<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>3
<FILENAME>c26617_ex-99.txt
<TEXT>


                      B.O.S. BETTER ON-LINE SOLUTIONS LTD.
                                   BEIT RABIN
                            TERADION INDUSTRIAL ZONE
                                 MISGAV, ISRAEL

                   NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

                         TO BE HELD ON FEBRUARY 18, 2003

To our Shareholders:

You are invited to attend a Special  Meeting of  Shareholders  of B.O.S.  Better
On-Line  Solutions  Ltd.  (the  "Company") to be held in Israel at the Company's
offices at Beit Rabin, Teradion Industrial Zone, Misgav, Israel, on February 18,
2003 at 11 a.m.  local time,  and thereafter as it may be adjourned from time to
time (the "Meeting") for the following purposes:

    1.  To elect Prof. Adi Raveh as an external  director to the Company's Board
        of Directors,  for a three year term.

    2.  To  approve  the  remuneration  and grant of  options  to the  Company's
        directors, who are not employees or consultants of the Company.

    3.  To  approve  the  indemnity  agreements  to be  entered  into  with  the
        Company's directors and officers.

    4.  To elect four out of the following five nominees to the Company's  Board
        of Directors: Moti Weiss, Chanan Schneider,  Israel Guy, Yossi Novak and
        Irit Machtey.

    5.  To review,  discuss and consider the transaction between the Company and
        Catalyst Fund L.P. (without voting authority on the matter).

Items 4 and 5 have been  placed on the agenda,  at the  request of  shareholders
holding at least 5% of the  Company's  issued and  outstanding  stock and voting
rights, to hold a special meeting for this purpose.

Pursuant to the Company's  Articles of  Association,  the Board of Directors has
fixed the close of business on January 14, 2003 as the date for  determining the
holders of record of  Ordinary  Shares  entitled to notice of and to vote at the
Meeting and any adjournments thereof.

The proposals in items 1 through 4 are ordinary  resolutions,  which require the
affirmative  vote of a majority of the Ordinary  Shares of the Company  voted in
person or by proxy at the Meeting on the matter presented for passage.  Proposal
1 must also meet certain other conditions for passage,  as detailed in the proxy
statement. The votes of all shareholders voting on the matter will be counted.

The Board of Directors  believes that the  shareholders of the Company should be
represented as fully as possible at the Meeting and encourages your  attendance.
Whether  or not you  plan to be  present  kindly  complete,  date  and  sign the
enclosed  proxy  exactly as your name  appears on the envelope  containing  this
Notice  of  Special  Meeting  and mail it  promptly  so that  your  votes can be
recorded.  No postage is required if mailed in the United States. Return of your
proxy does not  deprive you of your right to attend the  Meeting,  to revoke the
proxy or to vote your  shares in  person.  All proxy  instruments  and powers of
attorney  must be  delivered  to the Company no later than 48 hours prior to the
meeting. The Company's Proxy Statement is furnished herewith.

Joint  holders of Ordinary  Shares  should  take note that,  pursuant to Article
14.13 of the Articles of Association  of the Company,  the vote of the senior of
joint  holders of any share who  tenders a vote,  whether in person or by proxy,
will be accepted to the exclusion of the vote(s) of the other joint holder(s) of
the share,  and for this purpose  seniority  will be  determined by the order in
which the names stand in the Register of Members.

                                       1
<PAGE>


                      By Order of the Board of Directors,



        Zvika Greengold                                  Israel Gal
Chairman of the Board of Directors         President and Chief Executive Officer



January, 2003




YOUR VOTE IS IMPORTANT.  WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
DATE AND SIGN THE PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED  STAMPED ENVELOPE
FOR WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED  STATES.  YOU CAN LATER
REVOKE YOUR PROXY,  ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON. ALL PROXY
INSTRUMENTS AND POWERS OF ATTORNEY MUST BE DELIVERED TO THE COMPANY'S  CORPORATE
OFFICE NO LATER THAN 48 HOURS PRIOR TO THE MEETING.









                                       2
<PAGE>


                      B.O.S. BETTER ON-LINE SOLUTIONS LTD.
                                   BEIT RABIN
                            TERADION INDUSTRIAL ZONE
                                 MISGAV, ISRAEL

                        SPECIAL MEETING OF SHAREHOLDERS

                        TO BE HELD ON FEBRUARY 18, 2003

                                 PROXY STATEMENT

This Proxy  Statement is furnished to the holders of Ordinary  Shares,  NIS 1.00
nominal value (the "Ordinary  Shares"),  of B.O.S. Better On-Line Solutions Ltd.
("BOS" or the  "Company") in connection  with the  solicitation  by the Board of
Directors for use at the Special  Meeting of  Shareholders  of the Company to be
held in Israel at the Company's offices at Beit Rabin, Teradion Industrial Zone,
Misgav, Israel, on February 18, 2003 at 11 a.m. local time, and thereafter as it
may be adjourned from time to time (the "Meeting"). At the Meeting, shareholders
of the Company will be asked, to vote upon the following matters:

     1. To elect Prof. Adi Raveh as an external  director to the Company's Board
        of Directors, for a three year term.

     2. To  approve  the  remuneration  and grant of  options  to the  Company's
        directors, who are not employees or consultants of the Company.

     3. To  approve  the  indemnity  agreements  to be  entered  into  with  the
        Company's directors and officers.

     4. To elect four out of the following five nominees to the Company's  Board
        of Directors: Moti Weiss, Chanan Schneider,  Israel Guy, Yossi Novak and
        Irit Machtey.

     5. To review,  discuss and consider the transaction between the Company and
        Catalyst Fund L.P. (without voting authority on the matter).

Items 4 and 5 have been  placed on the agenda,  at the  request of  shareholders
holding at least 5% of the  Company's  issued and  outstanding  stock and voting
rights, to hold a special meeting for this purpose.


      A form of proxy for use at the Meeting and a return envelope for the proxy
are also enclosed. By appointing "proxies," shareholders may vote their Ordinary
Shares at the Meeting whether or not they attend. Upon the receipt of a properly
signed  and dated  proxy in the form  enclosed,  the  persons  named as  proxies
therein will vote the Ordinary Shares represented thereby in accordance with the
instructions  of the  shareholder  indicated  thereon,  or, if no  direction  is
indicated,  in accordance with the  recommendations of the Board of Directors of
the  Company.  The  Company  knows of no other  matters to be  submitted  at the
Meeting other than as specified in the Notice of Special Meeting of Shareholders
enclosed with this Proxy Statement. Shares represented by executed and unrevoked
proxies will be voted. On all matters considered at the Meeting, abstentions and
broker  non-votes  will not be treated as either a vote "for" or  "against"  the
matter, although they will be counted to determine if a quorum is present.

      The  proxy  solicited  hereby  may be  revoked  at any  time  prior to its
exercise by means of a written  notice  delivered  to the Company at its mailing
address,  which is c/o American Stock Transfer & Trust Company,  40 Wall Street,
New York, NY 10005, USA, by the substitution of a new proxy bearing a later date
or by a  request  for  the  return  of the  proxy  at  the  Meeting.  All  proxy
instruments  and powers of attorney  must be  delivered  to the Company no later
than 48 hours prior to the meeting.

      The Company  expects to mail this Proxy Statement and the enclosed form of
proxy to  shareholders  on or about  January  17,  2003.  All  expenses  of this
solicitation  will be borne by the Company.  In addition to the  solicitation of
proxies by mail,  directors,  officers and  employees  of the  Company,  without
receiving additional compensation  therefore,  may solicit proxies by telephone,
telegraph,  in person or by other means. Brokerage firms, nominees,  fiduciaries
and other custodians have been requested to forward proxy solicitation materials
to the  beneficial  owners of Ordinary  Shares of the Company  held of record by
such persons, and the Company

                                       3
<PAGE>

will reimburse such brokerage firms, nominees,  fiduciaries and other custodians
for reasonable  out-of-pocket expenses incurred by them in connection therewith.

      SHAREHOLDERS  ENTITLED TO VOTE.  Only holders of record of Ordinary Shares
at the close of business  on January  14, 2003 are  entitled to notice of and to
vote at the  Meeting.  The Company had  12,709,056  Ordinary  Shares  issued and
outstanding  on January 12, 2003,  each of which is entitled to one vote on each
matter to be voted on at the Meeting. The Articles of Association of the Company
do not provide for  cumulative  voting for the election of the  directors or for
any  other  purpose.  The  presence,  in  person  or by  proxy,  of at least two
shareholders holding at least 25% of the voting rights, will constitute a quorum
at the Meeting.

      VOTES REQUIRED. All proposals are ordinary resolutions,  which require the
affirmative  vote of a majority of the Ordinary  Shares of the Company  voted in
person or by proxy at the Meeting on the matter presented for passage.  Proposal
1 must also meet certain other  conditions for passage,  as detailed below.  The
votes of all shareholders voting on the matter will be counted.

1.    ELECTION OF AN EXTERNAL DIRECTOR

      At the meeting,  the Board of Directors  will propose that Prof. Adi Raveh
be appointed to serve as an external director.

      Section 239 of the Israel  Companies  Law,  1999,  requires that companies
whose  shares are publicly  traded have two  external  directors on the board of
directors.  Under the  Companies  Law, no person may be appointed as an external
director if the person or the person's relative, partner, employer or ant entity
under the person's  control,  had within the preceding two years any affiliation
with the company or with any entity  controlling  or  controlled by or under the
common  control  with  the  company.  The  term  affiliation  includes:  (1)  an
employment relationship;  (2) a business or professional relationship maintained
on a regular basis; (3) control; and (4) service as an office holder,  including
as a director.  Furthermore,  no person may serve as an external director if the
person's position or other business activities create, or may create, a conflict
of interest with the person's  responsibilities  as an external director,  or if
the person is a member or employee of the Israel  Securities  Authority or of an
Israeli stock exchange.  If at the time of election of an external  director all
the other directors are of the same gender,  the external director  nominated to
be elected must be of the other  gender.  Under the  Companies  Law, an external
director can be dismissed  from office only if the Board of Directors or a court
determines that he or she no longer meets the requirements for holding office or
that  he or she is in  breach  of his or her  fiduciary  duties,  or if a  court
determines  that he or she is unable to  fulfill  his or her  duties or has been
convicted of specific  crimes.  Under the Companies  Law, the service term of an
external  director  is three (3) years,  and may be extended  for an  additional
three year term. All other directors are elected annually.

      Mr.  Benjamin Giloh was designated as an external  director of the Company
on April 17, 2001. Dr. Yael Ilan was  designated as an external  director of the
Company on November 14, 2002. Mr. Giloh  tendered his  resignation on January 9,
2002, and therefore the Company must appoint  another  external  director in his
place.  The Board of Directors  has  determined  that Prof.  Adi Raveh meets the
requirements  of an external  director.  He is not an officer or employee of the
Company or any subsidiary,  nor does he have a relationship which in the opinion
of the Board of  Directors  would  interfere  with the  exercise of  independent
judgment in carrying out the  responsibilities  of a director.  Prof.  Raveh has
advised the Board of Directors that he intends to serve as an external  director
if elected.

PROF. ADI RAVEH,  55, is a professor and head of the B.A.  Program at the School
of Business Administration,  Hebrew University,  Jerusalem. Since 1998 he served
as an external  director at Clal Insurance  Company Ltd. Since 2002 he served as
the Chairman of the Board of Jerusalem Capital Markets Underwriting  limited. He
also serves as a director of Meitav - a Mutual Funds  Management  company (since
1995),  and as a director of Peilim - a Portfolio  Management  company - part of
Bank Hapoalim Group (since 1996). Since 1992 he is a director who represents the
Hebrew  University  at  Hi-Tech  -  a  Technology  Entrepreneurship  located  at
Har-Hahotzvim,  Jerusalem. Prof. Raveh also serves as a director of two start-up
companies:  A.D.M  (Advanced  Dialysis  Methods Ltd.) and Virtouch Ltd.  Between
1994-1999 he served as a director and a member of the executive committee of the
Bank of  Jerusalem,  Ltd.  Between  1996-1998 he served as a member of an ad-hoc
committee of the Council of Higher  Education.  In 1999 he served as a member of
the Budget Committee for Research at the Israel Science Foundation.  Prof. Raveh
holds a  Ph.D.  from  the  Hebrew  University.  He is the  author  of  about  50
professional  publications,  was a visiting  professor  at Stanford  University,
Columbia  University  and Baruch  College,  N.Y.,  and has  received a number of
grants and honors.

                                       4
<PAGE>


Information regarding the other directors of the Company:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
NAME                    AGE           POSITION                 ORDINARY SHARES       PERCENTAGE
                                                         BENEFICIALLY OWNED AS OF   OF HOLDINGS
                                                                RECORD DATE         (BENEFICIAL)
------------------------------------------------------------------------------------------------
<S>                     <C>                                      <C>                  <C>
Mr. Zvi Greengold       50    Chairman of the Board                ------             ------
------------------------------------------------------------------------------------------------
Mr. Israel Gal          51    Director, President and CEO        1,285,329 (1)         10.4%
------------------------------------------------------------------------------------------------
Mr. Eli Ben-Mayor (2)   61    Director                             ------             ------
------------------------------------------------------------------------------------------------
Dr. Yael Ilan (2)       54    External Director                    ------             ------
------------------------------------------------------------------------------------------------
Mr. Elon Littwitz       50    Director                             ------             ------
------------------------------------------------------------------------------------------------
Mr. Yoav Navon          51    Director                             ------             ------
------------------------------------------------------------------------------------------------
</TABLE>
(1)  Does not include indirect ownership of 977,869 Ordinary Shares owned by Ms.
     Yael Gal, Mr. Israel Gal's spouse, as to which Mr. Gal disclaims beneficial
     ownership.

