Document:

20-F

Exhibit 4.7  

B.O.S. BETTER ON-LINE SOLUTIONS LTD. 

SECURITIES PURCHASE AGREEMENT 

September 29, 2005 

SECURITIES PURCHASE AGREEMENT 

        THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of
September 29, 2005, by and among B.O.S. BETTER ON-LINE SOLUTIONS LTD., a corporation
incorporated under the laws of the State of Israel (p.c. number 520042565) (the
“Company”), BOScom Ltd., a corporation incorporated under the laws of the State
of Israel (organizational identification number (51-2236431) (solely with respect to the
representations and warranties pertaining to it) (the “Subsidiary”), and Laurus
Master Fund, Ltd., a Cayman Islands company (the “Purchaser”). 

RECITALS 

        WHEREAS,
the Company has authorized the sale to the Purchaser of a Convertible Term Note in the
aggregate principal amount of One Million and Five Hundred Thousand Dollars in the
currency of the United States ($1,500,000) (the “Note”), which Note is
convertible into shares of the Company’s Ordinary Shares, NIS 4.00 nominal value per
share (the “Ordinary Shares”) at an initial fixed conversion price of $3.08 per
share of Ordinary Shares (the “Fixed Conversion Price”); 

        WHEREAS,
the Company wishes to issue a warrant to the Purchaser to purchase up to 73,052 Ordinary
Shares (subject to adjustment as set forth therein) in connection with Purchaser’s
purchase of the Note; 

        WHEREAS,
Purchaser desires to purchase the Note and the Warrant (as defined in Section 2) on the
terms and conditions set forth herein; and 

        WHEREAS,
the Company desires to issue and sell the Note and Warrant to Purchaser on the terms and
conditions set forth herein. 

AGREEMENT 

        NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows: 

1. Agreement to Sell and
Purchase. Pursuant to the terms and conditions set forth in this Agreement, on the
Closing Date (as defined in Section 3), the Company agrees to sell to the Purchaser, and
the Purchaser hereby agrees to purchase from the Company, a Note in the aggregate
principal amount of $1,500,000 (the “Purchase Price”) convertible into the
Company’s Ordinary Shares in accordance with the terms of the Note and this
Agreement. The issuance of the Note purchased on the Closing Date shall be known as the
“Offering.” A form of the Note is annexed hereto as Exhibit A. The Note will
mature on the Maturity Date (as defined in the Note). Collectively, the Note and Warrant
and Ordinary Shares issuable in payment of the Note, upon conversion of the Note and upon
exercise of the Warrant are referred to as the “Securities.” 

2. Fees and Warrant. On the
Closing Date:  

		    (a)       The
Company will issue and deliver to the Purchaser a Warrant (the           “Warrant”)
to purchase up to 73,052 Ordinary Shares in connection with           the Offering (the
“Warrant Shares”) pursuant to Section 1 hereof. The           Warrant must be
delivered on the Closing Date. A form of Warrant is annexed           hereto as Exhibit
B. All the representations, covenants, warranties,           undertakings, and
indemnification, and other rights made or granted to or for           the benefit of the
Purchaser by the Company are hereby also made and granted in           respect of the
Warrant and the Company’s Ordinary Shares issuable upon           exercise of the
Warrant (the “Warrant Shares”).  

		    (b)       Subject
to the terms of Section 2(d) below, the Company shall pay to Laurus
          Capital Management, LLC, the manager of the Purchaser, a closing payment in an
          amount equal to $105,000. The foregoing fee is referred to herein as the
          “Closing Payment.” 

		    (c)       The
Company shall reimburse the Purchaser for its reasonable legal fees for
          services rendered to the Purchaser in preparation of this Agreement and the
          Related Agreements (as hereinafter defined), and expenses incurred in
connection           with the Purchaser’s due diligence review of the Company and
its Subsidiary           and all related matters. Amounts required to be paid under this
Section 2(c) for           such legal fees and expenses shall be $10,000 (the “Expense
Payment”),           which will be paid on the Closing Date.  

		    (d)       The
Closing Payment and the Expense Payment shall be on the Closing Date, as
          provided below out of funds held pursuant to a Funds Escrow Agreement of even
          date herewith among the Company, Purchaser, and an Escrow Agent (the “Funds
          Escrow Agreement”) and a disbursement letter (the “Disbursement
          Letter”).  

3. Closing, Delivery, Payment and
other Closing Conditions.  

    3.1        Closing.
The execution and delivery of this Agreement and the Related Agreements shall occur upon
exchange by facsimile of executed signature pages and all other documents, instruments
and writings required to be delivered pursuant hereto and thereto. Subject to the terms
and conditions herein, the closing of the transactions contemplated hereby (the “Closing”),
shall take place on which date the conditions for Closing set forth in Section 9 herein
shall be satisfied in full or waived by the Company, or at such different date as the
Company and Purchaser may mutually agree (such date is hereinafter referred to as the
“Closing Date”).  

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    3.2        Delivery.
Pursuant to the Funds Escrow Agreement in the form attached hereto as Exhibit D at the
Closing on the Closing Date, the Company will deliver to the Purchaser, among other
things, (i) a Note in the form attached as Exhibit A representing the Purchase Price;
(ii) a Warrant in the form attached as Exhibit B in the Purchaser’s name
representing 73,052 Warrant Shares, (iii) the Closing Payment, and (iv) the Expense
Payment and the Purchaser will deliver to the Company, among other things, the Purchase
Price (amounts set forth in the Disbursement Letter) by certified funds or wire transfer
to an account designated by the Company.  

    3.3        Other
Closing Conditions. Prior to closing of this transaction, the Company will obtain the
necessary board approvals.  

4. Representations
and Warranties of the Company. The Company hereby           represents and warrants
to the Purchaser as follows (which representations and           warranties are
supplemented by the Company’s filings under the Securities           Exchange Act of
1934 (collectively, the “Exchange Act Filings”) and           the Company’s
Audited Consolidated Financial Statements as of December 31,           2004 (including
the notes thereto) (the “Financial Statements”)):  

    4.1        Organization,
Good Standing and Qualification. Each of the Company and the Subsidiary is a
corporation duly incorporated and validly existing under the laws of its jurisdiction of
incorporation. Each of the Company and the Subsidiary has the corporate power and
authority to own and operate its properties and assets and carry on its respective
business as presently conducted, except as would not have a Material Adverse Effect (as
defined below), and to execute and deliver, as applicable, (i) this Agreement, (ii) the
Note and the Warrant to be issued in connection with this Agreement, (iii) the Master
Security Agreement dated as of the date hereof among the Company and the Purchaser (as
amended, modified or supplemented from time to time, the “Master Security Agreement”),
(iv) the Registration Rights Agreement relating to the Securities dated as of the date
hereof between the Company and the Purchaser, (v) the Escrow Agreement dated as of the
date hereof among the Company, the Purchaser and the Escrow Agent referred to therein and
(vi) all other agreements related to this Agreement and the Note and referred to herein
(the preceding clauses (ii) through (vi), collectively, the “Related Agreements”),
to issue and sell the Note and the Ordinary Shares issuable upon conversion of the Note
(the “Note Shares”), to issue and sell the Warrant and the Warrant Shares, and
to carry out the provisions of this Agreement and the Related Agreements and to carry on
its business as presently conducted. Each of the Company and the Subsidiary is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of its
properties (both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so has not, or could not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the business,
assets, liabilities, condition (financial or otherwise), properties, or operations of the
Company and it Subsidiary, taken as a whole (a “Material Adverse Effect”).  

    4.2        [Reserved]  

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     4.3        Capitalization;
Voting Rights.  

		    (a)        The
authorized capital stock of the Company, as of the date hereof consists of
          8,750,000 Ordinary Shares nominal value NIS 4.00 per share, of which, as of
          September 29, 2005, 6,356,782 Ordinary Shares are issued and outstanding.  

		      (b)        Except
as disclosed on Schedule 4.3, the Exchange Act Filings or the Financial
          Statements, other than: (i) the shares reserved for issuance under the
          Company’s stock option plans; and (ii) shares which may be granted
pursuant           to this Agreement and the Related Agreements, there are no outstanding
options,           warrants, rights (including conversion or preemptive rights and rights
of first           refusal), proxy or shareholder agreements, or arrangements or
agreements of any           kind for the purchase or acquisition from the Company of any
of its securities.           Except as disclosed on Schedule 4.3, the Exchange Act
Filings or the Financial           Statements, neither the offer, issuance or sale of any
of the Note or the           Warrant, or the issuance of any of the Note Shares or
Warrant Shares, nor the           consummation of any transaction contemplated hereby
will result in a change in           the price or number of any securities of the Company
outstanding, under           anti-dilution or other similar provisions contained in or
affecting any such           securities.  

		     (c)        All
issued and outstanding Ordinary Shares of the Company: (i) have been duly
          authorized and validly issued and are fully paid and nonassessable; and (ii)
          were issued in compliance with all applicable state and federal laws concerning
          the issuance of securities.  

		     (d)        The
rights, preferences, privileges and restrictions of the Ordinary Shares are           as
stated in the Company’s Articles of Association (the           “Articles”).
The Note Shares and Warrant Shares shall have been, on or           before the Closing
Date, duly and validly reserved for issuance. When issued in           compliance with
the provisions of this Agreement and the Company’s           Articles, the
Securities will be validly issued, fully paid and nonassessable,           and will be
free of any liens or encumbrances; provided, however, that the           Securities may
be subject to restrictions on transfer under state, federal           and/or Israeli
securities laws as set forth herein or as otherwise required by           such laws at
the time a transfer is proposed.  

     4.4        Authorization;
Binding Obligations. All corporate action on the part of the Company and the
Subsidiary (including their respective officers and directors) necessary for the
authorization of this Agreement and the Related Agreements, the performance of all
obligations of the Company hereunder and under the other Related Agreements at the
Closing and, the authorization, sale, issuance and delivery of the Note and Warrant has
been taken or will be taken prior to the Closing. This Agreement and the other Related
Agreements, when executed and delivered and to the extent it is a party thereto, will be
valid and binding obligations of the Company and with respect to the representations and
warranties pertaining to it the Subsidiary, enforceable against each such person in
accordance with their terms, except:  

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		    (a)       as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
          other laws of general application affecting enforcement of creditors’          rights;
and  

		    (b)       general
principles of equity that restrict the availability of equitable or           legal
remedies.  

Except as disclosed on Schedule 4.4,
in the Exchange Act Filings or the Financial Statements, the sale of the Note, the
subsequent conversion of the Note into Note Shares, are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived or
complied with. The issuance of the Warrant and the subsequent exercise of the Warrant for
Warrant Shares are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. 

    4.5        Liabilities.
Neither the Company nor the Subsidiary has any material contingent liabilities, except
current liabilities incurred in the ordinary course of business and liabilities disclosed
in any Exchange Act Filings, in the Financial Statements or that would not be reasonably
likely to have a Material Adverse Effect.  

