[FORM OF SERIES B WARRANT]

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

                                 IMAGING3, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Series B Warrant No.:
                      --------------
Date of Issuance: October ___, 2010 ("ISSUANCE DATE")

     Imaging3, Inc., a California corporation (the "COMPANY"),  hereby certifies
that, for good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, [CRANSHIRE CAPITAL, L.P.][OTHER BUYERS], the registered
holder hereof or its permitted assigns (the "HOLDER"),  is entitled,  subject to
the terms set forth below,  to purchase from the Company,  at the Exercise Price
(as defined  below) then in effect,  upon  exercise of this  Warrant to Purchase
Common  Stock  (including  any  Warrants  to  Purchase  Common  Stock  issued in
exchange,  transfer or replacement hereof, the "WARRANT"),  at any time or times
on or after the Issuance  Date,  but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below),  [______________]1 (subject to adjustment as
provided herein) fully paid and nonassessable shares of Common Stock (as defined
below) (the "WARRANT SHARES").  Except as otherwise defined herein,  capitalized
terms in this  Warrant  shall have the  meanings  set forth in Section  16. This
Warrant is one of the  Warrants to Purchase  Common  Stock (the "SPA  WARRANTS")
issued  pursuant to Section 1 of that  certain  Securities  Purchase  Agreement,
dated as of October 4, 2010,  by and among the  Company and the  investors  (the
"BUYERS") referred to therein (the "SECURITIES PURCHASE Agreement").

--------
1  100% warrant coverage.

<PAGE>

1. EXERCISE OF WARRANT.

     (a)  MECHANICS  OF  EXERCISE.  Subject to the terms and  conditions  hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the Issuance Date,
in whole or in part,  by delivery  (whether  via  facsimile or  otherwise)  of a
written  notice,  in the  form  attached  hereto  as  EXHIBIT  A (the  "EXERCISE
NOTICE"),  of the Holder's  election to exercise  this  Warrant.  Within one (1)
Trading Day following an exercise of this Warrant as aforesaid, the Holder shall
deliver  payment to the  Company  of an amount  equal to the  Exercise  Price in
effect on the date of such exercise  multiplied by the number of Warrant  Shares
as to which this Warrant was so exercised (the  "AGGREGATE  EXERCISE  PRICE") in
cash or via wire transfer of immediately  available  funds if the Holder did not
notify the Company in such Exercise  Notice that such exercise was made pursuant
to a Cashless  Exercise  (as defined in Section  1(d)).  The Holder shall not be
required to deliver the  original of this Warrant in order to effect an exercise
hereunder.  Execution  and  delivery of an Exercise  Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the
original of this Warrant and issuance of a new Warrant  evidencing  the right to
purchase the remaining  number of Warrant  Shares.  Execution and delivery of an
Exercise Notice for all of the then-remaining Warrant Shares shall have the same
effect as  cancellation  of the original of this Warrant  after  delivery of the
Warrant Shares in accordance with the terms hereof. On or before the first (1st)
Trading Day  following  the date on which the  Company has  received an Exercise
Notice,   the  Company  shall  transmit  by  facsimile  an   acknowledgment   of
confirmation of receipt of such Exercise Notice,  in the form attached hereto as
EXHIBIT  B, to the  Holder  and the  Company's  transfer  agent  (the  "TRANSFER
AGENT").  On or before the third (3rd)  Trading Day  following the date on which
the Company has received  such Exercise  Notice,  the Company shall (X) provided
that the Transfer Agent is participating in The Depository Trust Company ("DTC")
Fast  Automated  Securities  Transfer  Program,  upon the request of the Holder,
credit such  aggregate  number of shares of Common  Stock to which the Holder is
entitled  pursuant to such  exercise to the Holder's or its  designee's  balance
account with DTC through its Deposit/  Withdrawal at Custodian system, or (Y) if
the Transfer Agent is not  participating  in the DTC Fast  Automated  Securities
Transfer  Program,  issue  and  deliver  to  the  Holder  or,  at  the  Holder's
instruction pursuant to the Exercise Notice, the Holder's agent or designee,  in
each case,  sent by reputable  overnight  courier to the address as specified in
the applicable Exercise Notice, a certificate, registered in the Company's share
register  in the  name  of the  Holder  or its  designee  (as  indicated  in the
applicable  Exercise Notice),  for the number of shares of Common Stock to which
the Holder is entitled  pursuant to such exercise.  Upon delivery of an Exercise
Notice, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant  Shares with  respect to which this  Warrant has
been exercised, irrespective of the date such Warrant Shares are credited to the
Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant  Shares (as the case may be). If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant  Shares being  acquired  upon an exercise,  then,  at the request of the
Holder,  the  Company  shall as soon as  practicable  and in no event later than
three (3) Business  Days after any  exercise  and at its own expense,  issue and
deliver  to the Holder (or its  designee)  a new  Warrant  (in  accordance  with
Section 7(d))  representing  the right to purchase the number of Warrant  Shares
purchasable  immediately  prior to such exercise  under this  Warrant,  less the

                                      -2-
<PAGE>

number of Warrant  Shares with  respect to which this Warrant is  exercised.  No
fractional  shares of Common  Stock are to be issued  upon the  exercise of this
Warrant,  but rather the number of shares of Common  Stock to be issued shall be
rounded up to the nearest whole number.  The Company shall pay any and all taxes
and fees which may be payable  with  respect to the  issuance  and  delivery  of
Warrant Shares upon exercise of this Warrant.

     (b) EXERCISE PRICE.  For purposes of this Warrant,  "EXERCISE  PRICE" means
$0.218, subject to adjustment as provided herein.

     (c) COMPANY'S  FAILURE TO TIMELY DELIVER  SECURITIES.  If the Company shall
fail,  for any reason or for no reason,  to issue to the Holder within three (3)
Trading Days after receipt of the applicable  Exercise Notice, a certificate for
the  number  of  shares of Common  Stock to which  the  Holder is  entitled  and
register  such  shares of Common  Stock on the  Company's  share  register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this Warrant
(as the case may be), then, in addition to all other  remedies  available to the
Holder, the Company shall pay in cash to the Holder on each day after such third
(3rd) Trading Day that the issuance of such shares of Common Stock is not timely
effected  an amount  equal to 2% of the product of (A) the  aggregate  number of
shares of Common  Stock not issued to the Holder on a timely  basis and to which
the Holder is entitled and (B) the Closing Sale Price of the Common Stock on the
Trading Day  immediately  preceding  the last possible date on which the Company
could have issued such shares of Common  Stock to the Holder  without  violating
Section  1(a).  In addition to the  foregoing,  if within three (3) Trading Days
after the Company's receipt of the applicable Exercise Notice, the Company shall
fail to issue and deliver a  certificate  to the Holder and register such shares
of Common Stock on the Company's  share register or credit the Holder's  balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder (as the case may be), and if on or
after such third  (3rd)  Trading  Day the Holder  purchases  (in an open  market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock  issuable  upon such  exercise that
the Holder  anticipated  receiving  from the Company,  then,  in addition to all
other  remedies  available to the Holder,  the Company  shall,  within three (3)
Business Days after the Holder's request and in the Holder's discretion,  either
(i) pay cash to the Holder in an amount  equal to the  Holder's  total  purchase
price (including brokerage  commissions,  if any) for the shares of Common Stock
so purchased (the "BUY-IN  PRICE"),  at which point the Company's  obligation to
deliver such certificate or credit the Holder's balance account with DTC for the
number  of  shares of Common  Stock to which  the  Holder is  entitled  upon the
Holder's  exercise  hereunder  (as the case may be) (and to issue such shares of
Common Stock) shall terminate,  or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates  representing  such shares of Common
Stock or credit the Holder's  balance  account with DTC for the number of shares
of Common  Stock to which the  Holder is  entitled  upon the  Holder's  exercise
hereunder  (as the case may be) and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In  Price over the  product of (A) such number of
shares of Common  Stock times (B) the Closing  Sale Price of the Common Stock on
the  Trading  Day  immediately  preceding  the date of the  applicable  Exercise
Notice.