(2)  Member of the Audit Committee

MR. ZVI  GREENGOLD,  50, has been a director  since June 2002, and was appointed
Chairman in September  2002.  Mr.  Greengold is currently  self-employed  in the
field of industrial management, promotion and consulting, and serves as Chairman
of Polysac  Ltd.  From 2000 to 2001 he served as Managing  Director of Caribbean
Petroleum,  Corp.,  a company that  manufactures  and markets  fuel  products in
Puerto Rico.  From 1999 to 2000 he served as General  Manager of the Israeli Oil
Refineries Ltd. From 1996 to 1998 Mr. Greengold  served as Managing  Director of
Electrochemical  Industries  (1952)  Ltd.  (traded  on  TASE),  a  company  that
manufactures  polyvinyl chloride and unorganic  chemicals.  From 1986 to 1996 he
held various positions with  Electrochemical  Industries (1952) Ltd.,  including
Chief  Financial  Officer,  Vice President of Organization  and Logistics,  Vice
President of Finance and Organization and Vice Managing Director.  Mr. Greengold
currently  serves as an external  director of two public Israeli  companies.  He
holds a B.A degree in Economics  and  Administration  from the Rupin  College in
Israel.

MR. ISRAEL GAL, 51, B.O.S.' founder,  served as B.O.S.' Chief Executive  Officer
and President from its inception in 1990 until January 2002, and then again from
September  2002 until today.  Mr. Gal was the Chairman of the Board of Directors
from  1990  until  2000  and  also  serves  as the  CEO of one of the  Company's
subsidiaries,  BOScom Ltd.  From 1983 to 1989,  Mr. Gal served as IBM  mid-range
product manager at IIS. In 1989, Mr. Gal served as the product manager for sales
and marketing of IIS in the United  States.  In 1979,  Mr. Gal  co-founded  Liad
Electronics  Ltd. where he worked until 1983.  From 1976 to 1979, Mr. Gal served
as research and development  engineer and product manager for Elbit Ltd. Mr. Gal
received  a   Bachelors   of  Science  in   Electronic   Engineering   from  the
Technion-Israel Institute of Technology (the "Technion"). Mr. Eli Ben-Mayor, 61,
has been a director since June 2002. Mr.  Ben-Mayor  currently serves as General
Manager of ACME  International  Trading Ltd., a subsidiary  of a  multi-national
corporation,  specializing in importation,  packaging and  distribution of white
cement,  operating an advanced  storage and production  facility near the Ashdod
port. Previously he was the General Manager of Rogosin Ltd. where he implemented
a program  geared to improve the  operational  and  financial  situation  of the
company.  Prior to joining  Rogosin,  Mr. Ben-Mayor served as General Manager of
several  companies  within the Clal  Industries  group.  Recently he concluded a
five-year  service  term as a director  of ICL Israel  Chemicals  Financing  and
Issuing Ltd. Mr. Ben- Mayor holds a B.Sc. degree in Mechanical  Engineering from
the  Technion  -  Israel  Institute  of  Technology,  and an MBA  from  Tel-Aviv
University.

DR. YAEL ILAN,  54, has been an external  director since November 2002. Dr. Ilan
is the president of Yedatel Ltd., an economic consulting company,  and serves as
a director in a number of corporations,  most of them in the technology  sector.
Until 1998 she served on the board of Bezeq - Israel's Telecommunication Company
in which she headed the committee of technological policy and infrastructure and
was a member of the audit committee and the committee for strategic planning and
investment.  From 1998 through 2000 she served as an external  director of Elron
Industries.  In 2000-01 she founded and managed Optichrom,  an optical component
start-up.  From 1995  through 2000 Dr. Ilan served as the head of the Broad Band
Communication  program  administration,  a  consortium  of MAGNET - the  Israeli
Government hi-tech cooperation initiative.  Dr. Ilan holds a Ph.D. in industrial
engineering  from Stanford  University,  a Ph.D. in physical  chemistry from the
Hebrew  University  and a Masters  degree in  business  administration  from the
Hebrew University.

                                       5
<PAGE>


MR. ELON LITTWITZ,  50, has been a director since January 2003. Mr.  Littwitz is
currently  self-employed  in the  field  of  telecommunications  and  enterprise
networking  entrepreneurship  and  consulting.  From  2001 to 2002 he  served as
President  and from 1999 to 2000 as CEO and  Chairman  of Trellis  Photonics,  a
company that he founded that  developed  optical  switching  technology  for the
telecommunication  market.  From  1998  to  1999  he  was  self-employed  and  a
consultant to startup companies.  From 1993 to 1996 he served as Co-President of
Ornet Data  Communication,  a company that he  co-founded,  that  developed  and
marketed  LAN  switches.  The company was sold in 1995 to Siemens.  From 1989 to
1992 he served as Product  Line  Manager and Chief  Engineer in the research and
development  department of Fibronics  Inc. From  1984-1989 he served as research
and  development  engineer and project manager for Fibronics Inc. From 1979-1984
he served as research and development engineer for Elbit Ltd. Mr. Littwitz holds
Master of Science and  Bachelors  of Science  degrees  from the  Technion-Israel
Institute of Technology (the "Technion") and a Master in Business Administration
degree from the Hebrew University.

MR. YOAV NAVON,  51, is an independent  consultant  with management and Board of
Directors' positions for several companies, for the past 12 years. Since 1993 he
is the Vice Chairman of Tuffy  Associates  Corp.,  an Ohio, USA, based franchise
company with 450 car-service centers in the U.S. Between 1998 and 2000 he served
as the  Chairman of the Board of John Bryce  Systems & Training  Ltd.,  Israel's
leading group for IT Training,  e-learning  and ERP  projects.  Between 1996 and
1999 he  served as  Chairman  of the Board of  Tzabar  Ltd.  (traded  on TASE) -
Israel's  largest  internal  tourism  operator,  and to-date he is still a board
member. Between 1994 and 2001 he served as the COO & VP Business Development for
ICTS International  N.V. (Nasdaq:  ICTS) - an Amsterdam,  Holland,  based public
company - a world leading provider of Security & Passenger Handling services for
airlines and airports,  employing about 14,000 people and operating in more than
100 U.S.  and  European  airports.  Since 1999 to-date he is the Chairman of the
Board of Techimage  Ltd., a software  development  company,  specializing  in 3D
Pattern   Recognition  and  Facial  Animation   applications  for  the  Security
(Biometrics),  Entertainment and Mobile Telephony industries. Mr. Navon holds an
Industrial & Management Engineer degree from Tel Aviv University.

At the  meeting,  the  Board  of  Directors  will  propose  that  the  following
resolution be adopted:

"RESOLVED to appoint Prof. Adi Raveh as an external director of the Company,  to
hold office for three years from the date of the meeting".

According  to the  Companies  Law,  the  affirmative  vote of a majority  of the
Ordinary  Shares  represented  at the  meeting  in person or by proxy and voting
thereon is required to elect an external director,  including at least one-third
of the shares voted at the meeting by Non-Controlling  Shareholders1 (unless the
total shares of the Non-Controlling Shareholders voted against the resolution do
not represent  more than one percent of the voting  rights in the Company).  For
this purpose,  abstentions shall not be counted as Non- Controlling  Shareholder
votes.

Upon the  receipt of a  properly  signed  and dated  proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the above-mentioned proposal.


--------------------
(1)   In May 2000,  Israel  Gal,  Yael Gal,  Jacob Lee and Miran Lee (the "major
      shareholders")  entered into a voting agreement (the  "Agreement") with D.
      Partners (Israel) Limited Partnership,  D. Partners (BVI) L.P., Isal Amlat
      Investments  (1993) Ltd., M. Wertheim  Holdings  Ltd.,  Ellesan Inc.,  and
      Danlin  Investment  Management  Ltd., a group of investors who invested in
      the Company in May 2000 (the  "investors").  Under the Agreement the major
      shareholders,  as a group, and the investors,  as a group,  agreed to vote
      their  shares to each elect an equal  number of  directors to our board of
      directors  representing  each group.  The Agreement  provides that, if one
      group has holdings which are more than 33-1/3 greater than the holdings of
      the  other  group,  the  former  shall  appoint  an  additional  director.
      Recently,  members of the investors  group,  notified members of the major
      shareholders  group,  that in their  opinion the latter had  breached  the
      Agreement and therefore it is not in force any longer.  The members of the
      major  shareholders  group  deny  these  allegations  and  hold  that  the
      Agreement is still in force.

      As a  consequence  of the  Agreement,  so long and provided  that it is in
      force,  all  parties  to  the  Agreement  are  deemed  to be  "Controlling
      Shareholders" due to their ability, as a group, to influence the Company's
      activities, by nominating the directors of the Company.

      Israel and Yael Gal have also entered into a voting  agreement  with Jacob
      and Miran Lee (the  "Gal-Lee  Agreement"),  under which each agree to vote
      their shares to elect 3 individuals  designated by the Gals,  and 2 by the
      Lees, to the Company's board of directors.  The current aggregate holdings
      of the Gals and the Lees,  exceed 25% of the Company's  total  outstanding
      shares.  As a consequesnce  of the Gal-Lee  Agreement,  all parties to the
      Gal-Lee Agreement are deemed to be "Controlling Shareholders",  whether or
      not the Agreement between  themselves and the investors,  described above,
      is in effect.

                                       6
<PAGE>

2.  REMUNERATION  AND GRANT OF OPTIONS TO THE COMPANY'S NON  EMPLOYEE/CONSULTING
    DIRECTORS

  A.   REMUNERATION

     The Audit Committee and then the Board of Directors have approved  (subject
to  Shareholder  approval)  the  remuneration  of the  directors  of the Company
(including  directors  appointed  in the future) who are not  employees  or paid
consultants  of the  Company2,  at the same rate the  external  directors of the
Company are paid,  and with  respect to Messrs.  Greengold  and  Ben-Mayor,  the
remuneration shall be paid retroactively  since the date of their appointment to
the Board of Directors in June 2002.  At the Annual  General  Meeting held March
13,  2002  the  shareholders  resolved  to  remunerate  the  external  directors
according to the maximum rate permitted now and in the future by Israeli law and
regulation.  The current rates for companies the size of ours, are an annual fee
of  approximately  $5400,  and a participation  fee in meetings of approximately
$280.

     Under the Israeli  Companies Law, 1999, the  remuneration  of the directors
must be approved by the  shareholders  of the company.  In  compliance  with the
Companies  Law, at the  meeting the Board of  Directors  will  propose  that the
following  resolution  (which has been  approved by the Audit  Committee and the
Board of Directors - excluding those directors having a personal interest in the
decision), be adopted:

     "RESOLVED,  that the proposed  remuneration to all directors of the Company
(including  directors  appointed  in the future) who are not  employees  or paid
consultants  of the  Company,  according  to the  rates  paid  to the  Company's
external  directors,  be, and hereby is, approved,  and that the remuneration of
Messrs.  Greengold and Ben-Mayor be paid  retroactively  since the date of their
appointment to the Board of Directors in June 2002."

     Upon  receipt of a properly  signed  and dated  proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the proposal.

  B.   OPTIONS

     The Audit Committee and then the Board of Directors have approved  (subject
to  Shareholder  approval) the issuance of a one-time grant of 30,000 options to
purchase  Ordinary  Shares  (the  "Options")  of the  Company,  under one of the
Company's  Stock Option Plans (at the discretion of the Board of Directors),  to
all current Company directors  (including the external directors) and any future
first-time  directors who are not employees or paid consultants of the Company2.
The terms and conditions of the grant are as follows:

     EXERCISE  PRICE - The  exercise  price  of all of the  Options  will be the
     closing price of the Company's  Shares on the Nasdaq National Market on the
     date of the approval by the Special Meeting of this resolution.

     OPTION TERMS- The Options will vest and become exercisable over a period of
     three  years,  in three equal parts as follows:  33.33% after one year from
     the date of grant, with an additional 33.33% becoming  exercisable upon the
     expiration of each of the two years thereafter.

     MAXIMUM OPTION TERM - Five years from grant.

     PAYMENT - Payment for Ordinary  Shares  purchased  upon exercise of Options
     must be made in full upon exercise of the Option,  by cash or check or cash
     equivalent,  or by the  assignment of the proceeds of a sale of some or all
     of  the  shares  being  acquired  upon  exercise  of an  Option,  or by any
     combination of the foregoing.

     RESTRICTIONS  ON TRANSFER OF PLAN SHARES - Options are exercisable in whole
     or in part at such  times  after  the  date of grant  as set  forth  above.
     Options are  exercisable  during the lifetime of the Option  holder only by
     such Option  holder,  and may not be assigned or  transferred  except by an
     advance approval of the Company's Audit  Committee,  by will or by the laws
     of descent and distribution.  Options shall be exercisable  during the term
     the Option  holder holds office as a director of the

----------------------------
(2)  At the present time, Mr. Israel Gal is the only director who is an employee
     of the  Company,  and  therefore  is not  entitled to the  remuneration  or
     options being granted to the directors.


                                       7
<PAGE>


     Company  or  within 60 days  after  leaving  this  position,  with  certain
     exceptions in the case of the Option holder's death or disability.

     It  should  be noted  that a  similar  option  grant  was  approved  by the
shareholders  at the Annual General  Meeting held March 13, 2002.  However,  all
non-employee/consulting  directors then in office, who were granted the options,
no longer serve as directors of the Company and their options have been returned
to the option pool.

     The  general  purpose  of the  issuance  of the  Options  is to  provide an
incentive to the Company's  directors,  and thereby enable such persons to share
in the future  growth of the  business of the  Company.  The Board of  Directors
believes  that the granting of stock options  promotes  continuity of management
and increases  incentive and personal  interest in the welfare of the Company by
those who are primarily  responsible for shaping and carrying out the long range
plans of the Company and securing its growth and financial success.

     Under the Israeli  Companies  Law,  1999,  the  conditions  of a director's
service with the company, including the issuance of share options to a director,
must be approved by the  shareholders  of the company.  In  compliance  with the
Companies  Law, at the  meeting the Board of  Directors  will  propose  that the
following  resolution  (which has been  approved by the Audit  Committee and the
Board of Directors - including those directors having a personal interest in the
decision, being the majority), be adopted:

     "RESOLVED,  that the issuance of 30,000 options to purchase Ordinary Shares
of  the  Company  to  each  director  of the  Company  (including  the  external
directors) and any future  first-time  director,  who is not an employee or paid
consultant  of the  Company,  under the  above-mentioned  terms  and  conditions
approved by the Board of Directors, be, and hereby is, approved."

     Upon  receipt of a properly  signed  and dated  proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the proposal.