    4.6        Agreements;
Action. Except as set forth on Schedule 4.6 or as disclosed in any Exchange Act
Filings or the Financial Statements:  

		    (a)       there
are no agreements, understandings, instruments, contracts, judgments,           orders,
writs or decrees to which the Company or the Subsidiary is a party or by           which
it is bound which may involve: (i) obligations (contingent or otherwise)           of, or
payments to, the Company in excess of $500,000 (other than obligations           of, or
payments to, the Company arising from purchase or sale agreements entered           into
in the ordinary course of business); (ii) the transfer or license of any
          material patent, copyright, trade secret or other proprietary right to or from
          the Company (other than licenses arising from the purchase of “off the
          shelf” or other standard products); or (iii) provisions restricting the
          development, manufacture or distribution of the Company’s products or
          services.  

		    (b)       Since
December 31, 2004, neither the Company nor the Subsidiary has: (i)           declared or
paid any dividends, or authorized or made any distribution upon or           with respect
to any class or series of its share capital; (ii) incurred any           indebtedness for
money borrowed or any other liabilities (other than ordinary           course
obligations) individually in excess of $500,000 or, in the case of           indebtedness
and/or liabilities individually less than $500,000, in excess of           $1,000,000 in
the aggregate; (iii) made any loans or advances to any person           (other than the
Company’s subsidiaries) in excess, individually or in the           aggregate, of
$500,000, other than ordinary course advances for travel expenses;           or (iv)
sold, exchanged or otherwise disposed of any of its material assets or           rights,
other than the sale of its inventory in the ordinary course of business           or as a
result of discontinued operations.  

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		    (c)       For
the purposes of subsections (a) and (b) above, all indebtedness,           liabilities,
agreements, understandings, instruments and contracts involving the           same person
or entity (including persons or entities the Company has reason to           believe are
affiliated therewith) shall be aggregated for the purpose of meeting           the
individual minimum dollar amounts of such subsections.  

    4.7        Obligations
to Related Parties. Except as set forth on Schedule 4.7 or disclosed in any of the
Exchange Act Filings or in the Financial Statements, there are no obligations of the
Company or of the Subsidiary to officers, directors, shareholders or employees of the
Company or the Subsidiary other than:  

		    (a)       for
payment of salary or fees for services rendered and for bonus payments;  

		    (b)       reimbursement
for reasonable expenses incurred on behalf of the Company and its           Subsidiary;  

		    (c)       for
other standard employee benefits made generally available to all employees
          (including stock option agreements outstanding or to be entered into under any
          stock option plan approved by the Board of Directors of the Company); and  

		    (d)       obligations
listed in the Company’s financial statements.  

Except as listed in the
Company’s financial statements, disclosed in any of the Company’s Exchange Act
Filings, in the Financial Statements or set forth on Schedule 4.7, to the Company’s
knowledge, none of the officers, directors, key employees or shareholders holding 10% or
more of the Company’s share capital or any members of their immediate families, are
indebted to the Company, individually, in excess of $50,000 or have any direct or indirect
ownership interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which competes
with the Company, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete with the
Company. Except as listed in the Financial Statements, disclosed in any of the
Company’s Exchange Act Filings or set forth on Schedule 4.7, (i) to the
Company’s knowledge no officer, director or shareholder holding 10% or more of the
Company’s share capital, or any member of their immediate families, is, directly or
indirectly, interested in any material contract between any third party and the Company
and (ii) except with respect to the Company’s subsidiaries, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 

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    4.8        Changes.
Since December 31, 2004, except as disclosed in any Exchange Act Filing, in the Financial
Statements or in any Schedule to this Agreement or to any of the Related Agreements,
there has not been:  

		    (a)       any
change in the business, assets, liabilities, condition (financial or
          otherwise), properties operations of the Company or its Subsidiary, which
          individually or in the aggregate has had, or could reasonably be expected to
          have, individually or in the aggregate, a Material Adverse Effect;  

		    (b)       any
resignation or termination of any officer, key employee or group of           employees
of the Company or of its Subsidiary;  

		    (c)       any
material change, except in the ordinary course of business or as would not           have
a Material Adverse Effect, in the contingent obligations of the Company or           of
its Subsidiary by way of guaranty, endorsement, indemnity, warranty or
          otherwise;  

		    (d)       any
damage, destruction or loss, whether or not covered by insurance, which has
          had, or could reasonably be expected to have, individually or in the aggregate,
          a Material Adverse Effect;  

          		    (e)       
               any waiver by the Company or its Subsidiary of a material right or of a material
               debt owed to it; 

               

          		    (f)       
               any direct or indirect loans made by the Company or its Subsidiary to any
               stockholder, employee, officer or director of the Company or its Subsidiary,
               other than advances made in the ordinary course of business or loans which do
               not, in the aggregate, exceed $50,000; 

               

          		    (g)       
               any material change in any compensation arrangement or agreement with any
               employee, officer, director or shareholder of the Company or its Subsidiary 

               

          		    (h)       
               any declaration or payment of any dividend or other distribution of the assets
               of the Company or its Subsidiary; 

               

          		    (i)       
               any labor organization activity related to the Company or its Subsidiary; 

               

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          		    (j)       
               any debt, obligation or liability incurred, assumed or guaranteed by the Company
               or its Subsidiary, except those for immaterial amounts and for current
               liabilities incurred in the ordinary course of business; 

               

          		    (k)       
               any sale, assignment or transfer of any patents, trademarks, copyrights, trade
               secrets or other intangible assets owned by the Company or its Subsidiary; 

               

          		    (l)       
               any change in any material agreement to which the Company or its Subsidiary is a
               party or by which either the Company or its Subsidiary is bound which either
               individually or in the aggregate has had, or could reasonably be expected to
               have, individually or in the aggregate, a Material Adverse Effect; 

               

          		    (m)       
               any other event or condition of any character that, either individually or in
               the aggregate, has had, or could reasonably be expected to have, individually or
               in the aggregate, a Material Adverse Effect; or 

               

          		    (n)       
               any arrangement or commitment by the Company or its Subsidiary to do any of the
               acts described in subsection (a) through (m) above. 

               

    4.9        Title
to Properties and Assets; Liens, Etc. Except as set forth on Schedule 4.9, in the
Company’s Exchange Act Filings or in the Financial Statements, each of the Company
and its Subsidiary has good and marketable title to its material properties and assets,
and good title to its material leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:  

		    (a)       those
resulting from taxes which have not yet become delinquent;  

		    (b)       minor
liens and encumbrances which do not materially detract from the value of           the
property subject thereto or materially impair the operations of the Company           or
its Subsidiary; and  

		    (c)       those
that have otherwise arisen in the ordinary course of business.  

All material facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the Company
and its Subsidiary are in good operating condition and repair and are reasonably fit and
usable for the purposes for which they are being used, except as would not have a Material
Adverse Effect. Except as set forth on Schedule 4.9, the Company and its Subsidiary are in
compliance with all material terms of each lease to which it is a party or is otherwise
bound except those that would not be reasonably likely to have a Material Adverse Effect. 

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    4.10        Intellectual
Property.  

		    (a)       Each
of the Company and its Subsidiary owns or possesses sufficient legal rights           to
use all material patents, trademarks, service marks, trade names, copyrights,
          trade secrets, licenses, information and other proprietary rights and processes
          described or referred to in the Company’s Exchange Act Filings or
Financial           Statements as necessary for its business as now conducted (the
          “Intellectual Property”), without any known infringement of the
rights           of others. Except as disclosed in the Company’s Exchange Act
Filings, in           the Financial Statements, in connection with grants made by the OCS
(as defined           below) and for licenses granted in the ordinary course of business,
there are no           outstanding options, licenses or agreements of any kind relating
to the           foregoing proprietary rights.  

		    (b)       Neither
the Company nor its Subsidiary has received any communications alleging           that
the Company or its Subsidiary has violated any of the patents, trademarks,
          service marks, trade names, copyrights or trade secrets or other proprietary
          rights of any other person or entity, nor is the Company or its Subsidiary
aware           of any basis therefor.  

		    (c)       The
Company does not believe it is necessary to utilize any inventions, trade
          secrets or proprietary information of any of its employees made prior to their
          employment by the Company or its Subsidiary, except for inventions, trade
          secrets or proprietary information that have been rightfully assigned to the
          Company or its Subsidiary.  

    4.11        Compliance
with Other Instruments. Neither the Company nor its Subsidiary is in violation or
default of (x) any term of its Articles or Memorandum of Association, or (y) any material
provision of any indebtedness, mortgage, indenture, contract, agreement or instrument to
which it is party or by which it is bound or of any judgment, decree, order or writ,
which violation or default, in the case of this clause (y), has had, or could reasonably
be expected to have, either individually or in the aggregate, a Material Adverse Effect.
The execution, delivery and performance of and compliance with this Agreement and the
Related Agreements to which it is a party, and the issuance and sale of the Note by the
Company and the other Securities by the Company each pursuant hereto and thereto, will
not, with or without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term or
provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or its Subsidiary or the suspension,
revocation, impairment, forfeiture or non-renewal of any material permit, license,
authorization or approval applicable to the Company, its business or operations or any of
its assets or properties, except as would not be reasonably expected to have a Material
Adverse Effect.  

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    4.12        Litigation.
Except as set forth on Schedule 4.12 hereto, in the Company’s Exchange Act Filings
or in the Financial Statements, there is no action, suit, proceeding or investigation
pending or, to the Company’s knowledge, currently threatened against the Company or
its Subsidiary that prevents the Company or its Subsidiary from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect or any change in
the current equity ownership of the Company or its Subsidiary, nor is the Company aware
that there is any basis to assert any of the foregoing. Neither the Company nor its
Subsidiary is a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company or its Subsidiary currently
pending or which the Company or its Subsidiary intends to initiate.  

    4.13        Tax
Returns and Payments. Each of the Company and its Subsidiary has timely filed all tax
returns required to be filed by it for the periods up to and including December 31,
2003__. All taxes shown to be due and payable on such returns, any assessments imposed,
and all other taxes due and payable by the Company or its Subsidiary on or before the
Closing, have been paid or will be paid prior to the time they become delinquent, except
as would not have a Material Adverse Effect. Except as set forth on Schedule 4.13, in the
Exchange Act Filings or in the Financial Statements, neither the Company nor its
Subsidiary has been advised:  

		    (a)        that
any of its returns have been or are being audited as of the date hereof;   

    or

		    (b)        of
any deficiency in assessment or proposed judgment to of its taxes.  

The Company has no knowledge of any
liability of any tax to be imposed upon its properties or assets as of the date of this
Agreement that is not adequately provided for or which would be reasonably likely to have
a Material Adverse Effect. 

    4.14        Employees.
Except as set forth on Schedule 4.14, in the Exchange Act Filings, or in the Financial
Statements the Company is in compliance with all applicable material laws respecting
employment, collective bargaining and wages and hours and have withheld all amounts
required by law or by agreement to be withheld from the wages, salaries and other
payments to its employees. 