     (d) CASHLESS  EXERCISE.  Notwithstanding  anything  contained herein to the
contrary  (other than Section 1(f) below),  if at the time of exercise  hereof a
Registration  Statement  (as defined in the  Registration  Rights  Agreement (as

                                      -3-
<PAGE>

defined  in the  Securities  Purchase  Agreement))  is  not  effective  (or  the
prospectus  contained  therein is not  available  for use) for the resale by the
Holder  of  all of  the  Warrant  Shares,  then  the  Holder  may,  in its  sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate  Exercise Price,  elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined  according to the
following formula (a "CASHLESS EXERCISE"):

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

                           For purposes of the foregoing formula:

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

          B= as  applicable:  (i) the Closing  Sale Price of the Common Stock on
          the  Trading  Day  immediately  preceding  the date of the  applicable
          Exercise  Notice  if such  Exercise  Notice is (1) both  executed  and
          delivered  pursuant  to  Section  1(a)  hereof  on a day that is not a
          Trading Day or (2) both  executed  and  delivered  pursuant to Section
          1(a) hereof on a Trading Day prior to the opening of "regular  trading
          hours" (as defined in Rule  600(b)(64) of Regulation  NMS  promulgated
          under the federal  securities  laws) on such Trading Day, (ii) the Bid
          Price of the Common Stock as of the time of the Holder's  execution of
          the  applicable  Exercise  Notice if such Exercise  Notice is executed
          during  "regular  trading  hours"  on a Trading  Day and is  delivered
          within two (2) hours  thereafter  pursuant  to Section  1(a) hereof or
          (iii) the  Closing  Sale Price of the Common  Stock on the date of the
          applicable  Exercise  Notice if the date of such Exercise  Notice is a
          Trading Day and such  Exercise  Notice is both  executed and delivered
          pursuant to Section  1(a) hereof  after the close of "regular  trading
          hours" on such Trading Day.

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

     (e)  DISPUTES.  In the case of a  dispute  as to the  determination  of the
Exercise Price or the arithmetic  calculation of the number of Warrant Shares to
be issued pursuant to the terms hereof,  the Company shall promptly issue to the
Holder the number of Warrant  Shares  that are not  disputed  and  resolve  such
dispute in accordance with Section 13.

     (f)  LIMITATIONS  ON  EXERCISES.  Notwithstanding  anything to the contrary
contained in this Warrant,  this Warrant shall not be  exercisable by the Holder
hereof to the  extent  (but only to the  extent)  that the  Holder or any of its
affiliates would  beneficially own in excess of 4.9% (the "MAXIMUM  PERCENTAGE")
of  the  Common  Stock.  To  the  extent  the  above  limitation  applies,   the
determination  of whether this Warrant  shall be  exercisable  (vis-a-vis  other
convertible,  exercisable or exchangeable  securities owned by the Holder or any

                                      -4-
<PAGE>

of its affiliates)  and of which such securities  shall be exercisable (as among
all  such  securities  owned  by the  Holder)  shall,  subject  to such  Maximum
Percentage limitation, be determined on the basis of the first submission to the
Company for  conversion,  exercise  or  exchange  (as the case may be). No prior
inability to exercise  this Warrant  pursuant to this  paragraph  shall have any
effect on the  applicability of the provisions of this paragraph with respect to
any  subsequent  determination  of  exercisability.  For  the  purposes  of this
paragraph,   beneficial   ownership  and  all  determinations  and  calculations
(including,  without  limitation,  with respect to  calculations  of  percentage
ownership)  shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities  Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct  this  paragraph  (or any  portion  hereof)  which may be  defective  or
inconsistent  with  the  intended  Maximum   Percentage   beneficial   ownership
limitation  herein  contained  or to make  changes or  supplements  necessary or
desirable to properly  give effect to such Maximum  Percentage  limitation.  The
limitations  contained in this  paragraph  shall apply to a successor  Holder of
this Warrant.  The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph  without the consent
of holders of a majority of its Common Stock.  For any reason at any time,  upon
the written or oral  request of the Holder,  the  Company  shall  within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then  outstanding,  including by virtue of any prior  conversion or
exercise of convertible or exercisable securities into Common Stock,  including,
without  limitation,  pursuant to this Warrant or securities  issued pursuant to
the Securities Purchase Agreement.

     (g)  INSUFFICIENT  AUTHORIZED  SHARES.  The Company shall at all times keep
reserved for  issuance  under this Warrant a number of shares of Common Stock as
shall be necessary to satisfy the Company's obligation to issue shares of Common
Stock hereunder  (without regard to any limitation  otherwise  contained  herein
with respect to the number of shares of Common Stock that may be acquirable upon
exercise  of  this  Warrant).  If,  notwithstanding  the  foregoing,  and not in
limitation thereof, at any time while any of the SPA Warrants remain outstanding
the Company  does not have a  sufficient  number of  authorized  and  unreserved
shares of Common Stock to satisfy its  obligation  to reserve for issuance  upon
exercise of the SPA  Warrants at least a number of shares of Common  Stock equal
to the number of shares of Common  Stock as shall from time to time be necessary
to  effect  the  exercise  of all of the  SPA  Warrants  then  outstanding  (the
"REQUIRED  RESERVE AMOUNT") (an "AUTHORIZED  SHARE  FAILURE"),  then the Company
shall immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount  sufficient  to allow the Company to reserve
the Required Reserve Amount for all the SPA Warrants then  outstanding.  Without
limiting the generality of the foregoing sentence,  as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event later
than sixty (60) days after the occurrence of such Authorized Share Failure,  the
Company shall hold a meeting of its stockholders for the approval of an increase
in the number of  authorized  shares of Common Stock.  In  connection  with such
meeting,  the Company shall provide each  stockholder with a proxy statement and
shall  use its best  efforts  to  solicit  its  stockholders'  approval  of such
increase  in  authorized  shares  of  Common  Stock  and to cause  its  board of
directors to recommend to the stockholders that they approve such proposal.

                                      -5-
<PAGE>

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. 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 2.

