Document:

Exhibit 4.7
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                          REGISTRATION RIGHTS AGREEMENT

      This Registration Rights Agreement (this "Agreement") is made and entered
into as of September 29, 2005, by and among Arotech Corporation, a Delaware
corporation (the "Company"), and the investors signatory hereto (each a
"Purchaser" and collectively, the "Purchasers").

      This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").

      The Company and the Purchasers hereby agree as follows:

      1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:

      "Effective Date" means with respect to any Registration Statement, the
date that such Registration Statement is first declared effective by the SEC.

      "Effectiveness Date" means with respect to the Registration Statement
required to be filed hereunder relating to the Registrable Securities, the
earlier of (1) the 90th day following the Closing Date or, if the Company is
notified by the SEC that such Registration Statement will be reviewed or is
subject to further review and comments, the 120th day following the Closing Date
and (2) the fifth Business Day following the date on which the Company is
notified by the SEC that such Registration Statement will not be reviewed or is
no longer subject to further review and comments.

      "Effectiveness Period" shall have the meaning set forth in Section 2(a).

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

      "Filing Date" means with respect to the Registration Statement required to
be filed hereunder relating to the Registrable Securities, the 30th day
following the Closing Date.

      "Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.

      "Indemnified Party" shall have the meaning set forth in Section 5(c).

      "Indemnifying Party" shall have the meaning set forth in Section 5(c).

      "Losses" shall have the meaning set forth in Section 5(a).

      "Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

<PAGE>

      "Prospectus" means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

      "Registrable Securities" means (i) the Conversion Shares, (ii) the Warrant
Shares and (iii) any shares of capital stock issued or issuable with respect to
the Conversion Shares, the Warrant Shares or the Notes or the Warrants as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitations on exercise of the
Warrants.

      "Registration Statement" means any registration statement required to be
filed hereunder and any additional registration statements contemplated by
Section 2(c), including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.

      "Required Registration Amount" means (i) 130% of the number of Conversion
Shares issued and issuable pursuant to the Notes and (ii) 100% of the number of
Warrant Shares issued and issuable pursuant to the Warrants, in each case,
without regard to any limitations on conversion or exercise of the Notes or
Warrants, as the case may be.

      "Rule 144" means Rule 144 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC having substantially the same
effect as such Rule.

      "Rule 415" means Rule 415 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC having substantially the same
effect as such Rule.

      "Rule 424" means Rule 424 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC having substantially the same
effect as such Rule.

      "Securities Act" means the Securities Act of 1933, as amended.

      "Special Counsel" means Schulte Roth & Zabel LLP.

      2. Registration.

      (a) On or prior to the Filing Date, the Company shall prepare and file
with the SEC a Registration Statement covering the resale of the Required
Registration Amount of Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. Each Registration Statement shall be on
Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (except if
otherwise directed by the Holders) the "Selling Shareholders" and "Plan of
Distribution" substantially in the form attached hereto as Annex A. The Company
shall use its best efforts to cause each Registration Statement to be declared
effective under the Securities Act but in no event later than Effectiveness
Date, and shall use its best efforts to keep each Registration Statement
continuously effective under the Securities Act until the date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent and the affected
Holders (the "Effectiveness Period").

<PAGE>

      (b) If: (i) the Registration Statement is not filed on or prior to the
Filing Date (if the Company files such Registration Statement without affording
the Holder the opportunity to review and comment on the same as required by
Section 3(a) hereof, the Company shall not be deemed to have satisfied this
clause (i)), or (ii) the Company fails to file with the SEC a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act,
within five Business Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the SEC that a Registration Statement will not
be "reviewed," or not subject to further review, or (iii) the Company fails to
respond to any comments made by the SEC within ten Business Days after the
receipt of such comments (or 30 Business Days with respect to comment letters
containing comments regarding accounting matters), or (iv) after its Effective
Date, such Registration Statement ceases to be effective and available to the
Holders thereunder as to all Registrable Securities to which it is required to
relate (whether upon the delivery of an Advice pursuant to Section 6(d) or
otherwise) at any time prior to the expiration of its Effectiveness Period
without being succeeded within fifteen Business Days by an amendment to such
Registration Statement necessary to make such Registration Statement effective
and available to the Holders or by a subsequent Registration Statement filed
with and declared effective by the SEC or such unavailability is for a period
exceeding 30 consecutive days at any one time, 45 days in the aggregate in any
three-month period or 90 days in the aggregate during any 12-month period; or
(v) an amendment to a Registration Statement is not filed by the Company with
the SEC within fifteen Business Days of the SEC's notifying the Company that
such amendment is required in order for such Registration Statement to be
declared effective, or (vi) the Common Stock is not listed or quoted, or is
suspended from trading on the Nasdaq National Market or another Trading Market
for a period of three Business Days (which need not be consecutive Business
Days), or (vii) the conversion rights or exercise rights of the Holders pursuant
to the Notes and Warrants, respectively, are suspended for any reason, or (viii)
any Registration Statement shall not be declared effective or by the SEC or is
not otherwise available to the Holders on or prior to the applicable
Effectiveness Date (any such failure or breach being referred to as an "Event,"
and for purposes of clause (i), (vii) or (viii) the date on which such Event
occurs, or for purposes of clause (ii) the date on which such five Business Day
period is exceeded, or for purposes of clause (iii) the date which such ten
day-period is exceeded, of for purposes of clauses (iv) or (v) the date which
such fifteen Business Day-period is exceeded or the date on which such 30, 45 or
90 day period, as applicable, is exceeded, or for purposes of clause (vi) the
date on which such three Business Day period is exceeded, being referred to as
"Event Date"), then, in addition to any other rights available to the Holders:
(x) on each such Event Date the Company shall pay to each Holder an amount in
cash, as liquidated damages and not as a penalty, equal to 1.5% of the aggregate
principal amount of the Notes, then held by such Holder and (y) on each monthly
anniversary thereafter of each such Event Date thereof (if the applicable Event
shall not have been cured by such date) until the applicable Event is cured, the
Company shall pay to each Holder an amount in cash, as liquidated damages and
not as a penalty, equal to 1.5% of the aggregate principal amount of the Notes,
then held by such Holder. If the Company fails to pay any liquidated damages
pursuant to this Section in full within seven days after the date payable, the
Company will pay interest thereon at a rate of 18% per annum (or such lesser
maximum amount that is permitted to be paid by applicable law) to the Holder,
accruing daily from the date such liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full. The liquidated damages
pursuant to the terms hereof shall apply on a pro rata basis for any portion of
a month prior to the cure of an Event.

<PAGE>

      (c) Notwithstanding anything herein to the contrary, the Company shall
prepare and file a supplement to the appropriate Registration Statement (if
permitted for such purpose under the Securities Act) within 5 Business Days
following the issuance of a new Warrant upon transfer of all or part of such
Warrant in accordance with the terms of such Warrant, or (if such supplement is
not permitted for such purposes under the Securities Act), a new Registration
Statement within 15 Business Days following the issuance of such a new Warrant.

      (d) In the event that Form S-3 is not available for the registration of
the resale of Registrable Securities hereunder, the Company shall (i) register
the resale of the Registrable Securities on another appropriate form reasonably
acceptable to the Required Holders and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.

      3. Registration Procedures

      In connection with the Company's registration obligations hereunder, the
Company agrees, with respect to clauses (a) through (j), and each Purchaser
agrees, with respect to clause (k), that it shall:

      (a) Not less than two Business Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto, the
Company shall, (i) furnish to the Holders and their Special Counsel copies of
all such documents proposed to be filed (including documents incorporated or
deemed incorporated by reference, to the extent that such documents are not
available on EDGAR) which documents will be subject to the review of such
Holders and their Special Counsel, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective counsel
to conduct a reasonable investigation within the meaning of the Securities Act.
The Company shall not file the Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities and their Special Counsel shall reasonably object in good
faith.

<PAGE>

      (b) (i) Prepare and file with the SEC such amendments, including
post-effective amendments, to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the SEC such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as reasonably possible, and in any event within ten (10) Business Days
after the receipt of such comments (or 30 Business Days with respect to comment
letters containing comments regarding accounting matters), to any comments
received from the SEC with respect to the Registration Statement or any
amendment thereto and, as promptly as reasonably possible provide the Holders
true and complete copies of all correspondence from and to the SEC relating to
the Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.

      (c) Notify the Holders of Registrable Securities to be sold and their
Special Counsel as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than three Business Days prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later than one Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the SEC notifies the Company whether there will be a "review" of such
Registration Statement and whenever the SEC comments in writing on such
Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the SEC or any other Federal
or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in the Registration Statement ineligible for
inclusion therein or any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any 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.

      (d) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

<PAGE>

      (e) Furnish to each Holder and their Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
SEC.

      (f) Promptly deliver to each Holder and their Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.

      (g) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders and their
Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, that the
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.

      (h) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.

      (i) Upon the occurrence of any event contemplated by Section 3(c)(v), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

      (j) Comply with all applicable rules and regulations of the SEC.

      (k) Obligations of the Holders.

<PAGE>

            (i) Each Holder shall furnish in writing to the Company such
      information regarding itself, the Registrable Securities held by it and
      the intended method of disposition of the Registrable Securities held by
      it, as shall be reasonably required to effect the registration of such
      Registrable Securities. At least five (5) Business Days prior to the first
      anticipated filing date of any Registration Statement, the Company shall
      notify each Holder of the information the Company requires from such
      Holder if such Holder elects to have any of the Registrable Securities
      included in the Registration Statement. A Holder shall provide such
      information to the Company at least two (2) Business Days prior to the
      first anticipated filing date of such Registration Statement if such
      Holder elects to have any of the Registrable Securities included in the
      Registration Statement.

            (ii) Each Holder, by its acceptance of the Registrable Securities
      agrees to cooperate with the Company as reasonably requested by the
      Company in connection with the preparation and filing of a Registration
      Statement hereunder, unless such Holder has notified the Company in
      writing of its election to exclude all of its Registrable Securities from
      such Registration Statement.

      4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with Nasdaq National Market or any other Trading Market, and
(B) in compliance with applicable state securities or Blue Sky laws), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is reasonably requested by the holders of a majority of
the Registrable Securities included in the Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and $5,000 for the fees and disbursements of Special
Counsel (which amount shall be paid to the Special Counsel concurrent with the
initial delivery of the Registration Statement to the Holders and their Special
Counsel pursuant to Section 3(a) hereof), (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
Expenses of any Registration Statement abandoned prior to the effectiveness
thereof due to the request of the Holders shall be borne by the Holders.

      5. Indemnification

<PAGE>

      (a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
reasonable costs of preparation and reasonable attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holders have approved Annex A hereto for this
purpose) or (2) in the case of an occurrence of an event of the type specified
in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
the Advice contemplated in Section 6(d). The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement.

      (b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon: (x) such Holder's failure
to comply with the prospectus delivery requirements of the Securities Act or (y)
any untrue statement of a material fact contained in any Registration Statement,
any Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (1) such untrue statements or
omissions are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement (it being understood that the Holders have approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (2) in the case of an occurrence of an event of the type
specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice contemplated in Section 6(d). In no event shall the liability of
any selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

<PAGE>

      (c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

      An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.

      All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

<PAGE>

      (d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

      The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

      The indemnity and contribution agreements contained in this Section are in
addition  to any  liability  that  the  Indemnifying  Parties  may  have  to the
Indemnified Parties.

      6. Miscellaneous

      (a) Remedies. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

<PAGE>

      (b) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
Except as and to the extent specified in Schedule 6(b) hereto, the Company has
not previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person which have not been fully
satisfied.

      (c) Compliance. Each Holder covenants and agrees that it will comply with
the prospectus delivery requirements of the Securities Act as applicable to it
in connection with sales of Registrable Securities pursuant to the Registration
Statement.

      (d) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(c), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.

      (e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the SEC a registration statement relating to an offering for its own account or
the account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.

      (f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of all of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of certain Holders
and that does not directly or indirectly affect the rights of other Holders may
be given by Holders of at least a majority of the Registrable Securities to
which such waiver or consent relates, provided, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.

<PAGE>

      (g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:

      If to the Company:

                          Arotech Corporation
                          354 Industry Drive
                          Auburn, Alabama 36830
                          Facsimile No.: (334) 502-9001
                          Telephone No.: (334) 502-3008
                          Attention: Chief Executive Officer

      With a copy to:

                          Electric Fuel (E.F.L.) Ltd.
                          One HaSolela Street, POB 641
                          Western Industrial Park
                          Beit Shemesh 99000, Israel
                          Facsimile No.: 011-972-2-990-6688
                          Telephone No.: 011-972-2-990-6623
                          Attention: General Counsel

      With a copy (for informational purposes only) to:

                          Lowenstein Sandler PC
                          65 Livingston Avenue
                          Roseland, New Jersey 07068
                          Facsimile No.: (973) 597-2477
                          Telephone No.: (973) 597-2500
                          Attention: Steven Skolnick, Esq.

      If to a Purchaser:  To the address set forth under such
                          Purchaser's name on the signature pages hereto.

      With a copy to:     Schulte Roth & Zabel LLP
                          919 Third Avenue
                          New York, NY  10022
                          Facsimile No.: (212) 593-5955
                          Telephone No.: (212) 756-2376
                          Attn:  Eleazer Klein, Esq.

<PAGE>

      If to any other Person who is then the registered Holder:

                          To the address of such Holder as it appears in the
                          stock transfer books of the Company

or such other  address as may be designated  in writing  hereafter,  in the same
manner, by such Person.

      (h) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Each Holder may assign their respective rights hereunder in the manner
and to the Persons as permitted under the Purchase Agreement.

