Document:

Exhibit 4.1

    Exhibit
      4.1

     

    AMENDMENT
      AGREEMENT 

     

    AMENDMENT
      AGREEMENT
      (the
“Agreement”),
      dated
      as of March [__], 2006, by and between Arotech Corporation, a Delaware
      corporation (the “Company”),
      and
      [NAME OF INVESTOR] (the “Investor”).

     

    WHEREAS:

     

    A.
        The
      Investor is the holder of, inter
      alia,
      warrants to purchase shares of the Company’s Common Stock par value $0.01 per
      share (the “Common
      Stock”)
      as set
      forth in Schedule
      1
      attached
      hereto (collectively, the “Existing
      Warrants”).

     

    B.
        The
      Company and the Investor desire to enter into this Agreement, pursuant to which
      upon satisfaction of certain conditions, among other things, (x) the Company
      will (i) adjust the exercise price of the Existing Warrants to $0.40 (the
“Adjusted
      Exercise Price”),
      (ii)
      issue warrants (the “Replacement
      Warrants”),
      in
      the form attached hereto as Exhibit
      A,
      to
      acquire up to [________]1
      shares
      (the “Replacement
      Warrants Shares”)
      of
      Common Stock on the terms and conditions set forth in Exhibit
      A;
      and (y)
      the Investor will exercise the Existing Warrants at the Adjusted Exercise
      Price.

     

    C.
        The
      proceeds from the Investor’s exercise of the Existing Warrants will be deposited
      in an interest-bearing Cash Collateral Account (as defined below) to secure
      the
      Company’s obligations to repay the 8% Convertible Debenture due September 30,
      2006 in the original principal amount of $[__________] issued to Investor (the
      “Debenture”).

     

    D.
        The
      parties hereto desire that the Replacement Warrants Shares be covered by
      registration rights terms substantially identical, mutatis
      mutandis,
      to
      those set forth in the Registration Rights Agreement, dated
      as
      of September 29, 2005, by and among the Company and certain investors thereto
      (the “Registration
      Rights Agreement”).

     

    NOW,
      THEREFORE,
      the
      Company and the Investor hereby agree as follows:

     

    	1  	
            ADJUSTMENT
              OF EXERCISE PRICE AND ISSUANCE OF REPLACEMENT WARRANTS.

          

     

    (a)  Issuance
      of Replacement Warrants.
      Subject
      to satisfaction (or waiver) of the conditions set forth in Sections 4, (i)
      the
      Company shall at the Closing (as defined below), (I) adjust the exercise price
      of the Existing Warrants to the Adjusted Exercise Price and (II) issue to the
      Investor the Replacement Warrants and (ii) the Investor shall exercise the
      Existing Warrants at the Adjusted Exercise Price (the “Closing”).

     

    (b)  Closing
      Date.
      The
      date and time of the Closing (the “Closing
      Date”)
      shall
      be 10:00 a.m., New York Time, on the date of satisfaction (or waiver) of the
      conditions to the Closing set forth in Sections 4 below (or such later date
      as
      is mutually agreed to by the Company and the Investor). The Closing shall occur
      on the Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third
      Avenue, New York, New York 10022.

     

     

    1 40%
      of
      the number of Existing Warrants being re-priced as listed on Schedule
      1.

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (c)  Form
      of Payment.
      On the
      Closing Date, the Investor shall pay an amount equal to the aggregate exercise
      price of the Existing Warrants at the Adjusted Exercise Price (the “Exercise
      Amount”)
      by
      wire transfer of immediately available funds in accordance with the Company’s
      written wire instructions into the Cash Collateral Account. 

     

    	2  	
            REPRESENTATIONS
              AND WARRANTIES.

          

     

    (a)  Company
      Bring Down.
      The
      Company represents and warrants to the Investor as set forth in Section 3 (other
      than Section 3(z) thereto) of the Securities Purchase Agreement dated September
      29, 2005, by and among the Company and certain investors thereto (the
“Securities
      Purchase Agreement”)
      as if
      such representations and warranties were made as of the date hereof and set
      forth in their entirety in this Agreement, including without limitation the
      schedules referenced therein.

     

    (b)  Investor
      Bring Down.
      The
      Investor hereby represents and warrants, as to itself only, as set forth in
      Section 2 (other than Section 2(l) thereto) of the Securities Purchase Agreement
      as if such representations and warranties were made as of the date hereof and
      set forth in their entirety in this Agreement.

     

    (c)  For
      purposes of Sections 2(a) and 2(b) hereto, (i)
      the
      term “Securities” and “Warrant” shall mean the Replacement Warrant, (ii) the
      term “Warrant Shares” shall mean the Replacement Warrants Shares; (iii) all
      references to the “Agreement”, the “Registration Rights Agreement”, the
“Security Agreements” and the “Transaction Documents” shall mean this Agreement,
      and (iv) all references to the “Notes”, “Conversion Shares”, “Letter of Credit”,
      shall be deemed deleted. 

     

    	3  	
            CERTAIN
              COVENANTS AND AGREEMENTS.

          

     

    (a)  Cash
      Collateral Account. On
      or
      prior to the Closing, the Company shall establish with a bank acceptable to
      the
      Investor (the “Cash
      Collateral Bank”)
      a
      deposit account (together with all monies on deposit in such deposit account
      and
      all certificates and instruments, if any, representing or evidencing such
      deposit account, the “Cash
      Collateral Account”),
      and
      shall cause the Cash Collateral Bank to execute and deliver such customary
      agreements and instruments necessary to grant to the Investor a first priority
      perfected security interest in the amounts on deposit in the Cash Collateral
      Account to secure the obligations under the Debenture, in form and substance
      reasonably satisfactory to the Investor. The Company agrees that it shall not
      permit the Cash Collateral Account to be subject to any lien, pledge, charge,
      security interest or other encumbrance other than as provided in the immediately
      preceding sentence. The funds in the Cash Collateral Account shall be
      distributed to the Investor on September 30, 2006.

