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 C Warrant No.: C-2
                      ---
Date of Issuance: October 15, 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,  FREESTONE  ADVANTAGE  PARTNERS,  LP,  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),  68,808  (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. 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)

                                      -1-
<PAGE>

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
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 $0.2725, subject to adjustment as provided herein.

                                      -2-
<PAGE>

         (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
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"):

                                      -3-
<PAGE>


                           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  (including,  without  limitation,  under
Section  1(h)),  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
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

                                      -4-
<PAGE>

(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.

         (h) ISSUANCE LIMIT.  Notwithstanding anything to the contrary contained
in this  Warrant (but subject to Section  1(f)),  the maximum  number of Warrant
Shares for which this  Warrant  may be  exercised  at any  specific  time by the
Holder shall be equal to the quotient of (i) the Current  Available Amount as of
such time over  (ii) the  Exercise  Price  then in effect as of such  time.  The
foregoing  determination  shall be made upon each receipt of an Exercise  Notice
hereunder  and no inability  to exercise as of any specific  time as a result of
this Section 1(h) shall affect any future  determination of exercisability as of
any other time.  In the event that the Holder shall sell or  otherwise  transfer
all or any portion of this Warrant,  the Company's  board of directors  shall in

                                      -5-
<PAGE>

good faith make  equitable  adjustments  with  respect to the Current  Available
Amount (and the  components  thereof)  to  properly  give effect to such sale of
transfer,  provided further that if the Holder does not accept such adjustments,
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.

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

                                      -6-
<PAGE>

         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,  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.

                                      -7-
<PAGE>

                  (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 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)(i),  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

                                      -8-
<PAGE>

         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 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

                                      -9-
<PAGE>

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
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
price  hereunder  to such shares of capital  stock (but taking into  account the

                                      -10-
<PAGE>

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.

                                      -11-
<PAGE>

         (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  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

                                      -12-
<PAGE>

accordance   with  Section   7(d)),   registered  as  the  Holder  may  request,
representing   the  right  to  purchase  the  number  of  Warrant  Shares  being
transferred  by the Holder and, if less 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
made known to the  public  prior to or in  conjunction  with such  notice  being

                                      -13-
<PAGE>

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
Company's  obligations  to the Holder or to enforce a  judgment  or other  court

                                      -14-
<PAGE>

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
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

                                      -15-
<PAGE>

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) "AGGREGATE FACE EXERCISE AMOUNT" is equal to $18,750.18.

         (b) "AGGREGATE SERIES B FACE EXERCISE AMOUNT" is equal to $15,000.14.

         (c) "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.

         (d)  "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

                                      -16-
<PAGE>

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  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).

         (e) "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.

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

         (g) "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.

         (h) "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

                                      -17-
<PAGE>

bases,  the Closing  Sale Price of such  security on such date shall be the fair
market  value as mutually  determined  by the  Company  and the  Holder.  If the
Company  and the Holder are unable to agree upon the fair  market  value of such
security,  then such dispute shall be resolved 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.

         (i) "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.

         (j) "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.

         (k)  "CURRENT  AVAILABLE  AMOUNT"  is,  as of the  applicable  time  of
determination,  equal to (i) the  product  of (1) the  Aggregate  Face  Exercise
Amount times (2) the Series B Multiplier minus (ii) the Prior Aggregate Exercise
Amount.

         (l) "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.

         (m)  "EXPIRATION   DATE"  means  the  date  that  is  the  fifth  (5th)
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.

         (n) "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

                                      -18-
<PAGE>

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,
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.

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

         (p)  "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.

         (q)  "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.

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

         (s) "PRIOR AGGREGATE  EXERCISE AMOUNT" is, as of the applicable time of
determination,  equal to the total aggregate Exercise Price theretofore actually
paid  (whether  in cash or by  delivery  of notice of  Cashless  Exercise)  with
respect  to the  Series C  Warrants  initially  issued  to  Freestone  Advantage
Partners, LP (and not including the exercise in question).

         (t) "SERIES B MULTIPLIER"  is equal to the quotient of (i) the Series B
Prior  Aggregate  Exercise  Amount  divided by (ii) the Aggregate  Series B Face
Exercise Amount.

         (u) "SERIES B PRIOR AGGREGATE EXERCISE AMOUNT" is, as of the applicable
time of determination,  equal to the total aggregate  Exercise Price (as defined
in the Series B Warrants  (as  defined in the  Securities  Purchase  Agreement))
theretofore  actually paid (whether in cash or by delivery of notice of Cashless
Exercise)  for  prior or  concurrent  exercises  with  respect  to the  Series B
Warrants initially issued to Freestone Advantage Partners, LP.

         (v)  "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.

         (w) "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

                                      -19-
<PAGE>

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.

         (x) "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).

         (y)  "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
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: /s Dean Janes
                                            ________________________________
                                            Name: Dean Janes
                                            Title: Chief Executive Officer



































                                      -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 C 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: