of such Permitted Refinancing Indebtedness
     does not exceed the principal amount as of the Issuance Date of the Current
     Debt Facilities (plus all accrued interest thereon and the amount of all
     expenses and premiums incurred in connection therewith); and (B) such
     Permitted Refinancing Indebtedness is extended, refinanced, renewed or
     replaced on terms no more favorable than those contained in the
     documentation governing the Current Debt Facilities as in effect on the
     Issuance Date.

          (d) RESTRICTED PAYMENTS. The Company shall not, and the Company shall
     not permit any of its Subsidiaries to, directly or indirectly, redeem,
     defease, repurchase, repay or make any payments in respect of, by the
     payment of cash or cash equivalents (in whole or in part, whether by way of
     open market purchases, tender offers, private transactions or otherwise),
     all or any portion of any Permitted Indebtedness, whether by way of payment
     in respect of principal of (or premium, if any) or interest on, such
     Permitted Indebtedness, if at the time such payment is due or is otherwise
     made or, after giving effect to such payment, an event constituting, or
     that with the passage of time and without being cured would constitute, an
     Event of Default would occur or has occurred and is continuing.

     (16) TRANSFER.

          (a) This Note may be offered, sold, assigned or transferred by the
     Holder without the consent of the Company, subject only to the provisions
     of Section 16(b) hereof.

          (b) The Holder understands that, except as provided in the
     Registration Rights Agreement: (i) the Ordinary Shares purchasable
     hereunder have not been and are not being registered under the 1933 Act or
     any state securities laws, and may not be offered for sale, sold, assigned
     or transferred unless (A) subsequently registered thereunder, (B) the
     Holder shall have delivered to the Company an opinion of counsel reasonably
     acceptable to the Company, in a generally acceptable form, to the effect
     that such Ordinary Shares to be sold, assigned or transferred may be sold,
     assigned or transferred pursuant to an exemption from such registration, or
     (C) such Holder provides the Company with reasonable assurance that such
     Ordinary Shares can be sold, assigned or transferred pursuant to Rule 144
     or Rule 144A promulgated under the 1933 Act, as amended, (or a successor
     rule thereto) (collectively, "RULE 144"); (ii) any sale of the Ordinary
     Shares made in reliance on Rule 144 may be made only in accordance with the
     terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
     the Ordinary Shares under circumstances in which the seller (or the Person
     through whom the sale is made) may be deemed to be an underwriter (as that
     term is defined in the 1933 Act) may require compliance with some other
     exemption under the 1933 Act or the rules and regulations of the SEC
     thereunder; and (iii) neither the Company nor any other Person is under any
     obligation to register the Ordinary Shares under the 1933 Act or any state
     securities laws or to comply with the terms and conditions of any exemption
     thereunder.

                                       10
<PAGE>

     (17) REISSUANCE OF THIS NOTE.

          (a) TRANSFER. If this Note is to be transferred, the Holder shall
     surrender this Note to the Company, whereupon the Company will forthwith
     issue and deliver upon the order of the Holder a new Note (in accordance
     with Section 17(d)), registered as the Holder may request, representing the
     outstanding Principal being transferred by the Holder and, if less then the
     entire outstanding Principal is being transferred, a new Note (in
     accordance with Section 17(d)) to the Holder representing the outstanding
     Principal not being transferred. The Holder and any assignee, by acceptance
     of this Note, acknowledge and agree that, by reason of the provisions of
     Section 3(c)(ii) and this Section 17(a), following conversion or redemption
     of any portion of this Note, the outstanding Principal represented by this
     Note may be less than the Principal stated on the face of this Note.

          (b) LOST, STOLEN OR MUTILATED NOTE. Upon receipt by the Company of
     evidence reasonably satisfactory to the Company of the loss, theft,
     destruction or mutilation of this Note, and, in the case of loss, theft or
     destruction, of any indemnification undertaking by the Holder to the
     Company in customary form and, in the case of mutilation, upon surrender
     and cancellation of this Note, the Company shall execute and deliver to the
     Holder a new Note (in accordance with Section 17(d)) representing the
     outstanding Principal.

          (c) NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Note is
     exchangeable, upon the surrender hereof by the Holder at the principal
     office of the Company, for a new Note or Notes (in accordance with Section
     17(d) and in principal amounts of at least $1,000,000) representing in the
     aggregate the outstanding Principal of this Note, and each such new Note
     will represent such portion of such outstanding Principal as is designated
     by the Holder at the time of such surrender.

          (d) ISSUANCE OF NEW NOTES. Whenever the Company is required to issue a
     new Note pursuant to the terms of this Note, such new Note (i) shall be of
     like tenor with this Note, (ii) shall represent, as indicated on the face
     of such new Note, the Principal remaining outstanding (or in the case of a
     new Note being issued pursuant to Section 17(a) or Section 17(c), the
     Principal designated by the Holder which, when added to the principal
     represented by the other new Notes issued in connection with such issuance,
     does not exceed the Principal remaining outstanding under this Note
     immediately prior to such issuance of new Notes), (iii) shall have an
     issuance date, as indicated on the face of such new Note, which is the same
     as the Issuance Date of this Note, (iv) shall have the same rights and
     conditions as this Note, and (v) shall represent accrued Interest and
     Penalty Interest (if any) on the Principal and, from the Issuance Date.

     (18) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
Amounts set forth or provided for herein with respect to payments, conversion
and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

                                       11
<PAGE>

     (19) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, attorneys' fees and disbursements.

     (20) HEADINGS. The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this Note.

     (21) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

     (22) DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate or the Event of Default
Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one Business Day of receipt of the
Conversion Notice or Event of Default Redemption Notice or other event giving
rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation within one
Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one Business Day submit
via facsimile (a) the disputed determination of the Closing Bid Price, the
Closing Sale Price or the Weighted Average Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Conversion Rate or the Event of Default
Redemption Price to the Company's independent, outside accountant. The Company,
at the Company's expense, shall make best commercial efforts to cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

                                       12
<PAGE>

     (23) NOTICES; PAYMENTS.

          (a) NOTICES. The Company shall provide the Holder with prompt written
     notice of all actions taken pursuant to this Note, including in reasonable
     detail a description of such action and the reason therefore. Without
     limiting the generality of the foregoing, the Company will give written
     notice to the Holder (i) immediately upon any adjustment of the Conversion
     Price, setting forth in reasonable detail and certifying the calculation of
     such adjustment, and (ii) at least twenty (20) days prior to the date on
     which the Company closes its books or takes a record (A) with respect to
     any dividend or distribution upon the Ordinary Shares, (B) with respect to
     any pro rata subscription offer to holders of Ordinary Shares or (C) for
     determining rights to vote with respect to any Fundamental Transaction,
     dissolution or liquidation, provided in each case that such information
     shall be made known to the public prior to or in conjunction with such
     notice being provided to the Holder.

          (b) Any notices, consents, waivers or other communications required or
     permitted to be given under the terms of this Note must be in writing and
     will be deemed to have been delivered: (i) upon receipt, when delivered
     personally; (ii) upon receipt, when sent by facsimile (provided
     confirmation of transmission is mechanically or electronically generated
     and kept on file by the sending party); or (iii) four Business Days after
     deposit with an overnight courier service, in each case properly addressed
     to the party to receive the same. The addresses and facsimile numbers for
     such communications shall be:

              If to the Holder:

              Howard P.L. Yeung
              2202 Kodak House II
              39 Health Street East
              Hong Kong SAR
              Telephone: +852 2579 1800
              Facsimile: +852 2579 1515
              Attention: Mr. Howard P.L. Yeung

              Copy to:

              Tanner De Witt Solicitors
              1806-08, Tower Two, Lippo Centre
              89 Queensway, Hong Kong
              Telephone: +852-2573-5000
              Facsimile: +852-2802-3553
              Attn: Richard Tanner, Esq.

              and

              MBV Law LLP
              855 Front Street
              San Francisco, CA 94111
              Telephone: 415-781-4400
              Facsimile: 415-989-5143
              Attn: Laurie A. Sanders, Esq.

                                       13
<PAGE>

              If to the Company:

              RADA Electronic Industries Ltd.
              7 Giborei Israel Street
              Netanya 42504
              Israel
              Telephone: + 972-9-892-1129
              Facsimile: + 972-9-885-5885
              Attention: Elan Sigal, Chief Financial Officer

              Copy to:

              Carter Ledyard & Milburn LLP
              2 Wall Street
              New York, New York 10005
              Telephone: (212) 732-3200
              Facsimile: (212) 732-3232
              Attention: Steven J. Glusband, Esq.

              and

              S. Friedman & Co, Advocates and Notaries
              Europe - Israel Tower
              2 Weitzman Street
              Tel Aviv, Israel
              Telephone: +972-3-693-1931
              Facsimile: +972-3-693-1930
              Attention: Sarit Molcho, Adv.

              If to the Transfer Agent:
              American Stock Transfer & Trust Co.
              59 Maiden Lane
              New York, New York 10038
              Telephone: (718) 921-8275
              Facsimile: (718) 921-8331
              Attention: Paula Caropoli

                                       14
<PAGE>

          (c) PAYMENTS. Whenever any payment of cash is to be made by the
     Company to any Person pursuant to this Note, such payment shall be made in
     lawful money of the United States of America by a wire transfer of
     immediately available funds to such bank account as shall be provided by
     the Holder to the Company in writing. Whenever any amount expressed to be
     due by the terms of this Note is due on any day which is not a Business
     Day, the same shall instead be due on the next succeeding day which is a
     Business Day and, in the case of any Interest Date which is not the date on
     which this Note is paid in full, the extension of the due date thereof
     shall not be taken into account for purposes of determining the amount of
     Interest due on such date. Any amount of Principal or other amounts due
     under this Note, other than Interest, which is not paid when due shall
     result in a Penalty Interest being incurred and payable by the Company in
     an amount equal to interest on such amount at the rate of LIBOR plus 7% per
     annum from the date such amount was due until the same is paid in full
     ("PENALTY INTEREST"). All payments to be made by the Company to the Holder
     shall be made free and clear of, and without deduction or withholding
     unless the Company is required by law to make such a payment subject to a
     deduction or withholding, in which case the Company shall, promptly on
     becoming aware of such requirement, notify the Holder of it. If at any time
     the Holder is required by law to make any deduction or withholding from any
     payment due under this Agreement, the sum due from the Company in respect
     of such payment shall be increased to the extent necessary to ensure that,
     after the making of such deduction or withholding, the Holder receives, on
     the due date for such payment (and retains free from any liability in
     respect of such deduction or withholding), a net sum equal to the sum which
     it would have received had no such deduction or withholding been required
     to be made.

     (24) CANCELLATION. After all Principal, accrued Interest and other amounts
at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

     (25) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note.

     (26) GOVERNING LAW. Except for matters that are inherently governed by the
corporate laws of the State of Israel, this Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.

     (27) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:

          (a) "1933 ACT" means the U.S. Securities Act of 1933, as amended.

          (b) "APPROVED STOCK PLAN" means any employee benefit plan which has
     been approved by the Board of Directors of the Company, pursuant to which
     the Company's securities may be issued to any employee, officer or director
     for services provided to the Company.

          (c) "BLOOMBERG" means Bloomberg Financial Markets.

          (d) "BUSINESS DAY" means a day on which principal banking business is
     transacted in Israel, London and New York.

                                       15
<PAGE>

          (e) "CALENDAR QUARTER" means each of: the period beginning on and
     including January 1 and ending on and including March 31; the period
     beginning on and including April 1 and ending on and including June 30; the
     period beginning on and including July 1 and ending on and including
     September 30; and the period beginning on and including October 1 and
     ending on and including December 31.

          (f) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any
     security as of any date, the last closing bid price and last closing trade
     price, respectively, for such security on the Principal Market, as reported
     by Bloomberg, or, if the Principal Market begins to operate on an extended
     hours basis and does not designate the closing bid price or the closing
     trade price, as the case may be, then the last bid price or last trade
     price, respectively, of such security prior to 4:00 00 p.m., New York Time,
     as reported by Bloomberg, or, if the Principal Market is not the principal
     securities exchange or trading market for such security, the last closing
     bid price or last trade price, respectively, of such security on the
     principal securities exchange or trading market where such security is
     listed or traded as reported by Bloomberg, or if the foregoing do not
     apply, the last closing bid price or last trade price, respectively, of
     such security in the over-the-counter market on the electronic bulletin
     board for such security as reported by Bloomberg, or, if no closing bid
     price or last trade price, respectively, is reported for such security by
     Bloomberg, the average of the bid prices, or the ask prices, respectively,
     of any market makers for such security as reported in the "pink sheets" by
     Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
     Closing Bid Price or the Closing Sale Price cannot be calculated for a
     security on a particular date on any of the foregoing bases, the Closing
     Bid Price or the Closing Sale Price, as the case may be, of such security
     on such date shall be the fair market value as mutually determined by the
     Company and the Holder. If the Company and the Holder are unable to agree
     upon the fair market value of such security, then such dispute shall be
     resolved pursuant to Section 21. All such determinations to be
     appropriately adjusted for any stock dividend, stock split, stock
     combination or other similar transaction during the applicable calculation
     period.

          (g) "CONVERTIBLE SECURITIES" means any stock or securities (other than
     Options) directly or indirectly convertible into or exercisable or
     exchangeable for Ordinary Shares.

          (h) "ELIGIBLE MARKET" means the Principal Market, The Nasdaq National
     Market or the NYSE/New York.

          (i) "EXCLUDED SECURITIES" means any Ordinary Shares issued or
     issuable: (i) in connection with any Approved Stock Plan; (ii) upon
     conversion of this Note or the exercise of the Warrants; (iii) pursuant to
     a bona fide firm commitment underwritten public offering with a nationally
     recognized underwriter which generates gross proceeds to the Company in
     excess of $15,000,000 (other than an "at-the-market offering" as defined in
     Rule 415(a)(4) under the 1933 Act and "equity lines"); and (iv) upon
     conversion of any Options or Convertible Securities which are outstanding
     on the day immediately preceding the Issuance Date, provided that the terms
     of such Options or Convertible Securities are not amended, modified or
     changed on or after the Issuance Date.

                                       16
<PAGE>

          (j) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly
     or indirectly, in one or more related transactions, (i) consolidate or
     merge with or into (whether or not the Company is the surviving
     corporation) another Person, or (ii) sell, assign, transfer, convey or
     otherwise dispose of all or substantially all of the properties or assets
     of the Company to another Person, or (iii) allow a purchase, tender or
     exchange offer to be made to and accepted by the holders of more than the
     50% of the outstanding Ordinary Shares (not including any Ordinary Shares
     held by the Person or Persons making or party to, or associated or
     affiliated with the Persons making or party to, such purchase, tender or
     exchange offer), or (iv) enter into a stock purchase agreement or other
     business combination (including, without limitation, a reorganization,
     recapitalization, spin-off or scheme of arrangement) with another Person.

          (k) "INTEREST RATE" means the applicable LIBOR plus three and one-half
     percent (3.5%), subject to periodic adjustment pursuant to Section 2.

          (l) "LIBOR" means, on each Interest Date or, if prior to the first
     Interest Date hereunder, the Issuance Date, (i) the six-month London
     Interbank Offered Rate for deposits in U.S. dollars, as shown on such date
     in The Wall Street Journal (Eastern Edition) under the caption "Money Rates
     - London Interbank Offered Rates (LIBOR)"; or (ii) if The Wall Street
     Journal does not publish such rate, the offered one-month rate for deposits
     in U.S. dollars which appears on the Reuters Screen LIBOR Page as of 10:00
     a.m., New York time, each day, provided that if at least two rates appear
     on the Reuters Screen LIBO Page on any day, the "LIBOR" for such day shall
     be the arithmetic mean of such rates.]

          (m) "OPTIONS" means any rights, warrants or options to subscribe for
     or purchase Ordinary Shares or Convertible Securities

          (n) "ORDINARY SHARES DEEMED OUTSTANDING" means, at any given time, the
     number of Ordinary Shares actually outstanding at such time, plus the
     number of Ordinary Shares deemed to be outstanding pursuant to Sections
     7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or
     Convertible Securities are actually exercisable at such time, but excluding
     any Ordinary Shares owned or held by or for the account of the Company or
     issuable upon conversion or exercise, as applicable, of the Note and the
     Warrants.

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

          (p) "PRINCIPAL MARKET" means The Nasdaq Capital Market.

          (q) "REDEMPTION PREMIUM" means in the case of the Events of Default
     described in Section 4(b): 100%.

          (r) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
     rights agreement between the Company and the Holder relating to, among
     other things, the registration of the resale of the Ordinary Shares
     issuable upon conversion of this Note.

          (s) "SEC" means the United States Securities and Exchange Commission.

                                       17
<PAGE>

          (t) "SUBSIDIARIES" means any entity wholly owned by the Company or in
     which the Company owns or controls a controlling interest or a majority of
     the voting securities.

          (u) "TRANSACTION DOCUMENTS" means this Note, the Warrants and the
     Registration Rights Agreement.

          (v) "WARRANTS" means the Warrants to be issued by the Company to the
     Holder in connection with purchase of this Note.

                            [Signature Page Follows]

                                       18
<PAGE>

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

                                   RADA ELECTRONIC INDUSTRIES LTD.

                                   By:__________________________________________
                                      Name:
                                      Title:

<PAGE>

                                    EXHIBIT I

                         RADA ELECTRONIC INDUSTRIES LTD.
                                CONVERSION NOTICE

Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by RADA Electronic Industries Ltd. (the "COMPANY"). In accordance with and
pursuant to the Note, the undersigned hereby elects to convert the Conversion
Amount (as defined in the Note) of the Note indicated below into Ordinary Shares
of the Company, NIS 0.15 nominal value per share (the "ORDINARY SHARES"), as of
the date specified below.

     Date of Conversion: _______________________________________________________

     Aggregate Conversion Amount to be converted: ______________________________

Please confirm the following information:

     Conversion Price: _________________________________________________________

     Number of Ordinary Shares to be issued: ___________________________________

Please issue the Ordinary Shares into which the Note is being converted in the
following name and to the following address:

     Issue to: _________________________________________________________________

               _________________________________________________________________

               _________________________________________________________________

     Facsimile Number: _________________________________________________________

     Authorization: ____________________________________________________________

           By: _________________________________________________________________

               Title: __________________________________________________________

Dated: _________________________________________________________________________

       Account Number: _________________________________________________________
       (if electronic book entry transfer)

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

<PAGE>

                                 ACKNOWLEDGMENT

     The Company hereby acknowledges this Conversion Notice and hereby directs
[INSERT NAME OF TRANSFER AGENT] to issue the above indicated number of Ordinary
Shares in accordance with the Transfer Agent Instructions dated _______________
from the Company and acknowledged and agreed to by [INSERT NAME OF TRANSFER
AGENT].

                                         RADA ELECTRONIC INDUSTRIES LTD.

                                         By: ___________________________________
                                             Name:
                                             Title:

<PAGE>

                                   EXHIBIT II

                               EVENTS OF DEFAULTS

1    NON COMPLIANCE

     The Company fails to comply with any provision of the Transaction
     Documents.

2    MISREPRESENTATION

     Any representation or statement made, repeated or deemed made by the
     Company in or pursuant to the Transaction Documents is or proves to have
     been incorrect or misleading in any material respect when made, repeated or
     deemed made.

3    CROSS DEFAULT

3.1  Any indebtedness (including a contingent obligation) of the Company to any
     party is not paid when due.

3.2  Any indebtedness of the Company to any party becomes due or capable of
     being declared due prior to its stated maturity by reason of default.

3.3  Any expropriation, attachment, sequestration, distress, execution or
     enforcement of security affects any of the Company's assets.

4    INSOLVENCY

4.1  The Company stops or suspends payment of any of its debts, or is unable to
     or admits inability to pay its debts as they fall due.

4.2  The Company commences negotiations (by reason of actual or anticipated
     financial difficulties), enters into any composition or arrangement with
     one or more of its creditors with a view to rescheduling any of its
     indebtedness.

4.3  Any of the following events occurs in relation to the Company:

     (a)  a moratorium of any indebtedness, winding-up, dissolution, suspension
          of payments, administration, reorganization (by way of voluntary
          arrangement, scheme of arrangement or otherwise), petition for
          bankruptcy, composition, compromise, assignment or arrangement with
          any creditor;

     (b)  any liquidator, receiver, administrative receiver, administrator,
          compulsory manager or other similar officer is appointed in respect of
          the Company or any of its assets;

     (c)  any event occurs in relation to the Company that is analogous to those
          listed in this clause.

5    DISTRESS

     A distress, attachment, execution or other legal process is levied,
     enforced or sued out on or against the assets of the Company.

6    ENFORCEMENT OF SECURITY

     Any security on or over the assets of the Company becomes enforceable.

                                       22
<PAGE>

7    ILLEGALITY

     Any or all of the Transaction Documents becomes invalid, unlawful,
     unenforceable, terminated, disputed or ceases to have full force and
     effect.

8    REPUDIATION

     The Company repudiates or evidences an intention to repudiate the
     Transaction Documents.