     

    (b)  Stockholder
      Approval.
      The
      Company shall provide each stockholder entitled to vote at a special or annual
      meeting of stockholders of the Company (the “Stockholder
      Meeting”),
      which
      shall be promptly called and held not later than June 30, 2006 (the
“Stockholder
      Meeting Deadline”),
      a
      proxy statement, substantially in the form which shall have been previously
      reviewed by the Investor and Schulte Roth & Zabel LLP (which review shall be
      completed within five (5) Business Days of such counsel’s receipt of the proxy
      statement and such review requirement shall be waived if such counsel has not
      completed its review within such five (5) Business Day period), soliciting
      each
      such stockholder’s affirmative vote at the Stockholder Meeting for approval of
      resolutions providing for the Company’s issuance of all of the
      Replacement Warrants and the Replacement Warrants Shares issuable upon the
      exercise thereof

     

     

    
      
        
          - 2
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

     in
      accordance with applicable law and the rules and regulations of the Principal
      Market (such
      affirmative
      approval being referred to herein as the “Stockholder
      Approval”),
      and
      the Company shall use its reasonable best efforts to solicit its stockholders’
approval of such resolutions and to cause the Board of Directors of the Company
      to recommend to the stockholders that they approve such resolutions. The Company
      shall be obligated to use its reasonable best efforts to obtain the Stockholder
      Approval by the Stockholder Meeting Deadline. If, despite the Company’s
      reasonable best efforts the Stockholder Approval is not obtained on or prior
      to
      the Stockholder Meeting Deadline, the Company shall cause an additional
      Stockholder Meeting to be held every four (4) months thereafter until such
      Stockholder Approval is obtained or the Notes are no longer outstanding. As
      used
      herein, “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

    (c)  Registration
      Rights.
      Promptly after the Closing Date, the Company shall file a new registration
      statement, with the Replacement Warrants Shares
      being
      treated as “Registrable Securities” in accordance with, and being governed by,
      identical terms to the Registration Rights Agreement, which provisions and
      terms
      should be applicable hereto mutatis
      mutandis,
      as if
      the Company and the Investor had executed such Registration Rights Agreement,
      and as if the Investors were party thereto, as of the Closing Date; provided,
      however,
      that:

     

    (i)  “Registrable
      Securities”
shall
      mean (i) the Replacement Warrants Shares and (ii) any shares of capital stock
      issued or issuable with respect to the Replacement Warrants Shares or the
      Replacement 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 Replacement Warrants.

     

    (ii)  All
      references to “Conversion Shares” and “Notes” shall be deemed
      deleted.

     

    (iii)  “Effectiveness
      Date”
shall
      mean with respect to the Registration Statement required to be filed thereunder
      relating to the Replacement Warrants Shares, the earlier of (1) (i) in the
      event
      that the Registration Statement is not subject to a full review by the SEC,
      60
      days after the Closing Date or (ii) in the event that the Registration Statement
      is subject to a full review by the SEC, 90 days after 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.

     

    (iv)  “Filing
      Date”
shall
      mean with respect to the Registration Statement required to be filed hereunder
      relating to the Warrant Shares, the 15th day following the earlier of (i) the
      date on which the Company’s annual report on Form 10-K for the year ended
      December 31, 2005 is required to be filed (after any extensions under Rule
      12b-25 under the Securities Exchange Act of 1934, as amended) or (ii) the date
      on which the Company’s annual report on Form 10-K for the year ended December
      31, 2005 is filed.

     

     

    
      
        
          - 3
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

    (v)  The
      “aggregate principal amount of Notes, then held by such Holder” referenced in
      Section 2(b)(x) and 2(b)(y) of the Registration Rights Agreement shall be
      replaced with the “Exercise Amount.”

     

    (vi)  In
      no
      event shall the aggregate amount of liquidated damages payable by the Company
      pursuant to Section 2(b) exceed 10% of the Exercise Amount. 

     

    (d)  Disclosure
      of Transactions and Other Material Information.
      On or
      before 8:30 a.m., New York Time, on the
      first
      Business Day following the date hereof, the Company shall file a Current Report
      on Form 8-K describing the terms of the transactions contemplated by this
      Agreement and by any documents relating to the issuance of the Replacement
      Warrants in the form required by the Securities Exchange Act of 1934, as
      amended, and attaching the material transaction documents (including, without
      limitation, this Agreement and the form of the Replacement Warrants) as exhibits
      to such filing (including all attachments, the “8-K
      Filing”,
      and
      the description and attachments, the “8-K
      Materials”).
      From
      and after the filing of the 8-K Filing with the SEC, the Investors shall not
      be
      in possession of any material, nonpublic information received from the Company,
      any of its Subsidiaries or any of its respective officers, directors, employees
      or agents, that is not disclosed in the 8-K Filing. The Company shall not,
      and
      shall cause each of its Subsidiaries and its and each of their respective
      officers, directors, employees and agents, not to, provide the Investor with
      any
      material nonpublic information regarding the Company or any of its Subsidiaries
      from and after the filing of the 8-K Filing with the SEC without the express
      written consent of such Investor. Subject to the foregoing, neither the Company
      nor the Investor shall issue any press releases or any other public statements
      with respect to the transactions contemplated hereby; provided,
      however,
      that
      the Company shall be entitled, without the prior approval of the Investor,
      to
      make any press release or other public disclosure with respect to such
      transactions (i) in substantial conformity with the 8-K Filing and
      contemporaneously therewith and (ii) as is required by applicable law and
      regulations, including the applicable rules and regulations of the Trading
      Market (as such term is defined in the Securities Purchase Agreement) (provided
      that in the case of clause (i) the Investor shall be consulted by the
      Company in connection with any such press release or other public disclosure
      prior to its release).

     

    (e)  Fees
      and Expenses.
      At the
      Closing, the Company shall reimburse the Investor for its reasonable legal
      and
      due diligence fees and expenses in connection with the preparation and
      negotiation of this Agreement and the related documents by paying such amount
      to
      Schulte Roth & Zabel LLP (the “Investor
      Counsel Expense”).
      Except as otherwise set forth in this Agreement or pursuant to the registration
      rights pursuant to Section 3(c) hereof, each party shall pay the fees and
      expenses of its advisers, counsel, accountants and other experts, if any, and
      all other expenses incurred by such party incident to the negotiation,
      preparation, execution, delivery and performance of this Agreement. The Company
      shall pay all stamp and other non-income taxes and duties levied in connection
      with the issuance (but not the exercise) of the Replacement
      Warrants.

     

    	4  	
            COMPANY’S
              CLOSING DELIVERIES.

          

     

    (a)  At
      the
      Closing, the Company shall deliver or cause to be delivered to the Investor
      the
      following:

     

     

     

    
      
        
          - 4
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

    (b).  The
      Replacement Warrants registered in the name of the Investor, pursuant to which
      the Investor shall have the right to acquire the Replacement Warrants
      Shares.

     

    (i)  The
      legal
      opinion of Company Counsel, in agreed form, addressed to the
      Investor.

     

    (ii)  The
      Company shall use its best efforts to have delivered to the Investor within
      five
      business days after the Closing Date a letter from the Company’s transfer agent
      acknowledging that the Irrevocable Transfer Agent Instructions delivered to
      the
      transfer agent on September 29, 2005, shall also apply to the shares of common
      stock underlying the Replacement Warrants.

