-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IIysfOssAkYSZEMTH/abnOxJlASoi8T1+cMn9do3C7k1UPW4RRQFL+xbD8WljKUA w0t6AtJPTrKTnyrcVxxEZg== 0001144204-03-008678.txt : 20031223 0001144204-03-008678.hdr.sgml : 20031223 20031223163113 ACCESSION NUMBER: 0001144204-03-008678 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031218 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AROTECH CORP CENTRAL INDEX KEY: 0000916529 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 954302784 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23336 FILM NUMBER: 031071403 BUSINESS ADDRESS: STREET 1: 632 BROADWAY STREET 2: STE 1200 CITY: NEW YORK STATE: NY ZIP: 10012 BUSINESS PHONE: 6466542107 MAIL ADDRESS: STREET 1: 632 BROADWAY STREET 2: SUITE 1200 CITY: NEW YORK STATE: NY ZIP: 10012 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRIC FUEL CORP DATE OF NAME CHANGE: 19931223 8-K 1 v01094_8k.txt FORM 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (date of earliest event reported): December 18, 2003 AROTECH CORPORATION (Exact name of registrant as specified in its charter) Delaware 0-23336 95-4302784 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 632 Broadway, Suite 1200, New York, New York 10012 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (646) 654-2107 (Former name or former address, if changed since last report) ================================================================================ Item 5. Other Events and Regulation FD Disclosure. Pursuant to the terms of a Securities Purchase Agreement dated September 30, 2003 (the "Purchase Agreement") by and between Arotech Corporation and six institutional investors named therein (the "Investors"), pursuant to which we issued and sold to the Investors an aggregate principal amount of $5,000,000 in 8% secured convertible debentures due September 30, 2006, the Investors also had the right, at their option, to purchase up to an additional $6,000,000 in debentures (the "Additional Debentures"), with such Additional Debentures convertible into shares of our common stock at any time after January 1, 2004 at a conversion price of $1.45 per share, and to receive warrants to purchase up to an aggregate of 1,500,000 shares of our common stock at any time after January 1, 2004 (the "Additional Warrants") at an exercise price of $1.8125 per share. At the request of the Company, the Investors exercised this right pursuant to Amendment and Exercise Agreements dated December 10, 2003 that also granted to the Investors incentive warrants to purchase up to an aggregate of 1,038,000 shares of our common stock (the "Incentive Warrants" and, together with the Additional Warrants, the "Warrants") at an exercise price of $2.20 per share (the closing price of the Company's common stock on December 10, 2003 was $1.70 per share) and, on December 18, 2003, we issued to the Investors the Additional Debentures and the Warrants. We will use the net proceeds of this offering for working capital purposes, to support production and sales expansion and to enable strategic acquisitions. Under the terms of the Additional Debentures and the Warrants, we are not obligated to issue shares of our common stock upon conversion of an Additional Debenture or exercise of a Warrant if the issuance of such shares of common stock would exceed that number of shares of common stock that we may issue without breaching our obligations under applicable Nasdaq Marketplace Rules unless and until we obtain the approval of our shareholders to the extent required by applicable Nasdaq Marketplace Rules. Pursuant to our obligations under the Purchase Agreement, we will solicit the approval of our shareholders regarding the issuance of the Additional Debentures and the Warrants, as may be required under Nasdaq Marketplace Rules, at our next annual meeting of stockholders (the "Meeting"), to be called and held no later than June 19, 2004. In this connection, and as required under the terms of the Purchase Agreement, certain of our shareholders have agreed to vote their shares in favor of the approval of the transactions contemplated by the Purchase Agreement at the Meeting, pursuant to separate voting agreements. We are required to register the shares of common stock underlying the Additional Debentures and the Warrants with the Securities and Exchange Commission in a registration statement on Form S-3 filed no later than February 16, 2004, with such registration to be declared effective by the Securities and Exchange Commission no later than April 16, 2004. The foregoing description of the Purchase Agreement and the other instruments and agreements attached as exhibits thereto and certain other agreements executed in connection therewith is qualified in its entirety by reference to the agreements and instruments themselves. A copy of the Purchase Agreement (including the forms of instruments and agreements attached as exhibits thereto and certain other agreements executed in connection therewith) was attached as Exhibits 4.1 through 4.8 to our Current Report on Form 8-K filed by us with the Securities and Exchange Commission on October 3, 2003, and is incorporated herein by reference. A copy of the form of Amendment and Exercise Agreement dated December 10, 2003 (including the form of Incentive Warrant) is attached to this report as Exhibits 4.1 and 4.2 hereto, and is incorporated herein by reference. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we note that certain statements set forth in this Current Report on Form 8-K may constitute forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties that may cause actual results to vary significantly. These risks and uncertainties include, but are not limited to, risks relating to: product and technology development; the uncertainty of the market for our products; changing economic conditions; delay, cancellation or non-renewal, in whole or in part, of contracts or of purchase orders; significant future capital requirements; and other risk factors detailed in our most recent annual report on Form 10-K for the fiscal year ended December 31, 2002, as amended, our most recent Quarterly Report on Form 10-Q, and other filings with the Securities and Exchange Commission. Readers should consider all of these risk factors as well as other information contained in this report. Item 7. Financial Statements and Exhibits (c) Exhibits. A list of exhibits required is given in the Exhibit Index that precedes the exhibits filed with this report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned hereunto duly authorized. AROTECH CORPORATION (Registrant) By: /s/ Robert S. Ehrlich ----------------------------------- Name: Robert S. Ehrlich Title: Chairman, President and CEO Dated: December 23, 2003 EXHIBIT INDEX The following exhibits are filed with the Current Report on Form 8-K. Exhibit Number Description - ------- ----------- 4.1 Form of Amendment and Exercise Agreement dated December 10, 2003 4.2 Form of Incentive Warrants EX-4.1 3 v01094_4-1.txt AMENDMENT AND EXERCISE AGREEMENT EXHIBIT 4.1 AMENDMENT AND EXERCISE AGREEMENT AMENDMENT AND EXERCISE AGREEMENT (the "Agreement"), dated as of December 10, 2003, by and between Arotech Corporation, a Delaware corporation (the "Company"), and [Smithfield Fiduciary LLC] [Portside Growth and Opportunity Fund] [Mainfield Enterprises Inc.] [Cranshire Capital L.P.] [Omicron Master Trust] [Cleveland Overseas Ltd.] (the "Investor"). WHEREAS: A. The Company, the Investor and certain other investors (the "Other Investors"; and collectively with the Investor, the "Investors"), have entered into that certain Securities Purchase Agreement, dated as of September 30, 2003 (the "Securities Purchase Agreement"), pursuant to which, among other things, the Investors purchased from the Company (i) an aggregate of $5,000,000 principal amount of convertible debentures of the Company (the "Initial Debentures"), convertible into shares of the Company's Common Stock, par value $0.01 per share (the "Common Stock"), in accordance with the terms of the Initial Debentures, and (ii) warrants (the "Initial Warrants") to acquire additional shares of Common Stock; B. Subject to the terms and conditions set forth in the Securities Purchase Agreement, the Investors have the right to purchase, and the Company has the obligation to sell (the "Additional Investment Right") (i) up to an aggregate of $6,000,000 principal amount of Additional Debentures (as defined in the Securities Purchase Agreement) and (ii) Additional Warrants (as defined in the Securities Purchase Agreement); C. In connection with the transactions set forth in the Securities Purchase Agreement, the Company entered into a Security Agreement and an Intellectual Property Security Agreement, each dated as of September 30, 2003 (together, the "Security Agreements"), pursuant to which the Company pledged to the Investors certain assets to secure during their respective terms, its obligations under the Debentures and the transactions contemplated by the Securities Purchase Agreement; D. Contemporaneously with the execution and delivery of the Securities Purchase Agreement, the Company and the Investors entered into a Registration Rights Agreement, dated as of September 30, 2003 (the "Registration Rights Agreement"), pursuant to which the Company agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the "1933 Act"), and the rules and regulations promulgated thereunder, and applicable state securities laws; E. The Company and the Investor desire to enter into this Agreement, pursuant to which, among other things, (i) the Investor will exercise in full its Additional Investment Right for such Investor's Additional Investment Amount (as defined in the Securities Purchase Agreement), (ii) the Company will issue to the Investor the Additional Warrants (as defined in the Securities Purchase Agreement) in accordance with the terms of the Securities Purchase Agreement and (iii) as further incentive for agreeing currently to exercise the Additional Investment Right, the Company will issue to the Investor additional warrants in the form attached hereto as Exhibit A (the "Incentive Warrants", and together with the Additional Warrants, the "Warrants") to purchase 173 shares of the Common Stock ("Incentive Warrant Shares") for each $1,000 of principal amount of Additional Debentures purchased upon exercise of the Additional Investment Right; F. The parties hereto desire to amend certain provisions of the Securities Purchase Agreement, the Registration Rights Agreement and the Security Agreements; G. The issuance of the Additional Debentures, Additional Warrants and the Incentive Warrants is being made in reliance upon the exemption from registration provided by Section 4(2) of the 1933 Act and Rule 506 of Regulation D, as promulgated by the SEC under the 1933 Act; and H. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to them in the Securities Purchase Agreement. NOW, THEREFORE, the Company and the Investors hereby agree as follows: 1. PURCHASE OF ADDITIONAL DEBENTURES AND WARRANTS. (a) Purchase of Additional Debentures and Warrants. Subject to satisfaction (or waiver) of the conditions set forth in Sections 5(a) and 6(a) below, the Company shall issue and sell to the Investor, and the Investor agrees to purchase from the Company on the Closing Date (as defined below), a principal amount of Additional Debentures equal to its Additional Investment Amount (as set forth on the Schedule of Buyers to the Securities Purchase Agreement), along with Additional Warrants to acquire up to 250 Additional Warrant Shares for each $1,000 principal amount of Additional Debentures purchased and Incentive Warrants to acquire up to 173 Incentive Warrant Shares for each such $1,000 principal amount of Additional Debentures purchased. (b) Closing Date. The date and time of the Closing (the "Closing Date") shall be 10:00 a.m., New York Time, on the date ten business days after the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 5(a) and 6(a) below (or such other date as is mutually agreed to by the Company and the Investor). The Closing shall occur on the Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. The Closing Date shall constitute the "Additional Closing Date" under the Registration Rights Agreement. (c) Form of Payment. On the Closing Date, (i) the Investor shall pay its Additional Investment Amount to the Company for the Additional Debentures and Warrants to be issued and sold to such Investor at the Closing, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, and (ii) the Company shall deliver to the Investor the Additional Debentures (in the principal amounts as such Investor shall request) which such Investor is then purchasing along with Additional Warrants and Incentive Warrants (in the amounts as such Investor shall request) corresponding to such Investor's Additional Investment Amount, duly executed on behalf of the Company and registered in the name of such Investor or its designee. 2 2. AMENDMENTS TO TRANSACTION DOCUMENTS. (a) Securities Purchase Agreement. The Security Purchase Agreement is hereby amended as follows: (i) The defined term "Warrants" is hereby amended to include the Incentive Warrants; and (ii) The defined term "Warrant Shares" is hereby amended to include the Incentive Warrant Shares. (b) Registration Rights Agreement. The Registration Rights Agreement is hereby amended as follows: The defined term "Warrants" is replaced in its entirety by the following: "Warrants" means (i) the Warrants issued or issuable under the Purchase Agreement, (ii) any New Warrants issuable under the Warrants and (iii) the Incentive Warrants. (c) Security Agreement. The Security Agreement is hereby amended as follows: (i) The defined term "Debentures" is hereby amended to include the Additional Debentures. (ii) The defined term "Obligations" is hereby amended to include all of Debtors' obligations under this Agreement and the Incentive Warrants. (d) Intellectual Property Security Agreement. The Intellectual Property Security Agreement is hereby amended as follows: (i) The defined term "Debentures" is hereby amended to include the Additional Debentures. (ii) The defined term "Obligations" is hereby amended to include all of Debtors' obligations under this Agreement and the Incentive Warrants. 3. REPRESENTATIONS AND WARRANTIES (a) Company Bring Down. The Company represents and warrants to the Investor as set forth in Section 3.1 of the Securities Purchase Agreement as if such representations and warranties were made as of the date hereof and set forth in their entirety in this Agreement, including without limitation the schedules referenced therein. (b) Investor Bring Down. The Investor hereby represents and warrants, as to itself only, as set forth in Section 3.2 of the Securities Purchase Agreement as if such representations and warranties were made as of the date hereof and set forth in their entirety in this Agreement. 3 4. CERTAIN COVENANTS (a) Disclosure of Transactions and Other Material Information. On or before 8:30 a.m., New York Time, on the second Trading Day following the Closing Date, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by this Agreement and by any documents relating to the issuance of Additional Debentures, Additional Warrants and Incentive Warrants on the Closing Date to any Other Investor (the "Other Investor Documents") in the form required by the 1934 Act, and attaching the material transaction documents (including, without limitation, this Agreement, the form of the Incentive Warrants and any Other Investor Documents) as exhibits to such filing (including all attachments, the "8-K Filing", and the description and attachments, the "8-K Materials"). From and after the filing of the 8-K Filing with the SEC, the Investors shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide the Investor with any material nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without the express written consent of such Investor. Subject to the foregoing, neither the Company nor the Investor shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, with the prior approval of the Investor, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations, including the applicable rules and regulations of the Trading Market (provided that in the case of clause (i) the Investor shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). 