3.   APPROVAL OF INDEMNITY UNDERTAKINGS BY THE COMPANY TO ITS DIRECTORS

     The  Companies  Law,  1999,  provides  that a company  may  include  in its
articles of association  provisions which allow it to: (A) enter into a contract
to insure the  liability of an Office Holder of the company by reason of acts or
omissions  committed in his or her  capacity as an Office  Holder of the company
for:  (i) the  breach of his or her duty of care to the  company  or to  another
person;  (ii) the breach of his or her duty of fidelity to the company  provided
that he or she acted in good  faith and had a  reasonable  basis to assume  that
such act would not harm the  company;  and (iii) a monetary  obligation  imposed
upon him or her in favor of another  person;  and (B) indemnify an Office Holder
of the company by reason of acts or  omissions  committed in his or her capacity
as an Office Holder of the company for: (i) a monetary  obligation  imposed upon
him or her by a court judgment,  including a settlement or an arbitrator's award
approved by court; and (ii) reasonable litigation expenses, including attorney's
fees,  incurred  by an Office  Holder or which he or she is  ordered to pay by a
court:  (a) in a  proceeding  filed  against  him or her by or on  behalf of the
company or by another person, (b) in a criminal  indictment from which he or she
was acquitted, or (c) in criminal indictment in which he or she was convicted of
an offense which does not require proof of criminal intent.

     The  Companies Law provides that a company's  articles of  association  may
permit the Company to indemnify an Office Holder  following a  determination  to
this effect made by the Company after the  occurrence of the event in respect of
which the Office Holder will be indemnified,  and may also permit the company to
undertake  in  advance  to  indemnify  an  Office  Holder,   provided  that  the
undertaking  is limited to types of  occurrences,  which,  in the opinion of the
company's  board of  directors,  at the time of giving the  undertaking,  may be
anticipated,  and to an amount which the board of directors  has  determined  is
reasonable  in the  circumstances.  Article  22 of  the  Company's  Articles  of
Association permits the Company to do so.

     The  Companies  Law provides  that a company may not  indemnify,  exempt or
enter into an insurance  contract which would provide coverage for the liability
of an Office Holder for: (A) a breach of his or her duty of fidelity, except, as
regards  insurance,  to the extent  described  above; (B) a braech of his or her
duty of  care  which  was  committed  intentionally  or  recklessly;  (C) an act
committed  with the intention to realize a personal  unlawful  profit;  or (D) a
fine or monetary penalty imposed upon him or her.

                                       8
<PAGE>


     The Audit  Committee and the Board of Directors  have resolved  (subject to
shareholders  approval),  to indemnify the Company's Office Holders by providing
them with a Letter  of  Indemnification  substantially  in the form set forth in
Appendix A hereto.

     Indemnification  of an  Office  Holder  of a  company  requires,  under the
Companies  Law, the approval of the company's  board of directors,  and, in some
circumstances, including if the Office Holder is a director, the approval of the
company's audit committee and shareholders.

     Accordingly,  at the meeting the Board of  Directors  will propose that the
following  resolution  (which has been  approved by the Audit  Committee and the
Board of  Directors -  including,  in both,  those  directors  having a personal
interest in the decision, being the majority), be adopted:

"RESOLVED:

(a)  that the Company  undertake to  indemnify  all  Directors  and other Office
     Holders of the Company without the need for further act or approval, to the
     extent,  for such  matters  and  substantially  in the  form  set  forth in
     Appendix A to the Company's Proxy Statement,  including with respect to any
     acts or omissions  made in their  capacity as Office  Holders  prior to the
     date  hereof,  all  subject to and as set forth in said  Appendix A, and to
     issue letters of indemnification substantially in the form of said Appendix
     A to them,  and that the  Chairman of the Board of Directors of the Company
     or the CEO of the Company  and/or any person  designated  by either of them
     be, and they hereby are, authorized to execute and deliver any such letters
     of indemnification in the name of the Company and on its behalf; and

(b)  that for the  purposes  hereof,  the term "all  Directors  and other Office
     Holders"  shall mean (i)  Directors and other Office  Holders  currently in
     office;  and (ii) any additional or other Directors or other Office Holders
     as may be appointed from time to time; and the term "Office  Holders" shall
     include  Directors  or  officers of the Company as shall serve from time to
     time including,  without limitation, those persons defined as "Nosei Misra"
     in Part 1 of the Israeli  Companies Law, 1999."

     The  affirmative  vote of the holders of a majority of the voting  power of
the Company  represented  at the meeting in person or by proxy and voting on the
said resolution is necessary for approval thereof,  including, solely as regards
the proposal to indemnify Mr. Israel Gal, at least one-third of the shares voted
at the  meeting by  Non-Controlling  Shareholders  (unless  the total  shares of
Non-Controlling  Shareholders  voted against such  resolution does not represent
more than one percent of the voting rights in the Company).

     Upon  receipt of a properly  signed  and dated  proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby FOR the proposal.

4.   ELECTION OF ADDITIONAL DIRECTORS

     Certain  shareholders of the Company,  holding at least 5% of the Company's
issued and outstanding stock and voting rights, have requested to hold a special
meeting  for the  purpose  of  nominating  the  following  nominees  to serve as
directors of the Company. However, the Company's Articles of Association provide
that the number of directors shall be determined from time to time by the annual
general  meeting,  provided  that it shall  not be less  than four nor more than
eleven.  At the  annual  general  meeting  held  April 17,  2001,  the number of
directors was set at 11 (although less were  appointed at that meeting).  As the
Company already has 6 encumbent  directors,  with Prof. Raveh's nomination as an
external  director  pending  (resolution 1), only four out of the following five
nominees suggested by the shareholders may be elected to join the Board:

MR. MOTI WEISS,  51, was a director and consultant to the Company from July 2000
and was appointed  Chief  Executive  Officer of B.O.S. in January 2002 until his
resignation  in August  2002.  Mr. Weiss is  currently  the Managing  Partner of
Plenus  Technologies,  an Israeli based venture capital fund, and a board member
of Tecnomatix Technologies Ltd. (NASDAQ:TCNO). From 1995 through 1999, Mr. Weiss
served as CFO and later COO of Sapiens International Corporation  (NASDAQ:SPNS),
and from 1985  through  1995  served as CFO and later COO of Oshap  Technologies
Ltd.

MR.  CHANAN  SCHNEIDER,  31, is the  Managing  Director  and head of the Private
Equity Division at Israel  Discount  Capital Markets & Investments Ltd (DCM). He
established  the Golden Gate Bridge Fund and the Vitalife life sciences fund for
DCM and is a member of their, as well as Alon Technology Ventures',

                                       9
<PAGE>

investment  committees.  He sits on the board of  directors  of  several  of the
funds'  portfolio  companies.  From 1995 to 1997,  Mr.  Schneider  was part of a
management team of $30 million investment fund at Poalim Capital Markets,  where
he was the lead manager in several  portfolio  companies.  Mr. Schneider holds a
law degree from Sha'arey  Mishpat College of Law, and a Bachelors degree and MBA
in business and economics from Bar Ilan University.