    4.15        Registration
Rights and Voting Rights. Except as set forth on Schedule 4.15 and except as
disclosed in the Exchange Act Filings or in the Financial Statements, neither the Company
nor its Subsidiary is presently under any obligation, and neither the Company nor its
Subsidiary has granted any rights, to register any of the Company’s or its Subsidiary’s
presently outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings or
in the Financial Statements, to the Company’s knowledge, no shareholder of the
Company or any of its Subsidiary is party to an existing agreement with respect to the
voting of equity securities of the Company or its Subsidiary.  

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    4.16        Compliance
with Laws; Permits. Neither the Company nor its Subsidiary is in material violation
of any applicable statute, rule, regulation, order or restriction of any domestic Israeli
or, to the Company’s knowledge, foreign government or any instrumentality or agency
thereof in respect of the conduct of its business or the ownership of its properties
which has had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. Except as set forth herein or on Schedule 4.16, no
governmental orders, permissions, consents, approvals or authorizations are required to
be obtained and no registrations or declarations are required to be filed in connection
with the execution and delivery of this Agreement or any other Related Agreement and the
issuance of any of the Securities, except such as has been, or shall be on or before the
Closing Date, duly and validly obtained or filed or with respect to any filings that must
be made after the Closing, as will be filed in a timely manner. Each of the Company and
its Subsidiary has all material franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  

    4.17        Environmental
and Safety Laws. Neither the Company nor its Subsidiary is in material violation of
any applicable Israeli statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures are or
will be required in order to comply with any such existing statute, law or regulation.
Except as set forth on Schedule 4.17, no Hazardous Materials (as defined below) are used
or have been used, stored, or disposed of by the Company or its Subsidiary or, to the
Company’s knowledge, by any other person or entity on any property owned, leased or
used by the Company or its Subsidiary. For the purposes of the preceding sentence, “Hazardous
Materials” shall mean:  

		    (a)       materials
which are listed or otherwise defined as “hazardous” or           “toxic” under
any applicable Israeli laws and regulations that govern           the existence and/or
remedy of contamination on property, the protection of the           environment from
contamination, the control of hazardous wastes, or other           activities involving
hazardous substances, including building materials; or  

		    (b)       any
petroleum products or nuclear materials.  

    4.18        Valid
Offering. Assuming the accuracy of the representations and warranties of the
Purchaser contained in this Agreement and in any Related Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), and will have been
registered or qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state securities
laws.  

    4.19        Full
Disclosure. There is no material information relating to the Company or its
Subsidiary, which the Company and/or its Subsidiary believe is reasonably necessary for
the Purchaser to make its investment decision, which was not previously disclosed to
Purchaser, or appears in the Schedules hereto, in the Company’s Exchange Act Filings
or in the Financial Statements. Neither this Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto nor any other document delivered by the Company
or its Subsidiary to Purchaser or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any untrue
statement of a material fact nor omit to state a material fact necessary in order to make
the statements contained herein or therein, in light of the circumstances in which they
are made, not misleading.  

11

    4.20        Insurance.
The Subsidiary has general commercial, product liability, fire and casualty insurance
policies with coverages which the Company believes are customary for companies similarly
situated to the Subsidiary in the same or similar business.  

    4.21        SEC
Filings. Except as set forth on Schedule 4.21, the Company has filed with the
Securities and Exchange Commission (the “SEC”) all proxy statements, reports
and other documents required to be filed by it under the Exchange Act, as a foreign
private issuer (collectively, the “SEC Reports”). Except as set forth on
Schedule 4.21, each SEC Report was, at the time of its filing, in substantial compliance
with the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of their
respective filing dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not misleading.  

    4.22        Listing.
The Company’s Ordinary Shares are listed for trading on the NASDAQ National Market (“NASDAQ”)
and the Tel-Aviv Stock Exchange (“TASE”) and satisfy all requirements for the
continuation of such listing. Except as disclosed in the Company’s Exchange Act
Filings or in the Financial Statements, the Company has not received any notice that its
Ordinary Shares will be delisted from NASDAQ or that its Ordinary Shares does not meet
all requirements for listing.  

    4.23        No
Integrated Offering. Neither the Company, nor its Subsidiary or affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under circumstances that
would cause the offering of the Securities pursuant to this Agreement or any of the
Related Agreements to be integrated with prior offerings by the Company for purposes of
the Securities Act such that would subject the offering, issuance and sale of the
Securities hereunder to the registration requirements of Section 5 of the Securities Act,
or any applicable exchange-related stockholder approval provisions, nor will the Company
or any of its affiliates or its Subsidiary take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.  

    4.24        Stop
Transfer. The Securities are restricted securities as of the date of this Agreement.
Neither the Company nor its Subsidiary will issue any stop transfer order or other order
impeding the sale and delivery of any of the Securities at such time as the Securities
are registered for public sale or an exemption from registration is available, except as
required by state and federal or Israeli securities laws, by NASDAQ or by TASE.  

    4.25        Dilution.
The Company specifically acknowledges that its obligation to issue the Ordinary Shares
upon conversion of the Note and exercise of the Warrant is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership interests
of other shareholders of the Company.  

12

    4.26        The
Company is entitled to certain tax benefits, based on its status as an Approved
Enterprise under the Law for the Encouragement of Capital Investments 5744-1984. The
Company has not received any notice that it has not complied, in all material respects,
with the terms and provisions of its Approved Enterprise status and applicable laws and
regulations in order to retain its status as an Approved Enterprise.  

     4.27        The
Company has received grants in support of its research and development through the Office
of the Chief Scientist of the Ministry of Industry and Trade of the State of Israel (the
“OCS”) as listed in Schedule 4.27 hereto, in the Exchange Act
Filings or in the Financial Statements (the “Grants”). The Company has
not received any notice that it is not in compliance, in all material respects, with the
terms and conditions of the Grants, or that is has not duly fulfilled, in all material
respects, all the undertakings relating thereto. The Company is not aware of any event or
other set of circumstances which might lead to the revocation or material modification of
any of the Grants.  

     4.28        Patriot
Act. The Company certifies that, to the best of Company’s knowledge, neither the
Company nor its Subsidiary has been designated, and is not owned or controlled, by a
“suspected terrorist” as defined in Executive Order 13224. The Company hereby
acknowledges that the Purchaser seeks to comply with all applicable laws concerning money
laundering and related activities. In furtherance of those efforts, the Company hereby
represents, warrants and agrees that: (i) none of the cash or property that the Company
or its Subsidiary will pay or will contribute to the Purchaser has been or shall be
derived from, or related to, any activity that is deemed criminal under United States
law; and (ii) no contribution or payment by the Company or its Subsidiary to the
Purchaser, to the extent that they are within the Company’s and/or its Subsidiary’s
control shall cause the Purchaser to be in violation of the United States Bank Secrecy
Act, the United States International Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001.
The Company shall promptly notify the Purchaser if any of these representations ceases to
be true and accurate regarding the Company or its Subsidiary. The Company agrees to
provide the Purchaser any additional information regarding the Company or its Subsidiary
that the Purchaser reasonably deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. The Company
understands and agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or regulation
related to money laundering similar activities, the Purchaser may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but not limited
to segregation and/or redemption of the Purchaser’s investment in the Company. The
Company further understands that the Purchaser, if required by applicable law, may
release confidential information about the Company and its Subsidiary and, if applicable,
any underlying beneficial owners, to proper authorities if the Purchaser, in its sole
discretion, determines that it is in the best interests of the Purchaser in light of
relevant rules and regulations under the laws set forth in subsection (ii) above.  

13

5.  Representations and Warranties
of the Purchaser. The Purchaser hereby           represents and warrants to the
Company as follows (such representations and           warranties do not lessen or
obviate the representations and warranties of the           Company set forth in this
Agreement):  

    5.1        No
Shorting. The Purchaser or any of its affiliates and investment partners has not,
will not and will not cause any person or entity, directly or indirectly, to engage in
“short sales” of the Company’s Ordinary Shares or any other hedging
strategies as long as the Note shall be outstanding. This Section 5.1 shall survive the
Closing of the transactions contemplated hereby.  

    5.2        Requisite
Power and Authority. The Purchaser is duly organized, validly existing and in good
standing under the laws of the country of its formation and has all necessary power and
authority under all applicable provisions of law to execute and deliver this Agreement
and the Related Agreements and to carry out their provisions. All corporate action on
Purchaser’s part required for the lawful execution and delivery of this Agreement
and the Related Agreements have been or will be effectively taken prior to the Closing.
Upon their execution and delivery, this Agreement and the Related Agreements will be
valid and binding obligations of Purchaser, enforceable in accordance with their terms,
except:  

		    (a)       as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
          other laws of general application affecting enforcement of creditors’          rights;
and  

		    (b)       as
limited by general principles of equity that restrict the availability of
          equitable and legal remedies.  

    5.3        Investment
Representations. Purchaser understands that the Securities are being offered and sold
pursuant to an exemption or exemptions from registration requirements of Israeli and US
Federal and state securities laws and that the Company is relying upon the truth and
accuracy of Purchaser’s representations contained in the Agreement, including,
without limitation, that the Purchaser is an “accredited investor” within the
meaning of Regulation D under the Securities Act. The Purchaser confirms that it has
received or has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the Note and the
Warrant to be purchased by it under this Agreement and the Note Shares and the Warrant
Shares acquired by it upon the conversion of the Note and the exercise of the Warrant,
respectively. The Purchaser further confirms that it has had an opportunity to ask
questions and receive answers from the Company regarding the Company’s and its
Subsidiary’s business, management and financial affairs and the terms and conditions
of the Offering, the Note, the Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could acquire it
without unreasonable effort or expense) necessary to verify any information furnished to
the Purchaser or to which the Purchaser had access.  

    5.4        Purchaser
Bears Economic Risk. The Purchaser has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. The Purchaser must bear the
economic risk of this investment until the Securities are sold pursuant to: (i) an
effective registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.  

14

    5.5        Acquisition
for Own Account. The Purchaser is acquiring the Note and Warrant and the Note Shares
and the Warrant Shares for the Purchaser’s own account for investment only, and not
as a nominee or agent and not with a view towards or for resale in connection with their
distribution. Purchaser has not offered the Securities for sale by any means of general
solicitation or general advertising including, but no limited to, any advertisements,
articles, notices or other communications published in any newspaper, magazine, or
similar medium or broadcast over television or radio, or any seminar or meeting whose
attendees were invited by any general solicitation or general advertising.  

    5.6        Purchaser
Can Protect Its Interest. The Purchaser represents that by reason of its, or of its
management’s, business and financial experience, the Purchaser has the capacity to
evaluate the merits and risks of its investment in the Note, the Warrant and the
Securities and to protect its own interests in connection with the transactions
contemplated in this Agreement and the other Related Agreements. Further, Purchaser is
aware of no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.  

    5.7        Accredited
Investor. Purchaser represents that it is an "accredited investor" within the meaning
of Regulation D under the Securities Act.  