5. investors' closing deliveries. At the Closing, each Investor shall deliver or cause to be delivered to the Company such Investor's Additional Investment Amount in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose. 6. company's closing deliveries. (a) At the Closing, the Company shall deliver or cause to be delivered to the Investor the following: (i) An Additional Debenture, registered in the name of such Investor, evidencing the principal amount of Additional Debentures purchased by such Investor, which amount is such Investor's Additional Investment Amount; (ii) An Additional Warrant, registered in the name of such Investor, pursuant to which such Investor shall have the right to acquire 250 shares of 4 Common Stock for each $1,000 of such Investor's Additional Investment Amount, at an exercise price equal to $1.8125; (iii) An Incentive Warrant, registered in the name of such Investor pursuant to which such Investor shall have the right to acquire 173 Incentive Warrant Shares for each $1,000 of such Investor's Additional Investment Amount, at an exercise price equal to $2.20, and an expiration date that is 66 months from the Closing Date and otherwise on terms identical to the Additional Warrants; (iv) The legal opinion of Company Counsel, in agreed form, addressed to the Investors; (v) A perfection certificate, duly completed and executed by the Company and each of its Subsidiaries, in form and substance satisfactory to the Investors or confirmation that the perfection certificate delivered in connection with the Initial Closing is still accurate; (vi) A certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the effect that the representations and warranties of the Company shall be true and correct as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by the Transaction Documents and this Agreement to be performed, satisfied or complied with by the Company at or prior to an Additional Closing Date. The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the issuance of the Additional Debentures, Additional Warrants and Incentive Warrants; and (vii) Such other documents relating to the transactions contemplated by this Agreement as the Investor or its counsel may reasonably request. 7. MISCELLANEOUS. (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof 5 to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. (b) Counterparts. This Agreement may be executed in one or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. (c) Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. (e) Entire Agreement; Effect on Prior Agreements; Amendments. Except for the Transaction Documents (to the extent any such Transaction Document is not amended by this Agreement), this Agreement and the documents referenced herein supersede all other prior oral or written agreements between the Investors, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investors owning at least a majority of the aggregate principal amount of the Debentures then outstanding. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents, holders of Debentures or holders of the Warrants, as the case may be. The Company has not, directly or indirectly, made any agreements with any of the Investors relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. (f) Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, 6 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: If to the Company: Arotech Corporation 632 Broadway Suite 1200 New York, New York 10012 Telephone: (646) 654-2107 Facsimile: (646) 654-2187 Attention: Chief Executive Officer with a copy to: Electric Fuel (E.F.L.) Ltd. One HaSolela Street, POB 641 Western Industrial Park Beit Shemesh 99000, Israel Telephone: 011-972-2-990-6623 Facsimile: 011-972-2-990-6688 Attention: General Counsel If to an Investor: To the address set forth under such Investor's name on the signature pages hereof; or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively. (g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Debentures or the Warrants. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of Debentures representing at least two-thirds of the aggregate principal amount of the Debentures then outstanding, including by merger or consolidation. The Investors may assign some or all of their respective rights hereunder without the consent of the Company, in which event such assignee shall be deemed to be an Investor hereunder with respect to such assigned rights. 7 (h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. (i) Survival. The representations and warranties of the Company and the Investors contained herein, and the agreements and covenants set forth herein, shall survive the Closing. (j) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (k) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. (l) Remedies. The Investors and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to the Investor. The Company therefore agrees that the Investor shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security. 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Exercise Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. AROTECH CORPORATION By:_____________________________________ Name: Title: [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE OF INVESTOR FOLLOWS] 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Exercise Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. SMITHFIELD FIDUCIARY LLC By:_____________________________________ Name: Title: Additional Investment Amount: $2,100,000 Address for Notice: c/o Highbridge Capital Management, LLC 9 West 57th Street, 27th Floor New York, New York 10019 Attention: Ari J. Storch / Adam J. Chill Facsimile No.: (212) 751-0755 Telephone No.: (212) 287-4720 With a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, New York 10022 Facsimile No.: (212) 593-5955 Telephone No.: (212) 756-2376 Attention: Eleazer Klein, Esq. 10 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Exercise Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. OMICRON MASTER TRUST By:_____________________________________ Name: Title: Additional Investment Amount: $600,000 Address for Notice: c/o Omicron Capital L.P. 810 Seventh Avenue 39th Floor New York, New York 10019 Attention: Olivier Morali Facsimile: (212) 803-5269 Telephone: (212) 803-5262 11 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Exercise Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. PORTSIDE GROWTH AND OPPORTUNITY FUND