     

    (iii)  A
      certificate, executed by the Chief Executive Officer of the Company, dated
      as of
      the Closing Date, to the effect that the Company shall have taken all corporate
      action and obtained all governmental, regulatory or third party consents and
      approvals, if any, necessary for the issuance of the Replacement
      Warrant.

     

    (iv)  An
      amount
      in United States dollars and in immediately available funds, by wire transfer
      to
      an account designated in writing by the Investor for such purpose, equal to
      the
      Investor Counsel Expense.

     

    (v)  Such
      other documents relating to the transactions contemplated by this Agreement
      as
      the Investor or its counsel may reasonably request.

     

    	5  	
            INVESTOR’S
              CLOSING DELIVERIES.

          

     

    (a)  At
      the
      Closing, the Investor shall deliver or cause to be delivered to the Company
      in
      United States dollars and in immediately available funds, by wire transfer
      to
      the Cash Collateral Account, an amount equal to the Exercise Amount.
Notwithstanding
      the foregoing, the Company agrees that the Investor shall not be required to
      deliver or caused to be delivered to the Company an amount equal to the Exercise
      Amount until promptly after the Company delivers an account control agreement
      in
      form and substance reasonably satisfactory to the Investor pursuant to Section
      3(a) of this Agreement.

     

    	6  	
            MISCELLANEOUS.

          

     

    (a)  Governing
      Law; Jurisdiction; Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdictions) that would
      cause the application of the laws of any jurisdictions other than the State
      of
      New York. Each party hereby irrevocably submits to the non-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, 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 brought
      in an inconvenient forum or that the venue of such suit, action or proceeding
      is
      improper. Each party hereby irrevocably waives personal service of process
      and
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof to such party at the address for such notices to it
      under
      this Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. 

     

     

    
      
        
          - 5
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

    Nothing contained
      herein shall be deemed to limit in any way any right to serve process in any
      manner permitted by law. EACH
      PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
      REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
      HEREBY. 

     

    (b)  Counterparts.
      This
      Agreement may be executed in one or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to the other party;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

     

    (c)  Headings.
      The
      headings of this Agreement are for convenience of reference and shall not form
      part of, or affect the interpretation of, this Agreement.

     

    (d)  Severability.
      If any
      provision of this Agreement shall be invalid or unenforceable in any
      jurisdiction, such invalidity or unenforceability shall not affect the validity
      or enforceability of the remainder of this Agreement in that jurisdiction or
      the
      validity or enforceability of any provision of this Agreement in any other
      jurisdiction.

     

    (e)  Entire
      Agreement; Effect on Prior Agreements; Amendments.
      This
      Agreement, the documents referenced herein and any agreements entered into
      on
      the date hereof in connection with the transactions contemplated by this
      Agreement supersede all other prior oral or written agreements between the
      Investors, the Company, their affiliates and Persons acting on their behalf
      with
      respect to the matters discussed herein, and this Agreement and the instruments
      referenced herein contain the entire understanding of the parties with respect
      to the matters covered herein and therein and, except as specifically set forth
      herein or therein, neither the Company nor any Investor makes any
      representation, warranty, covenant or undertaking with respect to such matters.
      No provision of this Agreement may be amended other than by an instrument in
      writing signed by signed by the party against whom enforcement is sought. No
      provision hereof may be waived other than by an instrument in writing signed
      by
      the party against whom enforcement is sought. The Company has not, directly
      or
      indirectly, made any agreements with any of the Investors relating to the terms
      or conditions of the transactions contemplated hereby except as set forth or
      referenced herein as amended or cancelled by this Agreement.

     

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

     

     

     

    
      
        
          - 6
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

     

      
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 

                        Telephone:
011-972-2-990-6623

                        Facsimile:
011-972-2-990-6688

                        Attention:
General
      Counsel

        

    If
      to the
      Investor:

     

    To
      the
      address set forth under the Investor’s name on the signature page
      hereof

     

    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.

     

    or
      to
      such other address and/or facsimile number and/or to the attention of such
      other
      Person as the recipient party has specified by written notice given to each
      other party five (5) days prior to the effectiveness of such change. Written
      confirmation of receipt (A) given by the recipient of such notice, consent,
      waiver or other communication, (B) mechanically or electronically generated
      by
      the sender’s facsimile machine containing the time, date, recipient facsimile
      number and an image of the first page of such transmission or (C) provided
      by an
      overnight courier service shall be rebuttable evidence of personal service,
      receipt by facsimile or receipt from an overnight courier service in accordance
      with clause (i), (ii) or (iii) above, respectively.

     

    (g)  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their respective successors and assigns, including any assignees of the
      Replacement Warrants.

     

    (h)  No
      Third Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person.

     

     

     

    
      
        
          - 7
            -

        

      

      

        
          

        

      

      

      

    

    
       

    

    (i)  Survival.
      The
      representations and warranties of the Company and the Investors contained
      herein, and the agreements and covenants set forth herein, shall survive the
      Closing.

     

    (j)  Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    (k)  No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    (l)  Remedies.
      The
      Investors shall have all rights and remedies which such holders have been
      granted at any time under any other agreement or contract and all of the rights
      which such holders have under any law. Any Person having any rights under any
      provision of this Agreement shall be entitled to enforce such rights
      specifically (without posting a bond or other security), to recover damages
      by
      reason of any breach of any provision of this Agreement and to exercise all
      other rights granted by law. Furthermore, the Company recognizes that in the
      event that it fails to perform, observe, or discharge any or all of its
      obligations under this Agreement, any remedy at law may prove to be inadequate
      relief to the Investor. The Company therefore agrees that the Investor shall
      be
      entitled to seek temporary and permanent injunctive relief in any such case
      without the necessity of proving actual damages and without posting a bond
      or
      other security.

     

    

    
      
        
          - 8
            -

        

      

      
         

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
      executed by their respective authorized signatories as of the date first
      indicated above.

     

    AROTECH
      CORPORATION

     

    By:             

                            Name:

                            Title:

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

     

    SIGNATURE
      PAGE OF INVESTOR FOLLOWS]

     

    
      
        -
          9
-

         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
      executed by their respective authorized signatories as of the date first
      indicated above.