      (i) Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

      (j) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflict of laws thereof. Each party
agrees that all legal Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of this Agreement), and hereby irrevocably waives, and agrees
not to assert in any suit, action or Proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or Proceeding is has been commenced in an improper or inconvenient forum. Each
party hereto (including its affiliates, agents, officers, directors and
employees) hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal Proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence an action or Proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
Proceeding shall be reimbursed by the other party for its attorney's fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or Proceeding.

<PAGE>

      (k) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.

      (l) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

      (m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

      (n) Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder are several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGES FOLLOW]

<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                                  AROTECH CORPORATION

                                                  By:
                                                     ---------------------------
                                                  Name:  Robert S. Ehrlich
                                                  Title: Chief Executive Officer

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGES OF PURCHASERS FOLLOW]

<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                       SMITHFIELD FIDUCIARY LLC

                                       By:
                                          --------------------------------------
                                       Name:  Adam J. Chill
                                       Title: Authorized Signatory

                                       Address for Notice:

                                       c/o Highbridge Capital Management, LLC
                                       9 West 57th Street, 27th Floor
                                       New York, New York  10019
                                       Attention:  Ari J. Storch / Adam J. Chill
                                       Facsimile No.:  (212) 751-0755
                                       Telephone No.:  (212) 287-4720

                                       With a copy to:

                                       Schulte Roth & Zabel LLP
                                       919 Third Avenue
                                       New York, New York  10022
                                       Facsimile No.:  (212) 593-5955
                                       Telephone No.:  (212) 756-2376
                                       Attention:  Eleazer Klein, Esq.

<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                       PORTSIDE GROWTH AND OPPORTUNITY FUND

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:

                                       Address for Notice:

                                       c/o Ramius Capital Group, L.L.C.
                                       666 Third Avenue, 26th Floor
                                       New York, New York 10017
                                       Attention: Jeffrey Smith
                                                  Michael Neidell
                                       Facsimile: (212) 845-7999
                                       Telephone: (212) 845-7955

<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                       OMICRON MASTER TRUST

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:

                                       Address for Notice:

                                       c/o Omicron Capital
                                       810 Seventh Avenue
                                       39th Floor
                                       New York, New York 10019
                                       Attention: Brian Daly
                                       Facsimile: (212) 803-5263
                                       Telephone: (212) 803-5269

<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                       CRANSHIRE CAPITAL L.P.

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:

                                       Address for Notice:

                                       c/o Downsview Capital, Inc.
                                       The General Partner
                                       666 Dundee Road,
                                       Suite 1901
                                       Northbrook, IL  60062
                                       Attention: Mitchell D. Kopin
                                       Facsimile: (847) 562-9031
                                       Telephone: (847) 562-9030

<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                       IROQUOIS MASTER FUND LTD.

                                       By:
                                          --------------------------------------
                                       Name:
                                       Title:

                                       Address for Notice:

                                       Iroquois Master Fund Ltd.
                                       641 Lexington Ave.
                                       26th Floor
                                       New York, New York  10022
                                       Facsimile: (646) 274-1728
                                       Telephone: (212) 974-3070
                                       Attention: Joshua Silverman

<PAGE>

                                                                         Annex A

                              SELLING SHAREHOLDERS

      The shares of Common Stock being offered by the selling  shareholders  are
issuable upon conversion of the  convertible  notes or exercise of the warrants.
For additional information regarding the issuance of those convertible notes and
warrants,  see "Private  Placement of Convertible  Notes and Warrants" above. We
are  registering  the  shares of Common  Stock in order to  permit  the  selling
shareholders  to offer the shares for resale  from time to time.  Except for the
ownership  of the (i)  convertible  notes and  warrants  issued  pursuant to the
Securities  Purchase  Agreement,  (ii) shares of Common Stock issued pursuant to
the Securities  Purchase  Agreements dated July 15, 2004, and (iii)  convertible
debentures and warrants  issued  pursuant to the Securities  Purchase  Agreement
dated  September 30, 2003,  the selling  shareholders  have not had any material
relationship with us within the past three years.

      The table  below  lists the  selling  shareholders  and other  information
regarding the beneficial  ownership of the shares of Common Stock by each of the
selling  shareholders.  The second  column  lists the number of shares of Common
Stock beneficially owned by each selling shareholder,  based on its ownership of
the convertible notes and warrants, as of ________, 200_, assuming conversion of
all  convertible  notes  and  exercise  of all  warrants  held  by  the  selling
shareholders  on that date,  without regard to any limitations on conversions or
exercise.

      The third column  lists the shares of Common  Stock being  offered by this
prospectus by the selling shareholders.

      In accordance  with the terms of registration  rights  agreements with the
selling  shareholders,  this prospectus  generally covers the resale of at least
130% of the number of shares of Common Stock  issuable  upon  conversion  of the
convertible notes and 100% of the number of shares of Common Stock issuable upon
exercise of the warrants as of the trading day  immediately  preceding  the date
the  registration  statement  is  initially  filed  with  the SEC.  Because  the
conversion price of the convertible notes and exercise price of the warrants may
be  adjusted,  the number of shares that will  actually be issued may be more or
less than the  number of shares  being  offered by this  prospectus.  The fourth
column assumes the sale of all of the shares offered by the selling shareholders
pursuant to this prospectus.

      Under  the  terms  of  the  convertible  notes  and  warrants,  a  selling
shareholder  may not convert the  convertible  notes or exercise the warrants to
the extent such  conversion  or exercise  would cause such selling  shareholder,
together with its affiliates,  to beneficially  own a number of shares of Common
Stock which would  exceed 4.99% of our then  outstanding  shares of Common Stock
following  such   conversion  or  exercise,   excluding  for  purposes  of  such
determination shares of Common Stock issuable upon conversion of the convertible
notes which have not been  converted or upon exercise of the warrants which have
not been  exercised.  The number of shares in the second column does not reflect
this  limitation.  The selling  shareholders may sell all, some or none of their
shares in this offering. See "Plan of Distribution."

<PAGE>

<TABLE>
<CAPTION>
                                                                    Maximum Number of Shares
                                          Number of Shares Owned     to be Sold Pursuant to       Number of Shares
Name of Selling Shareholder                  Prior to Offering           this Prospectus        Owned After Offering
---------------------------                  -----------------           ---------------        --------------------
<S>                                          <C>                          <C>                   <C>
Smithfield Fiduciary LLC (1)                        [ ]                                                  0

</TABLE>

      (1) Highbridge  Capital  Management,  LLC  ("Highbridge"),  is the trading
manager of Smithfield  Fiduciary LLC  ("Smithfield") and consequently has voting
control  and  investment  discretion  over the  shares of Common  Stock  held by
Smithfield.  Glenn Dubin and Henry Swieca control Highbridge. Each of Highbridge
and Messrs.  Dubin and Swieca disclaims  beneficial ownership of the shares held
by Smithfield.