    5.8        Legends.  

		    (a)        The
Note shall bear substantially the following legend:  

	 	
“THIS
NOTE AND THE ORDINARY SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE
SECURITIES LAWS. THIS NOTE AND THE ORDINARY SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO B.O.S. BETTER ON-LINE
SOLUTIONS LTD. THAT SUCH REGISTRATION IS NOT REQUIRED.” 

		    (b)       The
Note Shares and the Warrant Shares, if not issued by DWAC system (as
          hereinafter defined), shall bear a legend which shall be in substantially the
          following form until such shares are covered by an effective registration
          statement filed with the SEC:  

15

	 	
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT TO THE SHARES EVIDENCED BY THIS CERTIFICATE, FILED AND MADE
EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO B.O.S. BETTER ON-LINE SOLUTIONS LTD. THAT SUCH REGISTRATION IS
NOT REQUIRED.” 

		    (c)        The
Warrant shall bear substantially the following legend:  

	 	
“THIS
WARRANT AND THE ORDINARY SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND THE ORDINARY SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING ORDINARY SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO B.O.S. BETTER ON-LINE SOLUTIONS
LTD. THAT SUCH REGISTRATION IS NOT REQUIRED.” 

    5.9        Control
over the Purchaser. The Purchaser has made available to the Company a complete and
detailed list of individuals who have or share voting and/or investment control over the
Purchaser. Purchaser acknowledges that such information shall be provided by the Company
to the OCS and the Investment Center of the Ministry of Industry, Trade and Labor of the
State of Israel (the “Investment Center”), whose approval of the transactions
contemplated hereby is a condition to the Company’s obligations hereunder. Purchaser
shall update such list as reasonably requested by the Company, to comply with any request
for such information from any regulatory body, including, without limitation the OCS and
the Investment Center. This Section 5.9 shall survive the Closing of the transactions
contemplated hereby.  

16

6. Covenants of the Company.
Until irrevocable payment in full by the           Company (Subject to Section 6.12) of
all amounts due to Purchaser under the Note           and the Related Agreements, the
Company covenants and agrees with the Purchaser           as follows:  

    6.1        Stop-Orders.
The Company will advise the Purchaser, promptly after it receives notice of issuance by
the SEC, any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Ordinary Shares of the Company
for offering or sale in any jurisdiction, or the initiation of any proceeding for any
such purpose.  

    6.2        Listing.
The Company shall promptly secure the listing of the Ordinary Shares issuable upon
conversion of the Note and upon the exercise of the Warrant on the NASDAQ National Market
or on any other market upon which the Company’s Ordinary Shares are then listed (the
“Principal Market”) (subject to official notice of issuance) and shall maintain
such listing so long as any other Ordinary Shares shall be so listed. Except with respect
to the listing on the Tel-Aviv Stock Exchange, the Company will maintain the listing of
its Ordinary Shares on the Principal Market, and will comply in all material respects
with the Company’s reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers (“NASD”) and such exchanges,
as applicable.  

    6.3        Market
Regulations. The Company shall notify the SEC, NASD, the Israeli Securities Authority
and the Tel-Aviv Stock Exchange and applicable state authorities, in accordance with
their requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to the
Purchaser.  

    6.4        Reporting
Requirements. The Company will timely file with the SEC all reports required to be
filed pursuant to the Exchange Act by foreign private issuers and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would permit
such termination.  

     6.5        Use
of Funds. The Company agrees that it will use the proceeds of the sale of the Note
and the Warrant for general working capital purposes, and/or mergers and acquisitions
only.  

     6.6        Access
to Facilities Each of the Company and its Subsidiary will permit any representatives
designated by the Purchaser (or any successor of the Purchaser), upon reasonable notice
and during normal business hours, at such person’s expense and accompanied by a
representative of the Company, to:  

		    (a)       visit
and inspect any of the properties of the Company or its Subsidiary;  

17

		    (b)       examine
the corporate and financial records of the Company or any of its           Subsidiary
(unless such examination is not permitted by federal, state or local           law or by
contract) and make copies thereof or extracts therefrom; and  

		    (c)       discuss
the affairs, finances and accounts of the Company or its Subsidiary with           the
directors, officers and independent accountants of the Company or its
          Subsidiary. Notwithstanding the foregoing, neither the Company nor its
          Subsidiary will provide any material, non-public information to the Purchaser
          unless the Purchaser signs a confidentiality agreement and otherwise complies
          with Regulation FD, under the federal securities laws  

     6.7        Taxes.
Each of the Company and its Subsidiary will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business of the Company
and its Subsidiary; provided, however, that any such tax, assessment, charge or levy need
not be paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company and/or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto, and provided, further, that the Company
and its Subsidiary will pay all such taxes, assessments, charges or levies forthwith upon
the commencement of proceedings to foreclose any lien which may have attached as security
therefor  

     6.8        Insurance.
Each of the Company and its Subsidiary will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or damage by
fire, explosion and other risks customarily insured against by companies in similar
business similarly situated as the Company and its Subsidiary; and the Subsidiary will
maintain, with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner which the
Company reasonably believes is customary for companies in similar business similarly
situated as the Company and its Subsidiary and to the extent available on commercially
reasonable terms. The Company will bear the full risk of loss from any loss of any nature
whatsoever with respect to the assets pledged to the Purchaser as security for its
obligations hereunder and under the Related Agreements. At the Company’s and its
Subsidiary’s cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and its Subsidiary shall (i) keep its material properties insured
against the hazards of fire, flood and such other hazards that are included in “Extended
Fire” insurance, for such properties’ full value; (ii) maintain Third Party
Liability insurance against claims for personal injury, death or property damage suffered
by others with the limit of liability of NIS 5 Million per occurrence and in the
aggregate; (iii) maintain Employers’ Liability Insurance with the limit of liability
of $5 Million per occurrence and in the aggregate; and (iv) furnish Purchaser with (x) a
certificate evidencing the maintenance of such insurance coverage at least thirty (30)
days before any expiration date, (y) excepting the Employer’s Liability Insurance,
endorsements to such policies naming Purchaser as “co-insured” or “additional
insured” , and (z) evidence that as to Purchaser the insurance coverage shall not be
impaired or invalidated by the insurer and the insurer will provide Purchaser with at
least thirty (30) days notice prior to cancellation. The Company and the Subsidiary shall
instruct the insurance carriers that in the event of any loss thereunder in excess of
$50,000 in the aggregate, upon the occurrence and during the continuance of an Event of
Default beyond any applicable cure period and until such Event of Default is cured, or
waived by the Purchaser in its sole discretion, the carriers shall make payment for such
loss to the Company and/or the Subsidiary and Purchaser jointly. In the event that as of
the date of receipt of each loss recovery upon any such insurance, the Purchaser has not
declared an Event of Default with respect to this Agreement or any of the Related
Agreements, then the Company and/or such Subsidiary shall be permitted to direct the
application of such loss recovery proceeds toward investment in property, plant and
equipment that would comprise “Pledgor Collateral” secured by Purchaser’s
security interest pursuant to its security agreement, with any surplus funds to be
applied toward payment of the obligations of the Company to Purchaser. In the event that
Purchaser has properly declared an Event of Default with respect to this Agreement or any
of the Related Agreements, then all loss recoveries received by Purchaser upon any such
insurance thereafter may be applied to the obligations of the Company hereunder and under
the Related Agreements, in such order as the Purchaser may determine. Any surplus
(following satisfaction of all Company obligations to Purchaser) shall be paid by
Purchaser to the Company or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by the Company or the Subsidiary, as applicable, to Purchaser, on
demand. 

18

     6.9        Intellectual
Property. Each of the Company and its Subsidiary shall maintain in full force and
effect its existence, rights and franchises and all licenses and other rights to use
Intellectual Property owned or possessed by it and reasonably deemed to be necessary to
the conduct of its business.  

     6.10        Properties.
Each of the Company and its Subsidiary will keep its material properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and improvements
thereto, except as would not have a Material Adverse Effect; and each of the Company and
its Subsidiary will at all times comply with each provision of all leases to which it is
a party or under which it occupies property if the breach of such provision could, either
individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.  

     6.11        Confidentiality The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchaser, unless expressly agreed to by the Purchaser or
unless and until such disclosure is required by law or applicable regulation, and then
only to the extent of such requirement. Notwithstanding the foregoing, the Company may
disclose Purchaser’s identity and the terms of this Agreement to its current and
prospective debt and equity financing sources.  

     6.12        Required
Approvals. For so long as twenty-five percent (25%) of the principal amount of the
Note is outstanding, the Company, without the prior written consent of the Purchaser,
shall not:  

		    (a)       directly
or indirectly declare or pay any dividends, other than dividends paid           to the
Company or any of its wholly-owned subsidiaries;  

		    (b)       liquidate,
dissolve or effect a material reorganization provided, however, that           the
Company may merge or effect a material reorganization if the Company is the
          surviving entity;  

19

		    (c)       become
subject to (including, without limitation, by way of amendment to or
          modification of) any agreement or instrument which by its terms would (under
any           circumstances) restrict the Company’s or its Subsidiary’s right
to           perform the provisions of this Agreement, any other Related Agreement or any
of           the agreements contemplated hereby or thereby;  

		    (d)       (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of           trade
debt and debt incurred to finance the purchase of equipment (not in excess           of
ten percent (10%) per annum of the fair market value of the Company’s
          assets) whether secured or unsecured other than (x) the Company’s
          indebtedness to the Purchaser, (y) indebtedness set forth on Schedule
          6.12(d) attached hereto and made a part hereof and any refinancings or
          replacements thereof on terms no less favorable to the Company than the
          indebtedness being refinanced or replaced, and (z) any debt incurred in
          connection with the purchase of assets, or any refinancings or replacements
          thereof on terms no less favorable to the Company than the indebtedness being
          refinanced or replaced; (ii) cancel any debt owing to it in excess of $500,000
          in the aggregate during any 12 month period; (iii) assume, guarantee, endorse
or           otherwise become directly or contingently liable in connection with any
          obligations of any other person, except the endorsement of negotiable
          instruments by the Company for deposit or collection or similar transactions in
          the ordinary course of business or guarantees of indebtedness of the
          Company’s subsidiaries or otherwise permitted to be outstanding pursuant
to           this clause (d); and  

		    (e)       except
as set forth in Schedule 6.12(e), create or acquire any subsidiary           after
the date hereof unless (i) such subsidiary is a wholly-owned subsidiary of           the
Company or (ii) such Subsidiary becomes party to the Master Security           Agreement
(either by executing a counterpart thereof or an assumption or joinder
          agreement in respect thereof) and, to the extent required by the Purchaser,
          satisfies each condition of this Agreement and the other Related Agreements as
          if such subsidiary was a subsidiary on the Closing Date.  