     

    [NAME
      OF INVESTOR]

     

    By:_____________________________________

    Name:

    Title:

    

    Address
      for Notice:

    

    

    

    

    

    

    

    
      
        
           

        

         

      

      
         

        
          

        

      

      
         

        
          

        

      

    

    EXHIBITS

     

    Exhibit
      A
      - Form
      of
      Replacement Warrant

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
      1

     

    List
      of Existing Warrants

     

    

    
      	
              Holder

            	
              Date

              Exercisable

            	
              Expiration
                Date

            	
              Number

            	
              Original

              Price

            	
              New

              PriceExhibit 4.2

    [FORM
      OF WARRANT]

     

    

     

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

    

    

    AROTECH
      CORPORATION

    

    Warrant
      To Purchase Common Stock

    

    Warrant
      No.:    

    Number
      of
      Shares of Common Stock: [_________]1

    Date
      of
      Issuance: March [__], 2006 (“Issuance
      Date”)

    

    AROTECH
      CORPORATION, a Delaware corporation (the “Company”),
      hereby certifies that, for good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, [NAME OF INVESTOR], the registered
      holder hereof (the “Investor”)
      or its
      permitted assigns (the “Holder”),
      is
      entitled, subject to the terms set forth below, to purchase from the Company,
      at
      the Exercise Price (as defined below) then in effect, at any time or times
      on or
      after the date hereof, (the “Exercise
      Date”),
      but
      not after 11:59 p.m., New York Time, on the Expiration Date (as defined below),
      [____________________________________]1
      ([_________]1)
      fully
      paid nonassessable shares of Common Stock (as defined below) (the
      “Warrant
      Shares”).
      Except as otherwise defined herein, capitalized terms in this Warrant shall
      have
      the meanings set forth in Section 15. This Warrant (including all Warrants
      issued in exchange, transfer or replacement hereof, the “Warrants”)
      is one
      of the Warrants to purchase Common Stock (the “Amendment
      Warrants”)
      issued
      or that may be issued pursuant to one or more amendment agreements
      (collectively, the “Amendment
      Agreements”)
      entered into or that may be entered into between the Company and the Buyers
      (collectively, the “Buyers”)
      under
      that certain Securities Purchase Agreement dated as of September 29, 2005,
      including an amendment agreement with the Holder, dated as of March [__], 2006
      (the “Subscription
      Date”).

     

                

    1 40%
      of
      the number of Existing Warrants being re-priced as listed on Schedule 1 to
      the
      Amendment Agreement.

    
      
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    1.
      EXERCISE OF WARRANT.

     

    1.1.  Mechanics
      of Exercise.
      Subject
      to the terms and conditions hereof (including, without limitation, the
      limitations set forth in Section 1(g)), this Warrant may be exercised by the
      Holder on any day from and after the Initial Exercise Date, in whole or in
      part,
      by (i) delivery of a written notice, in the form attached hereto as
Exhibit
      I
      (the
“Exercise
      Notice”),
      of
      the Holder’s election to exercise this Warrant and (ii) (A) payment to the
      Company of an amount equal to the applicable Exercise Price multiplied by the
      number of Warrant Shares as to which this Warrant is being exercised (the
“Aggregate
      Exercise Price”)
      in
      cash or wire transfer of immediately available funds or (B) by notifying the
      Company that this Warrant is being exercised pursuant to a Cashless Exercise
      (as
      defined in Section 1(d)) by delivery of a written notice, in the form attached
      hereto as Exhibit
      II.
      The
      date the Exercise Notice and the Aggregate Exercise Price (or notice of a
      Cashless Exercise) are delivered to the Company (as determined in accordance
      with the notice provisions hereof) is an “Exercise
      Date”.
      The
      Holder shall not be required to deliver the original Warrant in order to effect
      an exercise hereunder. Execution and delivery of the Exercise Notice with
      respect to less than all of the Warrant Shares shall have the same effect as
      cancellation of the original Warrant and issuance of a new Warrant evidencing
      the right to purchase the remaining number of Warrant Shares. On or before
      the
      first Business Day following the Exercise Date, the Company shall transmit
      by
      facsimile an acknowledgment of confirmation of receipt of the Exercise Notice
      and the Aggregate Exercise Price to the Holder and the Company’s transfer agent
      (the “Transfer
      Agent”).
      On or
      before the third Business Day following the Exercise Date, the Company shall
      direct the Transfer Agent to credit through The Depository Trust Company
      (“DTC”)
      Fast
      Automated Securities Transfer Program, such aggregate number of shares of Common
      Stock to which the Holder is entitled pursuant to such exercise to the Holder’s
      or its designee’s balance account with DTC through its Deposit Withdrawal Agent
      Commission system. On the Exercise Date, the Holder shall be deemed for all
      corporate purposes to have become the holder of record of the Warrant Shares
      with respect to which this Warrant has been exercised, irrespective of the
      date
      of delivery of the certificates evidencing such Warrant Shares. Upon surrender
      of this Warrant to the Company following one or more partial exercises, the
      Company shall as soon as practicable and in no event later than three Business
      Days after receipt of the Warrant and at its own expense, issue a new Warrant
      (in accordance with Section 7(d)) representing the right to purchase the number
      of Warrant Shares purchasable immediately prior to such exercise under this
      Warrant, less the number of Warrant Shares with respect to which this Warrant
      is
      exercised. No fractional shares of Common Stock are to be issued upon the
      exercise of this Warrant, but rather the number of shares of Common Stock to
      be
      issued shall be rounded up to the nearest whole number. The Company shall pay
      any and all taxes which may be payable with respect to the issuance and delivery
      of Warrant Shares upon exercise of this Warrant. In the event that the Company
      is unable to electronically deliver the Warrant Shares because of applicable
      securities laws, then the Company shall issue and deliver to the address as
      specified in the Exercise Notice a certificate, registered in the name of the
      Holder or its designee, for the number of shares of Common Stock to which the
      holder of this Warrant is entitled pursuant to such exercise.

     

    1.2.  Exercise
      Price.
      For
      purposes of this Warrant, “Exercise
      Price”
means
      $0.594, subject to adjustment as provided herein.

     

     

    
      
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          2 -

      

      
         

        
          

        

      

      
         

      

    

     

    1.3.  Company’s
      Failure to Timely Deliver Shares.
      Subject
      to Section 1(g), if the Company shall fail for any reason or for no reason
      within three Business Days of the Exercise Date to credit the Holder’s balance
      account with DTC for such number of shares of Common Stock to which the Holder
      is entitled upon the Holder’s exercise of this Warrant, and if after such third
      Business Day the Holder purchases (in an open market transaction or otherwise)
      shares of Common Stock to deliver in satisfaction of a sale by the Holder of
      the
      Warrant Shares that the Holder anticipated receiving from the Company (a
“Buy-In”),
      then
      the Company shall, within three Business Days after the Holder’s request and in
      the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to
      the Holder’s total purchase price (including brokerage commissions, if any) for
      the shares of Common Stock so purchased (the “Buy-In
      Price”),
      at
      which point the Company’s obligation to issue such shares of Common Stock shall
      terminate, or (ii) promptly honor its obligation to credit to the Holder such
      shares of Common Stock and pay cash to the Holder in an amount equal to the
      excess (if any) of the Buy-In Price over the product of (A) such number of
      shares of Common Stock, times (B) the Closing Sale Price on the date of the
      event giving rise to the Company’s obligation to deliver such certificate.
      Subject to Section 1(g), if the Company shall fail for any reason or for no
      reason within three Business Days of the Exercise Date to credit the Holder’s
      balance account with DTC for such number of shares of Common Stock to which
      the
      Holder is entitled upon the Holder’s exercise of this Warrant, then the Holder
      will have the right to rescind such exercise. 

     

    1.4.  Cashless
      Exercise.
       Notwithstanding
      anything contained herein to the contrary, if at any time during the period
      commencing ten (10) Business Days prior to the Holder’s delivery of an Exercise
      Notice and ending on the day of delivery of the Exercise Notice, the
      Registration Statement (as defined in the Registration Rights Agreement)
      covering the Warrant Shares that are the subject of the Exercise Notice (the
      “Unavailable
      Warrant Shares”)
      is not
      available for the resale of such Unavailable Warrant Shares, the Holder may,
      in
      its sole discretion, exercise this Warrant in whole or in part and, in lieu
      of
      making the cash payment otherwise contemplated to be made to the Company upon
      such exercise in payment of the Aggregate Exercise Price, elect instead to
      receive upon such exercise the “Net Number” of shares of Common Stock determined
      according to the following formula (a “Cashless
      Exercise”):

     

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

    B

     

    For
      purposes of the foregoing formula:

     

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

     

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

     

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

     

    
      
        - 3 -

         

      

      
         

        
          

        

      

      
         

      

    

    Absolute
      and Unconditional Obligation.
      The
      Company’s obligations to issue and deliver Warrant Shares in accordance with the
      terms hereof are absolute and unconditional, irrespective of any action or
      inaction by the Holder to enforce the same, the recovery of any judgment against
      any Person or any action to enforce the same, or any setoff, counterclaim,
      recoupment, limitation or termination, or any breach or alleged breach by the
      Holder or any other Person of any obligation to the Company or any violation
      or
      alleged violation of law by the Holder or any other Person. Nothing herein
      shall
      limit the Holder’s right to pursue any other remedies available to it hereunder,
      at law or in equity, including, without limitation, a decree of specific
      performance and/or injunctive relief with respect to the Company’s failure to
      timely deliver certificates representing Warrant Shares upon exercise of the
      Warrant as required pursuant to the terms hereof.

     

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

     

    	1.6.  	
            Limitations
              on Exercises

          

     

    (i) Beneficial
      Ownership.
      The
      Company shall not effect the exercise of this Warrant, and the Holder shall
      not
      have the right to exercise this Warrant, to the extent that after giving effect
      to such exercise, such Person (together with such Person’s affiliates) would
      beneficially own in excess of 4.99% of the shares of Common Stock outstanding
      immediately after giving effect to such exercise. For purposes of the foregoing
      sentence, the aggregate number of shares of Common Stock beneficially owned
      by
      such Person and its affiliates shall include the number of shares of Common
      Stock issuable upon exercise of this Warrant with respect to which the
      determination of such sentence is being made, but shall exclude shares of Common
      Stock which would be issuable upon (i) exercise of the remaining, unexercised
      portion of this Warrant beneficially owned by such Person and its affiliates
      and
      (ii) exercise or conversion of the unexercised or unconverted portion of any
      other securities of the Company beneficially owned by such Person and its
      affiliates (including, without limitation, any convertible notes, convertible
      debentures, convertible preferred stock or warrants) subject to a limitation
      on
      conversion or exercise analogous to the limitation contained herein. Except
      as
      set forth in the preceding sentence, for purposes of this paragraph, beneficial
      ownership shall be calculated in accordance with Section 13(d) of the Securities
      Exchange Act of 1934, as amended. For purposes of this Warrant, in determining
      the number of outstanding shares of Common Stock, the Holder may rely on the
      number of outstanding shares of Common Stock as reflected in (1) the Company’s
      most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public
      filing with the Securities and Exchange Commission, as the case may be, (2)
      a
      more recent public announcement by the Company or (3) any other notice by the
      Company or the Transfer Agent setting forth the number of shares of Common
      Stock
      outstanding. For any reason at any time, upon the written or oral request of
      the
      Holder, the Company shall within two Business Days confirm orally and in writing
      to the Holder the number of shares of Common Stock then outstanding. In any
      case, the number of outstanding shares of Common Stock shall be determined
      after
      giving effect to the conversion or exercise of securities of the
      Company,

     

    
      
        - 4 -

         

      

      
         

        
          

        

      

      
         

      

    

    including
      the Amendment Warrants, by the Holder and its affiliates since the date as
      of
      which such number of outstanding shares of Common Stock was
      reported.

     

    (ii) Principal
      Market Regulation.
      The
      Company shall not be obligated to issue any shares of Common Stock upon exercise
      of this Warrant if the issuance of such shares of Common Stock would exceed
      that
      number of shares of Common Stock which the Company may issue upon exercise
      of
      this Warrant without breaching the Company’s obligations under the rules or
      regulations of the Principal Market (the “Exchange
      Cap”),
      except that such limitation shall not apply in the event that the Company
      obtains the approval of its stockholders as required by the applicable rules
      of
      the Principal Market for issuances of shares of Common Stock in excess of such
      amount. Until such approval is obtained, no Buyer shall be issued, upon exercise
      or conversion, as applicable, of any Amendment Warrants, shares of Common Stock
      in an amount greater than the product of the Exchange Cap multiplied by a
      fraction, the numerator of which is the total number of shares of Common Stock
      underlying the Amendment Warrants issued to such Buyer pursuant to the Amendment
      Agreements on the Subscription Date and the denominator of which is the
      aggregate number of shares of Common Stock underlying all the Warrants issued
      to
      the Buyers pursuant to the Amendment Agreements on the Subscription Date (with
      respect to each Buyer, the “Exchange
      Cap Allocation”).
      In
      the event that any Buyer shall sell or otherwise transfer any of such Buyer’s
      Amendment Warrants, the transferee shall be allocated a pro rata portion of
      such
      Buyer’s Exchange Cap Allocation, and the restrictions of the prior sentence
      shall apply to such transferee with respect to the portion of the Exchange
      Cap
      Allocation allocated to such transferee. In the event that any holder of
      Amendment Warrants shall exercise all of such holder’s Amendment Warrants into a
      number of shares of Common Stock which, in the aggregate, is less than such
      holder’s Exchange Cap Allocation, then the difference between such holder’s
      Exchange Cap Allocation and the number of shares of Common Stock actually issued
      to such holder shall be allocated to the respective Exchange Cap Allocations
      of
      the remaining holders of Amendment Warrants on a pro rata basis in proportion
      to
      the shares of Common Stock underlying the Amendment Warrants then held by each
      such holder. In the event that the Company is prohibited from issuing any
      Warrant Shares for which an Exercise Notice has been received as a result of
      the
      operation of this Section 1(f)(ii), the Company shall pay cash in exchange
      for
      cancellation of such Warrant Shares, at a price per Warrant Share equal to
      the
      difference between the Closing Sale Price and the Exercise Price as of the
      date
      of the attempted exercise.