     (a) STOCK DIVIDENDS AND SPLITS.  Without  limiting any provision of Section
2(b) or  Section  4, if the  Company,  at any time on or  after  the date of the
Securities Purchase Agreement,  (i) pays a stock dividend on one or more classes
of its then outstanding shares of Common Stock or otherwise makes a distribution
on any class of capital  stock that is payable in shares of Common  Stock,  (ii)
subdivides (by any stock split, stock dividend,  recapitalization  or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii)  combines  (by  combination,  reverse  stock  split or
otherwise)  one or more classes of its then  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) ADJUSTMENT  UPON ISSUANCE OF SHARES OF COMMON STOCK. If and whenever on
or after the date of the Securities  Purchase  Agreement,  the Company issues or
sells,  or in  accordance  with this Section 2 is deemed to have issued or sold,
any shares of Common Stock  (including  the issuance or sale of shares of Common
Stock  owned or held by or for the account of the  Company,  but  excluding  any
Excluded  Securities (as defined in the Securities Purchase Agreement) issued or
sold or deemed to have been issued or sold) for a  consideration  per share (the
"NEW  ISSUANCE  PRICE") less than a price equal to the Exercise  Price in effect
immediately  prior  to such  issue  or sale or  deemed  issuance  or sale  (such
Exercise  Price then in effect is referred to as the  "APPLICABLE  PRICE")  (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the New
Issuance Price.  For purposes of determining  the adjusted  Exercise Price under
this Section 2(b), the following shall be applicable:

          (i) ISSUANCE OF OPTIONS.  If the Company in any manner grants or sells
     any  Options  and the lowest  price per share for which one share of Common
     Stock is issuable upon the exercise of any such Option or upon  conversion,
     exercise or exchange of any Convertible  Securities  issuable upon exercise
     of any such Option is less than the  Applicable  Price,  then such share of
     Common Stock shall be deemed to be outstanding  and to have been issued and
     sold by the Company at the time of the  granting or sale of such Option for
     such price per share.  For  purposes of this Section  2(b)(i),  the "lowest
     price per share for which one share of Common  Stock is  issuable  upon the
     exercise of any such  Options or upon  conversion,  exercise or exchange of
     any Convertible Securities issuable upon exercise of any such Option" shall
     be  equal  to (1)  the  lower  of (x)  the  sum of the  lowest  amounts  of
     consideration  (if any)  received or receivable by the Company with respect
     to any one share of Common  Stock upon the granting or sale of such Option,

                                      -6-
<PAGE>

     upon exercise of such Option and upon  conversion,  exercise or exchange of
     any Convertible  Security issuable upon exercise of such Option and (y) the
     lowest  exercise  price  set  forth in such  Option  for which one share of
     Common  Stock is issuable  upon the  exercise  of any such  Options or upon
     conversion,  exercise or exchange of any  Convertible  Securities  issuable
     upon  exercise of any such Option  minus (2) the sum of all amounts paid or
     payable  to the  holder  of such  Option  (or any  other  Person)  upon the
     granting  or sale of such  Option,  upon  exercise  of such Option and upon
     conversion,  exercise or exchange of any Convertible Security issuable upon
     exercise of such Option plus the value of any other consideration  received
     or  receivable  by, or benefit  conferred on, the holder of such Option (or
     any other Person).  Except as contemplated  below, no further adjustment of
     the Exercise Price shall be made upon the actual issuance of such shares of
     Common Stock or of such  Convertible  Securities  upon the exercise of such
     Options or upon the actual  issuance  of such  shares of Common  Stock upon
     conversion, exercise or exchange of such Convertible Securities.

          (ii) ISSUANCE OF CONVERTIBLE SECURITIES.  If the Company in any manner
     issues or sells any  Convertible  Securities and the lowest price per share
     for  which  one  share of Common  Stock is  issuable  upon the  conversion,
     exercise or exchange thereof is less than the Applicable  Price,  then such
     share of Common  Stock shall be deemed to be  outstanding  and to have been
     issued and sold by the Company at the time of the  issuance or sale of such
     Convertible  Securities for such price per share.  For the purposes of this
     Section 2(b)(ii), the "lowest price per share for which one share of Common
     Stock is issuable upon the conversion,  exercise or exchange thereof" shall
     be  equal  to (1)  the  lower  of (x)  the  sum of the  lowest  amounts  of
     consideration  (if any)  received or receivable by the Company with respect
     to one share of Common Stock upon the  issuance or sale of the  Convertible
     Security  and upon  conversion,  exercise or  exchange of such  Convertible
     Security and (y) the lowest  conversion price set forth in such Convertible
     Security for which one share of Common Stock is issuable  upon  conversion,
     exercise  or  exchange  thereof  minus (2) the sum of all  amounts  paid or
     payable to the holder of such  Convertible  Security (or any other  Person)
     upon the issuance or sale of such  Convertible  Security  plus the value of
     any other consideration received or receivable by, or benefit conferred on,
     the holder of such  Convertible  Security (or any other Person).  Except as
     contemplated  below,  no further  adjustment of the Exercise Price shall be
     made  upon  the  actual  issuance  of such  shares  of  Common  Stock  upon
     conversion, exercise or exchange of such Convertible Securities, and if any
     such issue or sale of such Convertible  Securities is made upon exercise of
     any Options for which  adjustment of this Warrant has been or is to be made
     pursuant to other  provisions of this Section 2(b),  except as contemplated
     below, no further  adjustment of the Exercise Price shall be made by reason
     of such issue or sale.

          (iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase or
     exercise price provided for in any Options,  the additional  consideration,
     if any,  payable  upon the issue,  conversion,  exercise or exchange of any
     Convertible Securities, or the rate at which any Convertible Securities are
     convertible  into or exercisable or exchangeable for shares of Common Stock
     increases  or decreases  at any time,  the Exercise  Price in effect at the

                                      -7-
<PAGE>

     time of such increase or decrease  shall be adjusted to the Exercise  Price
     which  would  have  been in  effect  at  such  time  had  such  Options  or
     Convertible  Securities  provided for such increased or decreased  purchase
     price, additional  consideration or increased or decreased conversion rate,
     as the case may be, at the time  initially  granted,  issued  or sold.  For
     purposes  of  this  Section  2(b)(iii),  if  the  terms  of any  Option  or
     Convertible  Security  that was  outstanding  as of the date of issuance of
     this Warrant are  increased  or  decreased  in the manner  described in the
     immediately  preceding sentence,  then such Option or Convertible  Security
     and the shares of Common Stock deemed issuable upon exercise, conversion or
     exchange thereof shall be deemed to have been issued as of the date of such
     increase or decrease.  No adjustment pursuant to this Section 2(b) shall be
     made if such  adjustment  would result in an increase of the Exercise Price
     then in effect.