     6.13        Reissuance
of Securities. The Company agrees to reissue certificates representing the Securities
without the legends set forth in Section 5.8 above at such time as:  

20

		     (a)        the
holder thereof is permitted to dispose of such Securities pursuant to Rule
          144(k) under the Securities Act; or  

		     (b)        upon
resale subject to an effective registration statement after such Securities           are
registered under the Securities Act.  

        The
Company agrees to cooperate with the Purchaser in connection with all resales pursuant to
Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales
provided the Company and its counsel receive reasonably requested representations from the
selling Purchaser and broker, if any. 

    6.14        Opinions.
On the Closing Date, the Company will deliver to the Purchaser opinions acceptable to the
Purchaser substantially in the forms of Exhibits C1 and C2 hereto, from the Company’s
external legal counsels. The Company will provide, at the Company’s expense, such
other legal opinions to be issued in connection with sales effected under Rule 144 of the
Securities Act, or in connection with a request by or on behalf of the Company’s
Transfer Agent in the future as are deemed reasonably necessary by the Purchaser (and
acceptable to the Purchaser) in connection with the conversion of the Note and exercise
of the Warrant.  

    6.15        On
or prior to the Closing Date the Company will execute and deliver to the Purchaser the
Related Agreements signed by the Company and its Subsidiary (if required) and any
debentures attached thereto.  

     6.16        On
or prior to the Closing Date, the Company will execute and deliver to the Purchaser a
confirmation by the board of directors of the Company according to section 282 of the
Companies Law – 1999, together with a copy of resolutions by the Company’s
Board of Directors, authorizing the execution and performance of this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby.  

     6.17        The
Company will at all times have authorized and reserved a sufficient number of Ordinary
Shares for the full conversion of the Note and exercise of the Warrants.  

7.  Covenants of the Purchaser.
The Purchaser covenants and agrees with the           Company as follows:  

    7.1        Confidentiality.
The Purchaser agrees that it will not disclose, and will not include in any public
announcement, the name of the Company, unless expressly agreed to by the Company or
unless and until such disclosure is required by law or applicable regulation, and then
only to the extent of such requirement.  

    7.2        Non-Public
Information. The Purchaser agrees not to effect any sales in the Company’s
Ordinary Shares while in possession of material, non-public information regarding the
Company if such sales would violate applicable securities law.  

        This
Section 7 shall survive the Closing of the transactions contemplated hereby. 

21

8. Covenants of the Company and
Purchaser Regarding Indemnification.  

    8.1        Company
Indemnification. The Company agrees to indemnify, hold harmless, reimburse and defend
the Purchaser, each of the Purchaser’s officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature, incurred by
or imposed upon the Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or its Subsidiary or breach of any warranty by the
Company or its Subsidiary in this Agreement, any other Related Agreement or in any
exhibits or schedules attached hereto or thereto; or (ii) any breach or default in
performance by Company or its Subsidiary of any covenant or undertaking to be performed
by Company or its Subsidiary hereunder, under any other Related Agreement or any other
agreement entered into by the Company and Purchaser relating hereto or thereto. Nothing
herein shall be deemed to expand the Subsidiary’s liability hereunder or under any
Related Agreement, beyond its liability in connection with the representations and
warranties made by the Subsidiary hereunder.  

    8.2        Purchaser’s
Indemnification. Purchaser agrees to indemnify, hold harmless, reimburse and defend
the Company and each of the Company’s officers, directors, agents, affiliates,
control persons and principal shareholders, at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon the Company which results, arises out of or is based
upon: (i) any misrepresentation by Purchaser or breach of any warranty by Purchaser in
this Agreement or in any exhibits or schedules attached hereto or any Related Agreement;
or (ii) any breach or default in performance by Purchaser of any covenant or undertaking
to be performed by Purchaser hereunder, or under any other Related Agreement.  

9.  Conditions of the Company’s
Obligations at the Closing. The           obligations of the Company to issue the
Note and the Warrant to the Investors at           the Closing is subject to the
fulfillment (or waiver by the Company) prior to or           on the Closing Date of the
conditions set forth below. In the event that any           such condition is not met to
the satisfaction of the Company, then the Company           shall not be obligated to
proceed with the transactions contemplated hereunder           and in the Related
Agreements, and shall not be subject to any liability           hereunder or thereunder.  

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

	 	9.2 	Compliance
with Agreements. Purchaser shall have performed and complied in all respects with all
agreements or conditions required by this Agreement and the Related Agreements to be
performed and complied with by it prior to or as of the Closing Date. 

22

	 	9.3 	No
Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction, which prohibits the consummation of any
of the transactions contemplated by this Agreement and the Related Agreements. 

	 	9.4 	Delivery
of Purchase Amount. The Purchaser shall have delivered to the Company the
Purchase Amount on or before the Closing Date. 

	 	9.5 	Government
Approvals. The Company shall have received all necessary approvals by the OCS and the
Investment Center with respect to the transactions contemplated hereby and by the Related
Agreements. The Purchaser shall have executed any confirmations required by the OCS
and/or the Investment Center for the grant of such approvals. 

	 	9.6 	Notices
to NASDAQ the TASE and the ISA. The Company shall have made all required filings of
notices with NASDAQ, the Tel Aviv Stock Exchange and the Israel Securities Authority and
has received no notice adversely effecting the performance of the transactions
contemplated hereunder and in the Related Agreements. The Company shall use its
commercially reasonable efforts to complete such filings. 

10.  Conversion of Convertible Note.  

    10.1        Mechanics
of Conversion.  

		    (a)       Provided
the Purchaser has notified the Company of the Purchaser’s           intention to
sell the Note Shares and the Note Shares are included in an           effective
registration statement or are otherwise exempt from registration when           sold: (i)
upon the conversion of the Note or part thereof, the Company shall, at           its own
cost and expense, take all necessary action (including the issuance of           an
opinion of counsel reasonably acceptable to the Purchaser following a request
          by the Purchaser) to assure that the Company’s transfer agent shall issue
          the Company’s Ordinary Shares in the name of the Purchaser (or its
nominee)           or such other persons as designated by the Purchaser in accordance
with Section           10.1(b) hereof and in such denominations to be specified
representing the number           of Note Shares issuable upon such conversion; and (ii)
the Company warrants that           no instructions other than these instructions have
been or will be given to the           transfer agent of the Company’s Ordinary
Shares and that after the           Effectiveness Date (as defined in the Registration
Rights Agreement) the Note           Shares issued will be freely transferable subject to
the prospectus delivery           requirements of the Securities Act and the provisions
of this Agreement, and           will not contain a legend restricting the resale or
transferability of the Note           Shares.  

23

		    (b)       Purchaser
will give notice of its decision to exercise its right to convert the           Note or
part thereof by telecopying or otherwise delivering an executed and           completed
notice including a breakdown in reasonable detail of the Principal           Amount and
accrued interest being converted (the “Notice of           Conversion”) all as
more fully provided in the Note. The Purchaser will not           be required to
surrender the Note until the Purchaser receives a credit to the           account of the
Purchaser’s prime broker through the DWAC system (as defined           below),
representing the Note Shares or until the Note has been fully satisfied.           Each
date on which a Notice of Conversion is telecopied or delivered to the           Company
in accordance with the provisions hereof shall be deemed a           “Conversion
Date.” Pursuant to the terms of the Notice of Conversion,           the Borrower
will issue instructions to the transfer agent accompanied by an           opinion of
counsel within one (1) business day of the date of the delivery to           Borrower of
the Notice of Conversion and shall cause the transfer agent to           transmit the
certificates representing the Conversion Shares to the Holder by           crediting the
account of the Purchaser’s prime broker with the Depository           Trust Company (“DTC”)
through its Deposit Withdrawal Agent Commission           (“DWAC”) system
within three (3) business days after receipt by the           Company of the Notice of
Conversion (the “Delivery Date”)  

		    (c)       The
Company understands that a delay in the delivery of the Note Shares in the           form
required pursuant to Section 10 hereof beyond the Delivery Date could           result in
economic loss to the Purchaser. In the event that the Company fails to           direct
its transfer agent to deliver the Note Shares to the Purchaser via the           DWAC
system within the time frame set forth in Section 10.1(b) above and the           Note
Shares are not delivered to the Purchaser by the Delivery Date, as           compensation
to the Purchaser for such loss, the Company agrees to pay late           payments to the
Purchaser for late issuance of the Note Shares in the form           required pursuant to
Section hereof upon conversion of the Note in the amount           equal to the greater
of: (i) $500 per business day after the Delivery Date; or           (ii) the Purchaser’s
actual damages from such delayed delivery.           Notwithstanding the foregoing, the
Company will not owe the Purchaser any late           payments if the delay in the
delivery of the Note Shares beyond the Delivery           Date is solely out of the
control of the Company and the Company is actively           trying to cure the cause of
the delay. The Company shall pay any payments           incurred under this Section in
immediately available funds upon demand and, in           the case of actual damages,
accompanied by reasonable documentation of the           amount of such damages. Such
documentation shall show the number of Ordinary           Shares the Purchaser is forced
to purchase (in an open market transaction) which           the Purchaser anticipated
receiving upon such conversion, and shall be           calculated as the amount by which
(A) the Purchaser’s total purchase price           (including customary brokerage
commissions, if any) for the Ordinary Shares so           purchased exceeds (B) the
aggregate principal and/or interest amount of the           Note, for which such
Conversion Notice was not timely honored.  

24

    10.2        Nothing
contained herein or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of interest or
other charges in excess of the maximum permitted by applicable law. In the event that the
rate of interest or dividends required to be paid or other charges hereunder exceed the
maximum amount permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Purchaser and thus refunded to the
Company.  

11. Registration Rights, Offering
Restrictions.  

    11.1        Registration
Rights Granted. The Company hereby grants registration rights to the Purchaser
pursuant to a Registration Rights Agreement dated as of even date herewith between the
Company and the Purchaser.  

     11.2        Offering
Restrictions. Except as previously disclosed in the SEC Reports, in the Exchange Act
Filings, in the Financial Statements, or stock or stock options granted to employees or
directors of the Company (these exceptions hereinafter referred to as the “Excepted
Issuances”), neither the Company nor its Subsidiary will issue any securities with a
continuously variable/floating conversion feature which are or could be (by conversion or
registration) free-trading securities (i.e. Ordinary Shares subject to a registration
statement) prior to the full repayment or conversion of the Note (together with all
accrued and unpaid interest and fees related thereto) (he “Exclusion Period”).  

12.  Miscellaneous.  

    12.1        Governing
Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER CONCERNING THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF
NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. IN
THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY OTHER RELATED AGREEMENT DELIVERED
IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE
OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY
CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF
LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF ANY AGREEMENT.  

25

    12.2        Survival.
The representations, warranties, covenants and agreements made herein shall survive any
investigation made by the Purchaser and the closing of the transactions contemplated
hereby to the extent provided therein. All statements as to factual matters contained in
any certificate or other instrument delivered by or on behalf of either party pursuant
hereto in connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by such party hereunder solely as of the date of such
certificate or instrument.  

    12.3        Successors.
Except as otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each person
who shall be a holder of the Securities from time to time, other than the holders of
Ordinary Shares which have been sold by the Purchaser pursuant to Rule 144 or an
effective registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company or its Subsidiary.  

    12.4        Entire
Agreement. This Agreement, the Related Agreements, the exhibits and schedules hereto
and thereto and the other documents delivered pursuant hereto constitute the full and
entire understanding and agreement between the parties with regard to the subjects hereof
and no party shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and therein.  

    12.5        Severability.
In case any provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.  

    12.6        Amendment
and Waiver.  

		    (a)       This
Agreement may be amended or modified only upon the written consent of the
          Company and the Purchaser or their respective successors.  

		    (b)       The
obligations of the Company and the rights of the Purchaser under this           Agreement
may be waived only with the written consent of the Purchaser or its           successors.  

26

		    (c)       The
obligations of the Purchaser and the rights of the Company under this           Agreement
may be waived only with the written consent of the Company or its           successors.  

    12.7        Delays
or Omissions. It is agreed that no delay or omission to exercise any right, power or
remedy accruing to any party, upon any breach, default or noncompliance by another party
under this Agreement or the Related Agreements, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach, default or
noncompliance thereafter occurring. All remedies, either under this Agreement or the
Related Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.  

    12.8        Notices.
All notices required or permitted hereunder shall be in writing and shall be deemed
effectively given:  

		    (a)       upon
personal delivery to the party to be notified;  

		    (b)       when
sent by confirmed facsimile if sent during normal business hours of the
          recipient, if not, then on the next business day;  

		    (c)       three
(3) business days after having been sent by registered or certified mail,
          return receipt requested, postage prepaid; or  

		    (d)       one
(1) day after deposit with a nationally recognized overnight courier,
          specifying next day delivery, with written verification of receipt.  

All communications shall be sent as
follows: 

	 	If to the Purchaser, to: 
	B.O.S. Better On-Line Solutions Ltd.

Beit Rabin, 100 BOS Road, Teradyon Industrial Park, 
Misgav 20179, Israel

Attention:    Chief Financial Officer

Facsimile:    (972) 4 999-0334

with a copy to:

Amit, Pollak, Matalon &  Ben-Naftali, Erez & Co.NYP 
Tower, 17 Yitzha
Sadeh Street, 19th Floor

Tel Aviv 67775

Attention:    Shlomo Landress, Esq.

Facsimile:    (972) 3 561-3620

27

	 	If to the Company, to: 	Laurus Master Fund, Ltd.

c/o Ironshore Corporate Services ltd.

P.O. Box 1234 G.T.

Queensgate House, South Church Street

Grand Cayman, Cayman Islands

Facsimile:    345-949-9877

with a copy to:

John E. Tucker, Esq.

825 Third Avenue 14th Floor

New York, NY 10022

Facsimile:    212-541-4434 

or at such other address as the Company
or the Purchaser may designate by written notice to the other parties hereto given in
accordance herewith. 

    12.9        Attorneys’ Fees.
In the event that any suit or action is instituted to enforce any provision in this
Agreement, the prevailing party in such dispute shall be entitled to recover from the
losing party all reasonable and actually incurred fees, costs and expenses of enforcing
any right of such prevailing party under or with respect to this Agreement, including,
without limitation, such reasonable fees and expenses of attorneys and accountants, which
shall include, without limitation, all fees, costs and expenses of appeals.  

    12.10        Titles
and Subtitles. The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this Agreement.  

    12.11        Facsimile
Signatures; Counterparts. This Agreement may be executed by facsimile signatures and
in any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.  

    12.12        Broker’s
Fees, Stamp Taxes. Except as set forth on Schedule 12.12 hereof, each party hereto
represents and warrants that no agent, broker, investment banker, person or firm acting
on behalf of or under the authority of such party hereto is or will be entitled to any
broker’s or finder’s fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such other
party as a result of the representation in this Section 12.12 being untrue. The Company
shall bear all stamp taxes required to be paid in connection with this Agreement, the
Note and/or the Warrant.  

    12.13        Construction.
Each party acknowledges that its legal counsel participated in the preparation of this
Agreement and the Related Agreements and, therefore, stipulates that the rule of
construction that ambiguities are to be resolved against the drafting party shall not be
applied in the interpretation of this Agreement to favor any party against the other.  

28

[THE REMAINDER OF THIS
PAGE IS INTENTIONALLY LEFT BLANK 

29

        IN
WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of
the date set forth in the first paragraph hereof. 

	COMPANY:

B.O.S. BETTER ON-LINE SOLUTIONS LTD.

By: 
—————————————————

Name:   Adiv Baruch   Nehemia Kaufman
—————————————————

Title:    CEO                   CFO
—————————————————
	PURCHASER:

LAURUS MASTER FUND, LTD.

By: 
——————————————

Name:
——————————————

Title:
——————————————

	BOSCOM, LTD.

By: 
—————————————————

Name:   Adiv Baruch
—————————————————

Title:    CEO
—————————————————

	QUASAR TELECOM (2004) LTD.

By: 
—————————————————

Name:   Nehemia Kaufman
—————————————————

Title:    Director
—————————————————

30

EXHIBIT A 

FORM OF CONVERTIBLE
NOTE 

[omitted] 

EXHIBIT B 

FORM OF WARRANT 

[omitted] 

EXHIBITS C1-C2 

OPINIONS 

[omitted]

EXHIBIT D 

FORM OF ESCROW
AGREEMENT 

[omitted] 

MASTER SECURITY
AGREEMENT  

THIS MASTER SECURITY AGREEMENT (this “Security
Agreement”) made as of the 29th day of September 2005, by and between
B.O.S. Better On-Line Solutions Ltd., a company incorporated under the laws of the State
of Israel, company number 52-004256-5 (the “Pledgor”) and Laurus Master
Fund a Cayman Islands company (the “Purchaser”). 

	WHEREAS  		Pledgor
and the Purchaser, have entered into a Securities Purchase Agreement dated September 29,
2005 (the “Purchase Agreement”)  

	WHEREAS  		the
Pledgor has agreed to enter into this Security Agreement in order to secure the
Obligations (as defined below) of the Pledgor to the Purchaser pursuant to the Purchase
Agreement, the Note, the Warrant and the Related Agreements.  

NOW, THEREFORE, IT IS AGREED AS
FOLLOWS: 

	1.  	The
Preamble to this Security Agreement constitutes an integral part thereof.
               All capitalized terms used herein and not defined herein shall have the
meaning                assigned to such terms in the Purchase Agreement. 

	2.  	To
secure the full and punctual payment and performance of all Obligations (as
               hereafter defined), the Pledgor hereby assigns and grants to the Purchaser
the                following security interests: 

	 	(a) 	A
first priority floating charge on all assets of the Pledgor, now owned or at
               any time hereafter acquired by the Pledgor, or in which the Pledgor now
has or                at any time in the future may acquire any right, title or interest
(the                “Pledgor Collateral”), including without limitation,
all                accounts, inventory, equipment, goods, promissory notes, contractual
rights                (subject to any assignment or pledge limitations included therein)
chattel                paper, investment property (excluding the Pledged Shares (as
defined below) and                any interests in Surf Communications Solutions Ltd. but
including all other                equity interests owned by the Pledgor),
letter-of-credit rights, intellectual                property, trademarks and tradestyles
in which the Pledgor now has or hereafter                may acquire any right, title or
interest, all proceeds and products thereof                (including, without
limitation, proceeds of insurance) and all additions,                accessions and
substitutions thereto or therefore. A debenture with respect the                said
pledge is attached as Exhibit A hereto. 

	 	(b) 	A
first priority fixed charge on (i) all of its right, title and interest in all
               outstanding and issued shares (144,330 Ordinary Shares) of BOScom Ltd.
held by                the Pledgor and any additional shares of BOScom Ltd. that Pledgor
may acquire,                receive and/or otherwise be entitled to (the “BOScom
Pledged Shares”); (ii) all of its right, title and interest in all
               outstanding and issued shares (1,000 Ordinary Shares) of Quasar Telecom
(2004)                Ltd. held by the Pledgor and any additional shares of Quasar
Telecom (2004) Ltd.                that Pledgor may acquire, receive and/or otherwise be
entitled to (the “Quasar Pledged Shares” and together with the BOScom
Pledged                Shares, the “Pledged Shares”). 

	 	
A
debenture with respect the Pledged Shares is attached as Exhibit B hereto.  

	3.  	Notwithstanding
any other provision herein, any security interest granted by the                Pledgor
hereunder shall be subject to any restriction, if such exist, on the
               transfer of intellectual property imposed by or pursuant to the
regulations and                directives of the Ministry of Industry and Trade and the
Office of the Chief                Scientist applicable to the Company. 

	4.  	The
term “Obligations” as used herein shall mean and include
               all debts, indebtedness, obligations and liabilities of the Pledgor to the
               Purchaser whether now existing or hereafter arising, direct or indirect,
               liquidated or unliquidated, absolute or contingent, due or not due and
whether                under, pursuant to or evidenced by a note, agreement, guaranty,
instrument or                otherwise and arising under, out of, or in connection with:
(i) the Purchase                Agreement, (ii) the Note, (iii) the Warrant, (iv) the
Related Agreements (the                Purchase Agreement, the Note, the Warrant and the
Related Agreements and this                Security Agreement, as each may be amended,
modified, restated or supplemented                from time to time, are collectively
referred to as the                “Documents”), and in connection with
any documents, instruments                or agreements relating to or executed in
connection with the Documents or any                documents, instruments or agreements
referred to therein, provided however that                the realization of any pledge
under this Security Agreement shall at all times                be limited to the then
outstanding amount payable to Purchaser under the Note                and to any expenses
and costs related to the realization of such pledge. 

	5.  	The
Pledgor hereby represents, warrants and covenants to the Purchaser that: 

	 	(a) 	it
is a corporation validly existing and duly incorporated under the laws of the
               State of Israel; 

	 	(b) 	its
legal name is as set forth in its Certificate of Incorporation as amended
               through the date hereof and it will provide the Purchaser thirty (30) days’               prior
written notice of any change in its legal name; 

	 	(c) 	its
organizational identification number (if applicable) is as set forth above
               and it will provide the Purchaser thirty (30) days’ prior written
notice of                any change in its organizational identification number; 

	 	(d) 	it
is the lawful owner of the Pledgor Collateral and the Pledged Shares, it has
               the sole right to grant a security interest therein and will defend such
               collateral against all claims and demands of all persons and entities; 

	 	(e) 	it
will keep the Pledgor Collateral and the Pledged Shares free and clear of all
               attachments, levies, taxes, liens, security interests and encumbrances of
every                kind and nature (“Encumbrances”), except for such
Encumbrances                which by their terms are junior to the security interests
granted to the                Purchaser and were created after receipt of the prior
written consent of the                Purchaser (which consent shall not be unreasonably
withheld) or with respect to                the Pledgor Collateral only, are made in the
ordinary course of business; 

2

	 	(f) 	it
will not, without the Purchaser’ prior written consent, which consent
               shall not be unreasonably withheld, sell, exchange, lease, pledge or
otherwise                dispose of or give any other rights in the Pledgor Collateral
and the Pledged                Shares except, with respect to the Pledgor Collateral only
and not including the                Pledged Shares, for sales and/or exchanges of
tangible assets that are part of                the Pledgor Collateral and for leases,
pledges on assets imposed in connection                with the purchase or lease thereof
or other dispositions in the ordinary course                of business. 

	 	(g) 	it
will insure or cause Pledgor Collateral to be insured in accordance with the
               provisions of the Purchase Agreement; 

	 	(h) 	it
will upon reasonable notice and during normal business hours allow the
               Purchaser or the Purchaser’ representatives free access to and the
right of                inspection of the tangible Pledgor Collateral; 

	 	(i) 	Pledgor
hereby agrees to indemnify and save the Purchaser harmless from all                loss,
costs, damage, liability and/or expense, including reasonable                attorneys’ fees,
that the Purchaser may sustain or incur to enforce                payment, performance or
fulfillment of any of the Obligations and/or in the                enforcement of this
Security Agreement or in the prosecution or defense of any                action or
proceeding either against the Purchaser or the Pledgor concerning any
               matter growing out of or in connection with this Security Agreement,
and/or any                of the Obligations and/or any of the Pledgor Collateral and the
Pledged Shares,                except to the extent caused by the Purchaser’s own
gross negligence or                willful misconduct (as determined by a court of
competent jurisdiction in a                final and non-appealable decision).
Notwithstanding the above, in no event shall                Pledgor’s aggregate
liability pursuant to all sections of this Security                Agreement exceed the
then outstanding amount payable to Purchaser under the Note                and to any
expenses and costs related to the realization of such pledge. 

	6. 	The
occurrence of any of the following events or conditions shall constitute an
          “Event of Default”: 

	 	(a)	Breach
of any covenant, warranty or representation made or furnished to the           Purchaser
by the Pledgor in any of the Documents, which, after given prior           notice if
subject to cure, shall not be cured for a period of thirty (30)           business days; 

	 	(b)	the
loss, theft, substantial damage, destruction to or of any material portion           of
the Pledgor Collateral; the sale or encumbrance of the Pledgor Collateral
          except as set forth under sections 5(e) or 5(f) above; the sale or encumbrance
          of the Pledged Shares or the making of any seizure or attachment thereof or
          thereon except to the extent: 

	 	(i)	such
loss, damage or destruction is covered by insurance proceeds;  

3

	 	(ii)	said
encumbrance is junior to the security interest provided hereunder and was
          registered per written prior consent provided by Purchaser, which consent shall
          not be unreasonably withheld; or  

	 	(iii)	said
seizure or attachment does not secure indebtedness in excess of $50,000 or           such
seizure or attachment has not been removed or otherwise released within           thirty
(30) business days of the creation or the assertion thereof;  

	 	(c)	Pledgor
is not able to pay its matured current debts, shall cease operations,           dissolve,
terminate its business existence, make an assignment for the benefit           of
creditors, suffer the appointment of a receiver, trustee, liquidator or
          custodian of all or any material part of the Pledgor’s property, which
          appointment shall not have been revoked within thirty (30) business days; 

	 	(d)	Pledgor
shall become subject to any proceedings under any applicable bankruptcy           or
insolvency law, which if commenced against the Pledgor, shall not be           dismissed
within thirty (30) business days; 

	 	(e)	The
Pledgor shall repudiate, purport to revoke or fail to perform any or all of           its
obligations under the Note (after given no less than 15-days prior notice           and
after passage of applicable cure period, if any); 

	 	(f)	an
Event of Default shall have occurred under and as defined in the Purchase
          Agreement or in any Related Agreement (after passage of applicable cure period,
          if any); 

	 	(g)	any
event which materially adversely affects the value of any of the Pledged           Shares
and/or the Pledgor Collateral. The Pledgor shall promptly notify the           Purchaser
in writing of such event. 

	 	(h)	any
event or series of events occur(s), which, in the reasonable opinion of the
          Purchaser, may have a material adverse effect on the business, condition
          (financial or otherwise), or results of operations of the Pledgor or on the
          ability of the Pledgor to comply with any of its material obligations hereunder
          or under the Purchase Agreement, provided that Purchaser gives the Pledgor a
          written notice for declaring a Default Event under this subclause (h), and
          further provided that the Pledgor shall be entitled to provide a written
          response to the Purchaser within fourteen (14) days, it being agreed however,
          that nothing herein nor the Pledgor’s written response shall limit or
delay           the Purchaser’s right, in its discretion, to declare a Default Event
          hereunder and exercise the remedies available to the Purchaser hereunder,
          immediately after Pledgor’s written response. 

	7. 	Upon
the occurrence of any Event of Default and at any time thereafter, the
          Purchaser may declare all Obligations immediately due and payable and the
          Purchaser shall have the remedies of a secured party provided in this Agreement
          and under any applicable law. Any proceeds of any foreclosures on any of the
          Pledgor Collateral or the Pledged Shares shall be first applied by the
Purchaser           to the payment of all expenses in connection with the sale of the
Pledgor           Collateral or the Pledged Shares, including reasonable attorneys’ fees
and           other legal expenses and disbursements and the reasonable expense of
retaking,           holding, preparing for sale, selling, and the like, and any balance
of such           proceeds shall be applied by the Purchaser toward the payment of any
outstanding           Obligations in such order of application as the Purchaser may
elect, and the           Pledgor shall be liable for any deficiency. 

4

	8. 	If
the Pledgor defaults in the performance or fulfillment of any of the terms,
          conditions, promises, covenants, provisions or warranties to be performed or
          fulfilled under or pursuant to this Security Agreement, the Purchaser may, at
          its option without waiving its right to enforce this Security Agreement
          according to its terms, immediately or at any time thereafter but subject to
          notice to the Pledgor, perform or fulfill the same or cause the performance or
          fulfillment of the same for Pledgor’s account and at Pledgor’s cost
          and expense, and the cost and expense thereof (including reasonable
          attorneys’ fees) shall be added to the Obligations and shall be payable on
          demand with interest thereon at the highest rate permitted by law. 

	9. 	No
delay or failure on the Purchaser’s part in exercising any right,
          privilege or option hereunder shall operate as a waiver of such or of any other
          right, privilege, remedy or option, and no waiver whatever shall be valid
unless           in writing, signed by the Purchaser and then only to the extent therein
set           forth, and no waiver by the Purchaser of any default shall operate as a
waiver           of any other default or of the same default on a future occasion. The
          Purchaser’s books and records containing entries with respect to the
          Obligations shall be admissible in evidence in any action or proceeding, and
          unless Pledgor presents records or other evidence to the contrary, shall be
          binding upon the Pledgor for the purpose of establishing the items therein set
          forth and shall constitute prima facie proof thereof. The Purchaser shall have
          the right to enforce any one or more of the remedies available to the
Purchaser,           successively, alternately or concurrently. 

	10. 	The
Pledgor shall cooperate with the Purchaser and execute all documents as may           be
reasonably necessary to register the Pledged Shares and the Pledgor           Collateral
with the Israeli Registrar of Companies and/or any other Registrar,           including,
inter alia, the document(s) in the form annexed hereto as Exhibit C  hereto,
and shall bear all stamp taxes with           respect to such registrations. The Pledgor
undertakes to register such           registrations with the Israeli Registrar of
Companies within 3 business days in           Israel. The Pledgor shall pay upon demand,
all reasonable expenses, including           reasonable attorney’s fees, of
enforcing the Purchaser’s rights and           remedies hereunder in the event of a
breach by the Pledgor as well as with           respect to expenses resulting from
exercising the pledge of any of the Pledged           Shares, and/or the Pledgor
Collateral. 

	11. 	This
Security Agreement shall terminate upon full payment of all the           Obligations,
including the Note, and the Purchaser undertakes to promptly sign           any and all
forms required in order to remove any and all security interests           granted by
Pledgor hereunder. 

	12. 	This
Security Agreement shall be governed by and construed in accordance with           the
laws of the State of Israel and cannot be terminated orally. Notwithstanding
          the above, if legally possible, the Purchaser will be entitled to initiate any
          legal action according to the terms of this Agreement and elect to realize any
          or all of the Pledged Shares and/or the Pledgor Collateral, pursuant to the
laws           of the State of New York. In such event the competent courts of New York
will           have the exclusive jurisdiction and this Security Agreement shall be
governed by           and construed with the laws of the State of New York. 

5

	13. 	All
of the rights, remedies, options, privileges and elections given to the
          Purchaser hereunder shall inure to the benefit of the Purchaser’s
          successors and assigns. The term “Purchaser” as herein used shall
          include the Purchaser’s company, any parent of the Purchaser’s
          company, any of the Purchaser’s subsidiaries and any co-subsidiaries of
The           Purchaser’ parent, whether now existing or hereafter created or
acquired,           and all of the terms, conditions, promises, covenants, provisions and
warranties           of this Security Agreement shall inure to the benefit of and shall
bind the           representatives, successors and assigns of each of us and them. 

	14. 	All
notices hereunder shall be sufficiently given if mailed or delivered to the
          addresses set forth below. 

6

IN WITNESS WHEREOF this Master
Security Agreement has been executed by the parties hereto as of the date first above
written. 

B.O.S. Better On-Line
Solutions Ltd. 

Beit Rabin, 100 BOS Road,
Teradyon 
Industrial Park, Misgav 20179, Israel 

		
	Attention:	Chief Financial Officer
	Facsimile:	(972) 4 999-0334

	

———————————————————————

By:    Adiv Baruch
—————————————————

Title:   Chief Executive Officer
—————————————————

Date:    September 29, 2005
—————————————————

	

By:    Nehemia Kaufman
—————————————————

Title:   Chief Financial Officer
—————————————————

Date:    September 29, 2005
—————————————————

	Laurus Master Fund Ltd.

———————————————————————

By:    
—————————————————

Title:   
—————————————————

Date:    September 29, 2005
—————————————————
 

720-F

Exhibit 4.11  

AGREEMENT  

        This
Agreement (the “Agreement”) is made as of September 29, 2005, by and
among the persons and entities whose names and addresses are set out in Schedule A hereto
(collectively the “Sellers”) and B.O.S Better Online Solutions Ltd., an
Israeli company No. 520042565, having its address at Beit Rabin, Teradyon Industrial
Park, Misgav 20179, Israel, or an affiliate thereof (the “Purchaser”).  

W I T N E S S E T H :

        WHEREAS,
the Sellers, the Purchaser and Odem Electronic Technologies 1992 Ltd. (the “Company”)
entered into a Share Purchase Agreement dated November 2, 2004 (the “SPA”),
pursuant to which Purchaser had acquired from Sellers 137 ordinary shares of the Company,
nominal value NIS 0.1 each (the “Ordinary Shares”); and  

        WHEREAS,
pursuant to Section 8 of the SPA, Purchaser has received an option to require the
Purchaser to purchase (the “Put Option”) all of the remaining 64 Ordinary
Shares (the “Option Shares”) held by Sellers; and 

        WHEREAS,
the parties have mutually decided to accelerate the Put Option and to exercise it outside
the Option Period (as such term is defined in Section 8.1 of the SPA); and 

        WHEREAS,
the Purchaser wish to acquire the Option Shares from the Sellers, based on a Company
Valuation (as defined in Section 8.2(a)(iii) of the SPA) of US$6,000,000, and the Sellers
agree to transfer the Option Shares to the Purchaser at such Company Valuation, in
accordance with the terms of this Agreement; and 

        NOW,
THEREFORE, in consideration of the mutual promises and covenants set forth herein, the
parties hereby agree as follows:  

	1.  	Sale
and Purchase of Shares. 

	 	1.1 	General.
Each Seller, severally and not jointly, listed in Schedule A shall
sell, at the Closing, to Purchaser and the Purchaser shall purchase, at the Closing, all
rights, title and interest in each Seller’s Option Shares set forth opposite such
Seller’s name in Schedule A, on the terms of this Agreement, free from
all claims, liens, charges, pledges, security interests, encumbrances and third party
rights of any kind other than as currently existing under the current Articles of
Association of the Company (the “Security Interests”), together with all
rights, preferences and privileges attaching to, or conferred by, them. 

	 	1.2 	The
Consideration. 

	 	1.2.A 	On
the Closing Date (defined below), the Purchaser shall, in consideration for the purchase
from each Seller of the Option Shares: (i) issue to the relevant Seller ordinary shares
nominal value NIS 4.00 each, of the Purchaser, as set forth in Schedule A (the“Consideration
Shares”), reflecting a share price of $3.08 per each Consideration Share; and
(ii) pay to the relevant Seller cash in the amount set forth in Schedule A hereto
(the “Cash Payment”). The Cash Payment shall be paid to Sellers in two
(2) equal installments, each in the amount set forth in Schedule A hereto,
as follows: (i) the first of which (the “First Cash Installment”) will
be paid at the Closing; and (ii) the second of which (the “Second Cash installment”)
will be paid on, or, at the election of the Purchaser, at any time prior to, January 1,
2006.  

	 	1.2.B 	The
Purchaser shall transfer the Cash Payment to the Sellers by wire transfer in immediately
available funds to the bank account of the Sellers, which details are listed below. Such
payment shall be made in U.S. dollars:  

	 	
Bank
Leumi Ltd. 
Tel Aviv Arnia 23 Milenium Building. Branch 686
 Account No.: 12958/07 
Under
the name of Sara and Jacob Neuhof 

	 	1.3 	It
is hereby agreed by the parties that in the event that the Second Cash Installment is not
received by Sellers by January 1st, 2006, the Purchaser shall transfer to the
Sellers sixteen (16) shares of the Company. 

	2.  	The
Closing of Share Exchange. 

	 	2.1 	The
Closing. The closing of the sale and purchase of the Option Shares shall take place
at a closing (the “Closing”), which will be held at the offices of Amit,
Pollak, Matalon & Ben-Naftali, Erez & Co., Advocates and Notary, NYP Tower, 19th Floor,
17 Yitzhak Sadeh St., Tel-Aviv 67775 on September 30, 2005 or on such other date, time
and place as the Purchaser and the Sellers shall mutually agree (the “Closing Date”). 

	 	2.2 	Transactions
at Closing. At the Closing, the following transactions shall occur, which
transactions shall be deemed to take place simultaneously and no transaction shall be
deemed to have been completed or any document delivered until all such transactions have
been completed and all required documents delivered: 

	 	2.2.1 	The
Sellers shall deliver, or procure the delivery, to the Purchaser of the following
documents:  

	 	a. 	Duly
executed share transfer deeds with respect to the transfer of all the
               Option Shares to the Purchaser;.  

	 	b. 	A
validly executed share certificate covering all the Option Shares, issued in
               the name of the Purchaser;  

	 	c. 	Certificates
of each of the Sellers dated as of the Closing Date, confirming                that the
representations and warranties made in Section 3 and 5 of the SPA with
               respect to the Sold Shares (as such term is defined in the SPA) are true
and                correct in all material respects with respect to the Option Shares, on
and as of                the Closing Date, as though made on and as of the Closing Date.  

	 	d. 	A
termination notice signed by Mr. Jacob Neuhof, terminating his employment
               agreement with the Company, dated July 31, 2000, as amended on November
16,                2004, effective as of the Closing Date, in the form attached hereto as
Exhibit 2.2.1(d).  

	 	e. 	A
duly executed consulting agreement, in the form attached as Exhibit
               2.2.1(e) hereto.  

	 	f. 	A
waiver executed by Telsys Ltd., waiving any and all rights it may have with
               respect to the transfer of the Option Shares at the Closing, in the form
               attached hereto as Exhibit 2.2.1(f). 

- 2 -

	 	2.2.2 	At
the Closing, the Purchaser shall deliver to the Sellers (i) validly executed share
certificates covering the Consideration Shares, issued in the names of the applicable
Sellers; (ii) a duly executed consulting agreement, in the form attached as Exhibit
2.2.1(e) hereto; and (iii) a signed confirmation of the termination notice delivered by
Jacob Neuhof specified in Section 2.2.1(d).  

	 	2.2.3 	In
addition, at the Closing, the Purchaser shall provide the Seller with satisfactory
evidence of the transfer by Purchaser to the Sellers of the First Cash Installment.  

	3.  	Indemnification
and Remedies  

	 	
Sellers’undertaking
pursuant to Section 12 of the SPA shall apply, mutatis mutandis, with respect to
the representation and warranties made in Section 3 and 5 of the SPA as are applicable to
theOption Shares..  

	4.  	Miscellaneous  

	 	4.1 	Further
Assurances. Each of the parties hereto shall perform such further acts and execute
such further documents as may reasonably be necessary to carry out and give full effect
to the provisions of this Agreement and the intention of the parties as reflected hereby. 

	 	4.2 	Governing
Law; Jurisdiction. This Agreement shall be governed by and construed according to the
laws of the State of Israel, without regard to the conflict of laws provisions thereof.
Any dispute arising under or in relation to this Agreement shall be resolved in the
competent court of Tel Aviv-Jaffa district only, and each of the parties hereby submits
irrevocably to the exclusive jurisdiction of such court. 

	 	4.3 	Expenses.
Each of the parties hereto shall be responsible for its own costs and expenses (including
legal fees) in connection with this Agreement and any other documents or actions relating
to the transactions contemplated by this Agreement. All stamp duty and filing fees
payable in respect of this Agreement or the transfer of shares as contemplated hereby
shall be borne equally by the Sellers, on the one hand, and the Purchaser, on the other. 

	 	4.4 	Successors
and Assigns; Assignment. Except as otherwise expressly limited herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors, and administrators of the parties hereto. None of the rights,
privileges, or obligations set forth in, arising under, or created by this Agreement may
be assigned or transferred without the prior consent in writing of each party to this
Agreement. 

	 	4.5 	Entire
Agreement. This Agreement and the Schedules and Exhibits attached hereto constitute
the full and entire understanding and agreement between the parties with regard to the
subject matters hereof and thereof. 

	 	4.6 	Notices,
etc. All notices and other communications required or permitted hereunder to be given
to a party to this Agreement shall be in writing and shall be faxed or mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed to such party’s address as set forth below or in Schedule
A, as the case may be, or at such other address as the party shall have
furnished to each other party in writing in accordance with this provision: 

- 3 -

	 	
if
to the Purchaser: 

	 	
B.O.S.
Better On-Line Solutions Ltd.                
                          Beit Rabin,
Teradyon Industrial Park,                       
                   Misgav 20179, Israel

	 	
Attention:
Chief Financial Officer       
                                   Facsimile:     (972) 4
999-0334

	 	
with
a copy to: 

	 	
Amit,
Pollak, Matalon & Ben-Naftali, 
Erez &                                         Co.NYP
Tower, 17 Yitzhak 
Sadeh Street, 19th                                          Floor

                                         Tel Aviv 67775
    
                                     Attention: Shlomo Landress, Adv.

	 	
Facsimile:
(972) 3 561-3620

	 	
if
to a Seller: to its address, as set forth on Schedule A;  

	 	
Any
notice sent in accordance with this Section 4.6 shall be effective (i) if mailed, three
(3) business days after mailing, (ii) if sent by messenger, upon delivery, and (iii) if
sent via facsimile, upon transmission and electronic confirmation of receipt or (if
transmitted and received on a non-business day) on the first business day following
transmission and electronic confirmation of receipt (provided, however, that any notice
of change of address shall only be valid upon receipt). 

	 	4.7 	Delays
or Omissions. No delay or omission to exercise any right, power, or remedy accruing
to any party upon any breach or default under this Agreement, shall be deemed a waiver of
any other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent, or approval of any kind or character on the part of any party of any breach or
default under this Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this Agreement
or by law or otherwise afforded to any of the parties, shall be cumulative and not
alternative. 

	 	4.8 	Severability.
If any provision of this Agreement is held by a court of competent jurisdiction to be
unenforceable under applicable law, then such provision shall be excluded from this
Agreement and the remainder of this Agreement shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms; provided,
however, that in such event this Agreement shall be interpreted so as to give effect, to
the greatest extent consistent with and permitted by applicable law, to the meaning and
intention of the excluded provision as determined by such court of competent
jurisdiction. 

	 	4.9 	Counterparts.
This Agreement may be executed in any number of counterparts, each of which shall be
deemed an original and enforceable against the parties actually executing such
counterpart, and all of which together shall constitute one and the same instrument. 

[the remainder of this page is intentionally left blank] 

- 4 -

	 	
IN
WITNESS WHEREOF the parties have signed this Agreement as of the date first hereinabove
set forth. 

	PURCHASER:

————————————————————
B.O.S. BETTER ONLINE SOLUTIONS LTD.

By: 
————————————————————

Name:   Adiv Baruch     Nehemia Kaufman
Title:     CEO                   CFO	SELLERS:

————————————————————
JACOB NEUHOF

————————————————————

SARA NEUHOF 

- 5 -

SCHEDULE A 

	Name and Address of Seller	No. of Sold
Shares	% of Share Capital
(fully diluted)	Consideration
	BOS Shares	Cash
	1st Installment	2nd Installment
	Jacob Neuhof
5 Itzhak Birger St
Rishon Lezion 75260 	32 	11.94%	116,301 	$179,104.50 	$179,104.50 
	Sara Neuhof
5 Itzhak Birger St.,
Rishon Lezion 75260 	32 	11.94%	116,302 	$179,104.50 	$179,104.50 
	        Total  	64 	23.88%	232,603 	$716,418.00 

- 6 -

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