     

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

     

     

    
      
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          5 -

      

      
         

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    4.  PURCHASE
      RIGHTS; FUNDAMENTAL TRANSACTIONS.

     

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

     

     

    
      
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    4.2.  Fundamental
      Transactions.
      The
      Company shall not enter into or be party to a Fundamental Transaction unless
      (i)  the Successor Entity assumes in writing all of the obligations of the
      Company under this Warrant and the other Transaction Documents in accordance
      with the provisions of this Section (4)(b) pursuant to written agreements in
      form and substance reasonably satisfactory to the Required Holders, including
      agreements to deliver to each holder of Warrants in exchange for such Warrants
      a
      security of the Successor Entity evidenced by a written instrument substantially
      similar in form and substance to this Warrant, including, without limitation,
      an
      adjusted exercise price equal to the value for the shares of Common Stock
      reflected by the terms of such Fundamental Transaction, and exercisable for
      a
      corresponding number of shares of capital stock equivalent to the shares of
      Common Stock acquirable and receivable upon exercise of this Warrant (without
      regard to any limitations on the exercise of this Warrant) prior to such
      Fundamental Transaction, and satisfactory to the Required Holders and
      (ii) the Successor Entity (including its Parent Entity) is a publicly
      traded corporation whose common stock is quoted on or listed for trading on
      an
      Eligible Market. Upon the occurrence of any Fundamental Transaction, the
      Successor Entity shall succeed to, and be substituted for (so that from and
      after the date of such Fundamental Transaction, the provisions of this Warrant
      referring to the “Company” shall refer instead to the Successor Entity), and may
      exercise every right and power of the Company and shall assume all of the
      obligations of the Company under this Warrant with the same effect as if such
      Successor Entity had been named as the Company herein. Upon consummation of
      the
      Fundamental Transaction, the Successor Entity shall deliver to the Holder
      confirmation that there shall be issued upon exercise of this Warrant
at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      shares of the Common Stock (or
      other
      securities, cash, assets or other property) purchasable
      upon the exercise of the Warrant
      prior
      to
      such Fundamental Transaction,
      such
      shares of the publicly traded common stock (or its equivalent) of the Successor
      Entity (including its Parent Entity), as adjusted in accordance with the
      provisions of this Warrant.
      In
      addition to and not in substitution for any other rights hereunder, prior to
      the
      consummation of any Fundamental Transaction pursuant to which holders of shares
      of Common Stock are entitled to receive securities or other assets with respect
      to or in exchange for shares of Common Stock (a “Corporate
      Event”),
      the
      Company shall make appropriate provision to insure that the Holder will
      thereafter have the right to receive upon an exercise of this Warrant
at
      any
      time after the consummation of the Fundamental Transaction but
      prior
      to the Expiration Date,
      in lieu
      of the shares of the Common Stock (or
      other
      securities, cash, assets or other property) purchasable
      upon the exercise of the Warrant prior to such Fundamental
      Transaction,
      such
      shares of stock, securities, cash, assets or any other property whatsoever
      (including warrants or other purchase or subscription rights) which the Holder
      would have been entitled to receive upon the happening of such Fundamental
      Transaction had the Warrant been exercised immediately prior to such Fundamental
      Transaction. Provision
      made pursuant to the preceding sentence shall be in a form and substance
      reasonably satisfactory to the Required Holders. The provisions of this Section
      shall apply similarly and equally to successive Fundamental Transactions and
      Corporate Events and shall be applied without regard to any limitations on
      the
      exercise of this Warrant.

     

    5.  NONCIRCUMVENTION.
      The
      Company hereby covenants and agrees that the Company will not, by amendment
      of
      its Certificate of Incorporation, Bylaws or through any reorganization, transfer
      of assets, consolidation, merger, scheme of arrangement, dissolution, issue
      or
      sale of securities, or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms of this Warrant, and will at
      all
      times in good faith carry out all

     

    
      
        - 7 -

         

      

      
         

        
          

        

      

      
         

      

    

    the
      provisions of this Warrant and take all action as may be required to protect
      the
      rights of the Holder. Without limiting the generality of the foregoing, the
      Company (i) shall not increase the par value of any shares of Common Stock
      receivable upon the exercise of this Warrant above the Exercise Price then
      in
      effect, (ii) shall take all such actions as may be necessary or appropriate
      in order that the Company may validly and legally issue fully paid and
      nonassessable shares of Common Stock upon the exercise of this Warrant, and
      (iii) shall, so long as any of the Amendment Warrants are outstanding, take
      all
      action necessary to reserve and keep available out of its authorized and
      unissued shares of Common Stock, solely for the purpose of effecting the
      exercise of the Amendment Warrants, 100% of the number of shares of Common
      Stock
      as shall from time to time be necessary to effect the exercise of the Amendment
      Warrants then outstanding (without regard to any limitations on
      exercise).

     

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

     

    7.  REISSUANCE
      OF WARRANTS.

     

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

     

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

     

     

    
      
        - 8
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    7.3.  Exchangeable
      for Multiple Warrants.
      This
      Warrant is exchangeable, upon the surrender hereof by the Holder at the
      principal office of the Company, for a new Warrant or Warrants (in accordance
      with Section 7(d)) representing in the aggregate the right to purchase the
      number of Warrant Shares then underlying this Warrant, and each such new Warrant
      will represent the right to purchase such portion of such Warrant Shares as
      is
      designated by the Holder at the time of such surrender; provided, however,
      that
      no Warrants for fractional shares of Common Stock shall be given.

     

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

     

    8.  NOTICES.
      Whenever notice is required to be given under this Warrant, unless otherwise
      provided herein, such notice shall be given in accordance with Section 9(f)
      of
      the Securities Purchase Agreement. The Company shall provide the Holder with
      prompt written notice of all actions taken pursuant to this Warrant, including
      in reasonable detail a description of such action and the reason therefore.
      Without limiting the generality of the foregoing, the Company will give written
      notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
      setting forth in reasonable detail, and certifying, the calculation of such
      adjustment and (ii) promptly after the date on which the Company establishes
      a
      record date (A) with respect to any dividend or distribution upon the shares
      of
      Common Stock, (B) with respect to any grants, issuances or sales of any Options,
      Convertible Securities or rights to purchase stock, warrants, securities or
      other property to holders of shares of Common Stock or (C) for determining
      rights to vote with respect to any Fundamental Transaction, dissolution or
      liquidation, provided in each case that such information shall be made known
      to
      the public prior to or in conjunction with such notice being provided to the
      Holder.

     

    9.  AMENDMENT
      AND WAIVER.
      Except
      as otherwise provided herein, the provisions of this Warrant may be amended
      and
      the Company may take any action herein prohibited, or omit to perform any act
      herein required to be performed by it, only if the Company has obtained the
      written consent of the Required Holders; provided that no such action may
      increase the exercise price of any Amendment Warrant or decrease the number
      of
      shares or class of stock obtainable upon exercise of any Amendment Warrant
      without the written consent of the Holder. No such amendment shall be effective
      to the extent that it applies to less than all of the holders of the Amendment
      Warrants then outstanding.

     

    10.  GOVERNING
      LAW.
      This
      Warrant shall be governed by and construed and enforced in accor-dance with,
      and
      all questions concerning the construction, validity, interpretation and
      performance of this Warrant shall be governed by, the internal laws of the
      State
      of New York, without giving effect to any choice of law or conflict of law
      provision or rule

     

    
      
        - 9 -

         

      

      
         

        
          

        

      

      
         

      

    

    (whether
      of the State of New York or any other jurisdictions) that would cause the
      application of the laws of any jurisdictions other than the State of New
      York.

     

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

     

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

     

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

     

    14.  TRANSFER.

     

    14.1.  This
      Warrant may be offered for sale, sold, transferred or assigned in compliance
      with the Federal and state securities laws without the consent of the
      Company.

     

    14.2.  Except
      as
      provided in Section 2(f) of the Securities Purchase Agreement, the Company
      may
      cause the legend set forth on the first page of this Warrant to be set forth
      on
      each Warrant, and a similar legend on any security issued or issuable upon
      exercise of this Warrant, unless counsel for the Company is of the opinion
      as to
      any such security that such legend is unnecessary.

     

     

    
      
        - 10
          -

      

      
         

        
          

        

      

      
         

      

    

    15.  PAYMENT
      OF TAXES.
      The
      Company will pay any documentary stamp taxes attributable to the initial
      issuance of Warrant Shares issuable upon the exercise of the Warrant; provided,
      however, that the Company shall not be required to pay any tax or taxes which
      may be payable in respect of any transfer involved in the issuance or delivery
      of any certificates for Warrant Shares in a name other than that of the Holder
      in respect of which such shares are issued, and in such case, the Company shall
      not be required to issue or deliver any certificate for Warrant Shares or any
      Warrant until the person requesting the same has paid to the Company the amount
      of such tax or has established to the Company’s reasonable satisfaction that
      such tax has been paid. The Holder shall be responsible for income taxes due
      under federal, state or other law, if any such tax is due.

     

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

     

    (a)  “Bloomberg”
means
      Bloomberg Financial Markets.

     

    (b)  “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

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

     

    (d)  “Common
      Stock”
means
      (i) the Company’s shares of Common Stock, $0.01 par value per share, and
      (ii) any share capital into which such Common Stock shall have been changed
      or any share capital resulting from a reclassification of such Common
      Stock.

     

    
       

      
        
          - 11
            -

        

        
           

          
            

          

        

        
           

        

      

    

     

    (e)  “Convertible
      Securities”
means
      any stock or securities (other than Options) directly or indirectly convertible
      into or exercisable or exchangeable for shares of Common Stock.

     

    (f)  “Eligible
      Market”
means
      the Principal Market, the American Stock Exchange, The New York Stock Exchange,
      Inc., The Nasdaq SmallCap Market or the OTC Bulletin Board.

     

    (g)  “Expiration
      Date”
means
      March 31, 2008; provided that if the Stockholder Approval (as such term is
      defined is the Amendment Agreement) is not obtained on or prior to June 30,
      2006, the Expiration Date shall be extended for each day after June 30, 2006
      that the Stockholder Approval is not obtained or, if such date falls on a day
      other than a Business Day or on which trading does not take place on the
      Principal Market (a “Holiday”),
      the
      next date that is not a Holiday.

     

    (h)  “Fundamental
      Transaction”
means
      that the Company shall, directly or indirectly, in one or more related
      transactions, (i) consolidate or merge with or into (whether or not the Company
      is the surviving corporation) another Person, or (ii) sell, assign, transfer,
      convey or otherwise dispose of all or substantially all of the properties or
      assets of the Company to another Person, or (iii) allow another Person to make
      a
      purchase, tender or exchange offer that is accepted by the holders of more
      than
      the 50% of either the outstanding shares of Common Stock (not including any
      shares of Common Stock held by the Person or Persons making or party to, or
      associated or affiliated with the Persons making or party to, such purchase,
      tender or exchange offer), or (iv) consummate a stock purchase agreement or
      other business combination (including, without limitation, a reorganization,
      recapitalization, spin-off or scheme of arrangement) with another Person whereby
      such other Person acquires more than the 50% of the outstanding shares of Common
      Stock (not including any shares of Common Stock held by the other Person or
      other Persons making or party to, or associated or affiliated with the other
      Persons making or party to, such stock purchase agreement or other business
      combination), or (v) reorganize, recapitalize or reclassify its Common
      Stock.

     

    (i)  “Options”
means
      any rights, warrants or options to subscribe for or purchase shares of Common
      Stock or Convertible Securities.

     

    (j)  “Parent
      Entity”
of
      a
      Person means an entity that, directly or indirectly, controls the applicable
      Person and whose common stock or equivalent equity security is quoted or listed
      on an Eligible Market, or, if there is more than one such Person or Parent
      Entity, the Person or Parent Entity with the largest public market
      capitalization as of the date of consummation of the Fundamental
      Transaction.

     

    (k)  “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization, any other entity and
      a
      government or any department or agency thereof.

     

    (l)  “Principal
      Market”
means
      the Nasdaq National Market.

     

    
       

      
        
          - 12
            -

        

        
           

          
            

          

        

        
           

        

      

    

     

    (m)  “Registration
      Rights Agreement”
means
      that certain registration rights agreement as defined in the Amendment Agreement
      between the Company and the Investor.

     

    (n)  Required
      Holders”
means
      the holders of the Amendment Warrants representing at least a majority of shares
      of Common Stock underlying the Amendment Warrants then outstanding.

     

    (o)  “Successor
      Entity”
means
      the Person, which may be the Company, formed by, resulting from or surviving
      any
      Fundamental Transaction or the Person with which such Fundamental Transaction
      shall have been made, provided that if such Person is not a publicly traded
      entity whose common stock or equivalent equity security is quoted or listed
      for
      trading on an Eligible Market, Successor Entity shall mean such Person’s Parent
      Entity.

     

    [Signature
      Page Follows]

     

    

     

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

    

    

    AROTECH
      CORPORATION

    

    

    By: 

    Name: Robert
      S.
      Ehrlich

    Title: Chief
      Executive Officer

    

     

    
      
        
        

      

      
         

        
          

        

      

      
         

    

    EXHIBIT
      I

    

    EXERCISE
      NOTICE

     

    TO
      BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

     

    WARRANT
      TO PURCHASE COMMON STOCK

     

    AROTECH
      CORPORATION

     

    The
      undersigned holder hereby exercises the right to purchase _________________
      of
      the shares of Common Stock (“Warrant
      Shares”)
      of
      Arotech Corporation, a Delaware corporation (the “Company”),
      evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”),
      and
      tenders herewith payment to the Company of the aggregate exercise price in
      full,
      equal to $_____________________, together with all applicable transfer taxes,
      if
      any.

     

    Please
      issue the Warrant Shares in the following name and to the following
      address:

    

    Issue
      to:

     

     

    Facsimile
      Number:

    

    Authorization:

     

    Account
      Number:

      (if
      electronic book entry transfer)

     

    Transaction
      Code Number:

    (if
      electronic book entry transfer)

     

    To
      the
      extent the foregoing exercise is for less than the full number of Warrant Shares
      issuable pursuant to the Warrant, a replacement Warrant representing the
      remainder of the Warrant Shares issuable (and otherwise of like form, tenor
      and
      effect) shall be delivered to holder.

     

    The
      undersigned confirms the continuing validity of, and reaffirms as of the date
      hereof, the representations and warranties set forth in Section 2(b) of the
      Amendment Agreement, dated as of March [__], 2006, between the Company and
      the
      Investor.

     

    The
      undersigned agrees to comply with the prospectus delivery requirements (to
      the
      extent applicable) under the applicable securities laws in connection with
      any
      transfer of the aforesaid Warrant Shares.

     

    Date:
      _______________ __, ______

    

    Name
      of
      Registered Holder

    

    By: 

    Name:

    Title:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      II

     

    EXERCISE
      NOTICE

     

    TO
      BE
      EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT TO PURCHASE COMMON
      STOCK PURSUANT TO CASHLESS EXERCISE PROVISIONS

     

     

    AROTECH
      CORPORATION

    

     

    Gentlemen:

     

    

    The
      undersigned, registered holder of the Warrant to Purchase Common Stock delivered
      herewith, hereby irrevocably exercises such Warrant for, and purchases
      thereunder, shares of the Common Stock (“Warrant
      Shares”)
      of
      Arotech Corporation, a Delaware corporation, as provided below. Capitalized
      terms used herein, unless otherwise defined herein, shall have the meanings
      given in the Warrant. The portion of the Exercise Price to be applied toward
      the
      purchase of the Warrant Shares pursuant to this Exercise Notice is $_______.
      Such exercise shall be pursuant to the cashless exercise provisions of
      Section 1(d) of the Warrant; therefore, holder makes no payment with
      respect to this Exercise Notice. The number of shares to be issued pursuant
      to
      this exercise shall be determined by reference to the formula in
      Section 1(d) of the Warrant which, by reference to Section 1(d),
      requires the use of the Closing Price of the Company’s Common Stock on the day
      immediately preceding the date of this Exercise Notice, which is
      $______.

     

    Please
      issue the Warrant Shares in the following name and to the following
      address:

    

    Issue
      to:

     

     

    

    Facsimile
      Number:

    

    Authorization:

    Account
      Number:

      (if
      electronic book entry transfer)

    

    Transaction
      Code Number:

    (if
      electronic book entry transfer)

    To
      the
      extent the foregoing exercise is for less than the full number of Warrant Shares
      issuable pursuant to the Warrant, a replacement Warrant representing the
      remainder of the Warrant Shares issuable (and otherwise of like form, tenor
      and
      effect) shall be delivered to holder.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    The
      undersigned confirms the continuing validity of, and reaffirms as of the date
      hereof, the representations and warranties set forth in Section 2(b) through
      (j)
      of the Amendment Agreement, dated as of March [__], 2006, between the Company
      and the Investor.

    The
      undersigned agrees to comply with the prospectus delivery requirements (to
      the
      extent applicable) under the applicable securities laws in connection with
      any
      transfer of the aforesaid Warrant Shares. 

     

    Date:
      _______________ __, ______

     

     

    Name
      of
      Registered Holder

     

    By: 

    Name:

    Title:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    ACKNOWLEDGMENT

    

    

    The
      Company hereby acknowledges this Exercise Notice and hereby directs American
      Stock Transfer & Trust Co. to issue the above indicated number of shares of
      Common Stock in accordance with the Transfer Agent Instructions dated February
      [
      ], 2006 from the Company and acknowledged and agreed to by American Stock
      Transfer & Trust Co.

    

    AROTECH
      CORPORATION

    

    

    

    By:

    Name:

    Title:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    FORM
      OF
      ASSIGNMENT

    

     

    [To
      be
      completed and signed only upon transfer of Warrant]

     

    

     

    FOR
      VALUE
      RECEIVED, the undersigned hereby sells, assigns and transfers unto
      ________________________________ the right represented by the within Warrant
      to
      purchase ____________ shares of Common Stock of Arotech Corporation to which
      the
      within Warrant relates and appoints ________________ attorney to transfer said
      right on the books of Arotech Corporation with full power of substitution in
      the
      premises.

     

    
      	
               

              Dated:
                ,
                

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

            
	 	 
	 	
              Address
                of Transferee

            
	 	 
	 	 
	 	 
	 	 
	
              In
                the presence of:

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