<PAGE>

                              PLAN OF DISTRIBUTION

      We are  registering the shares of Common Stock issuable upon conversion of
the convertible notes and exercise of the warrants to permit the resale of these
shares of Common Stock by the holders of the convertible notes and warrants from
time to time after the date of this  prospectus.  We will not receive any of the
proceeds  from the sale by the  selling  shareholders  of the  shares  of Common
Stock. We will bear all fees and expenses incident to our obligation to register
the shares of Common Stock.

      The selling shareholders may sell all or a portion of the shares of Common
Stock  beneficially  owned by them and offered hereby from time to time directly
or through one or more underwriters,  broker-dealers or agents. If the shares of
Common  Stock are sold  through  underwriters  or  broker-dealers,  the  selling
shareholders  will be responsible for  underwriting  discounts or commissions or
agent's  commissions.  The  shares  of  Common  Stock may be sold in one or more
transactions  at fixed prices,  at  prevailing  market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions,  which may involve crosses or block
transactions,

      o     on any national  securities  exchange or quotation  service on which
            the securities may be listed or quoted at the time of sale;

      o     in the over-the-counter market;

      o     in  transactions  otherwise than on these exchanges or systems or in
            the over-the-counter market;

      o     through the writing of options,  whether  such options are listed on
            an options exchange or otherwise;

      o     ordinary  brokerage  transactions  and  transactions  in  which  the
            broker-dealer solicits purchasers;

      o     block  trades in which the  broker-dealer  will  attempt to sell the
            shares as agent but may  position  and resell a portion of the block
            as principal to facilitate the transaction;

      o     purchases  by  a  broker-dealer  as  principal  and  resale  by  the
            broker-dealer for its account;

      o     an  exchange  distribution  in  accordance  with  the  rules  of the
            applicable exchange;

      o     privately negotiated transactions;

      o     short sales;

      o     sales pursuant to Rule 144;

<PAGE>

      o     broker-dealers may agree with the selling  securityholders to sell a
            specified number of such shares at a stipulated price per share;

      o     a combination of any such methods of sale; and

      o     any other method permitted pursuant to applicable law.

      If the selling  shareholders effect such transactions by selling shares of
Common  Stock  to  or  through  underwriters,  broker-dealers  or  agents,  such
underwriters,  broker-dealers  or agents may receive  commissions in the form of
discounts,   concessions  or  commissions  from  the  selling   shareholders  or
commissions  from purchasers of the shares of Common Stock for whom they may act
as agent or to whom they may sell as principal (which discounts,  concessions or
commissions as to particular  underwriters,  broker-dealers  or agents may be in
excess of those customary in the types of transactions  involved). In connection
with sales of the shares of Common Stock or otherwise,  the selling shareholders
may enter into  hedging  transactions  with  broker-dealers  or other  financial
institutions,  which may in turn  engage in short  sales of the shares of Common
Stock  in  the  course  of  hedging  in  positions  they  assume.   The  selling
shareholders  may also sell shares of Common  Stock short and deliver  shares of
Common Stock  covered by this  prospectus  to close out short  positions  and to
return  borrowed  shares  in  connection  with such  short  sales.  The  selling
shareholders  may also loan or pledge  shares of Common Stock to  broker-dealers
that in turn may sell such shares.

      The  selling  shareholders  may,  from  time to  time,  pledge  or grant a
security  interest in some or all of the  convertible  notes or shares of Common
Stock owned by them and, if they  default in the  performance  of their  secured
obligations,  the  pledgees or secured  parties may offer and sell the shares of
Common Stock from time to time  pursuant to this  prospectus or any amendment to
this  prospectus  under Rule  424(b)(3)  or other  applicable  provision  of the
Securities Act of 1933, as amended,  amending, if necessary, the list of selling
shareholders to include the pledgee,  transferee or other successors in interest
as selling shareholders under this prospectus. The selling shareholders also may
transfer and donate the shares of Common Stock in other  circumstances  in which
case the transferees,  donees,  pledgees or other successors in interest will be
the  selling  beneficial  owners for  purposes of this  prospectus.  The selling
shareholders   may  also  enter   into   option  or  other   transactions   with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus (as supplemented or amended to reflect such transaction).

      The  selling  shareholders  and  any  broker-dealer  participating  in the
distribution  of the shares of Common  Stock may be deemed to be  "underwriters"
within the  meaning of the  Securities  Act,  and any  commission  paid,  or any
discounts or concessions  allowed to, any such broker-dealer may be deemed to be
underwriting  commissions or discounts  under the Securities  Act. At the time a
particular  offering  of the  shares  of  Common  Stock  is made,  a  prospectus
supplement,  if required, will be distributed which will set forth the aggregate
amount of shares of Common  Stock being  offered and the terms of the  offering,
including  the name or names of any  broker-dealers  or agents,  any  discounts,
commissions  and  other  terms   constituting   compensation  from  the  selling
shareholders and any discounts,  commissions or concessions allowed or reallowed
or paid to broker-dealers.

<PAGE>

      Under the securities  laws of some states,  the shares of Common Stock may
be sold in such states only through  registered or licensed  brokers or dealers.
In  addition,  in some states the shares of Common  Stock may not be sold unless
such  shares  have been  registered  or  qualified  for sale in such state or an
exemption from registration or qualification is available and is complied with.

      There can be no assurance  that any selling  shareholder  will sell any or
all of the shares of Common Stock registered  pursuant to the shelf registration
statement, of which this prospectus forms a part.

      The  selling  shareholders  and any  other  person  participating  in such
distribution may be subject to applicable  provisions of the Securities Exchange
Act of 1934, as amended,  and the rules and regulations  thereunder,  including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of  purchases  and sales of any of the  shares of  Common  Stock by the  selling
shareholders and any other participating person.  Regulation M may also restrict
the ability of any person  engaged in the  distribution  of the shares of Common
Stock to engage in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the shares of Common
Stock and the  ability  of any  person  or  entity  to  engage in  market-making
activities with respect to the shares of Common Stock.

      We will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration  rights  agreement,  estimated to be $[ ] in total,
including,  without  limitation,  Securities and Exchange Commission filing fees
and expenses of compliance with state  securities or "blue sky" laws;  provided,
however,  that a selling  shareholder  will pay all  underwriting  discounts and
selling commissions,  if any. We will indemnify the selling shareholders against
liabilities,  including some liabilities under the Securities Act, in accordance
with the registration  rights  agreements,  or the selling  shareholders will be
entitled to  contribution.  We may be  indemnified  by the selling  shareholders
against civil liabilities,  including liabilities under the Securities Act, that
may  arise  from  any  written  information  furnished  to  us  by  the  selling
shareholder  specifically  for use in this  prospectus,  in accordance  with the
related registration rights agreements, or we may be entitled to contribution.

      Once sold under the shelf registration statement, of which this prospectus
forms a part, the shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.Exhibit 10.18

                                ESCROW AGREEMENT

      THIS ESCROW  AGREEMENT  (this  "Agreement") is made and entered into as of
September  26,  2005 by INNOVA  HOLDINGS,  INC.,  a  Delaware  corporation  (the
"Company");  CORNELL CAPITAL PARTNERS,  LP, a Delaware limited  partnership (the
"Investor"); and BAXTER, BAKER, SIDLE, CONN & JONES, P.A. (the "Escrow Agent").