MR. ISRAEL GUY, 55, has over 30 years of  experience in the high tech  industry.
He is the  co-founder  and Managing  Director of Peri & Guy Ltd.,  an investment
banking and consulting firm  specializing in providing  financial,  business and
management  services  to early  stage  Israeli  start-ups.  Mr. Guy was also the
founder,  coowner and Manager of Compro Software  Systems Ltd. from 1985 to 1997
when he led its  successful  sale to  Ness  Technologies.  From  1980 to 1985 he
worked as a sales manager at Digital Equipment  (Israel),  and from 1971 to 1980
he  served  in the  Israel  Air Force as a Project  Group  Manager  in  software
development,  being honorable  discharged  with the rank of major.  Mr. Guy is a
graduate of the Hebrew  University at Jerusalem with a B.Sc. in mathematics  and
physics.

MR. YOSSI NOVAK, 49, was the General Manager of Ze'evi Aviation and Logistics, a
holding  company  that  includes  Balkan  Air,  Overseas,  Transclal  and ATI, a
Hungarian  logistics company.  From 1997 to 1999 he served as General Manager of
Mamman,  a company of 1100  employees  with  revenues of $80  million,  and from
1996-97 he was CFO and VP Business  Development  of  Ta'avura,  a company of 900
employees  with a turnover  of $180  million a year.  Mr.  Novak was also CFO at
Nesher, and later its mother company Mashab,  between the years 1983 to 1995. He
holds a B.A.  in  economics  and  political  science  and an MBA  from  Tel Aviv
University.

MS. IRIT MACHTEY,  47, has vast experience in the field of Human Resources.  She
is presently the Senior VP  Organization  and Human  Resources at Radvision Ltd.
Prior to this,  she worked as a Managerial  and  Organization  consultant  at My
Time, consulting high tech companies and coaching HR manager. Ms. Machtey was VP
Human  Resources at Cellcom Ltd. from 1999 to 2000 and at Sapiens  International
from 1996-99. During that time, she was a Board member of the Milo Institute and
served as a senior HR advisor to the Israeli  Institute of  Management.  Between
1983-1996,  she served in various HR positions at National  Semiconductor,  Teva
Pharmaceuticals,  Tadiran Ltd. and the Sharon  Hotel.  Ms.  Machtey holds a B.A.
degree in Behavior Science from Ben Gurion University.

     As stated  above,  only four out of the five  nominees  may be  elected.  A
nominee  receiving more votes "against" than votes "for" the nominee,  shall not
be elected.  In case all five nominees  receive more votes "for" their election,
than votes "against"  their election,  those four receiving the most votes "for"
their  election,  shall be elected.  A proxy card  instructing the proxy to vote
"for" all five nominees shall be  disqualified  and shall not be counted for the
purpose of  computing  votes on this  proposal,  although  it will be counted to
determine if a quorum is present.

     The Board of Directors  recommends  that the  shareholders  appoint Messrs.
Schneider,  Guy and Novak,  and Ms. Machtey,  to join the Company's  Board.  The
Board of Directors  recommends voting AGAINST the election of Mr. Moti Weiss, as
the Company was dissatisfied with his performance as the Company's CEO until his
resignation in August 2002.

At the  Meeting,  the  Board  of  Directors  will  propose  that  the  following
resolution be adopted:

"RESOLVED to appoint Messrs.  Schneider,  Guy and Novak and Ms. Machtey, but not
Mr. Weiss, as directors of the Company, to hold office until the upcoming Annual
General Meeting of shareholders".

     Upon the receipt of a properly signed and dated proxy and unless  otherwise
instructed on the proxy,  the persons named in the enclosed  proxy will vote the
shares represented thereby as recommended by the Board of Directors.

5.   TRANSACTION WITH CATALYST INVESTMENTS, L.P.

     The Board of Directors has recently  approved a  transaction  with Catalyst
Investments,  L.P. ("Catalyst"), in relation to which a term sheet was signed in
late  November  2002 and  reported on Form 6-K,  under  which the Company  shall
purchase  most of  Catalyst's  Preferred  C Shares in Surf  Communications  Ltd.
("Surf"), as well as a PRO RATA share of the Surf warrants held by Catalyst, and
in  exchange  it will issue and

                                       10
<PAGE>


allocate to Catalyst  19.9% of its  current  outstanding  shares (as a result of
which  Catalyst  will  hold  16.6% of the  outstanding  BOS  shares,  after  the
issuance).  The Company  shall have an option until January 31, 2006 to purchase
the remaining  Catalyst  shares in Surf and until such purchase shall be granted
voting  rights in these Surf  shares,  in addition to being  entitled to profits
resulting from the sale of these shares to a third party (profit  defined as the
difference between the actual sale price and the Company's exercise price, after
deduction of tax due by  Catalyst).  Upon  completion  of the  transaction,  the
Company will become the largest shareholder in Surf.

     Before  approving  the  transaction,  the Company  conducted  due diligence
investigations,  received reports regarding the valuation of Surf and of BOS, as
well as a fairness  opinion from Prof.  Aharon Ofer, a professor at the Tel-Aviv
University  Graduate  School of Business,  according to which the transaction is
fair to the BOS shareholders.

     Prior to the  Board's  resolution  to enter into the  transaction,  certain
shareholders  of the Company,  holding at least 5% of the  Company's  issued and
outstanding stock and voting rights, requested to hold a special meeting for the
purpose  of  reviewing,   discussing  and  considering  the   transaction.   The
shareholders do not have authority to vote and decide upon the matter. The Board
resolved  that  at  the  Special  Meeting  it  would  place  on the  agenda  the
shareholders'  proposal to review, discuss and consider the transaction (without
voting on the matter, as the shareholders are lacking such authority),  but also
decided that the best interest of the Company  requires the approval and closing
of the transaction  without waiting for such discussion of the shareholders.  It
should be noted, however, that representatives of the shareholders who requested
the special  meeting on this  matter,  were  invited to present  their  position
before the Board of Directors,  prior to the Board of Directors' resolution, and
did in fact do so. On January 14, 2002, the  requisitioning  shareholders  filed
suit against the Company  demanding that a shareholders  meeting be convened and
requesting  a  declaratory   judgement  that  the   transaction  is  subject  to
shareholder  approval.  The court has issued a temporary  restraining  order, EX
PARTE,  prohibiting  the Company from  signing the  transaction  agreements  and
closing the deal, and has scheduled a hearing for February 3, 2003.


                      By Order of the Board of Directors,


          Zvika Greengold                                Israel Gal
Chairman of the Board of Directors         President and Chief Executive Officer



January, 2003






                                       11
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                                       12
<PAGE>


                                                                      APPENDIX A

INDEMNIFICATION AGREEMENT

This INDEMNIFICATION AGREEMENT (the "AGREEMENT") is made as of _________,  2002,
by and between B.O.S Better On-Line  Solutions  Ltd., a company  organized under
the laws of the State of Israel with offices at Teradion, Industrial Zone Misgav
(the "COMPANY"), and _____________ ("INDEMNITEE").

WHEREAS,  the Company  desires to attract and retain  Indemnitee  to serve as an
Office Holder in the Company and to provide  Indemnitee with protection  against
liability and expenses incurred while acting in that capacity;

WHEREAS,  the Company understands that Indemnitee has reservations about serving
the Company without adequate protection against
personal  liability  arising from such service,  and that it is also of critical
importance to Indemnitee that adequate provision be made for advancing costs and
expenses  of  legal  defense;  and

WHEREAS,  the  Board  of  Directors  and the
shareholders  of the Company have approved  this  Agreement as being in the best
interests of the Company.

NOW,  THEREFORE,  in order to induce Indemnitee to serve or to continue to serve
as an Office Holder of the Company the parties agree as follows:

1.   CONTRACTUAL INDEMNITY.

     The Company hereby agrees, subject to the limitations of Sections 2, 3, and
     6 hereof,  and the  limitations  mentioned  in the  Company's  Articles  of
     Association, to indemnify Indemnitee, to the greatest extent possible under
     applicable  law,  against any liability or expense in respect of any act or
     omission of  Indemnitee  in his capacity as an Office Holder of the Company
     or of a company  controlled,  directly  or  indirectly,  by the  Company (a
     "Subsidiary"),  or as a director or observer at Board meetings of a company
     not controlled by the Company but in which the appointment as a director or
     observer results from the Company's  holdings in such company or is made at
     the Company's request ("Affiliate"),  including:  (i) a monetary obligation
     imposed  on  Indemnitee  in favor of  another  person by a court  judgment,
     including a judgment given in settlement or an arbitrator's  award approved
     by court; (ii) reasonable  litigation expenses,  including attorneys' fees,
     expended by Indemnitee or charged to Indemnitee by a court, in a proceeding
     instituted against Indemnitee by the Company or on its behalf or by another
     person, or in a criminal charge from which Indemnitee was acquitted,  or in
     a criminal  proceeding in which Indemnitee was convicted of an offense that
     does not  require  proof  of  criminal  intent  (collectively  referred  to
     hereinafter as "CLAIM").

     The Company  shall  indemnify  the  Indemnitee  with  respect to actions or
     ommissions  occurring during his position as an Office Holder,  even if (i)
     occurred prior to the signing of this document or (ii) at the time of Claim
     Indemnitee is no longer an Office Holder.

     The termination of any action or proceeding by judgment, order, settlement,
     conviction, or upon a plea of nolo contendere or its equivalent, shall not,
     of itself,  create a presumption  that (i)  Indemnitee  did not act in good
     faith and in a manner  which  Indemnitee  reasonably  believed to be in the
     best interests of the Company,  or (ii) with respect to any criminal action
     or proceeding, Indemnitee had reasonable cause to believe that Indemnitee's
     conduct was unlawful.

2.   LIMITATIONS ON CONTRACTUAL INDEMNITY.

     2.1  Indemnitee shall not be entitled to  indemnification  under Section 1,
          for financial  obligation  imposed consequent to any of the following:
          (i) a  breach  of the  duty  of  fidelity  by  Indemnitee;  or  (ii) a
          violation of the Indemnitee's duty of care towards the Company,  which
          was committed  intentionally or recklessly;  or (iii) an act committed
          with the intention to realize a personal  unlawful  profit;  or (iv) a
          fine or monetary penalty imposed on Indemnitee;  or (v) a counterclaim
          made by the Company or in its name in connection  with a claim against
          the  Company  filed  by  Indemnitee.

     2.2  The Company undertakes to indemnify all Office Holders it has resolved
          to  indemnify  for  the  matters  and in the  circumstances  described
          herein,  jointly and in the  aggregate,  in excess


                                       13
<PAGE>

          of 14 the insurance  proceeds  received pursuant to Section 9, a total
          amount  over the  years,  that  shall not  exceed  an amount  equal to
          US$2,500,000  (two million five hundred thousand US dollars),  or such
          greater  sum  as  shall,  from  time  to  time,  be  approved  by  the
          shareholders of the Company.

3.   LIMITATION OF CATEGORIES OF CLAIMS. The indemnification pursuant to Section
     1 above,  shall only relate to liabilities  arising in connection with acts
     or  omissions  of  Indemnitee  in  respect  of  the  following  events  and
     circumstances  which are deemed by the Board of Directors of the Company to
     be foreseeable at the date hereof:

     3.1  The  offering  of  securities  by the  Company,  a  Subsidiary,  or an
          Affiliate  and/or by a  shareholder  thereof to the  public  and/or to
          private investors or the offer by the Company, a Subsidiary, and/or an
          Affiliate to purchase  securities  from the public and/or from private
          investors  or other  holders  pursuant  to a  prospectus,  agreements,
          notices, reports, tenders and/or other proceedings;

     3.2  Occurrences  including reporting obligations resulting from the status
          of the Company  and/or a  Subsidiary  and/or an  Affiliate as a public
          company, and/or from the fact that the securities thereof were offered
          to the public and/or are traded on a stock exchange, whether in Israel
          or abroad;

     3.3  Occurrences  in  connection   with   investments  the  Company  and/or
          Subsidiaries  and/or  Affiliates  make in other  corporations  whether
          before  and/or  after  the  investment  is  made,  entering  into  the
          transaction,  the  execution,   development  and  monitoring  thereof,
          including actions taken by an Office Holder in the name of the Company
          and/or a  Subsidiary  and/or  an  Affiliate  as a  director,  officer,
          employee  and/or board observer of the  corporation the subject of the
          transaction  and the  like;

     3.4  The sale,  purchase  and  holding of  negotiable  securities  or other
          investments for or in the name of the Company,  a Subsidiary and/or an
          Affiliate;

     3.5  Actions in  connection  with the merger of the  Company,  a Subsidiary
          and/or an Affiliate with or into another entity;

     3.6  Actions in connection with the sale of the operations and/or business,
          or part thereof, of the Company, a Subsidiary and/or an Affiliate;

     3.7  Without  derogating  from the  generality  of the  above,  actions  in
          connection  with the purchase or sale of companies,  legal entities or
          assets, and the division or consolidation thereof;

     3.8  Actions taken in connection  with labor  relations  and/or  employment
          matters  in the  Company,  Subsidiaries  and/or  Affiliates  and trade
          relations of the Company,  Subsidiaries  and/or Affiliates,  including
          with  employees,  independent  contractors,  customers,  suppliers and
          various service providers;

     3.9  Actions in connection with the developing,  testing and  manufacturing
          of products  by the  Company,  Subsidiaries  and/or  Affiliates  or in
          connection  with  the  distribution,  sale,  license  or use  of  such
          products;

     3.10 Actions  taken in  connection  with the  intellectual  property of the
          Company, Subsidiaries and/or Affiliates, and its protection, including
          the  registration or assertion of rights to intellectual  property and
          the defense of claims related to intellectual property;

     3.11 Actions  taken  pursuant to or in  accordance  with the  policies  and
          procedures of the Company,  Subsidiaries and/or Affiliates,  that have
          been decided upon,  whether such policies and procedures are published
          or not.

4.   EXPENSES;  INDEMNIFICATION  PROCEDURE. The Company shall advance Indemnitee
     all expenses  incurred by Indemnitee in connection with a Claim on the date
     on which  such  amounts  are first  payable,  but has

                                       14
<PAGE>


     no duty to  advance  payments  in less  than  twenty  (20)  days  following
     delivery  of a written  request  therefor  by  Indemnitee  to the  Company.
     Advances  given to cover legal  expenses in  criminal  proceedings  will be
     repaid by  Indemnitee  to the Company if  Indemnitee  is found  guilty of a
     crime that  requires  criminal  intent.  Other  advances  will be repaid by
     Indemnitee  to the  Company  if it is  determined  by the  Company's  legal
     counsel that Indemnitee is not lawfully entitled to such indemnification.

5.   NOTIFICATION AND DEFENSE OF CLAIM. If any action, suit, proceeding or other
     Claim is brought  against  Indemnitee in respect of which  indemnity may be
     sought under this Agreement:

     5.1  Indemnitee  will  promptly  notify  the  Company  in  writing  of  the
          commencement  thereof, and the Company will be entitled to participate
          therein at its own  expense or to assume the  defense  thereof  and to
          employ counsel reasonably satisfactory to Indemnitee. Indemnitee shall
          have the right to employ his own counsel in  connection  with any such
          Claim and to  participate  in the  defense  thereof,  but the fees and
          expenses of such counsel shall be at the expense of Indemnitee  unless
          (i) the  Company  shall not have  assumed the defense of the Claim and
          employed  counsel for such  defense,  or (ii) the named parties to any
          such action include both  Indemnitee  and the Company,  and Indemnitee
          shall  have  reasonably   concluded  that  joint   representation   is
          inappropriate under applicable  standards of professional  conduct due
          to a material conflict of interest between Indemnitee and the Company.

     5.2  The  Company  shall  not be  liable to  indemnify  Indemnitee  for any
          amounts paid in settlement of any Claim effected without the Company's
          written  consent,  and the  Company  shall not  settle  any Claim in a
          manner  which would  impose any penalty or  limitation  on  Indemnitee
          without Indemnitee's written consent; provided,  however, that neither
          the Company nor Indemnitee will  unreasonably  withhold its consent to
          any proposed  settlement  and,  provided  further,  that if a Claim is
          settled by the Indemnitee with the Company's  written  consent,  or if
          there be a final  judgment or decree for the  plaintiff in  connection
          with the Claim by a court of competent jurisdiction, the Company shall
          indemnify  and hold harmless  Indemnitee  from and against any and all
          losses,  costs,  expenses and  liabilities  incurred by reason of such
          settlement or judgment.

     5.3  Indemnitee  shall give the Company such information and cooperation as
          it may reasonably require and as shall be within Indemnitee's power.

6.   PARTIAL  INDEMNIFICATION.  If Indemnitee is entitled to  indemnification by
     the  Company  for some or a portion of the  expenses,  judgments,  fines or
     penalties  incurred  by  him  in  the  investigation,  defense,  appeal  or
     settlement of any civil or criminal action or proceeding, but not, however,
     for the total amount  thereof,  the Company  shall  nevertheless  indemnify
     Indemnitee for the portion of such expenses,  judgments, fines or penalties
     to which Indemnitee is entitled.

7.   OTHER  INDEMNIFICATION.  The Company will not indemnify  Indemnitee for any
     liability with respect to which  Indemnitee has received  payment by virtue
     of an insurance policy or other indemnification  agreement,  other than for
     amounts  which are in  excess of the  amount  actually  paid to  Indemnitee
     pursuant to such agreements.

8.   COLLECTION  FROM A THIRD PARTY.  The Company will be entitled to any amount
     collected  from a third party in connection  with  liabilities  indemnified
     hereunder.

9.   INSURANCE. The Company shall maintain an insurance with a reputable insurer
     (the "INSURER") to insure the liability of the Indemnitee for an obligation
     imposed on him in  consequence  of an act done in his capacity as an Office
     Holder of the Company, in any of the following cases:

 9.1 a breach of the duty of care
     vis-a-vis the Company or vis-a-vis another person.

     9.2 a breach of the duty of fidelity  vis-a-vis the company,  provided that
the director acted in good faith and had reasonable basis to assume that the act
would not harm the Company.

     9.3 a monetary obligation imposed on him in favor of another person.

                                       15
<PAGE>


     The  abovementioned  insurance for all of the Office Holders of the Company
     shall be in the total amount of not less than US$5,000,000 (five million US
     Dollars) (the "Insurance Policy").  The Company undertakes to maintain such
     insurance  during  the period the  Indemnitee  serves as a director  of the
     Company  and  for a  period  of 7  (seven)  years  commencing  on  the  day
     Indemnitee has ceased from serving as a director of the Company.

     The Company shall give prompt written notice of any Claim to the Insurer in
     accordance  with the  procedures  set forth in the  Insurance  Policy.  The
     Company shall  thereafter  take all necessary or desirable  action to cause
     the Insurer to pay, on behalf of the  Indemnitee,  all amounts payable as a
     result of such  proceeding  in  accordance  with the terms of the Insurance
     Policy.

10.  NO  RESTRICTIONS.  For the avoidance of doubt, it is hereby  clarified that
     nothing  contained  in  this  Letter  of  Indemnification  or in the  above
     resolutions  derogate from the Company's  right to indemnify the Indemnitee
     post factum for any amounts which the Indemnitee may be obligated to pay as
     set forth in Section 1 above without the  limitations set forth in Sections
     2 and 3 above.

11.  SEVERABILITY.  Each of the  provisions of this  Agreement is a separate and
     distinct  agreement and independent of the others, so that if any provision
     hereof shall be held to be invalid or  unenforceable  for any reason,  such
     invalidity   or   unenforceability   shall  not  affect  the   validity  or
     enforceability   of  the  other  provisions   hereof.  In  any  event,  the
     undertakings  of the  Company  and the  categories  of claims in Section 3,
     shall be construed as widely as permitted by law.

12.  ATTORNEYS'  FEES.  In the  event  of any  litigation  or  other  action  or
     proceeding to enforce or interpret this Agreement,  the prevailing party as
     determined  by the court shall be  entitled  to an award of its  reasonable
     attorneys'  fees and other  costs,  in  addition  to such  relief as may be
     awarded by a court or other tribunal.

13.  NOTICE. All notices,  requests, demands and other communications under this
     Agreement  shall be in  writing  and  shall be  deemed  duly  given  (i) if
     delivered by hand or by fax or other means of electronic  communication and
     receipted for by the party addressee,  on the date of such receipt, or (ii)
     if mailed by certified or  registered  mail with  postage  prepaid,  on the
     third business day after the date postmarked.

14.  GOVERNING LAW; BINDING EFFECT;  Amendment. This Agreement shall be governed
     by and construed  under the laws of the State of Israel.  The parties agree
     to  submit  themselves  to the  exclusive  jurisdiction  of the  courts  in
     Tel-Aviv or Jerusalem.  This Agreement shall be binding upon Indemnitee and
     the Company,  their successors and assigns,  and shall inure to the benefit
     of Indemnitee,  his heirs, personal  representatives and assigns and to the
     benefit  of  the  Company,   its  successors  and  assigns.  No  amendment,
     modification,  termination  or  cancellation  of this  Agreement  shall  be
     effective unless in writing signed by both parties hereto.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the day and year first above written.

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

By:
   ----------------------------

Name:                                           Name:
     --------------------------                      -------------------------

Title:                                          Address:
     --------------------------                      -------------------------






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</TEXT>
</DOCUMENT>
