Document:

Exhibit 4.2

                          REGISTRATION RIGHTS AGREEMENT

            This Registration Rights Agreement (this "Agreement") is made and
entered into as of January 7, 2004, 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 Warrant Shares, the
earlier of (1) the 180th 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 Warrant Shares, the 60th 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.

            "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

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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 Warrant Shares and (ii) any
shares of capital stock issued or issuable with respect to the Common Stock, the
Warrant Shares 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.

            "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 each Filing Date, the Company shall prepare and
file with the SEC a Registration Statement covering the resale of all previously
unregistered 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 "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 which is two years after the date that such
Registration Statement is declared effective by the SEC or such earlier date
when all Registrable Securities covered by

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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").

            (b) If: (i) any 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 15 Business Days with
respect to comments regarding solely to 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 or by a subsequent Registration Statement filed with
and declared effective by the SEC, 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 exercise rights of the Holders
pursuant to the Warrants are suspended for any reason, or (viii) any
Registration Statement shall not be declared effective by the SEC 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 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% of the
aggregate purchase price paid by such Holder pursuant to the Purchase Agreement;
and (y) on the first monthly anniversary 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 purchase
price paid by such Holder pursuant to the Purchase Agreement and (z) 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 2% of the aggregate purchase
price paid by such Holder pursuant to the Purchase Agreement. 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

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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.

            (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.

            3.    Registration Procedures

            In connection with the Company's registration obligations hereunder,
the Company 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.

            (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 days, 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.

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            (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.

            (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

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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) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if requested by the SEC, the controlling
person thereof, and any other information about such Holder required to be
included in the Registration Statement pursuant to the rules and regulations of
the SEC.

            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, (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

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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

            (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

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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.

            (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

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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).

            (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.

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            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.

            (b) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, 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.

<PAGE>

            (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.

            (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
                                632 Broadway, Suite 1200
                                New York, NY 10012
                                Facsimile No.: (646) 654-2187
                                Telephone No.:  (646) 654-2107
                                Attn:  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
                                Attn.:  General Counsel

             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.

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

<PAGE>

            (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>

                                                                         Annex A

                              Plan of Distribution

      The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:

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     broker-dealers may agree with the Selling Stockholders 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.

      The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

      Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

      The selling stockholder may from time to time pledge or grant a security
interest in some or all of the common stock or Warrants 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
under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.

<PAGE>

      The selling stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus.

      The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholders have
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.

      The Company is required to pay all fees and expenses incident to the
registration of the shares and up to $10,000 of the fees and disbursements of
Special Counsel. The Company has agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.Exhibit 4.3

                                [FORM OF WARRANT]

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                               AROTECH CORPORATION

                                     WARRANT

Warrant No.: __________
Number of Shares: _____________
Date of Issuance:  January __, 2004 ("Issuance Date")

Arotech Corporation, a Delaware corporation (the "Company"), hereby certifies
that, for value received, the receipt and sufficiency of which are hereby
acknowledged, [ ], the registered holder hereof or its permitted assigns (the
"Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at the Exercise Price (as defined below) then in effect, at any
time or times on or after July 7, 2004 (the "Initial Exercise Date"), but not
after 11:59 p.m., New York Time, on the Expiration Date (as defined below),
______________ (_____________)1 (the "Initial Exercise Number") 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 (the "SPA Warrants") issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of January 7, 2004 (the "Subscription
Date"), among the Company and the investors (the "Buyers") referred to therein
(the "Securities Purchase Agreement").

----------
1     Insert number of Purchased Shares acquired by Holder pursuant to the
      Securities Purchase Agreement.

<PAGE>

      1.    EXERCISE OF WARRANT.

            (a) 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 A (the "Exercise Notice"), of such
Holder's election to exercise this Warrant, and (ii) (A) payment to the Company
of an amount equal to the applicable Exercise Price multiplied by the number of
Warrant Shares as to which this Warrant is being exercised (the "Aggregate
Exercise Price") in cash or wire transfer of immediately available funds or (B)
by notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The 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.