                                   BACKGROUND

      WHEREAS,  the Company and the Investor have entered into a Standby  Equity
Distribution Agreement (the "Standby Equity Distribution  Agreement") dated June
14, 2005,  pursuant to which the Investor will purchase common stock,  par value
$0.001 per share of the Company (the "Common Stock"), at a price per share equal
to  the  Purchase  Price,  as  that  term  is  defined  in  the  Standby  Equity
Distribution  Agreement,  for an  aggregate  price of up to Ten Million  Dollars
($10,000,000).  The Standby Equity Distribution  Agreement provides that on each
Advance  Date the  Investor,  as that  term is  defined  in the  Standby  Equity
Distribution Agreement, shall deposit the Advance pursuant to the Advance Notice
in an  escrow  account  to be held by the  Escrow  Agent and the  Company  shall
deposit  shares of the Company's  Common Stock,  which shall be purchased by the
Investor as set forth in the Standby  Equity  Distribution  Agreement,  with the
Escrow  Agent,  in order to  effectuate  a  disbursement  to the  Company of the
Advance by the Escrow Agent and a disbursement  to the Investor of the shares of
the Company's  Common Stock by Escrow Agent at a closing to be held as set forth
in the Standby Equity Distribution  Agreement (the "Closing").  (All capitalized
terms not otherwise  defined  herein shall have the meaning  assigned to them in
the Standby Equity Distribution Agreement.)

      WHEREAS, the Company, the Investor, and David Gonzalez,  Esq. entered into
an escrow agreement  ("Initial  Escrow  Agreement") on June 14, 2005 pursuant to
which David  Gonzalez,  Esq. was to serve as escrow agent in connection with the
Standby Equity Distribution  Agreement.  On the date hereof, the Company and the
Investor  entered into an agreement  pursuant to which David Gonzalez,  Esq. was
removed as the escrow agent and the Initial Escrow Agreement was terminated.

      WHEREAS,  Escrow Agent has agreed to accept,  hold, and disburse the funds
and the shares of the  Company's  Common Stock  deposited  with it in accordance
with the terms of this Agreement.

      WHEREAS,  in order to  establish  the escrow of funds and shares to effect
the provisions of the Standby Equity Distribution Agreement,  the parties hereto
have entered into this Agreement.

      NOW THEREFORE,  in consideration of the foregoing,  it is hereby agreed as
follows:

      1. Definitions. The following terms shall have the following meanings when
used herein:
<PAGE>

            a. "Escrow  Funds" shall mean the Advance funds  deposited  with the
Escrow Agent pursuant to this Agreement.

            b. "Joint Written Direction" shall mean a written direction executed
by the  Investor  and the Company  directing  Escrow  Agent to disburse all or a
portion  of the  Escrow  Funds or to take or  refrain  from  taking  any  action
pursuant to this Agreement.

            c.  "Common  Stock  Joint  Written  Direction"  shall mean a written
direction executed by the Investor and the Company directing the Escrow Agent to
disburse  all or a portion of the shares of the Common  Stock or to refrain from
taking any action pursuant to this Agreement.

      2. Appointment of and Acceptance by Escrow Agent.

            a. The Investor and the Company  hereby  appoint the Escrow Agent to
serve  as  Escrow  Agent  hereunder.   The  Escrow  Agent  hereby  accepts  such
appointment and, upon receipt by wire transfer of the Escrow Funds in accordance
with Section 3 below, agrees to hold and disburse the Escrow Funds in accordance
with this Agreement.

            b. The Investor and the Company  hereby  appoint the Escrow Agent to
serve as the holder of the shares of the Common  Stock which shall be  purchased
by the  Investor  pursuant to the Standby  Equity  Distribution  Agreement.  The
Escrow Agent hereby  accepts such  appointment  and, upon receipt via D.W.A.C or
the  certificates  representing  of the shares of the Common Stock in accordance
with Section 3 below, agrees to hold and disburse the shares of the Common Stock
in accordance with this Agreement.

      3. Creation of Escrow Account/Common Stock Account.

            a. On or prior to the date of this  Agreement the Escrow Agent shall
establish an escrow  account for the deposit of the Escrow  Funds.  The Investor
will wire funds to the account of the Escrow Agent as follows:

Bank:                 Mercantile Safe Deposit & Trust Company
Routing #:            052000618
Account #:            6498841
Name on Account:      Baxter, Baker, Sidle, Conn & Jones, P.A. Escrow Account

                                       2
<PAGE>

            b. On or prior to the date of this  Agreement the Escrow Agent shall
establish an account for the D.W.A.C. of the shares of Common Stock. The Company
will  D.W.A.C.  shares of the Common Stock to the account of the Escrow Agent as
follows:

Brokerage Firm:       Sloan Securities Corp.
Clearing House:       Fiserv
Account #:            68047138
DTC #:                0632
Name on Account:      Baxter, Baker, Sidle, Conn & Jones, P.A. Escrow Account

      4. Deposits  into the Escrow  Account.  The Investor  agrees that it shall
promptly  deliver all monies for the  payment of the Common  Stock to the Escrow
Agent for deposit in the Escrow Account.

      5. Disbursements from the Escrow Account.

            a.  At  such  time as  Escrow  Agent  has  collected  and  deposited
instruments  of payment in the total amount of the Advance and has received such
shares of Common  Stock via D.W.A.C  from the Company  which are to be issued to
the Investor pursuant to the Standby Equity Distribution  Agreement,  the Escrow
Agent shall notify the Company and the Investor.  The Escrow Agent will continue
to hold such funds until the  Investor  and Company  execute and deliver a Joint
Written  Direction  directing the Escrow Agent to disburse the Escrow Funds,  at
which  time the Escrow  Agent  shall wire the  Escrow  Funds  pursuant  to Joint
Written  Direction.  In disbursing such funds, the Escrow Agent is authorized to
rely upon such Joint Written Direction from Company and may accept any signatory
from  the  Company  listed  on the  signature  page  to this  Agreement  and any
signatory  from the Investor  listed on the  signature  page to this  Agreement.
Simultaneous with delivery of the executed Joint Written Direction to the Escrow
Agent the  Investor and Company  shall  execute and deliver a Common Stock Joint
Written  Direction to the Escrow Agent directing the Escrow Agent to release via
D.W.A.C to the Investor the shares of the Company's  Common Stock.  In releasing
such shares of Common  Stock the Escrow  Agent is  authorized  to rely upon such
Common Stock Joint Written  Direction  from Company and may accept any signatory
from  the  Company  listed  on the  signature  page  to this  Agreement  and any
signatory from the Investor listed on the signature page to this Agreement.

      In the event the Escrow  Agent does not  receive the amount of the Advance
from the  Investor or the shares of Common Stock to be purchased by the Investor
from the Company, the Escrow Agent shall notify the Company and the Investor.

      In the event that the Escrow Agent has not received the Common Stock to be
purchased by the Investor from the Company, in no event will the Escrow Funds be
released to the Company until such shares are received by the Escrow Agent.  For
purposes of this  Agreement,  the term "Common  Stock  certificates"  shall mean
Common Stock  certificates  to be purchased  pursuant to the respective  Advance
Notice pursuant to the Standby Equity Distribution Agreement.

                                       3
<PAGE>

      6. Deposit of Funds. The Escrow Agent is hereby  authorized to deposit the
wire transfer proceeds in the Escrow Account.

      7. Suspension of Performance: Disbursement Into Court.

            a.  Escrow  Agent.  If at any time,  there  shall  exist any dispute
between the Company and the Investor with respect to holding or  disposition  of
any portion of the Escrow Funds or the Common Stock or any other  obligations of
Escrow  Agent  hereunder,  or if at any time Escrow Agent is unable to determine
the proper  disposition  of any  portion of the Escrow  Funds or Escrow  Agent's
proper actions with respect to its obligations hereunder, or if the parties have
not within  thirty (30) days of the  furnishing  by Escrow  Agent of a notice of
resignation pursuant to Section 9 hereof,  appointed a successor Escrow Agent to
act  hereunder,  then Escrow  Agent  shall take either or both of the  following
actions:

                  i.  Suspend  the   performance  of  any  of  its   obligations
(including  without  limitation any disbursement  obligations) under this Escrow
Agreement  until  the  Escrow  Agent is  notified  by both the  Company  and the
Investor in writing  that such dispute has been  resolved,  or until a successor
Escrow Agent shall be appointed (as the case may be); provided  however,  Escrow
Agent shall  continue to invest the Escrow  Funds in  accordance  with Section 8
hereof; and/or

                  ii. Petition (by means of an interpleader  action or any other
appropriate method) any court of competent  jurisdiction in any venue convenient
to Escrow Agent, for  instructions  with respect to such dispute or uncertainty,
and to the  extent  required  by law,  pay into  such  court,  for  holding  and
disposition in accordance with the instructions of such court, all funds held by
it in the Escrow Funds,  after deduction and payment to Escrow Agent of all fees
and expenses  (including  court costs and attorneys'  fees) payable to, incurred
by,  or  expected  to be  incurred  by  the  Escrow  Agent  in  connection  with
performance of its duties and the exercise of its rights hereunder.

                  iii.  The Escrow Agent shall have no liability to the Company,
the Investor,  or any person with respect to any such  suspension of performance
or  disbursement  into court,  specifically  including  any liability or claimed
liability that may arise, or be alleged to have arisen, out of or as a result of
any delay in the  disbursement of funds held in the Escrow Funds or any delay in
with respect to any other action required or requested of Escrow Agent.

      8.  Investment of Escrow Funds.  The Escrow Agent shall deposit the Escrow
Funds in a non-interest bearing money market account.

      If the Escrow Agent has not received a Joint Written  Direction within ten
(10) days of receipt of funds,  it may in its  discretion  establish  a separate
interest bearing Escrow Fund.

      9.  Resignation and Removal of Escrow Agent.  Escrow Agent may resign from
the performance of its duties  hereunder at any time by giving thirty (30) days'
prior written notice to the parties or may be removed, with or without cause, by
the parties,  acting jointly,  by furnishing a Joint Written Direction to Escrow
Agent,  at any time by the  giving of ten (10)  days'  prior  written  notice to
Escrow Agent as provided  herein below.  Upon any such notice of  resignation or
removal,  the  representatives  of the  Investor and the Company  identified  in
Sections 13a.(iv) and 13b.(iv),  below, jointly shall appoint a successor Escrow
Agent  hereunder,  which  shall be a  commercial  bank,  trust  company or other
financial  institution  with  a  combined  capital  and  surplus  in  excess  of
$10,000,000.00.  Upon the  acceptance  in writing of any  appointment  of Escrow
Agent hereunder by a successor  Escrow Agent,  such successor Escrow Agent shall
thereupon succeed to and become vested with all the rights,  powers,  privileges

                                       4
<PAGE>

and duties of the retiring Escrow Agent,  and the retiring Escrow Agent shall be
discharged  from its duties and  obligations  under this Escrow  Agreement,  but
shall not be  discharged  from any  liability  for actions taken as Escrow Agent
hereunder  prior  to  such   succession.   After  any  retiring  Escrow  Agent's
resignation or removal,  the provisions of this Escrow  Agreement shall inure to
its  benefit as to any  actions  taken or omitted to be taken by it while it was
Escrow  Agent under this  Escrow  Agreement.  The  retiring  Escrow  Agent shall
transmit all records pertaining to the Escrow Funds and shall pay all funds held
by it in the Escrow Funds to the successor Escrow Agent,  after making copies of
such records as the retiring  Escrow Agent deems  advisable and after  deduction
and payment to the retiring  Escrow  Agent of all fees and  expenses  (including
court costs and  attorneys'  fees)  payable to,  incurred  by, or expected to be
incurred by the retiring  Escrow Agent in connection with the performance of its
duties and the exercise of its rights hereunder.

      10. Liability of Escrow Agent.

            a. Escrow Agent shall have no liability or  obligation  with respect
to the Escrow  Funds  except  for Escrow  Agent's  willful  misconduct  or gross
negligence.  Escrow Agent's sole  responsibility  shall be for the  safekeeping,
investment, and disbursement of the Escrow Funds in accordance with the terms of
this  Agreement.  Escrow Agent shall have no implied duties or  obligations  and
shall not be charged with  knowledge or notice or any fact or  circumstance  not
specifically  set forth herein.  Escrow Agent may rely upon any instrument,  not
only as to its due  execution,  validity and  effectiveness,  but also as to the
truth and  accuracy of any  information  contained  therein,  which Escrow Agent
shall in good faith  believe to be genuine,  to have been signed or presented by
the person or parties  purporting to sign the same and conform to the provisions
of this  Agreement.  In no event shall  Escrow  Agent be liable for  incidental,
indirect, special, and consequential or punitive damages. Escrow Agent shall not
be obligated to take any legal action or commence any  proceeding  in connection
with the Escrow  Funds,  any account in which Escrow Funds are  deposited,  this
Agreement  or the  Standby  Equity  Distribution  Agreement,  or to  appear  in,
prosecute  or defend  any such  legal  action or  proceeding.  Escrow  Agent may
consult legal counsel  selected by it in the event of any dispute or question as
to construction of any of the provisions hereof or of any other agreement or its
duties  hereunder,  or relating to any dispute  involving any party hereto,  and
shall  incur no  liability  and shall be fully  indemnified  from any  liability
whatsoever  in acting in  accordance  with the opinion or  instructions  of such
counsel.  The Company and the Investor jointly and severally shall promptly pay,
upon  demand,  the  reasonable  fees and expenses of any such counsel and Escrow
Agent is hereby  authorized  to pay such fees and  expenses  from  funds held in
escrow.

            b. The Escrow Agent is hereby authorized, in its sole discretion, to
comply with orders  issued or process  entered by any court with  respect to the
Escrow  Funds,  without  determination  by the  Escrow  Agent  of  such  court's
jurisdiction  in the matter.  If any portion of the Escrow  Funds is at any time
attached,  garnished  or  levied  upon  under any  court  order,  or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order,  or in any case any order  judgment or
decree shall be made or entered by any court affecting such property or any part

                                       5
<PAGE>

thereof, then and in any such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ judgment or decree
which it is advised by legal counsel  selected by it,  binding upon it,  without
the need for appeal or other action;  and if the Escrow Agent  complies with any
such  order,  writ,  judgment  or  decree,  it shall not be liable to any of the
parties  hereto  or to any other  person or entity by reason of such  compliance
even though such order,  writ judgment or decree may be  subsequently  reversed,
modified, annulled, set aside or vacated.

      11.  Indemnification of Escrow Agent. From and at all times after the date
of this  Agreement,  the parties  jointly and severally,  shall,  to the fullest
extent  permitted by law and to the extent provided  herein,  indemnify and hold
harmless Escrow Agent and each director, officer, employee,  attorney, agent and
affiliate of Escrow Agent (collectively,  the "Indemnified Parties") against any
and all actions,  claims (whether or not valid), losses,  damages,  liabilities,
costs  and  expenses  of  any  kind  or  nature  whatsoever  (including  without
limitation  reasonable  attorney's  fees,  costs and  expenses)  incurred  by or
asserted against any of the Indemnified  Parties from and after the date hereof,
whether direct, indirect or consequential,  as a result of or arising from or in
any way relating to any claim,  demand,  suit, action, or proceeding  (including
any inquiry or  investigation) by any person,  including without  limitation the
parties to this Agreement,  whether  threatened or initiated,  asserting a claim
for any legal or  equitable  remedy  against  any  person  under any  statute or
regulation, including, but not limited to, any federal or state securities laws,
or under any common law or  equitable  cause or  otherwise,  arising  from or in
connection with the negotiation,  preparation, execution, performance or failure
of performance of this Agreement or any transaction contemplated herein, whether
or not any such  Indemnified  Party is a party to any such action or proceeding,
suit or the target of any such inquiry or investigation; provided, however, that
no  Indemnified  Party  shall  have the right to be  indemnified  hereunder  for
liability finally determined by a court of competent jurisdiction, subject to no
further  appeal,  to have resulted  solely from the gross  negligence or willful
misconduct  of such  Indemnified  Party.  If any such  action or claim  shall be
brought or asserted against any Indemnified  Party, such Indemnified Party shall
promptly  notify the  Company and the  Investor  hereunder  in writing,  and the
Investor  and the  Company  shall  assume the  defense  thereof,  including  the
employment of counsel and the payment of all expenses.  Such  Indemnified  Party
shall, in its sole  discretion,  have the right to employ separate  counsel (who
may be selected by such  Indemnified  Party in its sole  discretion) in any such
action and to participate  and to participate  in the defense  thereof,  and the
fees and  expenses  of such  counsel  shall be paid by such  Indemnified  Party,
except that the Investor  and/or the Company  shall be required to pay such fees
and  expense  if (a) the  Investor  or the  Company  agree to pay such  fees and
expenses,  or (b) the  Investor  and/or  the  Company  shall  fail to assume the
defense of such action or proceeding  or shall fail,  in the sole  discretion of
such  Indemnified  Party,  to  employ  counsel  reasonably  satisfactory  to the
Indemnified  Party in any such action or  proceeding,  (c) the  Investor and the
Company are the  plaintiff in any such action or  proceeding or (d) the named or
potential  parties to any such action or proceeding  (including any  potentially
impleaded  parties)  include  both  Indemnified  Party the  Company  and/or  the
Investor and Indemnified Party shall have been advised by counsel that there may
be one or more  legal  defenses  available  to it which  are  different  from or
additional to those  available to the Company or the Investor.  The Investor and
the Company  shall be jointly and  severally  liable to pay fees and expenses of
counsel  pursuant to the preceding  sentence,  except that any obligation to pay
under  clause (a) shall apply only to the party so  agreeing.  All such fees and
expenses  payable by the Company  and/or the Investor  pursuant to the foregoing
sentence  shall be paid from time to time as  incurred,  both in  advance of and
after the final  disposition  of such action or claim.  The  obligations  of the
parties under this section shall survive any termination of this Agreement,  and
resignation  or  removal  of  the  Escrow  Agent  shall  be  independent  of any
obligation of the Escrow Agent.

                                       6
<PAGE>

      12.  Expenses  of Escrow  Agent.  Except as set  forth in  Section  11 the
Company shall reimburse the Escrow Agent for all of its reasonable out-of-pocket
expenses,  including  attorneys' fees, travel expenses,  telephone and facsimile
transmission  costs,  postage  (including  express mail and  overnight  delivery
charges), and copying charges, and shall pay the Escrow Agent compensation equal
to Three  Hundred  Fifty  Dollars  ($350) for each  Advance  directly out of the
proceeds.  All of the  compensation and  reimbursement  obligations set forth in
this Section  shall be payable by the Company,  upon demand by the Escrow Agent.
The  obligations of the Company under this Section shall survive any termination
of this Agreement and the resignation or removal of the Escrow Agent.

      13. Warranties.

            a. The Investor makes the following  representations  and warranties
to the Escrow Agent:

                  i. The  Investor  has full power and  authority to execute and
deliver this Agreement and to perform its obligations hereunder.

                  ii. This  Agreement  has been duly  approved by all  necessary
action of the Investor,  including any necessary approval of the limited partner
of the Investor, has been executed by duly authorized officers of the Investor's
general partner, enforceable in accordance with its terms.

                  iii. The execution,  delivery, and performance of the Investor
of this Agreement will not violate,  conflict with, or cause a default under the
agreement  of  limited  partnership  of  the  Investor,  any  applicable  law or
regulation,  any  court  order or  administrative  ruling or degree to which the
Investor  is a  party  or any of its  property  is  subject,  or any  agreement,
contract, indenture, or other binding arrangement.

                  iv.  Mark A.  Angelo  has been  duly  appointed  to act as the
representative  of  Investor  hereunder  and has full  power  and  authority  to
execute,  deliver, and perform this Agreement,  to execute and deliver any Joint
Written Direction,  Common Stock Joint Written Direction,  to amend,  modify, or
waive any provision of this Agreement,  and to take any and all other actions as
the Investor's  representative under this Agreement, all without further consent
or direction form, or notice to, the Investor or any other party.

                  v. No party other than the parties hereto have, or shall have,
any lien, claim or security interest in the Escrow Funds or any part thereof. No
financing  statement  under  the  Uniform  Commercial  Code  is on  file  in any
jurisdiction claiming a security interest in or describing (whether specifically
or generally) the Escrow Funds or any part thereof.

                                       7
<PAGE>

                  vi. All of the  representations and warranties of the Investor
contained  herein are true and  complete  as of the date hereof and will be true
and complete at the time of any disbursement from the Escrow Funds.

            b. The Company makes the following representations and warranties to
Escrow Agent and the Investor:

                  i. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, and has
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder.

                  ii. This  Agreement  has been duly  approved by all  necessary
corporate action of the Company,  including any necessary  shareholder approval,
has been executed by duly  authorized  officers of the Company,  enforceable  in
accordance with its terms.

                  iii. The execution,  delivery,  and performance by the Company
of this Escrow  Agreement is in accordance with the Standby Equity  Distribution
Agreement  and will not violate,  conflict  with,  or cause a default  under the
articles  of  incorporation  or bylaws of the  Company,  any  applicable  law or
regulation,  any  court  order or  administrative  ruling or decree to which the
Company  is a  party  or any of  its  property  is  subject,  or any  agreement,
contract, indenture, or other binding arrangement.

                  iv.  Walter K.  Weisel has been duly  appointed  to act as the
representative  of the Company  hereunder  and has full power and  authority  to
execute,  deliver, and perform this Agreement,  to execute and deliver any Joint
Written  Direction,  Common Stock Joint Written Direction,  to amend,  modify or
waive any  provision  of this  Agreement  and to take all other  actions  as the
Company's  representative  under this Agreement,  all without further consent or
direction from, or notice to, the Company or any other party.

                  v. No party other than the  parties  hereto  shall  have,  any
lien,  claim or security  interest in the Escrow Funds or any part  thereof.  No
financing  statement  under  the  Uniform  Commercial  Code  is on  file  in any
jurisdiction claiming a security interest in or describing (whether specifically
or generally) the Escrow Funds or any part thereof.

                  vi. All of the  representations  and warranties of the Company
contained  herein are true and  complete  as of the date hereof and will be true
and complete at the time of any disbursement from the Escrow Funds.

      14. Consent to Jurisdiction  and Venue. In the event that any party hereto
commences  a  lawsuit  or other  proceeding  relating  to or  arising  from this
Agreement,  the parties  hereto agree that the United States  District Court for
the District of New Jersey shall have the sole and exclusive  jurisdiction  over
any  such   proceeding.   If  all  such  courts  lack  federal   subject  matter
jurisdiction,  the parties agree that the Superior Court Division of New Jersey,
Chancery  Division of Hudson County shall have sole and exclusive  jurisdiction.
Any of these  courts  shall be proper  venue for any such  lawsuit  or  judicial
proceeding and the parties hereto waive any objection to such venue. The parties
hereto consent to and agree to submit to the  jurisdiction  of any of the courts
specified  herein  and agree to accept the  service of process to vest  personal
jurisdiction over them in any of these courts.

                                       8
<PAGE>

      15. Notice.  All notices and other  communications  hereunder  shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mail, by certified  mail with return
receipt requested and postage prepaid,  when delivered  personally,  one (1) day
delivery to any overnight courier, or when transmitted by facsimile transmission
and addressed to the party to be notified as follows:

If to Investor, to:              Cornell Capital Partners, LP
                                 101 Hudson Street - Suite 3700
                                 Jersey City, New Jersey 07302
                                 Attention:        Mark Angelo
                                 Facsimile:        (201) 985-8266

If to Escrow Agent, to:          Baxter, Baker, Sidle, Conn & Jones, P.A.
                                 120 E. Baltimore Street, Suite 2100
                                 Baltimore, MD 21202
                                 Attention:        James E. Baker, Jr. Esq.
                                 Facsimile:        (410) 230-3801

If to Company, to:               Innova Holdings, Inc.
                                 17105 San Carlos Boulevard
                                 Suite A6151
                                 For Myers, FL 33931
                                 Attention:        Walter Weisel
                                 Telephone:        (239) 466-0488
                                 Facsimile:        (239) 466-7270

With a copy to:                  Innova Holdings, Inc.
                                 17105 San Carlos Boulevard
                                 Suite A6151
                                 For Myers, FL 33931
                                 Attention:        Sheri Aws
                                 Telephone:        (239) 466-0488
                                 Facsimile:        (239) 466-7270

      Or to such other  address as each party may  designate  for itself by like
notice.

      16.  Amendments  or  Waiver.  This  Agreement  may  be  changed,   waived,
discharged  or  terminated  only by a  writing  signed  by the  parties  to this
Agreement.  No delay or  omission  by any party in  exercising  any  right  with
respect  hereto shall operate as waiver.  A waiver on any one occasion shall not
be  construed  as a bar to, or  waiver  of,  any  right or remedy on any  future
occasion.

      17.  Severability.  To the  extent  any  provision  of this  Agreement  is
prohibited  by  or  invalid  under  applicable  law,  such  provision  shall  be
ineffective  to  the  extent  of  such  prohibition,   or  invalidity,   without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

                                       9
<PAGE>

      18.  Governing Law. This Agreement  shall be construed and  interpreted in
accordance  with the  internal  laws of the State of New Jersey  without  giving
effect to the conflict of laws principles thereof.

      19. Entire  Agreement.  This Agreement  constitutes  the entire  Agreement
between the parties relating to the holding, investment, and disbursement of the
Escrow Funds and sets forth in their entirety the  obligations and duties of the
Escrow Agent with respect to the Escrow Funds.

      20. Binding Effect.  All of the terms of this  Agreement,  as amended from
time to time,  shall be binding upon, inure to the benefit of and be enforceable
by the respective heirs, successors and assigns of the Investor, the Company, or
the Escrow Agent.

      21.  Execution  of  Counterparts.  This  Agreement  and any Joint  Written
Direction  may be  executed  in  counter  parts,  which when so  executed  shall
constitute one and same agreement or direction.

      22. Termination. Upon the first to occur of the termination of the Standby
Equity  Distribution  Agreement dated the date hereof or the disbursement of all
amounts in the Escrow  Funds and Common  Stock into court  pursuant to Section 7
hereof,  this Agreement  shall  terminate and Escrow Agent shall have no further
obligation or liability  whatsoever with respect to this Agreement or the Escrow
Funds or Common Stock.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       10
<PAGE>

      IN WITNESS WHEREOF the parties to this Escrow  Agreement have hereunto set
their hands and seals the day and year above set forth.

                                      INNOVA HOLDINGS, INC.

                                      By:  /s/ Walter K. Weisel
                                      ------------------------------
                                      Name: Walter K. Weisel
                                      Title: Chief Executive Officer

                                      CORNELL CAPITAL PARTNERS, LP

                                      By:  Yorkville Advisors, LLC
                                      Its: General Partner

                                      By:  /s/ Mark Angelo
                                      ------------------------------
                                      Name:  Mark Angelo

                                      BAXTER, BAKER, SIDLE, CONN & JONES, P.A.

                                      By: /s/ James E. Baker
                                      ------------------------------
                                      Name: James E. Baker, Jr., Esq.

                                       11

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