          (iv)  CALCULATION  OF  CONSIDERATION   RECEIVED.   If  any  Option  or
     Convertible  Security is issued in connection  with the issuance or sale or
     deemed  issuance or sale of any other  securities of the Company,  together
     comprising  one  integrated  transaction,  (x) such  Option or  Convertible
     Security  (as   applicable)   will  be  deemed  to  have  been  issued  for
     consideration  equal to the Black Scholes  Consideration  Value thereof and
     (y) the other  securities  issued or sold or deemed to have been  issued or
     sold in such integrated transaction shall be deemed to have been issued for
     consideration  equal to the  difference of (I) the aggregate  consideration
     received by the Company minus (II) the Black Scholes Consideration Value of
     each such Option or Convertible Security (as applicable).  If any shares of
     Common  Stock,  Options  or  Convertible  Securities  are issued or sold or
     deemed to have been  issued or sold for cash,  the  consideration  received
     therefor will be deemed to be the net amount of  consideration  received by
     the Company therefor. If any shares of Common Stock, Options or Convertible
     Securities  are issued or sold for a  consideration  other  than cash,  the
     amount of such consideration received by the Company will be the fair value
     of such consideration, except where such consideration consists of publicly
     traded  securities,  in which case the amount of consideration  received by
     the Company for such securities will be the arithmetic average of the VWAPs
     of such  security  for  each  of the  five  (5)  Trading  Days  immediately
     preceding the date of receipt.  If any shares of Common  Stock,  Options or
     Convertible Securities are issued to the owners of the non-surviving entity
     in connection with any merger in which the Company is the surviving entity,
     the amount of consideration therefor will be deemed to be the fair value of
     such portion of the net assets and business of the non-surviving  entity as
     is  attributable  to such shares of Common  Stock,  Options or  Convertible
     Securities,  as the case may be. The fair value of any consideration  other
     than cash or publicly traded  securities will be determined  jointly by the
     Company  and the  Holder.  If such  parties  are unable to reach  agreement
     within ten (10) days after the occurrence of an event  requiring  valuation
     (the  "VALUATION  EVENT"),  the fair  value of such  consideration  will be
     determined  within  five (5)  Trading  Days  after  the  tenth  (10th)  day
     following  such  Valuation  Event by an  independent,  reputable  appraiser
     jointly selected by the Company and the Holder.  The  determination of such
     appraiser shall be final and binding upon all parties absent manifest error
     and the fees and expenses of such appraiser shall be borne by the Company.

          (v)  RECORD  DATE.  If the  Company  takes a record of the  holders of
     shares of Common Stock for the purpose of  entitling  them (A) to receive a

                                      -8-
<PAGE>

     dividend or other distribution  payable in shares of Common Stock,  Options
     or in Convertible  Securities or (B) to subscribe for or purchase shares of
     Common Stock, Options or Convertible Securities, then such record date will
     be deemed to be the date of the issue or sale of the shares of Common Stock
     deemed to have been issued or sold upon the declaration of such dividend or
     the making of such other  distribution  or the date of the granting of such
     right of subscription or purchase (as the case may be).

     (c) NUMBER OF WARRANT  SHARES.  Simultaneously  with any  adjustment to the
Exercise  Price  pursuant to paragraphs (a) or (b) of this Section 2, 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  (without  regard  to any  limitations  on  exercise
contained herein).

     (d) OTHER  EVENTS.  In the event that the  Company (or any  Subsidiary  (as
defined in the Securities  Purchase  Agreement))  shall take any action to which
the provisions hereof are not strictly applicable, or, if applicable,  would not
operate to protect the Holder from  dilution or if any event  occurs of the type
contemplated by the provisions of this Section 2 but not expressly  provided for
by such  provisions  (including,  without  limitation,  the  granting  of  stock
appreciation rights, phantom stock rights or other rights with equity features),
then  the  Company's  board  of  directors  shall in good  faith  determine  and
implement an  appropriate  adjustment  in the  Exercise  Price and the number of
Warrant  Shares  (if  applicable)  so as to protect  the  rights of the  Holder,
provided that no such adjustment pursuant to this Section 2(d) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise  determined
pursuant to this Section 2, provided  further that if the Holder does not accept
such adjustments as  appropriately  protecting its interests  hereunder  against
such dilution, then the Company's board of directors and the Holder shall agree,
in good faith,  upon an  independent  investment  bank of nationally  recognized
standing to make such  appropriate  adjustments,  whose  determination  shall be
final and binding and whose fees and expenses shall be borne by the Company.

     (e)  CALCULATIONS.  All calculations  under this Section 2 shall be made by
rounding 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.

3. RIGHTS UPON DISTRIBUTION OF ASSETS.  In addition to any adjustments  pursuant
to Section 2 above,  if the Company  shall declare or make any dividend or other
distribution  of its  assets (or  rights to  acquire  its  assets) to holders of
shares of Common  Stock,  by way of return of capital or  otherwise  (including,
without  limitation,  any  distribution  of cash,  stock  or  other  securities,
property or options by way of a dividend, spin off, reclassification,  corporate
rearrangement,   scheme  of  arrangement  or  other  similar   transaction)   (a
"DISTRIBUTION"),  at any time after the issuance of this Warrant,  then, in each
such case, the Holder shall be entitled to participate in such  Distribution  to
the same extent that the Holder  would have  participated  therein if the Holder
had held the number of shares of Common Stock acquirable upon complete  exercise
of this Warrant (without regard to any limitations on exercise hereof, including

                                      -9-
<PAGE>

without limitation, the Maximum Percentage) immediately before the date on which
a record is taken for such  Distribution,  or, if no such  record is taken,  the
date as of which  the  record  holders  of  shares  of  Common  Stock  are to be
determined for the participation in such Distribution (provided, however, to the
extent that the Holder's right to participate  in any such  Distributions  would
result in the Holder exceeding the Maximum Percentage, then the Holder shall not
be  entitled  to  participate  in  such  Distribution  to  such  extent  (or the
beneficial  ownership  of any such  shares of  Common  Stock as a result of such
Distribution to such extent) and such  Distribution to such extent shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

     (a) PURCHASE RIGHTS.  In addition to any adjustments  pursuant to Section 2
above,  if at any  time  the  Company  grants,  issues  or  sells  any  Options,
Convertible  Securities  or rights to purchase  stock,  warrants,  securities or
other  property pro rata to the record  holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms  applicable to such Purchase  Rights,  the aggregate  Purchase  Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock  acquirable  upon  complete  exercise of this  Warrant  (without
regard to any limitations on exercise hereof, including without limitation,  the
Maximum  Percentage)  immediately before the date on which a record is taken for
the grant,  issuance or sale of such Purchase  Rights,  or, if no such record is
taken,  the date as of which the record holders of shares of Common Stock are to
be determined for the grant,  issue or sale of such Purchase  Rights  (provided,
however,  to the  extent  that the  Holder's  right to  participate  in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to  participate  in such Purchase Right to such
extent (or  beneficial  ownership  of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in  abeyance  for the  Holder  until such  time,  if ever,  as its right
thereto would not result in the Holder exceeding the Maximum Percentage).