9    MATERIAL ADVERSE CHANGE

     Any event occurs or circumstances arise which, in the opinion of the
     Holder, is likely to materially and adversely affect the ability of the
     Company to perform all or any of its obligations under, or otherwise comply
     with, the terms of this Agreement.

                                       23
<PAGE>

                                   EXHIBIT III

                                    DEBENTURE

                              (Unlimited in amount)

     This DEBENTURE dated as of December 10, 2007, is made by RADA Electronic
Industries Ltd., an Israeli company (the "GRANTOR"), in favor of Howard P.L.
Yeung, (the "PURCHASER").

                              W I T N E S S E T H:

     WHEREAS, the Grantor has issued on December 10, 2007, to the Purchaser a
Convertible Note (the "Note"); and

     WHEREAS, it is a condition precedent to the Purchaser purchasing the Note,
that the Grantor shall have executed and delivered to the Purchaser a floating
charge over all the assets of the Grantor; and

     WHEREAS, the Grantor has determined that the execution, delivery and
performance of this Debenture directly benefits, and are in the best interest
of, the Grantor;

     NOW, THEREFORE, in consideration of the premises and the agreements herein,
the Grantor agrees with the Purchaser as follows:

     (28) DEFINITIONS. Reference is hereby made to the Note for a statement of
the terms thereof. All terms used in this Debenture and the recitals hereto
which are defined in the Note and which are not otherwise defined herein shall
have the same meanings herein as set forth in the Note. As used in this
Debenture, the following terms shall have the respective meanings indicated
below, such meanings to be applicable equally to both the singular and plural
forms of such terms:

     "FINANCIAL STATEMENTS" means the annual and interim financial statements of
the Grantor as prepared in accordance with the requirements of the laws of
Israel and the United States Securities and Exchange Commission.

     "GOVERNMENTAL AUTHORITY" means any government, any state, city, town,
municipality, local or other political subdivision thereof or thereto and any
department, commission, board, bureau, instrumentality, agency or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government, including,
but not limited to, the OCS.

     "REGISTRAR" means Israeli Companies Registrar.

     "OCS" means the Office of the Chief Scientist, Israeli Ministry of Industry
and Trade.

                                       24
<PAGE>

     (29) GRANT OF CHARGE. As collateral security for all of the Obligations (as
defined in Section 3 hereof), the Grantor hereby pledges and assigns to the
Purchaser, and grants to the Purchaser a first ranking floating charge, second
in rank only to the liens, mortgages, pledges and floating charges listed on
Schedule 2 hereto (collectively, the "BANKS' LIEN") made in favor of Bank
Hapoalim B.M. and Bank Leumi Le-Israel B.M. (collectively, the "BANKS"), over
all assets of the Grantor, wherever located and whether now or hereafter
existing and whether now owned or hereafter acquired, of every kind and
description, tangible or intangible (the "COLLATERAL" and such charge, the
"FLOATING CHARGE"), including, without limitation, the following:

          (i) all the assets, monies, property and rights of any kind whatsoever
     without exception, whether now or hereafter at any time in the future owned
     by or in the possession of the Grantor in any manner or way whatsoever,
     including, without limitation, any intangible assets;

          (ii) all the current assets, without exception, now or hereafter at
     any time in the future owned by or in the possession of the Grantor in any
     manner or way whatsoever, the expression "current assets" meaning all the
     assets, monies, property and rights of any kind with the exception of land,
     buildings and fixtures;

          (iii) all the fixed assets now or hereafter at any time in the future
     owned by or in possession of the Grantor in any manner or way whatsoever,
     the expression "fixed assets" to include, inter alia, land, buildings and
     fixtures;

          (iv) all the securities and other documents or instruments owned by
     the Grantor now and at any time in the future held by Grantor and/or any
     rights in respect thereof; and

          (v) all other tangible and intangible personal property of the
     Grantor, including, without limitation, all bank and other accounts and all
     cash and all investments therein, all proceeds, products, offspring,
     accessions, rents, profits, income, benefits, substitutions and
     replacements of and to any of the property of the Grantor described in the
     preceding clauses of this Section 2 (including, without limitation, any
     proceeds of insurance thereon and all causes of action, claims and
     warranties now or hereafter held by the Grantor in respect of any of the
     items listed above), and all books, correspondence, files and other
     records, including, without limitation, all tapes, desks, cards, software,
     data and computer programs in the possession or under the control of the
     Grantor or any other Person from time to time acting for the Grantor that
     at any time evidence or contain information relating to any of the property
     described in the preceding clauses of this Section 2 or are otherwise
     necessary or helpful in the collection or realization thereof;

in each case howsoever the Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).

     (30) SECURITY FOR OBLIGATIONS. The charge created hereby over the
Collateral constitutes continuing collateral security for the Grantor's payment
and performance of its obligations under the Note (the "OBLIGATIONS").

                                       25
<PAGE>

     (31) REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants as
follows:

          (a) Schedule 4(a) hereto sets forth (i) the exact legal name of the
     Grantor and (ii) the organizational identification number of the Grantor.

          (b) The Grantor (i) is a company validly existing under the laws of
     the state of Israel and (ii) has all requisite power and authority to
     execute, deliver and perform this Debenture and to consummate the
     transactions contemplated hereby.

          (c) The execution, delivery and performance by the Grantor of this
     Debenture (i) have been duly authorized by all necessary action, (ii) do
     not contravene its memorandum or articles of association or any applicable
     law or any contractual restriction binding on or otherwise affecting the
     Grantor or its properties, (iii) do not and, based on current applicable
     law, will not result in or require the creation of any Lien upon or with
     respect to any of its properties and (iv) do not result in any default,
     noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal
     of any permit, license, authorization or approval applicable to it or its
     operations or any of its properties, which, in the case of this clause
     (iv), is reasonably expected to have a material adverse effect on the
     business, finances, operations or prospects of the Grantor.

          (d) This Debenture is, and when executed and delivered pursuant
     hereto, will be, a legal, valid and binding obligation of the Grantor,
     enforceable against the Grantor in accordance with its terms, except as may
     be limited by applicable bankruptcy, insolvency, reorganization, moratorium
     or other similar laws and principles of equity.

          (e) There is no pending or written notice threatening any action,
     suit, proceeding or claim affecting the Grantor, before any Governmental
     Authority or any arbitrator, or any order, judgment or award by any
     Governmental Authority or arbitrator, that may adversely affect the grant
     by the Grantor, or the recordation, of the charges purported to be created
     hereby in the Collateral, or the exercise by the Purchaser of any of its
     rights or remedies hereunder. The Grantor has received the approval of the
     OCS (the "OCS APPROVAL") to any change in the ownership of its assets which
     may occur as a result of the enforcement by Purchaser of the security
     interest created hereunder.

          (f) All tax returns and other reports required by applicable law to be
     filed by the Grantor have been filed, or extensions have been obtained, and
     all taxes, assessments and other governmental charges imposed upon the
     Grantor or any property of the Grantor (including, without limitation, all
     income and other taxes on employees' wages) and which have become due and
     payable on or prior to the date hereof have been paid, except to the extent
     contested in good faith by proper proceedings which stay the imposition of
     any penalty, fine or lien resulting from the non-payment thereof and with
     respect to which adequate reserves have been set aside for the payment
     thereof on the Financial Statements in accordance with general accepted
     accounting principles.

                                       26
<PAGE>

          (g) All equipment, fixtures, goods and inventory now existing are, and
     all equipment, fixtures, goods and inventory hereafter existing will be,
     located and/or based at the addresses specified therefore on Schedule
     4(g)(1) hereto, except that the Grantor will give the Purchaser not less
     than five days' prior written notice of any change of the location of any
     such Collateral, other than to locations set forth on Schedule 4(g)(1). The
     Grantor's chief place of business and chief executive office, the place
     where the Grantor keeps its records and all originals of all chattel paper
     are located at the addresses specified therefore on Schedule 4(g)(2)
     hereto. Set forth on Schedule 4(g)(3) hereto is a complete and accurate
     list, as of the date of this Debenture, of each deposit account, securities
     account and commodities account of the Grantor, together with the name and
     address of each institution at which each such account is maintained, the
     account number for each account. Set forth on Schedule 4(g)(4) hereto is a
     complete and correct list of each trade name used by the Grantor and the
     name of, and each trade name used by, each person from which the Grantor
     has acquired any substantial part of the Collateral.

          (h) The Grantor owns and controls, or otherwise possesses adequate
     rights to use, all trademarks, patents and copyrights (if any), which are
     the only trademarks, patents, copyrights, inventions, trade secrets,
     proprietary information and technology, know-how, formulae, rights of
     publicity (collectively, the "INTELLECTUAL PROPERTY") necessary to conduct
     its business in substantially the same manner as conducted as of the date
     hereof. Schedule 4(h) hereto sets forth a true and complete list of all
     patents, trademarks and copyrights owned or used by the Grantor as of the
     date hereof. All such Intellectual Property is subsisting and in full force
     and effect, has not been adjudged invalid or unenforceable, is valid and
     enforceable and has not been abandoned in whole or in part. Except as set
     forth on Schedule 4(h), no Intellectual Property is the subject of any
     licensing or franchising agreement. The Grantor has no knowledge of any
     conflict with the rights of others to any Intellectual Property and, to the
     best knowledge of the Grantor, the Grantor is not now infringing or in
     conflict with any such rights of others in any material respect, and to the
     best knowledge of the Grantor, no other Person is now infringing or in
     conflict in any material respect with any such properties, assets and
     rights owned or used by the Grantor. The Grantor has not received any
     notice that it is violating or has violated the trademarks, patents,
     copyrights, inventions, trade secrets, proprietary information and
     technology, know-how, formulae, rights of publicity or other intellectual
     property rights of any third party.

          (i) The Grantor is and will be at all times the sole and exclusive
     owner of, or otherwise have and will have adequate rights in, the
     Collateral free and clear of any lien except for Permitted Liens. No
     effective financing statement, recordation of charge or other instrument
     similar in effect covering all or any part of the Collateral is on file in
     any recording or filing office except (A) such as may have been filed in
     favor of the Banks, (B) such as may have been filed in favor of the
     Purchaser relating to this Debenture and (C) such as may have been, or will
     be, filed to perfect or protect any security interests or liens permitted
     by the Note.

          (j) Subject to the limitations detailed in the approvals given by the
     Banks to the creation and the registration of this Debenture, and subject,
     further, to the OCS Approval, the exercise by the Purchaser of any of its
     rights and remedies hereunder will not contravene any law or any
     contractual restriction binding on or otherwise affecting the Grantor or
     any of its properties and will not result in or require the creation of any
     lien, upon or with respect to any of its properties.