By:_____________________________________ Name: Title: Additional Investment Amount: $900,000 Address for Notice: c/o Ramius Capital Group, L.L.C. 666 Third Avenue, 26th Floor New York, New York 10006 Facsimile No.: (212) 845-7999 Telephone No.: (212) 845-7917 Attention: Jeffrey Solomon Jeffrey Smith 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Exercise Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. MAINFIELD ENTERPRISES INC. By:_____________________________________ Name: Title: Additional Investment Amount: $900,000 Address for Notice: c/o Sage Growth Capital, Inc. 660 Madison Avenue, 18th Floor New York, New York 10021 Attention: Mor Sagi Facsimile: (212) 651-9010 Telephone: (212) 651-9005 13 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Exercise Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. CRANSHIRE CAPITAL L.P. By:_____________________________________ Name: Title: Additional Investment Amount: $900,000 Address for Notice: c/o Downsview Capital, Inc. The General Partner 666 Dundee Road, Suite 1901 Northbrook, IL 60062 Attention: Mitchell D. Kopin Facsimile: (847) 562-9031 Telephone: (847) 562-9030 14 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Exercise Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. CLEVELAND OVERSEAS LTD. By:_____________________________________ Name: Title: Investment Amount: $600,000 Address for Notice: ________________________________________ ________________________________________ ________________________________________ Facsimile No.: (___) ___-____ Telephone No.: (___) ___-____ Attention: ______________ 15 EXHIBITS Exhibit A -- Form of Incentive Warrant EX-4.2 4 v01094_4-2.txt WARRANT EXHIBIT 4.2 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. [__] Date of Original Issuance: December 18, 2003 Arotech Corporation, a Delaware corporation (the "Company"), hereby certifies that, for value received, [Holder] or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of [Number] shares of common stock, $.01 par value (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $2.20 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after June 18, 2004, and through and including June 18, 2009 (the "Expiration Date"), and subject to the following terms and conditions: 1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein shall have the meanings given to such terms in the Securities Purchase Agreement dated as of September 30, 2003 to which the Company and the original Holder are parties (the "Purchase Agreement"). 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified herein. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in substantially the form of this Warrant (any such new Warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. 4. Exercise and Duration of Warrants. (a) This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after June 18, 2004, to and including the Expiration Date. At 6:30 p.m., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value, provided, that if the closing sales price of the Common Stock on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date. The Company may not call or redeem all or any portion of this Warrant without the prior written consent of the Holder. 5. Delivery of Warrant Shares. (a) To effect conversions hereunder, the Holder shall not be required to physically surrender this Warrant unless the aggregate Warrant Shares represented by this Warrant is being exercised. Upon delivery of the Form of Election to Purchase to the Company (with the attached Warrant Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the Company shall promptly (but in no event later than three Trading Days after the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of restrictive legends. The Company shall, upon request of the Holder and subsequent to the date on which a registration statement covering the resale of the Warrant Shares has been declared effective by the Securities and Exchange Commission, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Company or another established clearing corporation performing similar functions, if available, provided, that, the Company may, but will not be required to change its transfer agent if its current transfer agent cannot deliver Warrant Shares electronically through the Depository Trust Company. A "Date of Exercise" means the date on which the Holder shall have delivered to Company: (i) the Form of Election to Purchase attached hereto (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) if such Holder is not utilizing the cashless exercise provisions set forth in this Warrant, payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased. (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder will have the right to rescind such exercise. 2 (c) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after such third Trading Day and prior to the receipt of such Warrant Shares, 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 which the Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue by (B) the closing bid price of the Common Stock at the time of the obligation giving rise to such purchase obligation and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (d) 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, any waiver or consent with respect to any provision hereof, 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, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing herein shall limit a 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 shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Warrant under such circumstances shall also comply with such 3 other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company's obligation to issue the New Warrant. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall be adjusted appropriately to reflect such event. (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "Distributed Property"), then, at the request of any Holder delivered before the 90th day after the record date fixed for determination of stockholders entitled to receive such distribution, the Company will deliver to such Holder, within five Trading Days after such request (or, if later, on the effective date of such distribution), the Distributed Property that such Holder would have been entitled to receive in respect of the Warrant Shares for which such Holder's Warrant could have been exercised immediately prior to such record date. If such Distributed Property is not delivered to a Holder pursuant to the preceding sentence, then upon any exercise of the 4 Warrant that occurs after such record date, such Holder shall be entitled to receive, in addition to the Warrant Shares otherwise issuable upon such conversion, the Distributed Property that such Holder would have been entitled to receive in respect of such number of Warrant Shares had the Holder been the record holder of such Warrant Shares immediately prior to such record date. (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1) the Company effects any merger or consolidation of the Company with or into another Person, (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's option and request, any successor to the Company or surviving entity in such Fundamental Transaction shall, either (1) issue to the Holder a new warrant substantially in the form of this Warrant and consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof, or (2) purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. 5 (e) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock. (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (g) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least 20 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 10. Payment of Exercise Price. The Holder may pay the Exercise Price in one of the following manners: (a) Cash Exercise. The Holder may deliver immediately available funds; or (b) Cashless Exercise. At any time after the earlier to occur of the Effectiveness Date (as defined in the Registration Rights Agreement (as defined in the Purchase Agreement)) and the date such registration statement filed pursuant to the Registration Rights Agreement is declared effective by the Commission, when a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder or the prospectus included therein, is not then effective, the Holder may surrender this Warrant to the Company together with a notice of cashless exercise, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: 6 X = the number of Warrant Shares to be issued to the Holder. Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the Closing Prices (as defined in the Debentures) for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued. 11. Limitation on Exercise. (i) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its affiliates 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 Holder 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 Holder and its affiliates (including, without limitation, any convertible notes, 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 determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in the event of a merger or other business combination or reclassification involving the Company as contemplated in Section 9 of this Warrant. (ii) Principal Market Regulation. The Company shall not be obligated to issue any shares of Common Stock upon exercise of this Warrant if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon exercise of this Warrant without breaching the Company's obligations under the rules or 7 regulations of the Trading Market (the "Exchange Cap"), except that such limitation shall not apply in the event that the Company obtains the approval of its shareholders as required by the applicable rules of the Trading Market for issuances of Common Stock in excess of such amount. Until such approval is obtained, no Purchaser shall be issued, upon exercise of any 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 Warrants issued to such Purchaser pursuant to the Purchase Agreement at the Initial Closing and the denominator of which is the aggregate number of shares of Common Stock underlying all the Warrants issued to the Purchasers pursuant to the Purchase Agreement at the Initial Closing (with respect to each Purchaser, the "Exchange Cap Allocation"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Warrants, the transferee shall be allocated a pro rata portion of such Purchaser'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 Warrants shall exercise all of such holder's 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 Warrants on a pro rata basis in proportion to the shares of Common Stock underlying the Warrants then held by each such holder. 12. No Fractional Shares. No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the Closing Price of one Common Stock as reported on the Trading Market on the date of exercise. 13. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) 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 number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading 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 addresses for such communications shall be: (i) if to the Company, to Arotech Corporation, 632 Broadway, Suite 1200, New York, NY 10012; Facsimile No.: (646) 654-2187, 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, Attn.: General Counsel or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section. 14. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any 8 corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 15. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns. (b) All questions concerning the construction, validity, enforcement and interpretation of this Warrant 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 Warrant (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 Warrant), 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, or that such suit, action or proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 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 Warrant or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Warrant, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys fees and other actual costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. (c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. 9 (d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 10 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: Title: 11 EXHIBIT I EXERCISE NOTICE TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT TO PURCHASE COMMON STOCK AROTECH CORPORATION The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Arotech Corporation, a Delaware corporation (the "Company"), evidenced by the attached Warrant to Purchase Common Stock (the "Warrant"), and tenders herewith payment to the Company of the aggregate exercise price in full, equal to $_____________________, together with all applicable transfer taxes, if any. Please issue the Warrant Shares in the following name and to the following address: Issue to: Facsimile Number: Authorization: Account Number: (if electronic book entry transfer) Transaction Code Number: (if electronic book entry transfer) To the extent the foregoing exercise is for less than the full number of Warrant Shares issuable pursuant to the Warrant, a replacement Warrant representing the remainder of the Warrant Shares issuable (and otherwise of like form, tenor and effect) shall be delivered to holder. The undersigned confirms the continuing validity of, and reaffirms as of the date hereof, the representations and warranties set forth in Section 2 of the Securities Purchase Agreement, dated as of September 30, 2003, by and among the Company and the Buyers named therein. The undersigned agrees to comply with the prospectus delivery requirements (to the extent applicable) under the applicable securities laws in connection with any transfer of the aforesaid Warrant Shares. Date: _______________ __, ______ Name of Registered Holder By:________________________________ Name: Title: 12 EXHIBIT I-b EXERCISE NOTICE TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT TO PURCHASE COMMON STOCK PURSUANT TO CASHLESS EXERCISE PROVISIONS AROTECH CORPORATION Gentlemen: The undersigned, registered holder of the Warrant to Purchase Common Stock delivered herewith, hereby irrevocably exercises such Warrant for, and purchases thereunder, shares of the Common Stock ("Warrant Shares") of Arotech Corporation, a Delaware corporation, as provided below. Capitalized terms used herein, unless otherwise defined herein, shall have the meanings given in the Warrant. The portion of the Exercise Price to be applied toward the purchase of the Warrant Shares pursuant to this Exercise Notice is $_______. Such exercise shall be pursuant to the cashless exercise provisions of Section 10 of the Warrant; therefore, holder makes no payment with respect to this Exercise Notice. The number of shares to be issued pursuant to this exercise shall be determined by reference to the formula in Section 10 of the Warrant which, by reference to Section 10, requires the use of the average of the Closing Prices of the Company's Common Stock for the five Trading Days immediately prior to (but not including) the day immediately preceding the date of this Exercise Notice. The average of the Closing Prices of the Company's Common Stock for the five Trading Days immediately prior to (but not including) the day immediately preceding the date of this Exercise Notice has been determined by holder to be $______, which figure is acceptable to holder for calculations of the number of Warrant Shares issuable pursuant to this Exercise Notice. Please issue the Warrant Shares in the following name and to the following address: Issue to: Facsimile Number: Authorization: Account Number: (if electronic book entry transfer) Transaction Code Number: (if electronic book entry transfer) 13 To the extent the foregoing exercise is for less than the full number of Warrant Shares issuable pursuant to the Warrant, a replacement Warrant representing the remainder of the Warrant Shares issuable (and otherwise of like form, tenor and effect) shall be delivered to holder. The undersigned confirms the continuing validity of, and reaffirms as of the date hereof, the representations and warranties set forth in Section 3 of the Securities Purchase Agreement, dated as of September 30, 2003, by and among the Company and the Buyers named therein. The undersigned agrees to comply with the prospectus delivery requirements (to the extent applicable) under the applicable securities laws in connection with any transfer of the aforesaid Warrant Shares. Date: _______________ __, ______ Name of Registered Holder By:________________________________ Name: Title: 14 Warrant Shares Exercise Log
- ---------------------------------------------------------------------------------------------- Date Number of Warrant Shares Number of Warrant Shares Number of Warrant Available to be Exercised Exercised Shares Remaining to be Exercised - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------
15 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: ___________________________________ 16 -----END PRIVACY-ENHANCED MESSAGE-----