     (b) FUNDAMENTAL TRANSACTIONS.  The Company shall not enter into or be party
to a Fundamental  Transaction unless (i) the Successor Entity assumes in writing
all of  the  obligations  of the  Company  under  this  Warrant  and  the  other
Transaction  Documents  (as defined in the  Securities  Purchase  Agreement)  in
accordance  with  the  provisions  of this  Section  4(b)  pursuant  to  written
agreements in form and substance  satisfactory to the Holder and approved by the
Holder prior to such Fundamental Transaction, including agreements to deliver to
the Holder in  exchange  for this  Warrant a security  of the  Successor  Entity
evidenced by a written instrument substantially similar in form and substance to
this  Warrant,  including,  without  limitation,  which  is  exercisable  for  a
corresponding  number of shares of  capital  stock  equivalent  to the shares of
Common Stock  acquirable and receivable  upon exercise of this Warrant  (without
regard  to any  limitations  on the  exercise  of this  Warrant)  prior  to such
Fundamental  Transaction,  and with an exercise price which applies the exercise

                                      -10-
<PAGE>

price  hereunder  to such shares of capital  stock (but taking into  account the
relative  value of the  shares  of Common  Stock  pursuant  to such  Fundamental
Transaction and the value of such shares of capital stock,  such  adjustments to
the  number of shares of capital  stock and such  exercise  price  being for the
purpose of protecting  the economic value of this Warrant  immediately  prior to
the consummation of such Fundamental  Transaction) and (ii) the Successor Entity
(including  its Parent  Entity) is a publicly  traded  corporation  whose common
stock is  quoted  on or listed  for  trading  on an  Eligible  Market.  Upon the
consummation of each Fundamental Transaction, the Successor Entity shall succeed
to, and be  substituted  for (so that from and after the date of the  applicable
Fundamental   Transaction,   the  provisions  of  this  Warrant  and  the  other
Transaction  Documents  referring to the  "Company"  shall refer  instead to the
Successor  Entity),  and may  exercise  every right and power of the Company and
shall assume all of the  obligations  of the Company  under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been  named  as the  Company  herein.  Upon  consummation  of  each  Fundamental
Transaction,  the Successor Entity shall deliver to the Holder confirmation that
there  shall be issued  upon  exercise  of this  Warrant  at any time  after the
consummation of the applicable Fundamental Transaction, in lieu of the shares of
Common Stock (or other  securities,  cash, assets or other property (except such
items still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable  thereafter)) issuable upon the exercise of this Warrant prior to the
applicable Fundamental Transaction,  such shares of publicly traded common stock
(or its equivalent) of the Successor Entity  (including its Parent Entity) which
the  Holder  would  have been  entitled  to receive  upon the  happening  of the
applicable  Fundamental  Transaction had this Warrant been exercised immediately
prior  to  the  applicable  Fundamental   Transaction  (without  regard  to  any
limitations on the exercise of this Warrant), as adjusted in accordance with the
provisions of this Warrant. In addition to and not in substitution for any other
rights  hereunder,  prior to the  consummation of each  Fundamental  Transaction
pursuant  to which  holders of shares of Common  Stock are  entitled  to receive
securities  or other  assets with respect to or in exchange for shares of Common
Stock (a "CORPORATE  EVENT"),  the Company shall make  appropriate  provision to
insure  that the  Holder  will  thereafter  have the  right to  receive  upon an
exercise of this Warrant at any time after the  consummation  of the  applicable
Fundamental  Transaction but prior to the Expiration Date, in lieu of the shares
of the Common Stock (or other securities, cash, assets or other property (except
such items still issuable under Sections 3 and 4(a) above,  which shall continue
to be receivable thereafter)) issuable upon the exercise of the Warrant prior to
such Fundamental Transaction,  such shares of stock, securities, cash, assets or
any  other  property  whatsoever   (including  warrants  or  other  purchase  or
subscription  rights)  which the Holder would have been entitled to receive upon
the happening of the applicable  Fundamental  Transaction  had this Warrant been
exercised immediately prior to the applicable  Fundamental  Transaction (without
regard to any  limitations  on the  exercise of this  Warrant).  Provision  made
pursuant to the preceding  sentence shall be in a form and substance  reasonably
satisfactory to the Holder.

     (c) BLACK SCHOLES VALUE.  Notwithstanding  the foregoing and the provisions
of Section  4(b)  above,  in the event of any  announcement  of any  Fundamental
Transaction,  then, at the request of the Holder delivered at any time after the
announcement  of such  Fundamental  Transaction  through the date that is ninety
(90) days after the consummation of such Fundamental Transaction, the Company or
the Successor  Entity (as the case may be) shall  purchase this Warrant from the
Holder on the date of such  request  by paying to the  Holder  cash in an amount
equal to the Black Scholes Value.

     (d) APPLICATION. The provisions of this Section 4 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied  as if this  Warrant  (and  any such  subsequent  warrants)  were  fully

                                      -11-
<PAGE>

exercisable  and  without  regard to any  limitations  on the  exercise  of this
Warrant  (provided  that the Holder shall continue to be entitled to the benefit
of the Maximum  Percentage,  applied  however  with respect to shares of capital
stock registered  under the 1934 Act and thereafter  receivable upon exercise of
this Warrant (or any such other warrant)).

5.  NONCIRCUMVENTION.  The Company hereby  covenants and agrees that the Company
will not,  by  amendment  of its  Articles of  Incorporation  (as defined in the
Securities  Purchase  Agreement),  Bylaws (as defined in the Securities Purchase
Agreement)  or through any  reorganization,  transfer of assets,  consolidation,
merger, scheme of arrangement,  dissolution, issue or sale of securities, or any
other voluntary action,  avoid or seek to avoid the observance or performance of
any of the terms of this Warrant,  and will at all times in good faith carry out
all the  provisions  of this  Warrant  and take all action as may be required to
protect  the  rights of the  Holder.  Without  limiting  the  generality  of the
foregoing,  the  Company (i) shall not  increase  the par value of any shares of
Common Stock  receivable  upon the  exercise of this Warrant  above the Exercise
Price then in effect,  (ii) shall take all such  actions as may be  necessary or
appropriate  in order that the Company may validly and legally  issue fully paid
and nonassessable  shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary  to reserve and keep  available  out of its  authorized  and  unissued
shares of Common Stock,  solely for the purpose of effecting the exercise of the
SPA Warrants, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the  exercise of the SPA Warrants  then  outstanding
(without regard to any limitations on exercise).

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

7. REISSUANCE OF WARRANTS.

     (a) TRANSFER OF WARRANT.  If this Warrant is to be transferred,  the Holder
shall  surrender  this  Warrant  to the  Company,  whereupon  the  Company  will
forthwith  issue and  deliver  upon the order of the  Holder a new  Warrant  (in
accordance   with  Section   7(d)),   registered  as  the  Holder  may  request,
representing   the  right  to  purchase  the  number  of  Warrant  Shares  being

                                      -12-
<PAGE>

transferred  by the Holder and, if less than the total number of Warrant  Shares
then underlying this Warrant is being transferred,  a new Warrant (in accordance
with Section 7(d)) to the Holder  representing  the right to purchase the number
of Warrant Shares not being transferred.

     (b) LOST,  STOLEN OR  MUTILATED  WARRANT.  Upon  receipt by the  Company of
evidence reasonably satisfactory to the Company of the loss, theft,  destruction
or  mutilation  of this  Warrant  (as to which a written  certification  and the
indemnification  contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction,  of any  indemnification  undertaking by the
Holder to the  Company in  customary  and  reasonable  form and,  in the case of
mutilation,  upon surrender and cancellation of this Warrant,  the Company shall
execute  and deliver to the Holder a new Warrant  (in  accordance  with  Section
7(d)) representing the right to purchase the Warrant Shares then underlying this
Warrant.