                                       27
<PAGE>

          (k) No authorization or approval or other action by, and no notice to
     or filing with, any Governmental Authority or other regulatory body, or any
     other Person, is required for (i) the grant by the Grantor, or the
     recordation, of the Floating Charge purported to be created hereby over and
     in the Collateral or (ii) the exercise by the Purchaser of any of its
     rights and remedies hereunder, other than: (1) the consent of the Banks to
     the grant of the security interest pursuant hereto and the conditions to,
     and the limitations upon the exercise of the rights of the Purchaser
     hereunder, as detailed in the approvals given by the Banks and (2) the OCS
     Approval and (3) the filings under the Israeli Companies Ordinance - 1983
     (the "COMPANIES ORDINANCE") which filings shall be made no later than 21
     days of the date hereof.

          (l) This Debenture creates in favor of the Purchaser a first priority,
     legal, valid and enforceable floating charge over the Collateral, as
     security for the Obligations, subject only to the Permitted Liens and the
     Banks' Liens. Such recordings and all other action necessary or desirable
     to record such security interests have been duly taken or will be taken
     within 21 days of the date hereof.

     (32) COVENANTS AS TO THE COLLATERAL. So long as any of the Obligations
shall remain outstanding, unless the Purchaser shall otherwise consent in
writing:

          (a) FURTHER ASSURANCES. The Grantor will at its expense, at any time
     and from time to time, promptly execute and deliver all further instruments
     and documents and take all further action that may be necessary or
     desirable or that the Purchaser may reasonably request in order to (i)
     protect the lien purported to be created hereby; (ii) enable the Purchaser
     to exercise and enforce its rights and remedies hereunder in respect of the
     Collateral; or (iii) otherwise effect the purposes of this Debenture.

          (b) LOCATION OF EQUIPMENT AND INVENTORY. The Grantor will keep all
     equipment and inventory at the locations specified therefore on Schedule
     4(g)(1) hereof or, upon not less than thirty (30) days' prior written
     notice to the Purchaser accompanied by a new Schedule 4(g)(1) hereto
     indicating each new location of such equipment and inventory, at such other
     locations in the State of Israel. Any inventory held by an authorized
     distributor or sales agent shall be marked as subject to the Floating
     Charge created under this Debenture.

          (c) CONDITION OF EQUIPMENT. The Grantor will maintain or cause the
     equipment (necessary or useful to its business) to be maintained and
     preserved in good condition, repair and working order, ordinary wear and
     tear excepted, and will forthwith, or in the case of any loss or damage to
     any equipment within a commercially reasonable time after the occurrence
     thereof, make or cause to be made all repairs, replacements and other
     improvements in connection therewith which are necessary or desirable,
     consistent with past practice or which the Purchaser may reasonably request
     to such end. The Grantor will promptly furnish to the Purchaser a statement
     describing in reasonable detail any loss or damage in excess of $250,000 to
     any equipment.

          (d) TAXES, ETC. The Grantor agrees to pay promptly when due all
     property and other taxes, assessments and governmental charges or levies
     imposed upon, and all claims (including claims for labor, materials and
     supplies) against, the equipment and inventory, except to the extent the
     validity thereof is being contested in good faith by proper proceedings
     which stay the imposition of any penalty, fine or lien resulting from the
     non-payment thereof and with respect to which adequate reserves in
     accordance with general accepted accounting principles have been set aside
     for the payment thereof.

                                       28
<PAGE>

          (e) INSURANCE.

               (i) The Grantor will, at its own expense, maintain insurance
          (including, without limitation, comprehensive general liability and
          property insurance) with respect to the equipment and inventory in
          such amounts, against such risks, in such form and with responsible
          and reputable insurance companies or associations as is required by
          any Governmental Authority having jurisdiction with respect thereto or
          as is carried generally in accordance with sound business practice by
          companies in similar businesses similarly situated and in any event,
          in amount, adequacy and scope reasonably satisfactory to the
          Purchaser. Each policy for liability insurance shall provide for all
          losses to be paid on behalf of the Purchaser and the Grantor as their
          respective interests may appear, and each policy for property damage
          insurance shall provide for all losses to be adjusted with, and paid
          directly to, the Purchaser. Each such policy shall, in addition, (A)
          contain an agreement by the insurer that any loss thereunder shall be
          payable to the Purchaser on its own account notwithstanding any
          action, inaction or breach of representation or warranty by the
          Grantor, (B) provide that there shall be no recourse against the
          Purchaser for payment of premiums or other amounts with respect
          thereto and (C) provide that at least 10 days' prior written notice of
          cancellation, lapse, expiration or other adverse change shall be given
          to the Purchaser by the insurer. The Grantor will, if so requested by
          the Purchaser, deliver to the Purchaser original or duplicate policies
          of such insurance. The Grantor will also, at the request of the
          Purchaser, execute and deliver instruments of assignment of such
          insurance policies and cause the respective insurers to acknowledge
          notice of such assignment.

               (ii) Reimbursement under any liability insurance maintained by
          the Grantor pursuant to this Section 5 may be paid directly to the
          Person who shall have incurred liability covered by such insurance. In
          the case of any loss involving damage to equipment or inventory, any
          proceeds of insurance maintained by the Grantor pursuant to this
          Section 5(e) shall be paid to the Purchaser and the Grantor will make
          or cause to be made the necessary repairs to or replacements of such
          equipment or inventory, and any proceeds of insurance maintained by
          the Grantor pursuant to this Section 5 shall be paid by the Purchaser
          to the Grantor as reimbursement for the costs of such repairs or
          replacements.

               (iii) All insurance payments in respect of such equipment or
          inventory shall be paid to the Purchaser and applied as specified in
          Section 7(b) hereof.

          (f) PROVISIONS CONCERNING THE ACCOUNTS AND THE LICENSES.

               (i) The Grantor will (A) give the Purchaser at least five days'
          notice of any change in Grantor's name, identity or organizational
          structure, (B) maintain its current jurisdiction of incorporation, (C)
          immediately notify the Purchaser upon obtaining an organizational
          identification number, if on the date hereof the Grantor did not have
          such identification number, and (D) keep adequate records concerning
          the accounts and chattel paper and permit representatives of the
          Purchaser to inspect and make abstracts from such records and chattel
          paper.

                                       29
<PAGE>

               (ii) The Grantor will, except as otherwise provided in this
          subsection (f), continue to collect, at its own expense, all amounts
          due or to become due under the accounts. In connection with such
          collections, the Grantor may (and, at the Purchaser's direction, will)
          take such action as the Grantor or the Purchaser may deem necessary or
          advisable to enforce collection or performance of the accounts;
          provided, however, that subject to any applicable conditions in the
          approvals given by the Banks and any restrictions under applicable
          law, the Purchaser shall have the right, at any time, upon the
          occurrence and during the continuance of an Event of Default, to
          notify the account debtors or obligors under any accounts of the
          assignment of such accounts to the Purchaser and to direct such
          account debtors or obligors to make payment of all amounts due or to
          become due to the Grantor thereunder directly to the Purchaser or its
          designated agent and, upon such notification and at the expense of the
          Grantor and to the extent permitted by law, to enforce collection of
          any such accounts and to adjust, settle or compromise the amount or
          payment thereof, in the same manner and to the same extent as the
          Grantor might have done. After receipt by the Grantor of a notice from
          the Purchaser that the Purchaser has notified, intends to notify or
          has enforced or intends to enforce the Grantor's rights against the
          account debtors or obligors under any accounts as referred to in the
          proviso to the immediately preceding sentence, (A) all amounts and
          proceeds (including instruments) received by the Grantor in respect of
          the Accounts shall be received in trust for the benefit of the
          Purchaser hereunder, shall be segregated from other funds of the
          Grantor and shall be forthwith paid over to the Purchaser in the same
          form as so received (with any necessary endorsement) to be held as
          cash collateral and either (1) credited to the loan account so long as
          no Event of Default shall have occurred and be continuing or (2) if an
          Event of Default shall have occurred and be continuing, applied as
          specified in Section 7 hereof, and (B) the Grantor will not adjust,
          settle or compromise the amount of payment of any account or release
          wholly or partly any account debtor or obligor thereof or allow any
          credit or discount thereon. In addition, upon the occurrence and
          during the continuance of an Event of Default, the Purchaser may (in
          its sole and absolute discretion) direct any or all of the banks and
          financial institutions with which the Grantor either maintains a
          deposit account or a lockbox or deposits the proceeds of any accounts
          to send immediately to the Purchaser by wire transfer (to such
          accounts as Purchaser shall specify, or in such other manner as the
          Purchaser shall direct) all or a portion of such securities, cash,
          investments and other items held by such institution. Any such
          securities, cash, investments and other items so received by the
          Purchaser shall (in the sole and absolute discretion of the Purchaser)
          be held as additional Collateral for the Obligations or distributed in
          accordance with Section 7 hereof.

               (iii) Upon the occurrence and during the continuance of any
          breach or default under any material license referenced on Schedule
          5(f)(iii) hereto by any party thereto other than the Grantor, the
          Grantor will, promptly after obtaining knowledge thereof, give the
          Purchaser written notice of the nature and duration thereof,
          specifying what action, if any, it has taken and proposes to take with
          respect thereto and thereafter will take reasonable steps to protect
          and preserve its rights and remedies in respect of such breach or
          default, or will obtain or acquire an appropriate substitute license.

                                       30
<PAGE>

               (iv) The Grantor will, at its expense, promptly deliver to the
          Purchaser a copy of each notice or other communication received by it
          by which any other party to any material license purports to exercise
          any of its rights or affect any of its obligations thereunder,
          together with a copy of any reply by the Grantor.

               (v) The Grantor will exercise promptly and diligently each and
          every right which it may have under each material license (other than
          any right of termination) and will duly perform and observe in all
          respects all of its obligations under each material license and will
          take all action necessary to maintain such material licenses in full
          force and effect. The Grantor will not, without the prior written
          consent of the Purchaser, cancel, terminate, amend or otherwise modify
          in any respect, or waive any provision of, any material license.

          (g) TRANSFERS AND OTHER LIENS.

               (i) The Grantor will not sell, assign (by operation of law or
          otherwise), lease, license, exchange or otherwise transfer or dispose
          of any of the Collateral, except: (A) inventory and Intellectual
          Property in the ordinary course of business; (B) worn out or obsolete
          assets not necessary to the business; and (C) as otherwise permitted
          by the Transaction Documents.

               (ii) The Grantor will not create, suffer to exist or grant any
          lien or other charge, whether floating or fixed, upon or with respect
          to any Collateral, other than a Permitted Lien.

          (h) INTELLECTUAL PROPERTY.

               (i) The Grantor (either itself or through licensees) will, and
          will cause each licensee thereof to, take all action necessary to
          maintain all of the Intellectual Property in full force and effect,
          including, without limitation, using the proper statutory notices and
          markings and using the trademarks on each applicable trademark class
          of goods in order to so maintain the trademarks in full force and free
          from any claim of abandonment for non-use, and the Grantor will not
          (nor permit any licensee thereof to) do any act or knowingly omit to
          do any act whereby any Intellectual Property may become invalidated.
          The Grantor will cause to be taken all necessary steps in any
          proceeding before the United States Patent and Trademark Office and
          the United States Copyright Office or any similar office or agency in
          any other country or political subdivision thereof to maintain each
          registration of the Intellectual Property, including, without
          limitation, filing of renewals, affidavits of use, affidavits of
          incontestability and opposition, interference and cancellation
          proceedings and payment of maintenance fees, filing fees, taxes or
          other governmental fees. If any Intellectual Property is infringed,
          misappropriated, diluted or otherwise violated in any material respect
          by a third party, the Grantor shall (1) upon learning of such
          infringement, misappropriation, dilution or other violation, promptly
          notify the Purchaser and (2) to the extent the Grantor shall deem
          appropriate under the circumstances, promptly sue for infringement,
          misappropriation, dilution or other violation, seek injunctive relief
          where appropriate and recover any and all damages for such
          infringement, misappropriation, dilution or other violation, or take
          such other actions as the Grantor shall deem appropriate under the
          circumstances to protect such Intellectual Property. The Grantor shall
          furnish to the Purchaser from time to time upon its request statements
          and schedules further identifying and describing the Intellectual
          Property and licenses and such other reports in connection with the
          Intellectual Property and licenses as the Purchaser may reasonably
          request, all in reasonable detail and promptly upon request of the
          Purchaser, following receipt by the Purchaser of any such statements,
          schedules or reports, the Grantor shall modify this Debenture by
          amending Schedule 4(h) hereto, as the case may be, to include any
          Intellectual Property or license, as the case may be, which becomes
          part of the Collateral under this Debenture and shall execute and
          authenticate such documents and do such acts as shall be necessary or,
          in the judgment of the Purchaser, desirable to subject such
          Intellectual Property and licenses to the Floating Charge created by
          this Debenture. Notwithstanding anything herein to the contrary, upon
          the occurrence and during the continuance of an Event of Default, the
          Grantor may not abandon or otherwise permit any Intellectual Property
          to become invalid without the prior written consent of the Purchaser,
          and if any Intellectual Property is infringed, misappropriated,
          diluted or otherwise violated in any material respect by a third
          party, the Grantor will take such action as the Purchaser shall deem
          appropriate under the circumstances to protect such Intellectual
          Property.

                                       31
<PAGE>

               (ii) In no event shall the Grantor, either itself or through any
          agent, employee, licensee or designee, file an application for the
          registration of any trademark or copyright or the issuance of any
          patent with the United States Patent and Trademark Office or the
          United States Copyright Office, as applicable, or in any similar
          office or agency of the United States or any country or any political
          subdivision thereof unless it gives the Purchaser prior written notice
          thereof. Upon request of the Purchaser, the Grantor shall execute,
          authenticate and deliver any and all assignments, agreements,
          instruments, documents and papers as the Purchaser may reasonably
          request to evidence the Purchaser's security interest hereunder in
          such Intellectual Property and the general intangibles of the Grantor
          relating thereto or represented thereby and the Grantor hereby
          appoints the Purchaser its attorney-in-fact to execute and/or
          authenticate and file all such writings for the foregoing purposes,
          all acts of such attorney being hereby ratified and confirmed, and
          such power (being coupled with an interest) shall be irrevocable until
          the repayment of all of the Obligations in full and the termination of
          each of the Transaction Documents.

          (i) INSPECTION AND REPORTING. The Grantor shall permit the Purchaser
     or representatives thereof or such professionals or other Persons as the
     Purchaser may designate not more than twice a year in the absence of an
     Event of Default, upon prior notice and during reasonable business hours:
     (i) to examine and make copies of and abstracts from the Grantor's records
     and books of account, (ii) to visit and inspect its properties, (iii) to
     verify materials, leases, notes, accounts, inventory and other assets of
     the Grantor from time to time, and (iv) to conduct audits, physical counts,
     appraisals and/or valuations. The Grantor shall also permit the Purchaser
     or any representatives thereof or such professionals or other Persons as
     the Purchaser may designate to discuss the Grantor's affairs, finances and
     accounts with any of its directors, officers, managerial employees,
     independent accountants or any of its other representatives, during
     reasonable hours and subject to the execution of customary confidentiality
     and non disclosure undertaking.

                                       32
<PAGE>

     (33) ADDITIONAL PROVISIONS CONCERNING THE COLLATERAL.

          (a) The Grantor hereby undertakes to make, within 21 days of the date
     hereof, all required filings with the Registrar in order to record the
     Floating Charge contemplated herein. In addition, the Grantor agrees to
     promptly pay the Israeli stamp tax due in connection with the issuance of
     this Debenture prior to its recordation.

          (b) Subject to any applicable conditions in the approvals of the Banks
     and any restrictions under applicable law, the Grantor hereby irrevocably
     appoints the Purchaser as its attorney-in-fact and proxy, with full
     authority in the place and stead of the Grantor and in the name of the
     Grantor or otherwise, from time to time in the Purchaser's discretion, to
     take any action and to execute any instrument which the Purchaser may deem
     necessary or advisable to accomplish the purposes of this Debenture
     (subject to the rights of the Grantor under Section 5 hereof), including
     without limitation, (i) to obtain and adjust insurance required to be paid
     to the Purchaser pursuant to Section 5 hereof, (ii) to ask, demand,
     collect, sue for, recover, compound, receive and give acquittance and
     receipts for moneys due and to become due under or in respect of any
     Collateral, (iii) to receive, endorse, and collect any drafts or other
     instruments, documents and chattel paper in connection with clauses (i) or
     (ii) above, (iv) to file any claims or take any action or institute any
     proceedings which the Purchaser may deem necessary or desirable for the
     collection of any Collateral or otherwise to enforce the rights of the
     Purchaser with respect to any Collateral, and (v) to execute assignments,
     licenses and other documents to enforce the rights of the Purchaser with
     respect to any Collateral. This power is coupled with an interest and is
     irrevocable until all of the Obligations are indefeasibly paid in cash.

          (c) For the purposes of enabling the Purchaser to exercise rights and
     remedies hereunder, at such time as the Purchaser shall be lawfully
     entitled to exercise such rights and remedies, and for no other purpose,
     and subject o any applicable conditions in the approvals of the Banks and
     any restrictions under applicable law, the grantor hereby grants to the
     Purchaser, to the extent assignable, an irrevocable, non-exclusive license
     (exercisable without payment of royalty or other compensation to the
     Grantor) to use, assign, license or sublicense any Intellectual Property
     now owned or hereafter acquired by the Grantor, wherever the same may be
     located, including in such license reasonable access to all media in which
     any of the licensed items may be recorded or stored and to all computer
     programs used for the compilation or printout thereof. Notwithstanding
     anything contained herein to the contrary, so long as no Event of Default
     shall have occurred and be continuing, the Grantor may exploit, use, enjoy,
     protect, license, sublicense, assign, sell, dispose of or take other
     actions with respect to the Intellectual Property in the ordinary course of
     its business. In furtherance of the foregoing, unless an Event of Default
     shall have occurred and be continuing, the Purchaser shall from time to
     time, upon the request of the Grantor, execute and deliver any instruments,
     certificates or other documents, in the form so requested, which the
     Grantor shall have certified are appropriate (in the Grantor's judgment) to
     allow it to take any action permitted above (including relinquishment of
     the license provided pursuant to this clause (c)) as to any Intellectual
     Property. Further, upon the indefeasible payment in full in cash of all of
     the Obligations, the Purchaser (subject to Section 10(e) hereof) shall
     release and reassign to the Grantor all of the Purchaser's right, title and
     interest in and to the Intellectual Property, and the licenses, all without
     recourse, representation or warranty whatsoever. The exercise of rights and
     remedies hereunder by the Purchaser shall not terminate the rights of the
     holders of any licenses or sublicenses theretofore granted by the Grantor
     in accordance with the second sentence of this clause (c). The Grantor
     hereby releases the Purchaser from any claims, causes of action and demands
     at any time arising out of or with respect to any actions taken or omitted
     to be taken by the Purchaser under the powers of attorney granted herein
     other than actions taken or omitted to be taken through the Purchaser's
     gross negligence or willful misconduct, as determined by a final
     determination of a court of competent jurisdiction.

                                       33
<PAGE>

          (d) If the Grantor fails to perform any agreement contained herein,
     the Purchaser may itself perform, or cause performance of, such agreement
     or obligation, in the name of the Grantor or the Purchaser, and the
     expenses of the Purchaser incurred in connection therewith shall be payable
     by the Grantor pursuant to Section 8 hereof and shall be secured by the
     Collateral.

          (e) The powers conferred on the Purchaser hereunder are solely to
     protect its interest in the Collateral and shall not impose any duty upon
     it to exercise any such powers. Except for the safe custody of any
     Collateral in its possession and the accounting for moneys actually
     received by it hereunder, the Purchaser shall have no duty as to any
     Collateral or as to the taking of any necessary steps to preserve rights
     against prior parties or any other rights pertaining to any Collateral.

          (f) Anything herein to the contrary notwithstanding (i) the Grantor
     shall remain liable under the licenses and otherwise with respect to any of
     the Collateral to the extent set forth therein to perform all of its
     obligations thereunder to the same extent as if this Debenture had not been
     executed, (ii) the exercise by the Purchaser of any of its rights hereunder
     shall not release the Grantor from any of its obligations under the
     licenses or otherwise in respect of the Collateral, and (iii) the Purchaser
     shall not have any obligation or liability by reason of this Debenture
     under the licenses or with respect to any of the other Collateral, nor
     shall the Purchaser be obligated to perform any of the obligations or
     duties of the Grantor thereunder or to take any action to collect or
     enforce any claim for payment assigned hereunder.

          (g) The Grantor hereby releases the Purchaser in advance from all
     liability should the Purchaser fail at all, in time or in an appropriate
     manner, to utilize any of the powers conferred upon the Purchaser under
     this Section 6 and, in particular, without prejudice to the generality of
     the release aforesaid, in any case where the Purchaser does not obtain
     insurance at all, in time or in the correct manner or, where upon the
     occurrence of any damage or loss caused, the insurance company or companies
     insuring the Collateral (the "INSURANCE COMPANIES") shall not - as a result
     of any defect or of a lack of sufficiency in insurance or because of the
     absence of, or lateness in, delivery of any notice or demand or as a result
     of any act or omission by the Purchaser - pay, in whole or in part, the
     amount(s) claimed.

          (h) The Grantor hereby waives in advance any claims or counter-claims
     against the Purchaser on account of, or in connection with, any claim,
     negotiations, compromise, arrangement, settlement or waiver of the
     Grantor's rights, in whole or in part, made or to be made by the Purchaser
     with the Insurance Companies in connection with insurance as aforesaid.

          (i) The release and waiver referred to in paragraphs (g) and (h) of
     this Section 6 shall apply with regard to matters pertaining to any
     insurance whether such insurance was or will be effected by the Grantor or
     in its name by the Purchaser pursuant to the power granted to it under this
     Section 6.

                                       34
<PAGE>

     (34) REMEDIES UPON DEFAULT. If any Event of Default shall have occurred and
be continuing:

          (a) The Purchaser may exercise in respect of the Collateral, in
     addition to any other rights and remedies provided for herein or otherwise
     available to it, all of the rights and remedies of a secured party upon
     default under law, and also may crystallize the Floating Charge and
     realize, at the Grantor's expense, the Collateral by any means allowed by
     law, including, without limitation, by the appointment of a receiver or
     receiver and manager or by any other method the Purchaser shall see fit.
     The Grantor agrees that any receiver or receiver and manager, appointed
     pursuant hereto (a "RECEIVER"), shall be deemed to be the agent of the
     Grantor who shall be empowered, inter alia, to do the following: (i) to
     access, call in and take possession of the Collateral; (ii) to manage the
     Grantor's business or participate in the management thereof as the Receiver
     may see fit; (iii) to sell or agree to the sale of the Collateral, in whole
     or in part, or to transfer the same in any other manner upon such
     conditions as the Receiver may see fit; (iv) to make any other arrangement
     with respect to the Collateral or any part thereof as the Receiver may see
     fit; (v) to do all such other acts and things as the Receiver may consider
     incidental or conducive to any of the matters and powers aforesaid.

          (b) The Purchaser may exercise in respect of the Collateral, in
     addition to any other rights and remedies provided for herein or otherwise
     available to it, all of the rights and remedies of a secured party upon
     default under law, and also may crystallize the Floating Charge and
     realize, at the Grantor's expense, the Collateral by any means allowed by
     law. Accordingly, the Purchaser may, upon such crystallization (i) take
     absolute control of the Collateral, including, without limitation, transfer
     into the Purchaser's name or into the name of its nominee or nominees (to
     the extent the Purchaser has not theretofore done so) and thereafter
     receive, for the benefit of the Purchaser, all payments made thereon, give
     all consents, waivers and ratifications in respect thereof and otherwise
     act with respect thereto as though it were the outright owner thereof, (ii)
     require the Grantor to, and the Grantor hereby agrees that it will at its
     expense and upon request of the Purchaser forthwith, assemble all or part
     of the Collateral as directed by the Purchaser and make it available to the
     Purchaser at a place or places to be designated by the Purchaser that is
     reasonably convenient to both parties, and the Purchaser may enter into and
     occupy any premises owned or leased by the Grantor where the Collateral or
     any part thereof is located or assembled for a reasonable period in order
     to effectuate the Purchaser's rights and remedies hereunder or under law,
     without obligation to the Grantor in respect of such occupation, and (iii)
     without notice except as specified below and without any obligation to
     prepare or process the Collateral for sale, (A) sell the Collateral or any
     part thereof in one or more parcels at public or private sale, at any of
     the Purchaser's offices or elsewhere, for cash, on credit or for future
     delivery, and at such price or prices and upon such other terms as the
     Purchaser may deem commercially reasonable and/or (B) lease, license or
     dispose of the Collateral or any part thereof upon such terms as the
     Purchaser may deem commercially reasonable. The Grantor agrees that, to the
     extent notice of sale or any other disposition of the Collateral shall be
     required by law, at least ten (10) days' notice to the Grantor of the time
     and place of any public sale or the time after which any private sale or
     other disposition of the Collateral is to be made shall constitute
     reasonable notification. The Purchaser shall not be obligated to make any
     sale or other disposition of Collateral regardless of notice of sale having
     been given. The Purchaser may adjourn any public or private sale from time
     to time by announcement at the time and place fixed therefor, and such sale
     may, without further notice, be made at the time and place to which it was
     so adjourned. The Grantor hereby waives any claims against the Purchaser
     arising by reason of the fact that the price at which the Collateral may
     have been sold at a private sale was less than the price which might have
     been obtained at a public sale or was less than the aggregate amount of the
     Obligations, even if the Purchaser accepts the first offer received and
     does not offer the Collateral to more than one offeree, and waives all
     rights that the Grantor may have to require that all or any part of the
     Collateral be marshaled upon any sale (public or private) thereof. The
     Grantor hereby acknowledges that (i) any such sale of the Collateral by the
     Purchaser shall be made without warranty, (ii) the Purchaser may
     specifically disclaim any warranties of title, possession, quiet enjoyment
     or the like, and (iii) such actions set forth in clauses (i) and (ii) above
     shall not adversely effect the commercial reasonableness of any such sale
     of the Collateral.

                                       35
<PAGE>

          (c) All sums to be collected by the Purchaser upon a realization of
     the Collateral and all amounts paid to the Purchaser, pursuant to this
     Section 7, shall be applied for the purposes set out hereunder in the order
     in which they appear or in such other order as the Purchaser shall select:
     (i) in discharge of the expenses occasioned in consequence of such
     realization as aforesaid (including the appointment of a Receiver); (ii) in
     discharge of all other expenses, bank charges, interest and additional sums
     consequent upon the linkage of interest, the due date for payment whereof
     has arrived and which have not been paid to the Purchaser by the Grantor;
     (iii) in discharge of principal and additional sums consequent upon the
     linkage of principal, the due date for payment whereof has arrived and
     which have not been paid to the Purchaser by the Grantor; and (iv) for
     depositing in a special or other account in the name of the Purchaser,
     which shall serve as collateral for the full discharge of the balance of
     the Obligations, where the due date for payment of such amounts has not
     arrived, where such amounts are due or shall become due to the Purchaser on
     account of any contingent liability or obligation or on account of any
     other amounts.

          (d) Unless and until agreed otherwise in writing between the Grantor
     and the Purchaser, the Grantor shall not be entitled to withdraw the
     amounts to be deposited in such special or other account as aforesaid, or
     to effect in any manner whatsoever any disposition with respect thereto or
     in connection therewith, save with respect to such portion thereof as
     exceeds the amount of the Obligations.

          (e) In the event that the proceeds of any such sale, collection or
     realization are insufficient to pay all amounts to which the Purchaser is
     legally entitled, the Grantor shall be liable for the deficiency, together
     with interest thereon at the highest rate specified in any applicable
     Transaction Document for interest on overdue principal thereof or such
     other rate as shall be fixed by applicable law, together with the costs of
     collection and the reasonable fees, costs, expenses and other client
     charges of any attorneys employed by the Purchaser to collect such
     deficiency.

                                       36
<PAGE>

          (f) The Purchaser shall not be required to marshal any present or
     future collateral security (including, but not limited to, this Debenture
     and the Collateral) for, or other assurances of payment of, the Obligations
     or any of them or to resort to such collateral security or other assurances
     of payment in any particular order, and all of the Purchaser's rights
     hereunder and in respect of such collateral security and other assurances
     of payment shall be cumulative and in addition to all other rights, however
     existing or arising. To the extent that the Grantor lawfully may, the
     Grantor hereby agrees that it will not invoke any law relating to the
     marshalling of collateral which might cause delay in or impede the
     enforcement of the Purchaser's rights under this Debenture or under any
     other instrument creating or evidencing any of the Obligations or under
     which any of the Obligations is outstanding or by which any of the
     Obligations is secured or payment thereof is otherwise assured, and, to the
     extent that it lawfully may, the Grantor hereby irrevocably waives the
     benefits of all such laws.

     (35) INDEMNITY, EXPENSES AND SET-OFF.

          (a) The Grantor agrees to defend, protect, indemnify and hold the
     Purchaser harmless from and against any and all claims, damages, losses,
     liabilities, obligations, penalties, fees, costs and expenses (including,
     without limitation, reasonable legal fees and reasonable costs, expenses,
     and disbursements of Purchaser's counsel) to the extent that they arise out
     of or otherwise result from this Debenture (including, without limitation,
     enforcement of this Debenture), except claims, losses or liabilities
     resulting solely and directly from the Purchaser's gross negligence or
     willful misconduct, as determined by a final judgment of a court of
     competent jurisdiction.

          (b) The Grantor will upon demand pay to the Purchaser the amount of
     any and all costs and expenses, including the reasonable fees, costs,
     expenses and disbursements of counsel for the Purchaser and of any experts
     and agents (including, without limitation, any collateral trustee which may
     act as agent of the Purchaser), which the Purchaser may incur in connection
     with (ii) the custody, preservation, use or operation of, or the sale of,
     collection from, or other realization upon, any Collateral, (iii) the
     exercise or enforcement of any of the rights of the Purchaser hereunder, or
     (iv) the failure by the Grantor to perform or observe any of the provisions
     hereof.

          (c) Notwithstanding anything herein to the contrary, in the event that
     the Grantor fails to observe its obligations under the Note or hereunder,
     the Purchaser shall be entitled (but not obliged) at all times without
     being obliged to notify the Grantor in advance thereof to set-off the
     Obligations against any sum whether in Israeli currency or in foreign
     currency, as the case may be, to be due to the Grantor from the Purchaser
     in any account, manner or circumstance whatsoever.

     (36) NOTICES, ETC. All notices and other communications provided for
hereunder shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), telecopied or delivered, if to the
Grantor, to its address specified in the Note, and if to the Purchaser to it, at
its address specified in the Note; or as to any such Person, at such other
address as shall be designated by such Person in a written notice to such other
Person complying as to delivery with the terms of this Section 9. All such
notices and other communications shall be effective (i) if sent by certified
mail, return receipt requested, when received or ten days after deposited in the
mails, whichever occurs first, (ii) if telecopied, when transmitted and
confirmation is received, or (iii) if delivered, upon delivery.

                                       37
<PAGE>

     (37) MISCELLANEOUS.

          (a) No amendment of any provision of this Debenture shall be effective
     unless it is in writing and signed by the Grantor and the Purchaser, and no
     waiver of any provision of this Debenture, and no consent to any departure
     by the Grantor therefrom, shall be effective unless it is in writing and
     signed by the Purchaser, and then such waiver or consent shall be effective
     only in the specific instance and for the specific purpose for which given.

          (b) No failure on the part of the Purchaser to exercise, and no delay
     in exercising, any right hereunder or under any other Transaction Document
     shall operate as a waiver thereof; nor shall any single or partial exercise
     of any such right preclude any other or further exercise thereof or the
     exercise of any other right. The rights and remedies of the Purchaser
     provided herein and in the other Transaction Documents are cumulative and
     are in addition to, and not exclusive of, any rights or remedies provided
     by law. The rights of the Purchaser under any Transaction Document against
     any party thereto are not conditional or contingent on any attempt by such
     Person to exercise any of its rights under any other Transaction Document
     against such party or against any other Person, including but not limited
     to, the Grantor.

          (c) Any provision of this Debenture which is prohibited or
     unenforceable in any jurisdiction shall, as to such jurisdiction, be
     ineffective to the extent of such prohibition or unenforceability without
     invalidating the remaining portions hereof or thereof or affecting the
     validity or enforceability of such provision in any other jurisdiction.

          (d) This Debenture shall create a continuing lien over the Collateral
     and shall (i) remain in full force and effect until indefeasible payment in
     full in cash of the Obligations and (ii) be binding on the Grantor and all
     other Persons who become bound as debtor to this Debenture and shall inure,
     together with all rights and remedies of the Purchaser hereunder, to the
     benefit of the Purchaser its respective permitted successors, transferees
     and assigns. Without limiting the generality of clause (ii) of the
     immediately preceding sentence, with a notice to the Grantor, the Purchaser
     may assign or otherwise transfer their rights and obligations under this
     Debenture, to any other Person and such other Person shall thereupon become
     vested with all of the benefits in respect thereof granted to the Purchaser
     herein or otherwise. Upon any such assignment or transfer, all references
     in this Debenture to the Purchaser shall mean the assignee of the
     Purchaser. None of the rights or obligations of the Grantor hereunder may
     be assigned or otherwise transferred without the prior written consent of
     the Purchaser, and any such assignment or transfer shall be null and void.

          (e) Upon the indefeasible payment in full of the Obligations, (i) this
     Debenture and the liens created hereby shall terminate and all rights to
     the Collateral shall revert to the Grantor (ii) the Purchaser will, upon
     the Grantor's request, (A) return to the Grantor such of the Collateral as
     shall not have been sold or otherwise disposed of or applied pursuant to
     the terms hereof and (B) execute and deliver to the Grantor such documents
     as the Grantor shall reasonably request to evidence such termination, all
     without any representation, warranty or recourse whatsoever.

                                       38
<PAGE>

          (f) THIS DEBENTURE SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN
     ACCORDANCE WITH THE LAWS OF THE STATE OF ISRAEL, EXCEPT AS REQUIRED BY
     MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND
     PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION
     OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT
     OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION
     OTHER THAN THE STATE OF ISRAEL.

          (g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS
     AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE COURTS OF
     TEL AVIV, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE GRANTOR
     HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
     UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE GRANTOR
     HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
     LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
     LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
     MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR
     PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF
     SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.

          (h) The Grantor irrevocably and unconditionally waives any right it
     may have to claim or recover in any legal action, suit or proceeding
     referred to in this Section any special, exemplary, punitive or
     consequential damages.

          (i) Section headings herein are included for convenience of reference
     only and shall not constitute a part of this Debenture for any other
     purpose.

          (j) This Debenture may be executed in any number of counterparts and
     by different parties hereto in separate counterparts, each of which shall
     be deemed to be an original, but all of which taken together constitute one
     in the same Debenture.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       39
<PAGE>

     IN WITNESS WHEREOF, the Grantor has caused this Debenture to be executed
and delivered by its officer thereunto duly authorized, as of the date first
above written.

                                                 GRANTOR:

                                                 RADA ELECTRONIC INDUSTRIES LTD.

                                                 By: ___________________________
                                                     Name:
                                                     Title:

Accepted by:
PURCHASER:

____________________________
    Howard P.L. Yeung

<PAGE>

                                   SCHEDULE 2

                                  BANKS' LIENS:

A list of the floating charges over all of the Company's assets as registered
with the Israeli Companies Registrar in accordance with the a true extract from
the Companies Registrar database as of December 7, 2007:

o    A floating charge over all of the Company's assets made in favor of Bank
     Hapoalim BM created on 21.4.83 (registered on 27.4.83);

o    A floating charge over all of the Company's assets, made in favor of Bank
     Hapoalim BM. created on 29.10.84 (registered on 12.11.84);

o    A floating charge over all of the Company's assets made in favor of Bank
     Leumi LeIsrael BM. created on 15.2.90 (registered on 26.2.90);

o    A fixed charge over all the contractual rights in connection with an
     industrial building known as plot D, Bock 22884 Parcels 90 (part) and 91
     (part) in Beit She'an made in favor of Bank Leumi Le-Israel BM on April 29,
     1990 and (regidtered on May 3, 1990)

o    A fixed charge over all the contractual rights in Bock 22884 Parcels 90
     (part) and 91 (part), Plot D in Beit She'an. Made in favor of Bank Hapoalim
     BM on July 11, 1990 (registered on July 12, 1990)

o    A pledge of contractual rights pursuant to a Lease Agreement dated July 8,
     1990, made in Favor of Bank Leumi Le_isarel BM on July 20, 1990 (registered
     on July 24, 1990)

o    Fixed charge and assignment by way of charge over all the funds. Rights and
     payments due and/or payable to the company from the Dutch Ministry of
     Defense through the Dutch Nederland Royal Air Force pursuant to agreement
     No. ULKMD 12/120/5/8030/11 dated August 16, 1995, made in favor of Bank
     Hapoalim BM on September 1, 1995 (registered on September 9, 1995);and

o    A fixed charge over a USD deposit of USD$1,000,000 deposited in the Chargor
     Bank Account No. 21118 in branch No. 655 of the Bank, transaction No.
     303734575 and all proceeds thereof, made in favor of Bank Hapoalim on
     September 6, 2004 (registered on October 24, 2004)

<PAGE>

                                  SCHEDULE 4(A)

            EXACT LEGAL NAME AND ORGANIZATION IDENTIFICATION NUMBER:

RADA Electronic Industries Ltd., Registration #52-003532-0, a company registered
under the Laws of the State of Israel

                                SCHEDULE 4(G)(1)

                           LOCATION(S) OF COLLATERAL:

LOCATION                              Description of Location (State if Location
                                      (i) contains Equipment, Fixtures,
                                      Goods or Inventory,
                                      (ii) is chief place of business and
                                      chief executive office, or
                                      (iii) contains Records concerning Accounts
                                      and originals of Chattel Paper)
(I)+(II)+(III):
---------------
Adar House
7Giborei Isreal St.
Poleg Industrial Zone
Netanya, Israel

(I):
----
Beit Shean Industrial Zone
Israel

<PAGE>

                                SCHEDULE 4(G)(2)

                CHIEF PLACE OF BUSINESS; CHIEF EXECUTIVE OFFICE:

CHIEF PLACE OF BUSINESS AND THE CHIEF EXECUTIVE OFFICE OF THE COMPANY ARE
LOCATED IN THE FOLLOWING ADDRESS:

Adar House
7Giborei Isreal St.
Poleg Industrial Zone
Netanya, Israel

<PAGE>

                                SCHEDULE 4(G)(3)

              LIST OF EACH DEPOSIT ACCOUNT, SECURITIES ACCOUNT AND
           COMMODITIES ACCOUNT; NAME AND ADDRESS OF EACH INSTITUTION
                  WHERE ACCOUNT IS MAINTAINED; ACCOUNT NUMBER:

                                 NOT APPLICABLE

                                SCHEDULE 4(G)(4)

                          TRADE NAMES USED BY GRANTOR:

                                      NONE

                                  SCHEDULE 4(H)

            PATENTS, TRADEMARKS, COPYRIGHTS OWNED OR USED BY GRANTOR;
                      LICENSING OR FRANCHISING AGREEMENTS:

                                      NONE

                               SCHEDULE 5(F)(III)

                               MATERIAL LICENSES:

                                      NONEEXHIBIT 4.9

                                     WARRANT

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

                         RADA ELECTRONIC INDUSTRIES LTD.

                       WARRANT TO PURCHASE ORDINARY SHARES

Number of Ordinary Shares:  1,578,947
Date of Issuance:  December 10, 2007 ("ISSUANCE DATE")

     RADA Electronic Industries Ltd., a corporation organized under the laws of
the State of Israel (the "COMPANY"), hereby certifies that, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Howard P.L. Yeung, the registered holder hereof or its permitted
assigns (the "HOLDER"), is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below) then in
effect, upon surrender of this Warrant to Purchase Ordinary Shares (including
any Warrants to Purchase Ordinary Shares issued in exchange, transfer or
replacement hereof, the "WARRANT"), at any time or times on or after the
Issuance Date, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below), one million five hundred seventy-eight thousand nine hundred
forty-seven (1,578,947) fully paid nonassessable Ordinary Shares (as defined
below) (the "WARRANT SHARES"). Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section 15.

     1. EXERCISE OF WARRANT.

          (a) MECHANICS OF EXERCISE. Subject to the terms and conditions hereof,
     this Warrant may be exercised by the Holder on any day on or after the
     Issuance Date in whole or in part, by (i) delivery of a written notice, in
     the form attached hereto as EXHIBIT A (the "EXERCISE NOTICE"), of the
     Holder's election to exercise this Warrant and (ii) (A) payment to the
     Company of an amount equal to the applicable Exercise Price multiplied by
     the number of Warrant Shares as to which this Warrant is being exercised
     (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of immediately
     available funds or (B) by notifying the Company that this Warrant is being
     exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The
     Holder shall not be required to deliver the original Warrant in order to
     effect an exercise hereunder. Execution and delivery of the Exercise Notice
     with respect to less than all of the Warrant Shares shall have the same
     effect as cancellation of the original Warrant and issuance of a new
     Warrant evidencing the right to purchase the remaining number of Warrant
     Shares. On or before the first Business Day following the date on which the
     Company has received each of the Exercise Notice and the Aggregate Exercise
     Price (or notice of a Cashless Exercise) (the "EXERCISE DELIVERY
     DOCUMENTS"), the Company shall transmit by facsimile an acknowledgment of
     confirmation of receipt of the Exercise Delivery Documents to the Holder
     and the Company's transfer agent (the "TRANSFER AGENT"). On or before the
     third Business Day following the date on which the Company has received all
     of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the Company
     shall (X) provided that the Transfer Agent is participating in The
     Depository Trust Company ("DTC") Fast Automated Securities Transfer
     Program, upon the request of the Holder, credit such aggregate number of
     Ordinary Shares to which the Holder is entitled pursuant to such exercise
     to the Holder's or its designee's balance account with DTC through its
     Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is
     not participating in the DTC Fast Automated Securities Transfer Program,
     issue and dispatch by overnight courier to the address as specified in the
     Exercise Notice, a certificate, registered in the name of the Holder or its
     designee, for the number of Ordinary Shares to which the Holder is entitled
     pursuant to such exercise. Upon delivery of the Exercise Notice and
     Aggregate Exercise Price referred to in clause (ii)(A) above or
     notification to the Company of a Cashless Exercise referred to in Section
     1(d), the Holder shall be deemed for all corporate purposes to have become
     the holder of record of the Warrant Shares with respect to which this
     Warrant has been exercised, irrespective of the date of delivery of the
     certificates evidencing such Warrant Shares. If this Warrant is submitted
     in connection with any exercise pursuant to this Section 1(a) and the
     number of Warrant Shares represented by this Warrant submitted for exercise
     is greater than the number of Warrant Shares being acquired upon an
     exercise, then the Company shall as soon as practicable and in no event
     later than three Business Days after any exercise and at its own expense,
     issue a new Warrant (in accordance with Section 7(d)) representing the
     right to purchase the number of Warrant Shares purchasable immediately
     prior to such exercise under this Warrant, less the number of Warrant
     Shares with respect to which this Warrant is exercised. No fractional
     Ordinary Shares are to be issued upon the exercise of this Warrant, but
     rather the number of Ordinary Shares to be issued shall be rounded to the
     nearest whole number. The Company shall pay any and all taxes which may be
     payable with respect to the issuance and delivery of Warrant Shares upon
     exercise of this Warrant.

<PAGE>

          (b) EXERCISE PRICE. For purposes of this Warrant, "EXERCISE PRICE"
     means US $2.375, subject to adjustment as provided herein.

          (c) COMPANY'S FAILURE TO TIMELY DELIVER SECURITIES. If the Company
     shall fail for any reason or for no reason to issue to the Holder within
     three (3) Business Days of receipt of the Exercise Delivery Documents, a
     certificate for the number of Ordinary Shares to which the Holder is
     entitled or in the event of a sale of the Ordinary Shares to credit the
     Holder's balance account with DTC for such number of Ordinary Shares to
     which the Holder is entitled upon the Holder's exercise of this Warrant,
     then, in addition to all other remedies available to the Holder, the
     Company shall pay in cash to the Holder on each day after such third
     Business Day that the issuance of such Ordinary Shares is not timely
     effected an amount equal to 1.0% of the product of (A) the sum of the
     number of Ordinary Shares not issued to the Holder on a timely basis and to
     which the Holder is entitled and (B) the Closing Sale Price of the Ordinary
     Shares on the trading day immediately preceding the last possible date
     which the Company could have issued such Ordinary Shares to the Holder
     without violating Section 1(a).

                                     - 2 -
<PAGE>

          (d) CASHLESS EXERCISE. Notwithstanding anything contained herein to
     the contrary, if a Registration Statement (as defined in the Registration
     Rights Agreement) covering the Warrant Shares that are the subject of the
     Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for the
     resale of such Unavailable Warrant Shares, the Holder may, in its sole
     discretion, exercise this Warrant in whole or in part and, in lieu of
     making the cash payment otherwise contemplated to be made to the Company
     upon such exercise in payment of the Aggregate Exercise Price, elect
     instead to receive upon such exercise the "Net Number" of Ordinary Shares
     determined according to the following formula (a "CASHLESS EXERCISE"):

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

               For purposes of the foregoing formula:

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

               B= the Closing Sale Price of the Ordinary Shares (as reported by
               Bloomberg) on the date immediately preceding the date of the
               Exercise Notice.

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

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

          (f) COVENANTS. The Company covenants that all Ordinary Shares issuable
     upon the exercise of rights represented by this Warrant will, upon exercise
     of the rights represented by this Warrant pursuant to the terms and
     provisions hereof, be duly authorized and be capable of being validly
     issued as fully paid and non-assessable and free from all taxes, liens and
     charges in respect of the issuance thereof.

                                     - 3 -
<PAGE>

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

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

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

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

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

                                     - 4 -
<PAGE>

     4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

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

          (b) The Company shall not enter into or be a party to a Fundamental
     Transaction (as defined in the Note), unless (i) the Person formed by or
     surviving any such Fundamental Transaction (if other than the Company) or
     the Person to which such Fundamental Transaction shall have been made
     assumes all the obligations of the company under this Warrant and the other
     Transaction Documents (as defined in the Note) pursuant to written
     agreements in form and substance satisfactory to the Holder and approved by
     the Holder prior to such Fundamental Transaction, and including an
     agreement to deliver to the Holder in exchange for this Warrant, a security
     of the Person formed by or surviving any such Fundamental Transaction (if
     other than the Company) or the Person to which such Fundamental Transaction
     shall have been made evidenced by a written instrument substantially
     similar in form and substance to the Warrant, including without limitation,
     an adjusted exercise price equal to the value for the Ordinary Shares
     reflected by the terms of such Fundamental Transaction, and exercisable for
     a corresponding number of Ordinary Shares acquirable and receivable upon
     exercise of this Warrant (without regard to any limitations on the exercise
     of this Warrant), if the value so reflected is less than the Exercise Price
     in effect immediately prior to such Fundamental Transaction and (ii) the
     company or the Person formed by or surviving any such Fundamental
     Transaction or to which such Fundamental Transaction shall have been made
     is a publicly traded entity whose common stock or equivalent equity
     security is quoted on or listed for trading on an Eligible Market (as
     defined in the Note). Upon any Fundamental Transaction, the successor
     entity to such Fundamental Transaction shall succeed to, and be substituted
     for (so that from and after the date of such Fundamental Transaction, the
     provisions of this Warrant referring to such "Company" shall refer instead
     to the successor entity or, if so elected by the Holder, by the entity
     that, directly or indirectly, controls such successor entity), and may
     exercise every right and power of the Company and shall assume all of the
     obligations of the Company under this Warrant with the same effect as if
     such successor Person had been named as the Company herein; provided,
     however, that the predecessor Company shall not be relieved from its
     obligations under the Transaction Documents except in the case of a
     Fundamental Transaction that meets the requirements of this section. In
     addition to and not in substitution for any other rights hereunder, prior
     to the consummation of any Fundamental Transaction pursuant to which
     holders of Ordinary Shares are entitled to receive securities or other
     assets with respect to or in exchange for Ordinary Shares ( a "Corporate
     Event"), the Company shall make appropriate provision to insure that the
     Holder will thereafter have the right to receive upon an exercise of this
     Warrant, (i) in addition to the Ordinary Shares receivable upon such
     exercise, such securities or other assets to which the Holder would have
     been entitled with respect to such Ordinary Shares had such Ordinary Shares
     been held by the Holder upon the consummation of such Corporate Event
     (without regard to any limitations on the exercise of this Warrant) or (ii)
     in lieu of the Ordinary Shares otherwise receivable upon such exercise,
     such securities or other assets received by the holders of Ordinary Shares
     in connection with the consummation of such Corporate Event in such amounts
     as the Holder would have been entitled to receive had this Warrant
     initially been issued with exercise rights for the form of such
     consideration commensurate with the Exercise Price. Provision made pursuant
     to the preceding sentence shall be in a form and substance satisfactory to
     the Holder. The provisions of this Section shall apply similarly and
     equally to successive Fundamental Transactions and Corporate Events.

                                     - 5 -
<PAGE>

     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Association, Memorandum of
Association or through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, and will at all times in good faith carry out
all the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. Without limiting the generality of the
foregoing, the Company (i) shall not increase the nominal value of any Ordinary
Shares receivable upon the exercise of this Warrant above the Exercise Price
then in effect, and (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Ordinary Shares upon the exercise of this Warrant.

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

     7. REISSUANCE OF WARRANTS.

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

                                     - 6 -
<PAGE>

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

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

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

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

                                     - 7 -
<PAGE>

     9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holder.

     10. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York; provided that with regard to any
questions relating to the status of any Ordinary Shares, such questions shall be
governed, and interpreted in accordance with, the laws of the State of Israel to
the extent required under the laws of the State of Israel.

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

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

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

                                     - 8 -
<PAGE>

     14. TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company.

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

          (a) "BLOOMBERG" means Bloomberg Financial Markets.

          (b) "BUSINESS DAY" means a day on which principal banking business is
     transacted in Tel Aviv, London and The City of New York.

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

          (d) "CONVERTIBLE SECURITIES" means any stock or securities (other than
     Options) directly or indirectly convertible into or exercisable or
     exchangeable for Ordinary Shares.

          (e) "EXPIRATION DATE" means the date sixty months after the Issuance
     Date or, if such date falls on a day other than a Business Day or on which
     trading does not take place on the Principal Market (a "HOLIDAY"), the next
     date that is not a Holiday.

          (f) "NOTE" means the senior secured convertible note in the principal
     amount of US$ 3,000,000 issued by the Company and purchased by the Holder.

                                     - 9 -
<PAGE>

          (g) "OPTIONS" means any rights, warrants or options to subscribe for
     or purchase Ordinary Shares or Convertible Securities.

          (h) "ORDINARY SHARES" means (i) the Company's Ordinary Shares, NIS
     0.015 nominal value per share, and (ii) any share capital into which such
     Ordinary Shares shall have been changed or any share capital resulting from
     a reclassification of such Ordinary Shares.

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

          (j) "PRINCIPAL MARKET" means The Nasdaq Capital Market.

          (k) "REGISTRATION RIGHTS AGREEMENT" means that certain registration
     rights agreement by and among the Company and the Holder, dated as of the
     Issuance Date.

                            [SIGNATURE PAGE FOLLOWS]

<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Warrant to purchase
Ordinary Shares to be duly executed as of the Issuance Date set out above.

                                            RADA ELECTRONIC INDUSTRIES LTD.

                                            By: ________________________________
                                            Name:
                                            Title:

<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                       WARRANT TO PURCHASE ORDINARY SHARES

                         RADA ELECTRONIC INDUSTRIES LTD.

     The undersigned holder hereby exercises the right to purchase
_________________ of the Ordinary Shares ("WARRANT SHARES") of RADA Electronic
Industries Ltd., a corporation organized under the laws of the State of Israel
(the "COMPANY"), evidenced by the attached Warrant to Purchase Ordinary Shares
(the "WARRANT"). Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Warrant.

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

     _________ a "CASH EXERCISE" with respect to ________ Warrant Shares; and/or

     _________ a "CASHLESS EXERCISE" with respect to ___________ Warrant Shares.

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

     3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

Date: _______________ __, ______

________________________________
Name of Registered Holder

By: ____________________________
    Name:
    Title:

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