            (b) Exercise Price. For purposes of this Warrant, "Exercise Price"
means the greater of (x) $1.88 and (y) the Weighted Average Price on the date of
the issuance of the Press

                                     - 2 -
<PAGE>

Release (as defined in the Securities Purchase Agreement), subject to adjustment
as provided herein. The Exercise Price initially determined on the date of
issuance of the Press Release is referred to herein as the "Initial Exercise
Price".

            (c) 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 Common Stock shall terminate, or (ii)
promptly honor its obligation to credit to the Holder such 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.

            (d) 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 issuance 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.

                                     - 3 -
<PAGE>

                  B= the Closing Sale Price of the Common Stock on the date
                     immediately preceding the date of the Exercise Notice.

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

            (e) 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.

            (f) 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.

            (g) Limitations on Exercises. The Company shall not effect the
exercise of this Warrant, and no Person who is a holder of this Warrant shall
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 the 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 a
Holder may rely on the number of outstanding shares of Common Stock as reflected
in (1) the Company's most recent Form 10-Q, Form 10-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 its Transfer Agent

                                     - 4 -
<PAGE>

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

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, only if
required, 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 of any SPA 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 SPA Warrants issued
to such Buyer pursuant to the Securities Purchase Agreement 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
Securities Purchase Agreement 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 SPA 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 SPA Warrants shall exercise all of such holder's
SPA 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 SPA Warrants on a pro rata basis in
proportion to the shares of Common Stock underlying the SPA 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 paragraph, 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.

            (h) Exercise at the Company's Election. On or after the later of
(the "Company Exercise Triggering Date") (x) the 12 month anniversary of the
date on which the Registration Statement has been declared effective by the SEC
and (y) July 7, 2005, the Company shall have the right, on one occasion in its
sole discretion and subject to Section 1(g) hereof, to require that up to
one-half of the Initial Exercise Number of the outstanding Warrants be exercised
(the "Company's Exercise Election") at the applicable Exercise Price; provided
that the Conditions to Exercise at the Company's Election (as set forth below)
are satisfied as of

                                     - 5 -
<PAGE>

the Company's Election Exercise Date (as defined below) or waived by the Holder.
The Company shall exercise its right to Company's Exercise Election by providing
the Holder and each other each holder of SPA Warrants written notice ("Company's
Exercise Election Notice") by facsimile and overnight courier; provided,
however, that the Company may not deliver more than one Company's Exercise
Election Notice hereunder. The date on which the Holder actually receives the
Company's Exercise Election Notice is referred to herein as the "Company's
Exercise Election Notice Date." The Company's Exercise Election Notice shall
indicate the date selected by the Company for exercise (the "Company's Election
Exercise Date"), which date shall be not less than 20 Business Days or more than
60 Business Days after the Company's Exercise Election Notice Date, and the
number of outstanding Warrants the Company is electing to be subject to the
Company's Exercise Election (the "Company Exercise Number"). Subject to the
satisfaction of all the conditions of this Section 1(h) and Section 1(g), on the
Company's Election Exercise Date the Holder will be deemed to have submitted an
Exercise Notice in accordance with Section 1(a) for all of the Company Exercise
Number (subject to Section 1(g)). "Conditions to Exercise At The Company's
Election" means the following conditions: (i) on each day during the period
beginning on the date which is 90 days prior to the date of the Company's
Exercise Election Notice Date and ending on and including the Company's Election
Exercise Date (the "Measuring Period"), the Registration Statement shall be
effective and available for the sale of at least all of the Registrable
Securities required to be included in such Registration Statement and there
shall not have been any Events (as defined in the Registration Rights
Agreement); (ii) on each day during the Measuring Period, the Common Stock is
designated for quotation on the Principal Market and shall not have been
suspended from trading on such market or exchange (other than suspensions of not
more than one day and occurring prior to the Company's Exercise Election Notice
Date due to business announcements by the Company) nor shall delisting or
suspension by such exchange or market been threatened or pending either (A) in
writing by such exchange or market or (B) by falling below the minimum listing
maintenance requirements of such exchange or market; (iii) during the Measuring
Period there shall not have occurred the public announcement of a pending,
proposed or intended Organic Change, unless such pending, proposed or intended
Organic Change has been terminated, abandoned or consummated and the Company has
publicly announced such termination, abandonment or consummation of such Organic
Change; (iv) during the Measuring Period, the Company shall have delivered
Warrant Shares upon exercise of the Warrants to the holders on a timely basis as
set forth in Section 1 hereof; (v) the Company shall not have failed to timely
make any payments within five (5) Business Days of when such payment is due
pursuant to this Warrant, the Securities Purchase Agreement, or the Registration
Rights Agreement, including, but not limited to, cash payments due under the
provisions of the Securities Purchase Agreement, the Registration Rights
Agreement or the Warrants; and (vi) the Weighted Average Price of the Common
Stock for any ten (10) trading days out of any thirty (30) consecutive trading
days occurring after the Company Exercise Triggering Date and immediately prior
to the date of the Company's Exercise Election Notice is at or above 150% of the
Initial Exercise Price (subject to adjustment for stock splits, stock dividends,
recapitalizations, combinations, reverse stock splits or other similar events).
Notwithstanding the above, any holder of Warrants may exercise such Warrants
into Common Stock pursuant to Section 1(a) on or prior to the date immediately
preceding the Company's Election Exercise Date. In the event the Holder delivers
any Exercise Notice(s) to the Company prior to the

                                     - 6 -
<PAGE>

Company's Election Exercise Date, then the aggregate number of Warrant Shares
issued or issuable pursuant to such Exercise Notice(s) shall be deducted from
the Company Exercise Number.

      2.    ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES UPON
SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time after the
date of issuance of this Warrant 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 after the date of issuance of this Warrant 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 shall become effective at the close of business on the date the
subdivision or combination becomes effective.

      3.    RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of 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:

            (a) any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders 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 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 Common Stock on the
trading day immediately preceding such record date; and

            (b) the number of Warrant Shares shall be increased to a number of
shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination of
holders 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 common stock ("Other
Common Stock") of a company whose common stock is traded on a national
securities exchange or a national automated quotation system, then the Holder
may elect to receive a warrant to purchase Other 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 Common Stock that would have been

                                     - 7 -
<PAGE>

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; ORGANIC CHANGE.

            (a) 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 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 such
Holder could have acquired if such 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 Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.

            (b) Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person or other transaction, in each case which is
effected in such a way that holders of Common Stock are entitled to receive
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any (i) sale of
all or substantially all of the Company's assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the Person issuing
the securities or providing the assets in such Organic Change (in each case, the
"Acquiring Entity") a written agreement (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to deliver to the Holder in exchange for this Warrant, a security
of the Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant and reasonably satisfactory to the Holder
(including, an adjusted exercise price equal to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and exercisable
for a corresponding number of shares of Common Stock acquirable and receivable
upon exercise of this Warrant (without regard to any limitations on the exercise
of this Warrant), if the value so reflected is less than the Exercise Price in
effect immediately prior to such consolidation, merger or sale). In the event
that an Acquiring Entity is directly or indirectly controlled by a company or
entity whose common stock or similar equity interest is listed, designated or
quoted on a securities exchange or trading market, the Holder may elect to treat
such Person as the Acquiring Entity for purposes of this Section 4(b). Prior to
the consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance reasonably satisfactory to the holders of SPA
Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding) to insure that

                                     - 8 -
<PAGE>

the Holder thereafter will have the right to acquire and receive in lieu of or
in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant), such shares of
stock, securities or assets that would have been issued or payable in such
Organic Change with respect to or in exchange for the number of shares of Common
Stock which would have been acquirable and receivable upon the exercise of this
Warrant as of the date of such Organic Change (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 or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, and
will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) will 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) will 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) will, so long as any of the SPA Warrants are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
exercise of the SPA Warrants, 100% of the number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of the SPA Warrants
then outstanding (without regard to any limitations on exercise).

      6.    HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically
provided herein, no Holder, solely in such Person's capacity as a holder of this
Warrant, shall be entitled to vote or receive dividends or be deemed the holder
of shares 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 a Holder, any of the rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant. In addition, nothing contained in this Warrant shall
be construed as imposing any liabilities on such 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 will
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.

                                     - 9 -
<PAGE>

      7.    REISSUANCE OF WARRANTS.

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

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

            (c) Warrant 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.

            (d) Issuance of New Warrants. Whenever the Company is required to
issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent, as indicated on
the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of 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. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant 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:

                                     - 10 -
<PAGE>

            If to the Company:

                  Arotech Corporation
                  632 Broadway
                  Suite 1200
                  New York, New York 10012
                  Facsimile No.:   (646) 654-2187
                  Telephone No.:  (646) 654-2107
                  Attn.:  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
                  Attn.: General Counsel

If to the Holder, to its address and facsimile number set forth on the Schedule
of Buyers to the Securities Purchase Agreement, with copies to such Holder's
representatives as set forth on the Schedule of Buyers,

            With a copy to:

                  Schulte Roth & Zabel LLP
                  919 Third Avenue
                  New York, New York 10022
                  Facsimile No.:   (212) 593-5955
                  Telephone No.:  (212) 756-2000
                  Attn.: 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.

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

                                     - 11 -
<PAGE>

distribution upon the Common Stock, (B) with respect to any grants, issues or
sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of Common Stock or (C) for
determining rights to vote with respect to any Organic Change, 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 holders of SPA
Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided that no
such action may increase the exercise price of any SPA Warrant or decrease the
number of shares or class of stock obtainable upon exercise of any SPA 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 SPA
Warrants then outstanding.

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

      11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers 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.

                                     - 12 -
<PAGE>

      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 Securities Purchase
Agreement, 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 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
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. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company.

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

            (a) "Bloomberg" means Bloomberg Financial Markets.

            (b) "Business Day" means 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.

                                     - 13 -
<PAGE>

            (d) "Common Stock" means (i) the Company's common stock, par value
$.01 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of such
Common Stock.

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

            (f) "Expiration Date" means July 7, 2007.

            (g) "Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.

            (h) "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.

            (i) "Principal Market" means the Nasdaq National Market.

            (j) "Registration Rights Agreement" means that certain registration
rights agreement dated the Subscription Date by and among the Company and the
Buyers.

            (k) "Weighted Average Price" means, for any security as of any date,
the dollar volume-weighted average price for such security on the Principal
Market during the period beginning at 9:30:01 a.m., New York Time (or such other
time as the Principal Market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as such
market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price 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.

                            [Signature Page Follows]

                                     - 14 -
<PAGE>

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

                                        AROTECH CORPORATION

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

                                     - 15 -
<PAGE>

                                    Exhibit A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                                     WARRANT

                               AROTECH CORPORATION

To:   Arotech Corporation

      The undersigned is the Holder of Warrant No. _____ (the "Warrant") issued
by Arotech Corporation, a Delaware corporation (the "Company"). Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

      1. The Warrant is currently exercisable to purchase a total of
____________ Warrant Shares.

      2. The undersigned holder hereby exercises its right to purchase
______________ Warrant Shares pursuant to the Warrant.

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

            ____________ a "Cash Exercise" with respect to _________________
                         Warrant Shares; and/or

            ____________ a "Cashless Exercise" with respect to _______________
                         Warrant Shares.

      4. Pursuant to this exercise, the Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

      5. Following this exercise, the Warrant shall be exercisable to purchase a
total of ________________ Warrant Shares.

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

      Issue to:_________________________________________________________________

               _________________________________________________________________

      Account Number:___________________________________________________________

      DTC Participant Number:___________________________________________________

Date: _______________ __, ______

___________________________________
Name of Registered Holder

By:
   ________________________________
   Name:
   Title:

<PAGE>

                                 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
January __, 2004, from the Company and acknowledged and agreed to by American
Stock Transfer & Trust Co.

                                        AROTECH CORPORATION

                                        By:_____________________________________
                                           Name:
                                           Title:

<PAGE>

                               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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