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

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

8. NOTICES.  Whenever notice is required to be given under this Warrant,  unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder
with prompt  written  notice of all  actions  taken  pursuant  to this  Warrant,
including  in  reasonable  detail a  description  of such  action and the reason
therefor.  Without  limiting the generality of the  foregoing,  the Company will
give written notice to the Holder (i)  immediately  upon each  adjustment of the
Exercise  Price and the number of Warrant  Shares,  setting  forth in reasonable
detail, and certifying,  the calculation of such adjustment(s) and (ii) at least
fifteen  (15) days  prior to the date on which the  Company  closes its books or
takes a record (A) with respect to any dividend or distribution  upon the shares
of Common  Stock,  (B) with  respect to any  grants,  issuances  or sales of any
Options,   Convertible   Securities  or  rights  to  purchase  stock,  warrants,
securities  or other  property  to holders of shares of Common  Stock or (C) for
determining  rights  to  vote  with  respect  to  any  Fundamental  Transaction,
dissolution or liquidation, provided in each case that such information shall be

                                      -13-
<PAGE>

made known to the  public  prior to or in  conjunction  with such  notice  being
provided  to the  Holder and (iii) at least ten (10)  Trading  Days prior to the
consummation  of any  Fundamental  Transaction.  To the  extent  that any notice
provided hereunder constitutes,  or contains,  material,  non-public information
regarding   the  Company  or  any  of  its   subsidiaries,   the  Company  shall
simultaneously  file such  notice  with the SEC (as  defined  in the  Securities
Purchase  Agreement)  pursuant to a Current  Report on Form 8-K. It is expressly
understood and agreed that the time of execution specified by the Holder in each
Exercise Notice shall be definitive and may not be disputed or challenged by the
Company.

9. AMENDMENT AND WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant  (other than Section  1(f)) may be amended and the Company may take
any action herein  prohibited,  or omit to perform any act herein required to be
performed  by it, only if the Company has  obtained  the written  consent of the
Holder.  The Holder  shall be  entitled,  at its  option,  to the benefit of any
amendment of (i) any other similar warrant issued under the Securities  Purchase
Agreement or (ii) any other similar warrant. No waiver shall be effective unless
it is in  writing  and signed by an  authorized  representative  of the  waiving
party.

10.  SEVERABILITY.  If any  provision  of this Warrant is  prohibited  by law or
otherwise  determined  to be invalid or  unenforceable  by a court of  competent
jurisdiction,  the  provision  that would  otherwise be  prohibited,  invalid or
unenforceable  shall be deemed  amended to apply to the broadest  extent that it
would be valid and enforceable,  and the invalidity or  unenforceability of such
provision  shall not affect the  validity of the  remaining  provisions  of this
Warrant so long as this  Warrant as so modified  continues  to express,  without
material change, the original intentions of the parties as to the subject matter
hereof  and  the  prohibited  nature,  invalidity  or  unenforceability  of  the
provision(s)   in  question  does  not   substantially   impair  the  respective
expectations  or  reciprocal   obligations  of  the  parties  or  the  practical
realization of the benefits that would  otherwise be conferred upon the parties.
The parties will endeavor in good faith  negotiations to replace the prohibited,
invalid or unenforceable  provision(s) with a valid provision(s),  the effect of
which  comes  as  close  as  possible  to that  of the  prohibited,  invalid  or
unenforceable provision(s).

11.  GOVERNING LAW. This Warrant shall be governed by and construed and enforced
in accordance  with, and all questions  concerning the  construction,  validity,
interpretation  and  performance  of this  Warrant  shall be  governed  by,  the
internal laws of the State of Illinois,  without  giving effect to any choice of
law or conflict of law  provision  or rule  (whether of the State of Illinois or
any other  jurisdictions)  that would cause the  application  of the laws of any
jurisdictions  other than the State of Illinois.  The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Chicago,  Illinois,  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. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Nothing  contained herein shall
be deemed or operate to preclude the Holder from  bringing  suit or taking other
legal  action  against the Company in any other  jurisdiction  to collect on the

                                      -14-
<PAGE>

Company's  obligations  to the Holder or to enforce a  judgment  or other  court
ruling in favor of the Holder.  THE COMPANY HEREBY  IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST,  A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE  HEREUNDER OR IN  CONNECTION  WITH OR ARISING OUT OF THIS WARRANT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

12. CONSTRUCTION;  HEADINGS.  This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be  construed  against any Person as
the  drafter  hereof.  The  headings  of this  Warrant  are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Warrant.  Terms  used in this  Warrant  but  defined  in the  other  Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as
defined  in  the  Securities  Purchase  Agreement)  in  such  other  Transaction
Documents unless otherwise consented to in writing by the Holder.

13. DISPUTE RESOLUTION.  In the case of a dispute as to the determination of the
Exercise  Price,  the Closing Sale Price,  the Bid Price or fair market value or
the  arithmetic  calculation  of the  Warrant  Shares (as the case may be),  the
Company  or  the  Holder  (as  the  case  may  be)  shall  submit  the  disputed
determinations or arithmetic calculations (as the case may be) via facsimile (i)
within two (2) Business Days after receipt of the applicable  notice giving rise
to such  dispute to the Company or the Holder (as the case may be) or (ii) if no
notice gave rise to such  dispute,  at any time after the Holder  learned of the
circumstances giving rise to such dispute (including,  without limitation, as to
whether any issuance or sale or deemed  issuance or sale was an issuance or sale
or deemed  issuance  or sale of  Excluded  Securities).  If the  Holder  and the
Company are unable to agree upon such  determination or calculation (as the case
may be) of the Exercise  Price,  the Closing  Sale Price,  the Bid Price or fair
market  value or the number of Warrant  Shares (as the case may be) within three
(3) Business Days of such disputed determination or arithmetic calculation being
submitted  to the  Company or the Holder (as the case may be),  then the Company
shall,  within two (2)  Business  Days  submit via  facsimile  (a) the  disputed
determination  of the Exercise Price,  the Closing Sale Price,  the Bid Price or
fair market value (as the case may be) to an independent,  reputable  investment
bank selected by the Holder or (b) the disputed  arithmetic  calculation  of the
Warrant Shares to the Company's  independent,  outside  accountant.  The Company
shall cause at its expense the  investment  bank or the  accountant (as the case
may be) to perform the  determinations  or calculations (as the case may be) and
notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives such disputed  determinations or calculations (as
the case may be).  Such  investment  bank's  or  accountant's  determination  or
calculation  (as the  case may be)  shall be  binding  upon all  parties  absent
demonstrable error.

14.  REMEDIES,  CHARACTERIZATION,  OTHER  OBLIGATIONS,  BREACHES AND  INJUNCTIVE
RELIEF.  The  remedies  provided  in this  Warrant  shall be  cumulative  and in
addition  to all other  remedies  available  under  this  Warrant  and the other
Transaction  Documents,  at law or in equity  (including  a decree  of  specific
performance and/or other injunctive relief),  and nothing herein shall limit the
right of the Holder to pursue  actual  damages for any failure by the Company to
comply with the terms of this Warrant.  The Company covenants to the Holder that
there shall be no  characterization  concerning  this  instrument  other than as

                                      -15-
<PAGE>

expressly provided herein. Amounts set forth or provided for herein with respect
to payments,  exercises and the like (and the computation  thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein,  be subject to any other  obligation of the Company (or the  performance
thereof).  The  Company  acknowledges  that a  breach  by it of its  obligations
hereunder will cause  irreparable  harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened  breach, the holder of this Warrant shall
be  entitled,  in addition to all other  available  remedies,  to an  injunction
restraining  any breach,  without the  necessity  of showing  economic  loss and
without any bond or other security being required. The Company shall provide all
information and  documentation  to the Holder that is requested by the Holder to
enable  the  Holder  to  confirm  the  Company's  compliance  with the terms and
conditions  of this Warrant  (including,  without  limitation,  compliance  with
Section 2  hereof).  The  issuance  of shares  and  certificates  for  shares as
contemplated  hereby upon the  exercise of this  Warrant  shall be made  without
charge to the  Holder or such  shares  for any  issuance  tax or other  costs in
respect thereof,  provided that the Company shall not be required to pay any tax
which may be payable in respect of any  transfer  involved in the  issuance  and
delivery of any  certificate in a name other than the Holder or its agent on its
behalf.

15.  TRANSFER.  This  Warrant  may be offered  for sale,  sold,  transferred  or
assigned without the consent of the Company, except as may otherwise be required
by Section 2(g) of the Securities Purchase Agreement.

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

     (a) "BID  PRICE"  means,  for any  security  as of the  particular  time of
determination,  the bid  price  for such  security  on the  Principal  Market as
reported by Bloomberg  as of such time of  determination,  or, if the  Principal
Market is not the  principal  securities  exchange  or  trading  market for such
security, the bid price of such security on the principal securities exchange or
trading  market where such security is listed or traded as reported by Bloomberg
as of such time of  determination,  or if the foregoing does not apply,  the bid
price of such security in the over-the-counter market on the electronic bulletin
board  for  such   security  as  reported  by  Bloomberg  as  of  such  time  of
determination, or, if no bid price is reported for such security by Bloomberg as
of such time of  determination,  the  average  of the bid  prices of any  market
makers for such  security as  reported  in the "pink  sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.) as of such time of determination.
If the Bid Price cannot be calculated for a security as of the  particular  time
of  determination  on any of the foregoing bases, the Bid Price of such security
as of such time of  determination  shall be the fair  market  value as  mutually
determined  by the  Company  and the  Holder.  If the Company and the Holder are
unable to agree upon the fair market value of such  security,  then such dispute
shall be  resolved in  accordance  with the  procedures  in Section 13. All such
determinations  shall be  appropriately  adjusted for any stock dividend,  stock
split, stock combination or other similar transaction during such period.

     (b) "BLACK SCHOLES  CONSIDERATION  VALUE" means the value of the applicable
Option or  Convertible  Security (as the case may be) as of the date of issuance
thereof  calculated  using the Black Scholes  Option Pricing Model obtained from
the "OV" function on Bloomberg utilizing (i) an underlying price per share equal
to the Closing  Sale Price of the Common  Stock on the  Trading Day  immediately

                                      -16-
<PAGE>

preceding the public announcement of the execution of definitive  documents with
respect to the issuance of such Option or Convertible  Security (as the case may
be), (ii) a risk-free  interest rate corresponding to the U.S. Treasury rate for
a period equal to the remaining term of such Option or Convertible  Security (as
the  case may be) as of the  date of  issuance  of such  Option  or  Convertible
Security  (as the case may be) and  (iii) an  expected  volatility  equal to the
greater of 100% and the 100 day  volatility  obtained  from the HVT  function on
Bloomberg  (determined  utilizing  a 365  day  annualization  factor)  as of the
Trading  Day  immediately  following  the date of  issuance  of such  Option  or
Convertible Security (as the case may be).

     (c) "BLACK  SCHOLES  VALUE" means the value of the  unexercised  portion of
this Warrant  remaining on the date of the Holder's  request pursuant to Section
4(c),  which value is calculated  using the Black Scholes  Option  Pricing Model
obtained from the "OV" function on Bloomberg  utilizing (i) an underlying  price
per share  equal to the  greater of (1) the  highest  Closing  Sale Price of the
Common  Stock  during  the  period  beginning  on the  Trading  Day  immediately
preceding the announcement of the applicable Fundamental  Transaction and ending
on the Trading Day of the Holder's  request pursuant to Section 4(c) and (2) the
sum of the price per share being offered in cash in the  applicable  Fundamental
Transaction (if any) plus the value of the non-cash  consideration being offered
in the applicable Fundamental Transaction (if any), (ii) a strike price equal to
the Exercise Price in effect on the of date of the Holder's  request pursuant to
Section 4(c), (iii) a risk-free interest rate corresponding to the U.S. Treasury
rate for a period equal to the greater of (1) the remaining term of this Warrant
as of the date of the  Holder's  request  pursuant  to Section  4(c) and (2) the
remaining term of this Warrant as of the date of  consummation of the applicable
Fundamental  Transaction and (iv) an expected volatility equal to the greater of
100% and the 100 day  volatility  obtained  from the HVT  function on  Bloomberg
(determined  utilizing  a 365 day  annualization  factor) as of the  Trading Day
immediately  following the public  announcement  of the  applicable  Fundamental
Transaction.

     (d) "BLOOMBERG" means Bloomberg, L.P.

     (e) "BUSINESS DAY" means any day other than  Saturday,  Sunday or other day
on which  commercial banks in The City of New York are authorized or required by
law to remain closed.

     (f) "CLOSING SALE PRICE" means,  for any security as of any date,  the last
closing trade price for such security on the  Principal  Market,  as reported by
Bloomberg,  or, if the Principal  Market begins to operate on an extended  hours
basis and does not designate the closing trade price,  then the last trade price
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal  securities exchange or trading
market for such security, the last trade price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg,  or if the foregoing does not apply, the last trade price
of such security in the over-the-counter market on the electronic bulletin board
for such  security  as  reported  by  Bloomberg,  or, if no last trade  price is
reported for such  security by  Bloomberg,  the average of the ask prices of any
market  makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National  Quotation  Bureau,  Inc.). If the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases,  the Closing  Sale Price of such  security on such date shall be the fair

                                      -17-
<PAGE>

market  value as mutually  determined  by the  Company  and the  Holder.  If the
Company  and the Holder are unable to agree upon the fair  market  value of such
security,  then such dispute shall be resolved in accordance with the procedures
in Section 13. All such determinations  shall be appropriately  adjusted for any
stock  dividend,  stock split,  stock  combination or other similar  transaction
during such period.

     (g) "COMMON STOCK" means (i) the Company's  shares of common stock,  no par
value per share,  and (ii) any capital  stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.

     (h) "CONVERTIBLE  SECURITIES" means any stock or other security (other than
Options)  that  is  at  any  time  and  under  any  circumstances,  directly  or
indirectly,   convertible  into,  exercisable  or  exchangeable  for,  or  which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.

     (i) "ELIGIBLE MARKET" means The New York Stock Exchange, the NYSE Amex, the
Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market
or the Principal Market.

     (j)  "EXPIRATION  DATE"  means the date that is the earlier to occur of (i)
the one hundred eighty (180) day  anniversary of the Applicable Date (as defined
in  the  Securities  Purchase  Agreement)  and  (ii)  the  eighteen  (18)  month
anniversary  of the  Issuance  Date or, if such date falls on a day other than a
Business Day or on which trading does not take place on the Principal  Market (a
"Holiday"), the next date that is not a Holiday.

     (k)  "FUNDAMENTAL  TRANSACTION"  means  that (i) the  Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1)  consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign,  transfer,  convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other  Person to make a purchase,  tender or exchange  offer that is accepted by
the holders of more than 50% of the  outstanding  shares of Voting  Stock of the
Company  (not  including  any shares of Voting  Stock of the Company held by the
Person or  Persons  making or party to, or  associated  or  affiliated  with the
Persons making or party to, such  purchase,  tender or exchange  offer),  or (4)
consummate a stock or share  purchase  agreement or other  business  combination
(including, without limitation, a reorganization,  recapitalization, spin-off or
scheme of arrangement)  with any other Person whereby such other Person acquires
more than 50% of the  outstanding  shares of Voting  Stock of the  Company  (not
including  any shares of Voting Stock of the Company held by the other Person or
other Persons  making or party to, or  associated  or affiliated  with the other
Persons  making or party to,  such stock or share  purchase  agreement  or other
business  combination),  or (5) (I)  reorganize,  recapitalize or reclassify the
Common Stock, (II) effect or consummate a stock combination, reverse stock split
or other similar transaction involving the Common Stock or (III) make any public
announcement or disclosure with respect to any stock combination,  reverse stock
split or other  similar  transaction  involving  the  Common  Stock  (including,
without limitation,  any public announcement or disclosure of (x) any potential,

                                      -18-
<PAGE>

possible or actual  stock  combination,  reverse  stock  split or other  similar
transaction  involving  the Common  Stock or (y) board or  stockholder  approval
thereof,  or the intention of the Company to seek board or stockholder  approval
of any stock  combination,  reverse  stock  split or other  similar  transaction
involving the Common Stock), or (ii) any "person" or "group" (as these terms are
used for purposes of Sections  13(d) and 14(d) of the 1934 Act and the rules and
regulations  promulgated  thereunder) is or shall become the "beneficial  owner"
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of
the aggregate ordinary voting power represented by issued and outstanding Voting
Stock of the Company.

     (l)  "OPTIONS"  means any rights,  warrants or options to subscribe  for or
purchase shares of Common Stock or Convertible Securities.

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

     (n)  "PERSON"  means  an  individual,   a  limited  liability   company,  a
partnership,  a  joint  venture,  a  corporation,  a  trust,  an  unincorporated
organization,  any other  entity or a  government  or any  department  or agency
thereof.

     (o) "PRINCIPAL MARKET" means the OTC Bulletin Board.

     (p)  "SUCCESSOR  ENTITY" means the Person (or, if so elected by the Holder,
the Parent  Entity)  formed by,  resulting  from or  surviving  any  Fundamental
Transaction  or the Person (or, if so elected by the Holder,  the Parent Entity)
with which such Fundamental Transaction shall have been entered into.

     (q) "TRADING  DAY" means any day on which the Common Stock is traded on the
Principal  Market,  or, if the  Principal  Market is not the  principal  trading
market  for the Common  Stock,  then on the  principal  securities  exchange  or
securities  market on which  the  Common  Stock is then  traded,  provided  that
"Trading  Day" shall not include any day on which the Common  Stock is scheduled
to trade on such  exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended  from trading during the final hour of trading on such
exchange or market (or if such  exchange or market does not designate in advance
the closing  time of trading on such  exchange  or market,  then during the hour
ending at 4:00:00 p.m.,  New York time) unless such day is otherwise  designated
as a Trading Day in writing by the Holder.

     (r) "VOTING  STOCK" of a Person means  capital  stock of such Person of the
class or classes  pursuant to which the holders  thereof have the general voting
power to elect,  or the  general  power to  appoint,  at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time  capital  stock of any other  class or classes  shall have or
might have voting power by reason of the happening of any contingency).

     (s)  "VWAP"   means,   for  any  security  as  of  any  date,   the  dollar
volume-weighted  average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security

                                      -19-
<PAGE>

is then traded) during the period  beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00  p.m.,  New York time,  as reported by  Bloomberg  through its
"Volume at Price"  function  or, if the  foregoing  does not  apply,  the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic  bulletin board for such security during the period  beginning at
9:30:01  a.m.,  New York time,  and ending at 4:00:00  p.m.,  New York time,  as
reported  by  Bloomberg,  or,  if no  dollar  volume-weighted  average  price is
reported  for such  security by  Bloomberg  for such  hours,  the average of the
highest  closing bid price and the lowest closing ask price of any of the market
makers for such  security as  reported  in the "pink  sheets" by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for
such  security  on such  date on any of the  foregoing  bases,  the VWAP of such
security on such date shall be the fair market value as mutually  determined  by
the Company  and the  Holder.  If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 13. All such  determinations  shall
be appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period.

                            [SIGNATURE PAGE FOLLOWS]






























                                      -20-

<PAGE>




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


                      IMAGING3, INC.


                      By:____________________________________
                      Name:
                      Title:

































                                      -21-
<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                                 IMAGING3, INC.

     The   undersigned   holder   hereby   exercises   the  right  to   purchase
_________________  of the shares of Common Stock ("WARRANT SHARES") of Imaging3,
Inc., a California  corporation (the  "COMPANY"),  evidenced by Series B Warrant
No.  _______ (the  "WARRANT").  Capitalized  terms used herein and not otherwise
defined shall have the respective meanings set forth in the Warrant.

     1. FORM OF EXERCISE PRICE.  The Holder intends that payment of the Exercise
Price shall be made as:

     ____________  a "CASH EXERCISE" with respect to _________________ Warrant
                   Shares; and/or

     ____________  a "CASHLESS EXERCISE" with respect to _______________ Warrant
                   Shares.

     In the event that the Holder has elected a Cashless  Exercise  with respect
to some or all of the Warrant Shares to be issued  pursuant  hereto,  the Holder
hereby represents and warrants that (i) this Exercise Notice was executed by the
Holder  at  __________  [a.m.][p.m.]  on the date set  forth  below  and (ii) if
applicable,  the Bid Price as of such time of execution of this Exercise  Notice
was $________.

     2.  PAYMENT OF EXERCISE  PRICE.  In the event that the Holder has elected a
Cash  Exercise  with  respect to some or all of the Warrant  Shares to be issued
pursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

     3. DELIVERY OF WARRANT SHARES.  The Company shall deliver to Holder, or its
designee or agent as specified  below,  __________  Warrant Shares in accordance
with the terms of the  Warrant.  Delivery  shall be made to  Holder,  or for its
benefit, to the following address:

                             _______________________
                             _______________________
                             _______________________
                             _______________________



Date: _______________ __, ______


________________________________
   Name of Registered Holder


By:
         ___________________________________
         Name:
         Title:



<PAGE>
                                                                       EXHIBIT B

                                 ACKNOWLEDGMENT

         The Company hereby acknowledges this Exercise Notice and hereby directs
______________  to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________,  20__, from the
Company and acknowledged and agreed to by _______________.

                                IMAGING3, INC.


                                By:____________________________________
                                Name:
                                Title: