Document:

Exhibit
      4.1

    

    CERTIFICATE
      OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES

    OF
      THE

    SERIES
      B CONVERTIBLE PREFERRED STOCK

    OF

    HIENERGY
      TECHNOLOGIES, INC. 

     

    The
      undersigned, the Chief Executive Officer of HiEnergy Technologies, Inc., a
      Delaware corporation (the "Company"), in accordance with the provisions of
      the
      Delaware General Corporation Law, does hereby certify that, pursuant to the
      authority conferred upon the Board of Directors by the Certificate of
      Incorporation of the Company, the following resolution creating a series of
      preferred stock, designated as Series B Convertible Preferred Stock, was duly
      adopted on June 5, 2006, as follows:

    

    RESOLVED,
      that pursuant to the authority expressly granted to and vested in the Board
      of
      Directors of the Company by provisions of the Certificate of Incorporation
      of
      the Company (the "Certificate of Incorporation"), there hereby is created out
      of
      the shares of the Company’s preferred stock, par value $.001 per share, of the
      Company authorized in Article IV of the Certificate of Incorporation (the
      "Preferred Stock"), a series of Preferred Stock of the Company, to be named
      "Series B Convertible Preferred Stock," consisting of six hundred (600) shares,
      which series shall have the following designations, powers, preferences and
      relative and other special rights and the following qualifications, limitations
      and restrictions:

    

    1.  Designation
      and Rank.
      The
      designation of such series of the Preferred Stock shall be the Series B
      Convertible Preferred Stock, par value $.001 per share (the "Series B Preferred
      Stock"). The maximum number of shares of Series B Preferred Stock shall be
      six
      hundred (600) shares. The Series B Preferred Stock shall rank pari passu with
      shares of the Company’s Series A Convertible Preferred Stock and shall rank
      senior to the Company’s common stock, par value $.001 per share (the "Common
      Stock"), and to all other classes and series of equity securities of the Company
      which by their terms do not rank senior to the Series B Preferred Stock ("Junior
      Stock"). The Series B Preferred Stock shall be subordinate to and rank junior
      to
      all indebtedness of the Company now or hereafter outstanding.

    

    2.  Dividends.

    

    (a)  Payment
      of Dividends.
      Commencing on the date of the initial issuance (the “Issuance Date”) of the
      Series B Preferred Stock and subject to Section 5(c)(ii) hereof, the holders
      of
      record of shares of Series B Preferred Stock shall be entitled to receive,
      out
      of any assets at the time legally available therefor and as declared by the
      Board of Directors, dividends at the rate of eight percent (8%)
      of
      the stated Liquidation Preference Amount (as defined in Section 4 hereof) per
      share per annum and increasing to ten percent (10%) of the stated Liquidation
      Preference Amount per share per annum commencing on January 1, 2007 (the
      "Dividend Payment"), and no more, payable semi-annually on the first business
      day of January and July of each year at the option of the Company in cash or
      in
      shares of Common Stock. If the Company elects to pay any dividend in shares
      of
      Common Stock, the number of shares of Common Stock to be issued to the holder
      shall be an amount equal to the quotient of (i) the Dividend Payment divided
      by
      (ii) the Conversion Price (as defined in Section 5(d) hereof). Notwithstanding
      the foregoing, the Dividend Payment for the six (6) months following the
      Issuance Date shall be payable on the Issuance Date to the holders of record
      of
      shares of Series B Preferred Stock in shares of Common Stock (and such shares
      shall be registered on the Registration Statement (as defined in Section
      5(c)(ii) hereof)) based on the average of the Closing Bid Price (as defined
      in
      Section 5(c)(iii) hereof) for the five (5) trading days prior to the Issuance
      Date. If
      the
      Company elects or is required to pay any dividend in shares of Common Stock,
      the
      Company will give the holders of record of shares of the Series B Preferred
      Stock ten (10) trading days notice prior to the date of the applicable Dividend
      Payment.  In
      the
      case of shares of Series B Preferred Stock outstanding for less than a full
      year, dividends shall be pro rated based on the portion of each year during
      which such shares are outstanding. Dividends on the Series B Preferred Stock
      shall be cumulative, shall accrue and be payable semi-annually. Dividends on
      the
      Series B Preferred Stock are prior and in preference to any declaration or
      payment of any distribution (as defined below) on any outstanding shares of
      Junior Stock. Such dividends shall accrue on each share of Series B Preferred
      Stock from day to day whether or not earned or declared so that if such
      dividends with respect to any previous dividend period at the rate provided
      for
      herein have not been paid on, or declared and set apart for, all shares of
      Series B Preferred Stock at the time outstanding, the deficiency shall be fully
      paid on, or declared and set apart for, such shares on a pro rata basis with
      all
      other equity securities of the Company ranking on a parity with the Series
      B
      Preferred Stock as to the payment of dividends before any distribution shall
      be
      paid on, or declared and set apart for Junior Stock.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    (b)  So
      long
      as any shares of Series B Preferred Stock are outstanding, the Company shall
      not
      declare, pay or set apart for payment any dividend or make any distribution
      on
      any Junior Stock (other than dividends or distributions payable in additional
      shares of Junior Stock), unless at the time of such dividend or distribution
      the
      Company shall have paid all accrued and unpaid dividends on the outstanding
      shares of Series B Preferred Stock.

    

    (c)  In
      the
      event of a dissolution, liquidation or winding up of the Company pursuant to
      Section 4 hereof, all accrued and unpaid dividends on the Series B Preferred
      Stock shall be payable on the date of payment of the preferential amount to
      the
      holders of Series B Preferred Stock. In the event of (i) a mandatory redemption
      pursuant to Section 9 hereof or (ii) a redemption upon the occurrence of a
      Major
      Transaction (as defined in Section 8(c) hereof) or a Triggering Event (as
      defined in Section 8(d) hereof), all accrued and unpaid dividends on the Series
      B Preferred Stock shall be payable on the date of such redemption. In the event
      of a voluntary conversion pursuant to Section 5(a) hereof, all accrued and
      unpaid dividends on the Series B Preferred Stock being converted shall be
      payable on the Voluntary Conversion Date (as defined in Section 5(b)(i)
      hereof).

    

    (d)  For
      purposes hereof, unless the context otherwise requires, "distribution" shall
      mean the transfer of cash or property without consideration, whether by way
      of
      dividend or otherwise, payable other than in shares of Common Stock or other
      equity securities of the Company, or the purchase or redemption of shares of
      the
      Company (other than redemptions set forth in Section 8 below or repurchases
      of
      Common Stock held by employees or consultants of the Company upon termination
      of
      their employment or services pursuant to agreements providing for such
      repurchase or upon the cashless exercise of options held by employees or
      consultants) for cash or property.

    
      
        
        

      

      
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    3.  Voting
      Rights.

    

    (a)  Class
      Voting Rights.
      The
      Series B Preferred Stock shall have the following class voting rights (in
      addition to the voting rights set forth in Section 3(b) hereof). So long as
      any
      shares of the Series B Preferred Stock remain outstanding, the Company shall
      not, without the affirmative vote or consent of the holders of at least
      seventy-five percent (75%) of the shares of the Series B Preferred Stock
      outstanding at the time, given in person or by proxy, either in writing or
      at a
      meeting, in which the holders of the Series B Preferred Stock vote separately
      as
      a class: (i) authorize, create, issue or increase the authorized or issued
      amount of any class or series of stock, including but not limited to the
      issuance of any more shares of Preferred Stock, ranking pari passu or senior
      to
      the Series B Preferred Stock, with respect to the distribution of assets on
      liquidation, dissolution or winding up; (ii) amend, alter or repeal the
      provisions of the Series B Preferred Stock, whether by merger, consolidation
      or
      otherwise, so as to adversely affect any right, preference, privilege or voting
      power of the Series B Preferred Stock; provided,
      however,
      that
      any creation and issuance of another series of Junior Stock shall not be deemed
      to adversely affect such rights, preferences, privileges or voting powers;
      (iii)
      repurchase, redeem or pay dividends on, shares of Common Stock or any other
      shares of the Company's Junior Stock (other than de minimus repurchases from
      employees of the Company in certain circumstances, and any contractual
      redemption obligations existing as of the date hereof as disclosed in the
      Company’s public filings with the Securities and Exchange Commission); (iv)
      amend the Certificate of Incorporation or By-Laws of the Company so as to affect
      materially and adversely any right, preference, privilege or voting power of
      the
      Series B Preferred Stock; provided,
      however,
      that
      any creation and issuance of another series of Junior Stock shall not be deemed
      to adversely affect such rights, preferences, privileges or voting powers;
      (v)
      effect any distribution with respect to Junior Stock other than as permitted
      hereby; (vi) reclassify the Company's outstanding securities; (vii) voluntarily
      file for bankruptcy, liquidate the Company’s assets or make an assignment for
      the benefit of the Company’s creditors; or (viii) materially change the nature
      of the Company’s business. Notwithstanding the foregoing to the contrary, and so
      long as at least one hundred (100) shares of Series B Preferred Stock are
      outstanding, the Company shall not issue any securities ranking pari passu
      or
      senior to the Series B Preferred Stock with respect to the distribution of
      assets on liquidation, dissolution or winding up without the affirmative vote
      or
      consent of the holders of at least seventy-five percent (75%) of the shares
      of
      the Series B Preferred Stock outstanding at the time.

    

    (b)  General
      Voting
      Rights.
      Except
      with respect to transactions upon which the Series B Preferred Stock shall
      be
      entitled to vote separately as a class pursuant to Section 3(a) above and except
      as otherwise required by Delaware law, the Series B Preferred Stock shall have
      no voting rights. The Common Stock into which the Series B Preferred Stock
      is
      convertible shall, upon issuance, have all of the same voting rights as other
      issued and outstanding Common Stock of the Company, and none of the rights
      of
      the Preferred Stock.

     

    
      
        
        

      

      
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    4.  Liquidation
      Preference.

    

    (a)  In
      the
      event of the liquidation, dissolution or winding up of the affairs of the
      Company, whether voluntary or involuntary, the holders of shares of Series
      B
      Preferred Stock then outstanding shall be entitled to receive, out of the assets
      of the Company available for distribution to its stockholders, an amount equal
      to $10,000 per share (the "Liquidation Preference Amount") of the Series B
      Preferred Stock plus any accrued and unpaid dividends before any payment shall
      be made or any assets distributed to the holders of the Common Stock or any
      other Junior Stock. If the assets of the Company are not sufficient to pay
      in
      full the Liquidation Preference Amount plus any accrued and unpaid dividends
      payable to the holders of outstanding shares of the Series B Preferred Stock
      and
      any series of preferred stock or any other class of stock on a parity, as to
      rights on liquidation, dissolution or winding up, with the Series B Preferred
      Stock, then all of said assets will be distributed among the holders of the
      Series B Preferred Stock and the other classes of stock on a parity with the
      Series B Preferred Stock, if any, ratably in accordance with the respective
      amounts that would be payable on such shares if all amounts payable thereon
      were
      paid in full. The liquidation payment with respect to each outstanding
      fractional share of Series B Preferred Stock shall be equal to a ratably
      proportionate amount of the liquidation payment with respect to each outstanding
      share of Series B Preferred Stock. All payments for which this Section 4(a)
      provides shall be in cash, property (valued at its fair market value as
      determined by an independent appraiser reasonably acceptable to the holders
      of a
      majority of the Series B Preferred Stock) or a combination thereof; provided,
      however,
      that no
      cash shall be paid to holders of Junior Stock unless each holder of the
      outstanding shares of Series B Preferred Stock has been paid in cash the full
      Liquidation Preference Amount plus any accrued and unpaid dividends to which
      such holder is entitled as provided herein. After payment of the full
      Liquidation Preference Amount plus any accrued and unpaid dividends to which
      each holder is entitled, such holders of shares of Series B Preferred Stock
      will
      not be entitled to any further participation as such in any distribution of
      the
      assets of the Company.

    

    (b)  A
      consolidation or merger of the Company with or into any other corporation or
      corporations, or a sale of all or substantially all of the assets of the
      Company, or the effectuation by the Company of a transaction or series of
      related transactions in which more than 50% of the voting shares of the Company
      is disposed of or conveyed, shall not be deemed to be a liquidation,
      dissolution, or winding up within the meaning of this Section 4. In the event
      of
      the merger or consolidation of the Company with or into another corporation,
      the
      Series B Preferred Stock shall maintain its relative powers, designations and
      preferences provided for herein and no merger shall result which is inconsistent
      therewith.

    

    (c)  Written
      notice of any voluntary or involuntary liquidation, dissolution or winding
      up of
      the affairs of the Company, stating a payment date and the place where the
      distributable amounts shall be payable, shall be given by mail, postage prepaid,
      no less than forty-five (45) days prior to the payment date stated therein,
      to
      the holders of record of the Series B Preferred Stock at their respective
      addresses as the same shall appear on the books of the Company.

    
      
        
        

      

      
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    5.  Conversion.
      The
      holder of Series B Preferred Stock shall have the following conversion rights
      (the "Conversion Rights"):

    

    (a)  Right
      to Convert.
      At any
      time on or after the Issuance Date, the holder of any such shares of Series
      B
      Preferred Stock may, at such holder's option, subject to the limitations set
      forth in Section 7 herein, elect to convert (a "Voluntary Conversion") all
      or
      any portion of the shares of Series B Preferred Stock held by such person into
      a
      number of fully paid and nonassessable shares of Common Stock equal to the
      quotient of (i) the Liquidation Preference Amount of the shares of Series B
      Preferred Stock being converted divided by (ii) the Conversion Price (as defined
      in Section 5(d) below) then in effect as of the date of the delivery by such
      holder of its notice of election to convert. In the event of a notice of
      redemption of any shares of Series B Preferred Stock pursuant to Section 8
      hereof, the Conversion Rights of the shares designated for redemption shall
      terminate at the close of business on the last full day preceding the date
      fixed
      for redemption, unless the redemption price is not paid on such redemption
      date,
      in which case the Conversion Rights for such shares shall continue until such
      price is paid in full. In the event of a liquidation, dissolution or winding
      up
      of the Company, the Conversion Rights shall terminate at the close of business
      on the last full day preceding the date fixed for the payment of any such
      amounts distributable on such event to the holders of Series B Preferred Stock.
      In the event of such a redemption or liquidation, dissolution or winding up,
      the
      Company shall provide to each holder of shares of Series B Preferred Stock
      notice of such redemption or liquidation, dissolution or winding up, which
      notice shall (i) be sent at least fifteen (15) days prior to the termination
      of
      the Conversion Rights (or, if the Company obtains lesser notice thereof, then
      as
      promptly as possible after the date that it has obtained notice thereof) and
      (ii) state the amount per share of Series B Preferred Stock that will be paid
      or
      distributed on such redemption or liquidation, dissolution or winding up, as
      the
      case may be.

    

    (b)  Mechanics
      of Voluntary Conversion.
      The
      Voluntary Conversion of Series B Preferred Stock shall be conducted in the
      following manner:

    

    (i)  Holder's
      Delivery Requirements.
      To
      convert Series B Preferred Stock into full shares of Common Stock on any date
      (the "Voluntary Conversion Date"), the holder thereof shall (A) transmit by
      facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New
      York
      time on such date, a copy of a fully executed notice of conversion in the form
      attached hereto as Exhibit
      I
      (the
      "Conversion Notice"), to the Company at (949) 757-1477, Attention: Corporate
      Secretary, and (B) surrender to a common carrier for delivery to the Company
      as
      soon as practicable following such Voluntary Conversion Date but in no event
      later than three (3) business days after such date the original certificates
      representing the shares of Series B Preferred Stock being converted (or an
      indemnification undertaking with respect to such shares in the case of their
      loss, theft or destruction) (the "Preferred Stock Certificates") and the
      originally executed Conversion Notice.

    

    (ii)  Company's
      Response.
      Upon
      receipt by the Company of a facsimile copy of a Conversion Notice, the Company
      shall promptly send, via facsimile, a confirmation of receipt of such Conversion
      Notice to such holder. Upon receipt by the Company of a copy of the fully
      executed Conversion Notice, the Company or its designated transfer agent (the
      "Transfer Agent"), as applicable, shall, within three (3) business days
      following the date of receipt by the Company of the fully executed Conversion
      Notice (so long as the applicable Preferred Stock Certificates and original
      Conversion Notice are received by the Company on or before such third business
      day), issue and deliver to the Depository Trust Company (“DTC”)
      account on the Holder’s behalf via the Deposit Withdrawal Agent Commission
      System (“DWAC”)
      as
      specified in the Conversion Notice, registered in the name of the holder or
      its
      designee, for the number of shares of Common Stock to which the holder shall
      be
      entitled. Notwithstanding the foregoing to the contrary, the Company or its
      Transfer Agent shall only be obligated to issue and deliver the shares to the
      DTC on a holder’s behalf via DWAC if such conversion is in connection with a
      sale and such holder has complied with the applicable prospectus delivery
      requirements. If the number of shares of Preferred Stock represented by the
      Preferred Stock Certificate(s) submitted for conversion is greater than the
      number of shares of Series B Preferred Stock being converted, then the Company
      shall, as soon as practicable and in no event later than three (3) business
      days
      after receipt of the Preferred Stock Certificate(s) and at the Company's
      expense, issue and deliver to the holder a new Preferred Stock Certificate
      representing the number of shares of Series B Preferred Stock not
      converted.

    
      
        
        

      

      
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    (iii)  Dispute
      Resolution.
      In the
      case of a dispute as to the arithmetic calculation of the number of shares
      of
      Common Stock to be issued upon conversion, the Company shall cause its Transfer
      Agent to promptly issue to the holder the number of shares of Common Stock
      that
      is not disputed and shall submit the arithmetic calculations to the holder
      via
      facsimile as soon as possible, but in no event later than two (2) business
      days
      after receipt of such holder's Conversion Notice. If such holder and the Company
      are unable to agree upon the arithmetic calculation of the number of shares
      of
      Common Stock to be issued upon such conversion within one (1) business day
      of
      such disputed arithmetic calculation being submitted to the holder, then the
      Company shall within one (1) business day submit via facsimile the disputed
      arithmetic calculation of the number of shares of Common Stock to be issued
      upon
      such conversion to the Company’s independent, outside accountant. The Company
      shall cause the accountant to perform the calculations and notify the Company
      and the holder of the results no later than seventy-two (72) hours from the
      time
      it receives the disputed calculations. Such accountant's calculation shall
      be
      binding upon all parties absent manifest error. The reasonable expenses of
      such
      accountant in making such determination shall be paid by the Company, in the
      event the holder's calculation was correct, or by the holder, in the event
      the
      Company's calculation was correct, or equally by the Company and the holder
      in
      the event that neither the Company's or the holder's calculation was correct.
      The period of time in which the Company is required to effect conversions or
      redemptions under this Certificate of Designation shall be tolled with respect
      to the subject conversion or redemption pending resolution of any dispute by
      the
      Company made in good faith and in accordance with this Section
      5(b)(iii).

    

    (iv)  Record
      Holder.
      The
      person or persons entitled to receive the shares of Common Stock issuable upon
      a
      conversion of the Series B Preferred Stock shall be treated for all purposes
      as
      the record holder or holders of such shares of Common Stock on the Conversion
      Date.

    
      
        
        

      

      
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    (v)  Company's
      Failure to Timely Convert.
      If
      within three (3) business days of the Company's receipt of an executed copy
      of
      the Conversion Notice (so long as the applicable Preferred Stock Certificates
      and original Conversion Notice are received by the Company on or before such
      third business day) (the "Share Delivery Period") the Transfer Agent shall
      fail
      to issue and deliver to a holder the number of shares of Common Stock to which
      such holder is entitled upon such holder's conversion of the Series B Preferred
      Stock or to issue a new Preferred Stock Certificate representing the number
      of
      shares of Series B Preferred Stock to which such holder is entitled pursuant
      to
      Section 5(b)(ii) (a "Conversion Failure"), in addition to all other available
      remedies which such holder may pursue hereunder and under the Series B
      Convertible Preferred Stock Purchase Agreement (the "Purchase Agreement") among
      the Company and the initial holders of the Series B Preferred Stock (including
      indemnification pursuant to Section 6 thereof), the Company shall pay additional
      damages to such holder on each business day after such third (3rd)
      business day that such conversion is not timely effected in an amount equal
      0.5%
      of the product of (A) the sum of the number of shares of Common Stock not issued
      to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such
      holder is entitled and, in the event the Company has failed to deliver a
      Preferred Stock Certificate to the holder on a timely basis pursuant to Section
      5(b)(ii), the number of shares of Common Stock issuable upon conversion of
      the
      shares of Series B Preferred Stock represented by such Preferred Stock
      Certificate, as of the last possible date which the Company could have issued
      such Preferred Stock Certificate to such holder without violating Section
      5(b)(ii) and (B) the Closing Bid Price (as defined in Section 5(c)(iii) below)
      of the Common Stock on the last possible date which the Company could have
      issued such Common Stock and such Preferred Stock Certificate, as the case
      may
      be, to such holder without violating Section 5(b)(ii). If the Company fails
      to
      pay the additional damages set forth in this Section 5(b)(v) within five (5)
      business days of the date incurred, then such payment shall bear interest at
      the
      rate of 2.0% per month (pro rated for partial months) until such payments are
      made.

    

    (c)  Mandatory
      Conversion.

    

    (i)  The
      number of outstanding shares of Series B Preferred Stock referred to below
      in
      Section 5(c)(ii) on the Mandatory Conversion Date shall, automatically and
      without any action on the part of the holder thereof, convert into a number
      of
      fully paid and nonassessable shares of Common Stock equal to the quotient of
      (i)
      the Liquidation Preference Amount of the number of shares of Series B Preferred
      Stock being converted on the Mandatory Conversion Date divided by (ii) the
      Conversion Price in effect on the Mandatory Conversion Date.

    

    (ii)  As
      used
      herein, "Mandatory Conversion Date" shall mean, subject to the provisions of
      Section 7(b) hereof, the date that the Closing Bid Price (as defined below)
      of
      the Common Stock exceeds $1.00 (as may be adjusted for any stock splits or
      combinations of the Common Stock) for a period of twenty (20) consecutive
      trading days; provided,
      that,
      on the
      Mandatory Conversion Date, (A) the registration statement (the “Registration
      Statement”) providing for the resale of the shares of Common Stock issuable upon
      conversion of the Series B Preferred Stock is effective and has been effective,
      without lapse or suspension of any kind, for a period thirty (30) consecutive
      calendar days, or the shares of Common Stock into which the Series B Preferred
      Stock can be converted may be offered for sale to the public pursuant to Rule
      144(k) ("Rule 144(k)") under the Securities Act of 1933, as amended, (B)
trading
      in the Common Stock shall not have been suspended by the Securities and Exchange
      Commission or the OTC Bulletin Board (or other exchange or market on which
      the
      Common Stock is then trading), (C) the Company is in material compliance with
      the terms and conditions of this Certificate of Designation and the other
      Transaction Documents (as defined in the Purchase Agreement) and (D) the Company
      is not in possession of any material non-public information.
      Notwithstanding the foregoing, the Mandatory Conversion Date shall be extended
      for as long as (i) a Triggering Event (as defined in Section 8(d) hereof) shall
      have occurred and be continuing, or (ii) any event shall have occurred and
      be
      continuing which with the passage of time and the failure to cure would result
      in a Triggering Event. In the event that a holder of Series B Preferred Stock
      may not convert all of its shares of Series B Preferred Stock upon a Mandatory
      Conversion because of the restrictions contained in Section 7(b) hereof, such
      number of shares of Series B Preferred Stock that may not be converted because
      of the restrictions contained in Section 7(b) hereof shall remain outstanding
      but shall not, from that date forward, accrue any dividends pursuant to Section
      2 hereof. The Mandatory Conversion Date and the Voluntary Conversion Date
      collectively are referred to in this Certificate of Designation as the
      "Conversion Date."

    
      
        
        

      

      
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    (iii)  The
      term
      "Closing Bid Price" shall mean, for any security as of any date, the last
      closing bid price of such security on the OTC Bulletin Board or other principal
      exchange on which such security is traded as reported by Bloomberg, or, if
      no
      closing bid price is reported for such security by Bloomberg, the last closing
      trade price of such security as reported by Bloomberg, or, if no last closing
      trade price is reported for such security by Bloomberg, the average of the
      bid
      prices of any market makers for such security as reported in the "pink sheets"
      by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
      calculated for such security on such date on any of the foregoing bases, the
      Closing Bid Price of such security on such date shall be the fair market value
      as mutually determined by the Company and the holders of a majority of the
      outstanding shares of Series B Preferred Stock. 

    

    (iv)  On
      the
      Mandatory Conversion Date, the outstanding shares of Series B Preferred Stock
      shall be converted automatically without any further action by the holders
      of
      such shares and whether or not the certificates representing such shares are
      surrendered to the Company or its Transfer Agent; provided,
      however,
      that
      the Company shall not be obligated to issue the shares of Common Stock issuable
      upon conversion of any shares of Series B Preferred Stock unless certificates
      evidencing such shares of Series B Preferred Stock are either delivered to
      the
      Company or the holder notifies the Company that such certificates have been
      lost, stolen, or destroyed, and executes an agreement satisfactory to the
      Company to indemnify the Company from any loss incurred by it in connection
      therewith. Upon the occurrence of a Mandatory Conversion of the Series B
      Preferred Stock pursuant to this Section 5, the holders of the Series B
      Preferred Stock shall surrender the certificates representing the Series B
      Preferred Stock for which the Mandatory Conversion Date has occurred to the
      Company and the Company shall cause its Transfer Agent to deliver the shares
      of
      Common Stock issuable upon such conversion (in the same manner set forth in
      Section 5(b)(ii)) to the holder within three (3) business days of the holder's
      delivery of the applicable Preferred Stock Certificates.

    

    (d)  Conversion
      Price.
      

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    (i)  The
      term
      "Conversion Price" shall mean $0.30, subject to adjustment under Section 5(e)
      hereof. Notwithstanding any adjustment hereunder, at no time shall the
      Conversion Price be greater than $0.30 per share except if it is adjusted
      pursuant to Section 5(e)(i). 

    

    (ii)  Notwithstanding
      the foregoing to the contrary, if during any period (a "Black-out
      Period"),
      a
      holder of Series B Preferred Stock is unable to trade any Common Stock issued
      or
      issuable upon conversion of the Series B Preferred Stock immediately due to
      the
      postponement of filing or delay or suspension of effectiveness of the
      Registration Statement or because the Company has otherwise informed such holder
      of Series B Preferred Stock that an existing prospectus cannot be used at that
      time in the sale or transfer of such Common Stock (provided that such
      postponement, delay, suspension or fact that the prospectus cannot be used
      is
      not due to factors solely within the control of the holder of Series B Preferred
      Stock or due to the Company exercising its rights under Section 3(n) of the
      Registration Rights Agreement (as defined in the Purchase Agreement)), such
      holder of Series B Preferred Stock shall have the option but not the obligation
      on any Conversion Date within ten (10) trading days following the expiration
      of
      the Black-out Period of using the Conversion Price applicable on such Conversion
      Date or any Conversion Price selected by such holder of Series B Preferred
      Stock
      that would have been applicable had such Conversion Date been at any earlier
      time during the Black-out Period or within the ten (10) trading days thereafter.
      

    

    (e)  Adjustments
      of Conversion Price.

    

    (i)  Adjustments
      for Stock Splits and Combinations.
      If the
      Company shall at any time or from time to time after the Issuance Date, effect
      a
      stock split of the outstanding Common Stock, the Conversion Price shall be
      proportionately decreased. If the Company shall at any time or from time to
      time
      after the Issuance Date, combine the outstanding shares of Common Stock, the
      Conversion Price shall be proportionately increased. Any adjustments under
      this
      Section 5(e)(i) shall be effective at the close of business on the date the
      stock split or combination becomes effective.

    

    (ii)  Adjustments
      for Certain Dividends and Distributions.
      If the
      Company shall at any time or from time to time after the Issuance Date, make
      or
      issue or set a record date for the determination of holders of Common Stock
      entitled to receive a dividend or other distribution payable in shares of Common
      Stock, then, and in each event, the Conversion Price shall be decreased as
      of
      the time of such issuance or, in the event such record date shall have been
      fixed, as of the close of business on such record date, by multiplying the
      Conversion Price then in effect by a fraction:

    

    (1)  the
      numerator of which shall be the total number of shares of Common Stock issued
      and outstanding immediately prior to the time of such issuance or the close
      of
      business on such record date; and

    

    (2)  the
      denominator of which shall be the total number of shares of Common Stock issued
      and outstanding immediately prior to the time of such issuance or the close
      of
      business on such record date plus the number of shares of Common Stock issuable
      in payment of such dividend or distribution.

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

    (iii)  Adjustment
      for Other Dividends and Distributions.
      If the
      Company shall at any time or from time to time after the Issuance Date, make
      or
      issue or set a record date for the determination of holders of Common Stock
      entitled to receive a dividend or other distribution payable in securities
      of
      the Company other than shares of Common Stock, then, and in each event, an
      appropriate revision to the applicable Conversion Price shall be made and
      provision shall be made (by adjustments of the Conversion Price or otherwise)
      so
      that the holders of Series B Preferred Stock shall receive upon conversions
      thereof, in addition to the number of shares of Common Stock receivable thereon,
      the number of securities of the Company which they would have received had
      their
      Series B Preferred Stock been converted into Common Stock on the date of such
      event and had thereafter, during the period from the date of such event to
      and
      including the Conversion Date, retained such securities (together with any
      distributions payable thereon during such period), giving application to all
      adjustments called for during such period under this Section 5(e)(iii) with
      respect to the rights of the holders of the Series B Preferred Stock;
provided,
      however,
      that if
      such record date shall have been fixed and such dividend is not fully paid
      or if
      such distribution is not fully made on the date fixed therefor, the Conversion
      Price shall be adjusted pursuant to this paragraph as of the time of actual
      payment of such dividends or distributions; and provided further,
      however, that no such adjustment shall be made if the holders of Series B
      Preferred Stock simultaneously receive (i) a dividend or other distribution
      of shares of Common Stock in a number equal to the number of shares of Common
      Stock as they would have received if all outstanding shares of Series B
      Preferred Stock had been converted into Common Stock on the date of such event
      or (ii) a dividend or other distribution of shares of Series B Preferred
      Stock which are convertible, as of the date of such event, into such number
      of
      shares of Common Stock as is equal to the number of additional shares of Common
      Stock being issued with respect to each share of Common Stock in such dividend
      or distribution.

    

    (iv)  Adjustments
      for Reclassification, Exchange or Substitution.
      If the
      Common Stock issuable upon conversion of the Series B Preferred Stock at any
      time or from time to time after the Issuance Date shall be changed to the same
      or different number of shares of any class or classes of stock, whether by
      reclassification, exchange, substitution or otherwise (other than by way of
      a
      stock split or combination of shares or stock dividends provided for in Sections
      5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
      of
      assets provided for in Section 5(e)(v)), then, and in each event, an appropriate
      revision to the Conversion Price shall be made and provisions shall be made
      (by
      adjustments of the Conversion Price or otherwise) so that the holder of each
      share of Series B Preferred Stock shall have the right thereafter to convert
      such share of Series B Preferred Stock into the kind and amount of shares of
      stock and other securities receivable upon reclassification, exchange,
      substitution or other change, by holders of the number of shares of Common
      Stock
      into which such share of Series B Preferred Stock might have been converted
      immediately prior to such reclassification, exchange, substitution or other
      change, all subject to further adjustment as provided herein.

    

    (v)  Adjustments
      for Reorganization, Merger, Consolidation or Sales of Assets.
      If at
      any time or from time to time after the Issuance Date there shall be a capital
      reorganization of the Company (other than by way of a stock split or combination
      of shares or stock dividends or distributions provided for in Section 5(e)(i),
      (ii) and (iii), or a reclassification, exchange or substitution of shares
      provided for in Section 5(e)(iv)), or a merger or consolidation of the Company
      with or into another corporation where the holders of outstanding voting
      securities prior to such merger or consolidation do not own over 50% of the
      outstanding voting securities of the merged or consolidated entity, immediately
      after such merger or consolidation, or the sale of all or substantially all
      of
      the Company's properties or assets to any other person (an "Organic Change"),
      then as a part of such Organic Change an appropriate revision to the Conversion
      Price shall be made if necessary and provision shall be made if necessary (by
      adjustments of the Conversion Price or otherwise) so that the holder of each
      share of Series B Preferred Stock shall have the right thereafter to convert
      such share of Series B Preferred Stock into the kind and amount of shares of
      stock and other securities or property of the Company or any successor
      corporation resulting from Organic Change. In any such case, appropriate
      adjustment shall be made in the application of the provisions of this Section
      5(e)(v) with respect to the rights of the holders of the Series B Preferred
      Stock after the Organic Change to the end that the provisions of this Section
      5(e)(v) (including any adjustment in the Conversion Price then in effect and
      the
      number of shares of stock or other securities deliverable upon conversion of
      the
      Series B Preferred Stock) shall be applied after that event in as nearly an
      equivalent manner as may be practicable.

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

    (vi)  Adjustments
      for Issuance of Additional Shares of Common Stock. 

    

    (A) In
      the
      event the Company, shall, at any time, from time to time, issue or sell any
      additional shares of Common Stock (otherwise than as provided in the foregoing
      subsections (i) through (v) of this Section 5(e) or pursuant to Common Stock
      Equivalents (hereafter defined) granted or issued prior to the Issuance Date)
      (the "Additional Shares of Common Stock"), at a price per share less than the
      Conversion Price, or without consideration, the Conversion Price then in effect
      upon each such issuance shall be adjusted to that price (rounded to the nearest
      cent) determined by multiplying the Conversion Price by a fraction:

    

    (1)  the
      numerator of which shall be equal to the sum of (A) the number of shares of
      Common Stock outstanding immediately prior to the issuance of such Additional
      Shares of Common Stock plus
      (B) the
      number of shares of Common Stock (rounded to the nearest whole share) which
      the
      aggregate consideration for the total number of such Additional Shares of Common
      Stock so issued would purchase at a price per share equal to the then Conversion
      Price, and

    

    (2)  the
      denominator of which shall be equal to the number of shares of Common Stock
      outstanding immediately after the issuance of such Additional Shares of Common
      Stock;

    

    provided,
      however,
      in the
      event that the Company shall at any time following the Issuance Date issue
      any
      Additional Shares of Common Stock at a price per share less than the Conversion
      Price then in effect or without consideration, and at the time of such issuance
      the Registration Statement is not effective, then the Conversion Price upon
      each
      such issuance shall be adjusted to the price equal to the consideration per
      share paid for such Additional Shares of Common Stock. 

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

    No
      adjustment of the number of shares of Common Stock shall be made under paragraph
      (A) of Section 5(e)(vi) upon the issuance of any Additional Shares of Common
      Stock which are issued pursuant to the exercise of any warrants or other
      subscription or purchase rights or pursuant to the exercise of any conversion
      or
      exchange rights in any Common Stock Equivalents (as defined below), if any
      such
      adjustment shall previously have been made upon the issuance of such warrants
      or
      other rights or upon the issuance of such Common Stock Equivalents (or upon
      the
      issuance of any warrant or other rights therefore) pursuant to Section
      5(e)(vii).

    

    (vii)  Issuance
      of Common Stock Equivalents.
      If the
      Company, at any time after the Issuance Date, shall issue any securities
      convertible into or exchangeable for, directly or indirectly, Common Stock
      ("Convertible Securities"), other than the Series B Preferred Stock, or any
      rights or warrants or options to purchase any such Common Stock or Convertible
      Securities, shall be issued or sold (collectively, the "Common Stock
      Equivalents") and the aggregate of the price per share for which Additional
      Shares of Common Stock may be issuable thereafter pursuant to such Common Stock
      Equivalent, plus the consideration received by the Company for issuance of
      such
      Common Stock Equivalent divided by the number of shares of Common Stock issuable
      pursuant to such Common Stock Equivalent (the "Aggregate Per Common Share
      Price") shall be less than the Conversion Price, or if, after any such issuance
      of Common Stock Equivalents, the price per share for which Additional Shares
      of
      Common Stock may be issuable thereafter is amended or adjusted, and such price
      as so amended or adjusted shall cause the Aggregate Per Common Share Price
      to be
      less than Conversion Price in effect at the time of such amendment or
      adjustment, then the Conversion Price then in effect shall be adjusted pursuant
      to Section (5)(e)(vi) above assuming that all Additional Shares of Common
      Stock have been issued pursuant to the Convertible Securities or Common Stock
      Equivalents for a purchase price equal to the Aggregate Per Common Share Price.
      No adjustment of the Conversion Price shall be made under this subsection (vii)
      upon the issuance of any Convertible Security which is issued pursuant to the
      exercise of any warrants or other subscription or purchase rights therefore,
      if
      any adjustment shall previously have been made to the exercise price of such
      warrants then in effect upon the issuance of such warrants or other rights
      pursuant to this subsection (vii). No adjustment shall be made to the Conversion
      Price upon the issuance of Common Stock pursuant to the exercise, conversion
      or
      exchange of any Convertible Security or Common Stock Equivalent where an
      adjustment to the Conversion Price was made as a result of the issuance or
      purchase of any Convertible Security or Common Stock Equivalent.

    

    (viii)  Consideration
      for Stock.
      In case
      any shares of Common Stock or Convertible Securities other than the Series
      B
      Preferred Stock, or any rights or warrants or options to purchase any such
      Common Stock or Convertible Securities, shall be issued or sold:

    

    (1)  in
      connection with any merger or consolidation in which the Company is the
      surviving corporation (other than any consolidation or merger in which the
      previously outstanding shares of Common Stock of the Company shall be changed
      to
      or exchanged for the stock or other securities of another corporation), the
      amount of consideration therefore shall be, deemed to be the fair value, as
      determined reasonably and in good faith by the Board of Directors of the
      Company, of such portion of the assets and business of the nonsurviving
      corporation as such Board may determine to be attributable to such shares of
      Common Stock, Convertible Securities, rights or warrants or options, as the
      case
      may be; or

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    

    (2)  in
      the
      event of any consolidation or merger of the Company in which the Company is
      not
      the surviving corporation or in which the previously outstanding shares of
      Common Stock of the Company shall be changed into or exchanged for the stock
      or
      other securities of another corporation, or in the event of any sale of all
      or
      substantially all of the assets of the Company for stock or other securities
      of
      any corporation, the Company shall be deemed to have issued a number of shares
      of its Common Stock for stock or securities or other property of the other
      corporation computed on the basis of the actual exchange ratio on which the
      transaction was predicated, and for a consideration equal to the fair market
      value on the date of such transaction of all such stock or securities or other
      property of the other corporation. If any such calculation results in adjustment
      of the applicable Conversion Price, or the number of shares of Common Stock
      issuable upon conversion of the Series B Preferred Stock, the determination
      of
      the applicable Conversion Price or the number of shares of Common Stock issuable
      upon conversion of the Series B Preferred Stock immediately prior to such
      merger, consolidation or sale, shall be made after giving effect to such
      adjustment of the number of shares of Common Stock issuable upon conversion
      of
      the Series B Preferred Stock. In the event any consideration received by the
      Company for any securities consists of property other than cash, the fair market
      value thereof at the time of issuance or as otherwise applicable shall be as
      determined in good faith by the Board of Directors of the Company. In the event
      Common Stock is issued with other shares or securities or other assets of the
      Company for consideration which covers both, the consideration computed as
      provided in this Section (5)(e)(viii) shall be allocated among such securities
      and assets as determined in good faith by the Board of Directors of the
      Company.

    

    (ix)  Record
      Date.
      In case
      the Company shall take record of the holders of its Common Stock or any other
      Preferred Stock for the purpose of entitling them to subscribe for or purchase
      Common Stock or Convertible Securities, then the date of the issue or sale
      of
      the shares of Common Stock shall be deemed to be such record date.

    

    (x)  Certain
      Issues Excepted.
      Anything herein to the contrary notwithstanding, the Company shall not be
      required to make any adjustment to the Conversion Price upon (i) the Company's
      issuance of any Additional Shares of Common Stock and warrants therefore in
      connection with a merger, acquisition or consolidation of the Company, (ii)
      the
      Company’s issuance of Additional Shares of Common Stock pursuant to a bona fide
      firm underwritten public offering of the Company’s securities, (iii) any
      issuances of warrants issued pursuant to the Purchase Agreement, (iv) securities
      issued pursuant to the conversion or exercise of convertible or exercisable
      securities issued or outstanding on or prior to the date hereof or issued
      pursuant to the Purchase Agreement, (v) any warrants issued to the placement
      agent for the transactions contemplated by the Purchase Agreement or in
      connection with other financial services rendered to the Company, (vi) the
      payment of any dividends on the Series B Preferred Stock, (vii) the Company’s
      issuance of Additional Shares of Common Stock in connection with license
      agreements, joint ventures and other strategic partnering arrangements so long
      as such issuances are not for the primary purpose of raising capital, and (viii)
      the Company’s issuance of Common Stock or the issuance or grants of options to
      purchase Common Stock pursuant to the Company’s stock option plans and employee
      stock purchase plans outstanding on the date hereof.

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

    (f)  No
      Impairment.
      The
      Company shall not, by amendment of its Certificate of Incorporation or through
      any reorganization, transfer of assets, consolidation, merger, dissolution,
      issue or sale of securities or any other voluntary action, avoid or seek to
      avoid the observance or performance of any of the terms to be observed or
      performed hereunder by the Company, but will at all times in good faith assist
      in the carrying out of all the provisions of this Section 5 and in the taking
      of
      all such action as may be necessary or appropriate in order to protect the
      Conversion Rights of the holders of the Series B Preferred Stock against
      impairment. In the event a holder shall elect to convert any shares of Series
      B
      Preferred Stock as provided herein, the Company cannot refuse conversion based
      on any claim that such holder or any one associated or affiliated with such
      holder has been engaged in any violation of law, unless (i) an order from the
      Securities and Exchange Commission prohibiting such conversion or (ii) an
      injunction from a court, on notice, restraining and/or adjoining conversion
      of
      all or of said shares of Series B Preferred Stock shall have been issued and
      the
      Company posts a surety bond for the benefit of such holder in an amount equal
      to
      100% of the Liquidation Preference Amount of the Series B Preferred Stock such
      holder has elected to convert, which bond shall remain in effect until the
      completion of arbitration/litigation of the dispute and the proceeds of which
      shall be payable to such holder in the event it obtains judgment.

    

    (g)  Certificates
      as to Adjustments.
      Upon
      occurrence of each adjustment or readjustment of the Conversion Price or number
      of shares of Common Stock issuable upon conversion of the Series B Preferred
      Stock pursuant to this Section 5, the Company at its expense shall promptly
      compute such adjustment or readjustment in accordance with the terms hereof
      and
      furnish to each holder of such Series B Preferred Stock a certificate setting
      forth such adjustment and readjustment, showing in detail the facts upon which
      such adjustment or readjustment is based. The Company shall, upon written
      request of the holder of such affected Series B Preferred Stock, at any time,
      furnish or cause to be furnished to such holder a like certificate setting
      forth
      such adjustments and readjustments, the Conversion Price in effect at the time,
      and the number of shares of Common Stock and the amount, if any, of other
      securities or property which at the time would be received upon the conversion
      of a share of such Series B Preferred Stock. Notwithstanding the foregoing,
      the
      Company shall not be obligated to deliver a certificate unless such certificate
      would reflect an increase or decrease of at least one percent of such adjusted
      amount.

    

    (h)  Issue
      Taxes.
      The
      Company shall pay any and all issue and other taxes, excluding federal, state
      or
      local income taxes, that may be payable in respect of any issue or delivery
      of
      shares of Common Stock on conversion of shares of Series B Preferred Stock
      pursuant hereto; provided,
      however,
      that
      the Company shall not be obligated to pay any transfer taxes resulting from
      any
      transfer requested by any holder in connection with any such
      conversion.

    

    (i)  Notices.
      All
      notices and other communications hereunder shall be in writing and shall be
      deemed given if delivered personally or by facsimile or three (3) business
      days
      following being mailed by certified or registered mail, postage prepaid,
      return-receipt requested, addressed to the holder of record at its address
      appearing on the books of the Company. The Company will give written notice
      to
      each holder of Series B Preferred Stock at least twenty (20) days prior to
      the
      date on which the Company closes its books or takes a record (I) with respect
      to
      any dividend or distribution upon the Common Stock, (II) with respect to any
      pro
      rata subscription offer to holders of Common Stock or (III) for determining
      rights to vote with respect to any Organic Change, dissolution, liquidation
      or
      winding-up and in no event shall such notice be provided to such holder prior
      to
      such information being made known to the public. The Company will also give
      written notice to each holder of Series B Preferred Stock at least twenty (20)
      days prior to the date on which any Organic Change, dissolution, liquidation
      or
      winding-up will take place and in no event shall such notice be provided to
      such
      holder prior to such information being made known to the
      public.

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

    (j)  Fractional
      Shares.
      No
      fractional shares of Common Stock shall be issued upon conversion of the Series
      B Preferred Stock. In lieu of any fractional shares to which the holder would
      otherwise be entitled, the Company shall pay cash equal to the product of such
      fraction multiplied by the average of the Closing Bid Prices of the Common
      Stock
      for the five (5) consecutive trading immediately preceding the Voluntary
      Conversion Date or the Mandatory Conversion Date, as applicable.

    

    (k)  Reservation
      of Common Stock.
      The
      Company shall, so long as any shares of Series B Preferred Stock are
      outstanding, reserve and keep available out of its authorized and unissued
      Common Stock, solely for the purpose of effecting the conversion of the Series
      B
      Preferred Stock, such number of shares of Common Stock as shall from time to
      time be sufficient to effect the conversion of all of the Series B Preferred
      Stock then outstanding; provided,
      however,
      upon
      the Company filing the Charter Amendment (as defined in Section 3.22 of the
      Purchase Agreement), the Company shall take all action necessary to at all
      times
      have authorized, and reserved for the purpose of issuance, no less than one
      hundred twenty percent (120%) of the aggregate number of shares of Common Stock
      as shall from time to time be sufficient to effect the conversion of all of
      the
      Series B Preferred Stock then outstanding. The initial number of shares of
      Common Stock reserved for conversions of the Series B Preferred Stock and any
      increase in the number of shares so reserved shall be allocated pro rata among
      the holders of the Series B Preferred Stock based on the number of shares of
      Series B Preferred Stock held by each holder of record at the time of issuance
      of the Series B Preferred Stock or increase in the number of reserved shares,
      as
      the case may be. In the event a holder shall sell or otherwise transfer any
      of
      such holder's shares of Series B Preferred Stock, each transferee shall be
      allocated a pro rata portion of the number of reserved shares of Common Stock
      reserved for such transferor. Any shares of Common Stock reserved and which
      remain allocated to any person or entity which does not hold any shares of
      Series B Preferred Stock shall be allocated to the remaining holders of Series
      B
      Preferred Stock, pro rata based on the number of shares of Series B Preferred
      Stock then held by such holder. 

    

    (l)  Retirement
      of Series B Preferred Stock.
      Conversion of Series B Preferred Stock shall be deemed to have been effected
      on
      the Conversion Date. Upon conversion of only a portion of the number of shares
      of Series B Preferred Stock represented by a certificate surrendered for
      conversion, the Company shall issue and deliver to such holder at the expense
      of
      the Company, a new certificate covering the number of shares of Series B
      Preferred Stock representing the unconverted portion of the certificate so
      surrendered as required by Section 5(b)(ii).

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    

    (m)  Regulatory
      Compliance.
      If any
      shares of Common Stock to be reserved for the purpose of conversion of Series
      B
      Preferred Stock require registration or listing with or approval of any
      governmental authority, stock exchange or other regulatory body under any
      federal or state law or regulation or otherwise before such shares may be
      validly issued or delivered upon conversion, the Company shall, at its sole
      cost
      and expense, in good faith and as expeditiously as possible, endeavor to secure
      such registration, listing or approval, as the case may be.

    

    6.  No
      Preemptive Rights.
      Except
      as provided in Section 5 hereof and in the Purchase Agreement, no holder of
      the
      Series B Preferred Stock shall be entitled to rights to subscribe for, purchase
      or receive any part of any new or additional shares of any class, whether now
      or
      hereinafter authorized, or of bonds or debentures, or other evidences of
      indebtedness convertible into or exchangeable for shares of any class, but
      all
      such new or additional shares of any class, or any bond, debentures or other
      evidences of indebtedness convertible into or exchangeable for shares, may
      be
      issued and disposed of by the Board of Directors on such terms and for such
      consideration (to the extent permitted by law), and to such person or persons
      as
      the Board of Directors in their absolute discretion may deem
      advisable.

    

    7.  Conversion
      Restrictions.
      

    

    (a)  Notwithstanding
      anything to the contrary set forth in Section 5 of this Certificate of
      Designation, at no time may a holder of shares of Series B Preferred Stock
      convert shares of the Series B Preferred Stock if the number of shares of Common
      Stock to be issued pursuant to such conversion would cause the number of shares
      of Common Stock owned by such holder at such time to exceed, when aggregated
      with all other shares of Common Stock owned by such holder at such time, the
      number of shares of Common Stock which would result in such holder beneficially
      owning (as determined in accordance with Section 13(d) of the Securities
      Exchange Act of 1934, as amended, and the rules thereunder) in excess of 4.9%
      of
      the then issued and outstanding shares of Common Stock outstanding at such
      time;
provided,
      however,
      that
      upon a holder of Series B Preferred Stock providing the Company with sixty-one
      (61) days notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that
      such holder would like to waive Section 7(a) of this Certificate of Designation
      with regard to any or all shares of Common Stock issuable upon conversion of
      Series B Preferred Stock, this Section 7(a) shall be of no force or effect
      with
      regard to those shares of Series B Preferred Stock referenced in the Waiver
      Notice.

     

    (b)  Notwithstanding
      anything to the contrary set forth in Section 5 of this Certificate of
      Designation, at no time may a holder of shares of Series B Preferred Stock
      convert shares of the Series B Preferred Stock if the number of shares of Common
      Stock to be issued pursuant to such conversion would cause the number of shares
      of Common Stock owned by such holder at such time to exceed, when aggregated
      with all other shares of Common Stock owned by such holder at such time, the
      number of shares of Common Stock which would result in such holder beneficially
      owning (as determined in accordance with Section 13(d) of the Securities
      Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.9%
      of
      the then issued and outstanding shares of Common Stock outstanding at such
      time;
provided,
      however,
      that
      upon a holder of Series B Preferred Stock providing the Company with a Waiver
      Notice that such holder would like to waive Section 7(b) of this Certificate
      of
      Designation with regard to any or all shares of Common Stock issuable upon
      conversion of Series B Preferred Stock, this Section 7(b) shall be of no force
      or effect with regard to those shares of Series B Preferred Stock referenced
      in
      the Waiver Notice. 

    
      
        
        

      

      
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    8.  Redemption.

    

    (a)  Redemption
      Option Upon Major Transaction.
      In
      addition to all other rights of the holders of Series B Preferred Stock
      contained herein, simultaneous with the occurrence of a Major Transaction (as
      defined below), each holder of Series B Preferred Stock shall have the right,
      at
      such holder's option, to require the Company to redeem all or a portion of
      such
      holder's shares of Series B Preferred Stock at a price per share of Series
      B
      Preferred Stock equal to one hundred twenty-five percent (125%) of the
      Liquidation Preference Amount, plus any accrued but unpaid dividends and
      liquidated damages (the "Major Transaction Redemption Price"); provided that
      the
      Company shall have the sole option to pay the Major Transaction Redemption
      Price
      in cash or shares of Common Stock. If the Company elects to pay the Major
      Transaction Redemption Price in shares of Common Stock, the price per share
      shall be based upon the Conversion Price then
      in
      effect on the day preceding the date of delivery of the Notice of Redemption
      at
      Option of Buyer Upon Major Transaction (as hereafter defined) and the holder
      of
      such shares of Common Stock shall have demand registration rights with respect
      to such shares. 

    

    (b)  Redemption
      Option Upon Triggering Event.
      In
      addition to all other rights of the holders of Series B Preferred Stock
      contained herein, after a Triggering Event (as defined below), each holder
      of
      Series B Preferred Stock shall have the right, at such holder's option, to
      require the Company to redeem all or a portion of such holder's shares of Series
      B Preferred Stock at a price per share of Series B Preferred Stock equal to
      one
      hundred twenty-five percent (125%) of the Liquidation Preference Amount, plus
      any accrued but unpaid dividends and liquidated damages the "Triggering Event
      Redemption Price" and, collectively with the "Major Transaction Redemption
      Price," the "Redemption Price"); provided that with respect to the Triggering
      Events described in clauses (i), (ii), (iii) and (v) of Section 8(d), the
      Company shall have the sole option to pay the Triggering Event Redemption Price
      in cash or shares of Common Stock; and provided, further, that with respect
      to
      the Triggering Event described in clause (iv) of Section 8(d), the Company
      shall
      pay the Triggering Event Redemption Price in cash. If the Company elects to
      pay
      the Triggering Event Redemption Price in shares of Common Stock in accordance
      with this Section 8(b), the price per share shall be based upon the Conversion
      Price then
      in
      effect on the day preceding the date of delivery of the Notice of Redemption
      at
      Option of Buyer Upon Triggering Event and the holder of such shares of Common
      Stock shall have demand registration rights with respect to such
      shares.

    

    (c)  "Major
      Transaction".
      A
      "Major Transaction" shall be deemed to have occurred at such time as any of
      the
      following events:

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (i)  the
      consolidation, merger or other business combination of the Company with or
      into
      another Person (other than (A) pursuant to a migratory merger effected solely
      for the purpose of changing the jurisdiction of incorporation of the Company
      or
      (B) a consolidation, merger or other business combination in which holders
      of
      the Company's voting power immediately prior to the transaction continue after
      the transaction to hold, directly or indirectly, the voting power of the
      surviving entity or entities necessary to elect a majority of the members of
      the
      board of directors (or their equivalent if other than a corporation) of such
      entity or entities).

    

    (ii)  the
      sale
      or transfer of more than 50% of the Company's assets other than inventory in
      the
      ordinary course of business in one or a related series of transactions;
      or

    

    (iii)  closing
      of a purchase, tender or exchange offer made to the holders of more than fifty
      percent (50%) of the outstanding shares of Common Stock in which more than
      fifty
      percent (50%) of the outstanding shares of Common Stock were tendered and
      accepted.

    

    (d)  "Triggering
      Event".
      A
      "Triggering Event" shall be deemed to have occurred at such time as any of
      the
      following events:

    

    (i)  so
      long
      as any shares of Series B Preferred Stock are outstanding, the effectiveness
      of
      the Registration Statement, after it becomes effective, (i) lapses for any
      reason (including, without limitation, the issuance of a stop order) and such
      lapse continues for a period of twenty (20) consecutive trading days, or (ii)
      is
      unavailable to the holder of the Series B Preferred Stock for sale of the shares
      of Common Stock, and such lapse or unavailability continues for a period of
      twenty (20) consecutive trading days, and the shares of Common Stock into which
      such holder's Series B Preferred Stock can be converted cannot be sold in the
      public securities market pursuant to Rule 144(k) (“Rule 144(k)”) under the
      Securities Act of 1933, as amended, provided
      that the
      cause of such lapse or unavailability is not due to factors solely within the
      control of such holder of Series B Preferred Stock.

    

    (ii)  the
      suspension from listing, without subsequent listing on any one of, or the
      failure of the Common Stock to be listed on at least one of, the OTC Bulletin
      Board, the Nasdaq National Market, the Nasdaq Capital Market, the New York
      Stock
      Exchange, Inc. or the American Stock Exchange, Inc., for a period of five (5)
      consecutive trading days;

    

    (iii)  the
      Company's notice to any holder of Series B Preferred Stock, including by way
      of
      public announcement, at any time, of its inability to comply (including for
      any
      of the reasons described in Section 9) or its intention not to comply with
      proper requests for conversion of any Series B Preferred Stock into shares
      of
      Common Stock; or

    

    (iv)  the
      Company's failure to comply with a Conversion Notice tendered in accordance
      with
      the provisions of this Certificate of Designation within ten (10) business
      days
      after the receipt by the Company of the Conversion Notice and the Preferred
      Stock Certificates; or

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    

    (v)  the
      Company breaches any representation, warranty, covenant or other term or
      condition of the Purchase Agreement, this Certificate of Designation or any
      other agreement, document, certificate or other instrument delivered in
      connection with the transactions contemplated thereby or hereby, except to
      the
      extent that such breach would not have a Material Adverse Effect (as defined
      in
      the Purchase Agreement) and except, in the case of a breach of a covenant which
      is curable, only if such breach continues for a period of a least ten (10)
      business days.

    

    (e)  Mechanics
      of Redemption at Option of Buyer Upon Major Transaction.
      No
      sooner than fifteen (15) days nor later than ten (10) days prior to the
      consummation of a Major Transaction, but not prior to the public announcement
      of
      such Major Transaction, the Company shall deliver written notice thereof via
      facsimile and overnight courier ("Notice of Major Transaction") to each holder
      of Series B Preferred Stock. At any time after receipt of a Notice of Major
      Transaction (or, in the event a Notice of Major Transaction is not delivered
      at
      least ten (10) days prior to a Major Transaction, at any time within ten (10)
      days prior to a Major Transaction), any holder of Series B Preferred Stock
      then
      outstanding may require the Company to redeem, effective immediately prior
      to
      the consummation of such Major Transaction, all of the holder's Series B
      Preferred Stock then outstanding by delivering written notice thereof via
      facsimile and overnight courier ("Notice of Redemption at Option of Buyer Upon
      Major Transaction") to the Company, which Notice of Redemption at Option of
      Buyer Upon Major Transaction shall indicate (i) the number of shares of Series
      B
      Preferred Stock that such holder is electing to redeem and (ii) the applicable
      Major Transaction Redemption Price, as calculated pursuant to Section 8(a)
      above.

    

    (f)  Mechanics
      of Redemption at Option of Buyer Upon Triggering Event.
      Within
      one (1) business day after the Company obtains knowledge of the occurrence
      of a
      Triggering Event, the Company shall deliver written notice thereof via facsimile
      and overnight courier ("Notice of Triggering Event") to each holder of Series
      B
      Preferred Stock. At any time after the earlier of a holder's receipt of a Notice
      of Triggering Event and such holder becoming aware of a Triggering Event, any
      holder of Series B Preferred Stock then outstanding may require the Company
      to
      redeem all of the Series B Preferred Stock by delivering written notice thereof
      via facsimile and overnight courier ("Notice of Redemption at Option of Buyer
      Upon Triggering Event") to the Company, which Notice of Redemption at Option
      of
      Buyer Upon Triggering Event shall indicate (i) the number of shares of Series
      B
      Preferred Stock that such holder is electing to redeem and (ii) the applicable
      Triggering Event Redemption Price, as calculated pursuant to Section 8(b) above.
      

    

    (g)  Payment
      of Redemption Price.
      Upon
      the Company's receipt of a Notice(s) of Redemption at Option of Buyer Upon
      Triggering Event or a Notice(s) of Redemption at Option of Buyer Upon Major
      Transaction from any holder of Series B Preferred Stock, the Company shall
      immediately notify each holder of Series B Preferred Stock by facsimile of
      the
      Company's receipt of such Notice(s) of Redemption at Option of Buyer Upon
      Triggering Event or Notice(s) of Redemption at Option of Buyer Upon Major
      Transaction and each holder which has sent such a notice shall promptly submit
      to the Company such holder's Preferred Stock Certificates which such holder
      has
      elected to have redeemed. Other than with respect to the Triggering Event
      described in clause (iv) of Section 8(d), the Company shall have the sole option
      to pay the Redemption Price in cash or shares of Common Stock in accordance
      with
      Sections 8(a) and (b) and Section 9 of this Certificate of Designation. The
      Company shall deliver the applicable Major Transaction Redemption Price
      immediately prior to the consummation of the Major Transaction; provided
      that a
      holder's Preferred Stock Certificates shall have been so delivered to the
      Company; provided further
      that if
      the Company is unable to redeem all of the Series B Preferred Stock to be
      redeemed, the Company shall redeem an amount from each holder of Series B
      Preferred Stock being redeemed equal to such holder's pro-rata amount (based
      on
      the number of shares of Series B Preferred Stock held by such holder relative
      to
      the number of shares of Series B Preferred Stock outstanding) of all Series
      B
      Preferred Stock being redeemed. If the Company shall fail to redeem all of
      the
      Series B Preferred Stock submitted for redemption (other than pursuant to a
      dispute as to the arithmetic calculation of the Redemption Price), in addition
      to any remedy such holder of Series B Preferred Stock may have under this
      Certificate of Designation and the Purchase Agreement, the applicable Redemption
      Price payable in respect of such unredeemed Series B Preferred Stock shall
      bear
      interest at the rate of 1.0% per month (prorated for partial months) until
      paid
      in full. Until the Company pays such unpaid applicable Redemption Price in
      full
      to a holder of shares of Series B Preferred Stock submitted for redemption,
      such
      holder shall have the option (the "Void Optional Redemption Option") to, in
      lieu
      of redemption, require the Company to promptly return to such holder(s) all
      of
      the shares of Series B Preferred Stock that were submitted for redemption by
      such holder(s) under this Section 8 and for which the applicable Redemption
      Price has not been paid, by sending written notice thereof to the Company via
      facsimile (the "Void Optional Redemption Notice"). Upon the Company's receipt
      of
      such Void Optional Redemption Notice(s) and prior to payment of the full
      applicable Redemption Price to such holder, (i) the Notice(s) of Redemption
      at
      Option of Buyer Upon Major Transaction shall be null and void with respect
      to
      those shares of Series B Preferred Stock submitted for redemption and for which
      the applicable Redemption Price has not been paid and (ii) the Company shall
      immediately return any Series B Preferred Stock submitted to the Company by
      each
      holder for redemption under this Section 8(d) and for which the applicable
      Redemption Price has not been paid and (iii) the Conversion Price of such
      returned shares of Series B Preferred Stock shall be adjusted to the lesser
      of
      (A) the Conversion Price and (B) the lowest Closing Bid Price during the period
      beginning on the date on which the Notice(s) of Redemption of Option of Buyer
      Upon Major Transaction is delivered to the Company and ending on the date on
      which the Void Optional Redemption Notice(s) is delivered to the Company;
provided
      that no
      adjustment shall be made if such adjustment would result in an increase of
      the
      Conversion Price then in effect. A holder's delivery of a Void Optional
      Redemption Notice and exercise of its rights following such notice shall not
      effect the Company's obligations to make any payments which have accrued prior
      to the date of such notice other than interest payments. Payments provided
      for
      in this Section 8 shall have priority to payments to other stockholders in
      connection with a Major Transaction. 

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    

    (h)  Demand
      Registration Rights.
      If the
      Redemption Price upon the occurrence of a Major Transaction or a Triggering
      Event is paid in shares of Common Stock and such shares have not been previously
      registered on a registration statement under the Securities Act, a holder of
      Series B Preferred Stock may make a written request for registration under
      the
      Securities Act pursuant to this Section 8(h) of all of its shares of Common
      Stock issued upon such Major Transaction or Triggering Event. The Company shall
      use its reasonable best efforts to cause to be filed and declared effective
      as
      soon as reasonably practicable (but in no event later than the ninetieth
      (90th)
      day
      after such holder’s request is made) a registration statement under the
      Securities Act, providing for the sale of all of the shares of Common Stock
      issued upon such Major Transaction or Triggering Event by such holder. The
      Company agrees to use its reasonable best efforts to keep any such registration
      statement continuously effective for resale of the Common Stock for so long
      as
      such holder shall request, but in no event later than the date that the shares
      of Common Stock issued upon such Major Transaction or Triggering Event may
      be
      offered for resale to the public pursuant to Rule 144(k).

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    

    9.  Inability
      to Fully Convert.

    

    (a)  Holder's
      Option if Company Cannot Fully Convert.
      If,
      upon the Company's receipt of a Conversion Notice or on the Mandatory Conversion
      Date, the Company cannot issue shares of Common Stock registered for resale
      under the Registration Statement for any reason, including, without limitation,
      because the Company (w) does not have a sufficient number of shares of Common
      Stock authorized and available, (x) is otherwise prohibited by applicable law
      or
      by the rules or regulations of any stock exchange, interdealer quotation system
      or other self-regulatory organization with jurisdiction over the Company or
      its
      securities from issuing all of the Common Stock which is to be issued to a
      holder of Series B Preferred Stock pursuant to a Conversion Notice or (y)
      subsequent to the effective date of the Registration Statement, fails to have
      a
      sufficient number of shares of Common Stock registered for resale under the
      Registration Statement, then the Company shall issue as many shares of Common
      Stock as it is able to issue in accordance with such holder's Conversion Notice
      and pursuant to Section 5(b)(ii) above and, with respect to the unconverted
      Series B Preferred Stock, the holder, solely at such holder's option, can elect,
      within five (5) business days after receipt of notice from the Company thereof
      to:

    

    (i)  require
      the Company to redeem from such holder those Series B Preferred Stock for which
      the Company is unable to issue Common Stock in accordance with such holder's
      Conversion Notice ("Mandatory Redemption") at a price per share equal to the
      Major Transaction Redemption Price as of such Conversion Date (the "Mandatory
      Redemption Price"); provided that the Company shall have the sole option to
      pay
      the Mandatory Redemption Price in cash or shares of Common Stock;

    

    (ii)  if
      the
      Company's inability to fully convert Series B Preferred Stock is pursuant to
      Section 9(a)(y) above, require the Company to issue restricted shares of Common
      Stock in accordance with such holder's Conversion Notice and pursuant to Section
      5(b)(ii) above;

    

    (iii)  void
      its
      Conversion Notice and retain or have returned, as the case may be, the shares
      of
      Series B Preferred Stock that were to be converted pursuant to such holder's
      Conversion Notice (provided that a holder's voiding its Conversion Notice shall
      not effect the Company's obligations to make any payments which have accrued
      prior to the date of such notice).

    

    (b)  Mechanics
      of Fulfilling Holder's Election.
      The
      Company shall immediately send via facsimile to a holder of Series B Preferred
      Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder
      which cannot be fully satisfied as described in Section 9(a) above, a notice
      of
      the Company's inability to fully satisfy such holder's Conversion Notice (the
      "Inability to Fully Convert Notice"). Such Inability to Fully Convert Notice
      shall indicate (i) the reason why the Company is unable to fully satisfy such
      holder's Conversion Notice, (ii) the number of Series B Preferred Stock which
      cannot be converted and (iii) the applicable Mandatory Redemption Price. Such
      holder shall notify the Company of its election pursuant to Section 9(a) above
      by delivering written notice via facsimile to the Company ("Notice in Response
      to Inability to Convert").

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    

    (c)  Payment
      of Redemption Price.
      If such
      holder shall elect to have its shares redeemed pursuant to Section 9(a)(i)
      above, the Company shall pay the Mandatory Redemption Price to such holder
      within thirty (30) days of the Company's receipt of the holder's Notice in
      Response to Inability to Convert, provided
      that
      prior to the Company's receipt of the holder's Notice in Response to Inability
      to Convert the Company has not delivered a notice to such holder stating, to
      the
      satisfaction of the holder, that the event or condition resulting in the
      Mandatory Redemption has been cured and all Conversion Shares issuable to such
      holder can and will be delivered to the holder in accordance with the terms
      of
      Section 2(g). If the Company shall fail to pay the applicable Mandatory
      Redemption Price to such holder on a timely basis as described in this Section
      9(c) (other than pursuant to a dispute as to the determination of the arithmetic
      calculation of the Redemption Price), in addition to any remedy such holder
      of
      Series B Preferred Stock may have under this Certificate of Designation and
      the
      Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0%
      per month (prorated for partial months) until paid in full. Until the full
      Mandatory Redemption Price is paid in full to such holder, such holder may
      (i)
      void the Mandatory Redemption with respect to those Series B Preferred Stock
      for
      which the full Mandatory Redemption Price has not been paid, (ii) receive back
      such Series B Preferred Stock, and (iii) require that the Conversion Price
      of
      such returned Series B Preferred Stock be adjusted to the lesser of (A) the
      Conversion Price and (B) the lowest Closing Bid Price during the period
      beginning on the Conversion Date and ending on the date the holder voided the
      Mandatory Redemption. 

    

    (d)  Pro-rata
      Conversion and Redemption.
      In the
      event the Company receives a Conversion Notice from more than one holder of
      Series B Preferred Stock on the same day and the Company can convert and redeem
      some, but not all, of the Series B Preferred Stock pursuant to this Section
      9,
      the Company shall convert and redeem from each holder of Series B Preferred
      Stock electing to have Series B Preferred Stock converted and redeemed at such
      time an amount equal to such holder's pro-rata amount (based on the number
      shares of Series B Preferred Stock held by such holder relative to the number
      shares of Series B Preferred Stock outstanding) of all shares of Series B
      Preferred Stock being converted and redeemed at such time.

    

    10.  Vote
      to Change the Terms of or Issue Preferred Stock.
      The
      affirmative vote at a meeting duly called for such purpose or the written
      consent without a meeting, of the holders of not less than seventy-five percent
      (75%) of the then outstanding shares of Series B Preferred Stock (in addition
      to
      any other corporate approvals then required to effect such action), shall be
      required (a) for any change to this Certificate of Designation or the Company's
      Certificate of Incorporation which would amend, alter, change or repeal any
      of
      the powers, designations, preferences and rights of the Series B Preferred
      Stock
      or (b) for the issuance of shares of Series B Preferred Stock other than
      pursuant to the Purchase Agreement.

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    

    11.  Lost
      or Stolen Certificates.
      Upon
      receipt by the Company of evidence satisfactory to the Company of the loss,
      theft, destruction or mutilation of any Preferred Stock Certificates
      representing the shares of Series B Preferred Stock, and, in the case of loss,
      theft or destruction, of any indemnification undertaking by the holder to the
      Company and, in the case of mutilation, upon surrender and cancellation of
      the
      Preferred Stock Certificate(s), the Company shall execute and deliver new
      preferred stock certificate(s) of like tenor and date; provided,
      however,
      the
      Company shall not be obligated to re-issue Preferred Stock Certificates if
      the
      holder contemporaneously requests the Company to convert such shares of Series
      B
      Preferred Stock into Common Stock.

    

    12.  Remedies,
      Characterizations, Other Obligations, Breaches and Injunctive Relief.
      The
      remedies provided in this Certificate of Designation shall be cumulative and
      in
      addition to all other remedies available under this Certificate of Designation,
      at law or in equity (including a decree of specific performance and/or other
      injunctive relief), no remedy contained herein shall be deemed a waiver of
      compliance with the provisions giving rise to such remedy and nothing herein
      shall limit a holder's right to pursue actual damages for any failure by the
      Company to comply with the terms of this Certificate of Designation. Amounts
      set
      forth or provided for herein with respect to payments, conversion and the like
      (and the computation thereof) shall be the amounts to be received by the holder
      thereof 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 holders of the Series B Preferred Stock 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 holders
      of the Series B Preferred Stock 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.

    

    13.  Specific
      Shall Not Limit General; Construction.
      No
      specific provision contained in this Certificate of Designation shall limit
      or
      modify any more general provision contained herein. This Certificate of
      Designation shall be deemed to be jointly drafted by the Company and all initial
      purchasers of the Series B Preferred Stock and shall not be construed against
      any person as the drafter hereof.

    

    14.  Failure
      or Indulgence Not Waiver.
      No
      failure or delay on the part of a holder of Series B Preferred Stock in the
      exercise of any power, right or privilege hereunder shall operate as a waiver
      thereof, nor shall any single or partial exercise of any such power, right
      or
      privilege preclude other or further exercise thereof or of any other right,
      power or privilege.

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate
      and does affirm the foregoing as true this 29th day of June, 2006.

     

    
      	 	 	 
	 	HIENERGY
              TECHNOLOGIES, INC.
	 
 	 
 	 
 
	 	By:  	  
	 	
              

              Name: Roger
                W.A. Spillmann

              Title: President
                & Chief Executive Officer

            
	 	 

    

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    EXHIBIT
      I

    

    HIENERGY
      TECHNOLOGIES, INC.

    CONVERSION
      NOTICE

    

    Reference
      is made to the Certificate of Designation of the Relative Rights and Preferences
      of the Series B Preferred Stock of HiEnergy Technologies, Inc. (the "Certificate
      of Designation"). In accordance with and pursuant to the Certificate of
      Designation, the undersigned hereby elects to convert the number of shares
      of
      Series B Preferred Stock, par value $.001 per share (the "Preferred Shares"),
      of
      HiEnergy Technologies, Inc., a Delaware corporation (the "Company"), indicated
      below into shares of Common Stock, par value $.001 per share (the "Common
      Stock"), of the Company, by tendering the stock certificate(s) representing
      the
      share(s) of Preferred Shares specified below as of the date specified
      below.

    

    
      	
              Date
                of Conversion:

            	 	 
	 	 	 
	
              Number
                of Preferred Shares to be converted:

            	 	 
	 	 	 
	
              Stock
                certificate no(s). of Preferred Shares to be converted:  

            
	 
	
              The
                Common Stock have been sold pursuant to the Registration Statement:
                YES _____ NO
                _____

            

    

    

    Please
      confirm the following information:

    

    
      	
              Conversion
                Price:

            	 	 
	 	 	 
	
              Number
                of shares of Common Stock to be issued:

            	 	 

    

    

    Number
      of
      shares of Common Stock beneficially owned or deemed beneficially owned by the
      Holder on the Date of Conversion: _________________________

    

    Please
      issue the Common Stock into which the Preferred Shares are being converted
      and,
      if applicable, any check drawn on an account of the Company in the following
      name and to the following address:

    

    
      	
              Issue
                to:

            	 	 
	 	 	 
	 	 	 
	
              Facsimile
                Number:

            	 	 
	 	 	 
	
              Authorization:

            	 	 

    

    

    
      	 	 	
              By:

            	 
	 	 	
              Title:

            	 

    

    

    Dated:

    
      
        
        

      

      
        -25-Exhibit
      4.2

    

    THIS
      WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
      ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
      DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
      STATE SECURITIES LAWS OR HIENERGY TECHNOLOGIES, INC. SHALL
      HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HIENERGY
      TECHNOLOGIES, INC. THAT
      REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
      PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
      REQUIRED.

    

    SERIES
      B-1 WARRANT TO PURCHASE

    

    SHARES
      OF
      COMMON STOCK

    

    OF

    

    HIENERGY
      TECHNOLOGIES, INC.

    

    Expires
      June __, 2011

     

    
      	
              No.: W-B-1-06-__

              
                Date
                  of Issuance: June __, 2006

              

            	
               Number
                of Shares: ___________

            

    

     

    FOR
      VALUE
      RECEIVED, subject to the provisions hereinafter set forth, the undersigned,
      HiEnergy Technologies, Inc., a Delaware corporation (together with its
      successors and assigns, the "Issuer"),
      hereby certifies that _______________________________ or its registered assigns
      is entitled to subscribe for and purchase, during the Term (as hereinafter
      defined), up to ____________________________________ (_____________) shares
      (subject to adjustment as hereinafter provided) of the duly authorized, validly
      issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise
      price per share equal to the Warrant Price then in effect, subject, however,
      to
      the provisions and upon the terms and conditions hereinafter set forth.
      Capitalized terms used in this Warrant and not otherwise defined herein shall
      have the respective meanings specified in Section 9 hereof.

    

    1. Term.
      The
      term of this Warrant shall commence on June ____, 2006 and shall expire at
      5:00
      p.m., eastern time, on June __, 2011 (such period being the "Term").

    

    2. Method
      of Exercise Payment; Issuance of New Warrant; Transfer and
      Exchange.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (a) Time
      of Exercise.
      The
      purchase rights represented by this Warrant may be exercised in whole or in
      part
      during the Term commencing on the date the Issuer files the Charter Amendment
      (as defined in the Purchase Agreement) to effect the Share Increase (as defined
      in the Purchase Agreement).

    

    (b) Method
      of Exercise.
      The
      Holder hereof may exercise this Warrant, in whole or in part, by the surrender
      of this Warrant (with the exercise form attached hereto duly executed) at the
      principal office of the Issuer, and by the payment to the Issuer of an amount
      of
      consideration therefor equal to the Warrant Price in effect on the date of
      such
      exercise multiplied by the number of shares of Warrant Stock with respect to
      which this Warrant is then being exercised, payable at such Holder's election
      (i) by certified or official bank check or by
      wire
      transfer to an account designated by the Issuer,
      (ii) by
      "cashless exercise" in accordance with the provisions of subsection (c) of
      this
      Section 2, but only when a registration statement under the Securities Act
      providing for the resale of the Warrant Stock is not then in effect, or (iii)
      by
      a combination of the foregoing methods of payment selected by the Holder of
      this
      Warrant.

    

    (c) Cashless
      Exercise.
      Notwithstanding any provisions herein to the contrary and commencing one (1)
      year following the Original Issue Date, if (i) the Per Share Market Value of
      one
      share of Common Stock is greater than the Warrant Price (at the date of
      calculation as set forth below) and (ii) a registration statement under the
      Securities Act providing for the resale of the Warrant Stock is not then in
      effect, in lieu of exercising this Warrant by payment of cash, the Holder may
      exercise this Warrant by a cashless exercise and shall receive the number of
      shares of Common Stock equal to an amount (as determined below) by surrender
      of
      this Warrant at the principal office of the Issuer together with the properly
      endorsed Notice of Exercise in which event the Issuer shall issue to the Holder
      a number of shares of Common Stock computed using the following
      formula:

    

    X
      = Y -
(A)(Y)

         
      B

    

    
      	
              Where

            	
              X
                =

            	
              the
                number of shares of Common Stock to be issued to the
                Holder.

            

    

    

    
      	 	
              Y
                =

            	
              the
                number of shares of Common Stock purchasable upon exercise of all
                of the
                Warrant or, if only a portion of the Warrant is being exercised,
                the
                portion of the Warrant being exercised.

            

    

    

    
      	 	
              A
                =

            	
              the
                Warrant Price. 

            

    

     

    
      	 	
              B
                =

            	
              
                the
                  Per Share Market Value of one share of Common Stock.
                  

              

            

    

    

    (d) Issuance
      of Stock Certificates.
      In the
      event of any exercise of the rights represented by this Warrant in accordance
      with and subject to the terms and conditions hereof, (i) certificates for the
      shares of Warrant Stock so purchased shall be dated the date of such exercise
      and delivered to the Holder hereof within a reasonable time, not exceeding
      three
      (3) Trading Days after such exercise (the “Delivery
      Date”)
      or, at
      the request of the Holder (provided that a registration statement under the
      Securities Act providing for the resale of the Warrant Stock is then in effect
      and the Holder complies with all applicable securities laws in connection with
      the sale, including, without limitation, the prospectus delivery requirements),
      issued and delivered to the Depository Trust Company (“DTC”)
      account on the Holder’s behalf via the Deposit Withdrawal Agent Commission
      System (“DWAC”)
      within
      a reasonable time, not exceeding three (3) Trading Days after such exercise,
      and
      the Holder hereof shall be deemed for all purposes to be the holder of the
      shares of Warrant Stock so purchased as of the date of such exercise and (ii)
      unless this Warrant has expired, a new Warrant representing the number of shares
      of Warrant Stock, if any, with respect to which this Warrant shall not then
      have
      been exercised (less any amount thereof which shall have been canceled in
      payment or partial payment of the Warrant Price as hereinabove provided) shall
      also be issued to the Holder hereof at the Issuer's expense within a reasonable
      time, not exceeding seven (7) Trading Days after such exercise.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    (e) Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Exercise.
      In
      addition to any other rights available to the Holder, if the Issuer fails to
      cause its transfer agent to transmit to the Holder a certificate or certificates
      representing the Warrant Stock pursuant to an exercise on or before the Delivery
      Date, and if after such date the Holder is required by its broker to purchase
      (in an open market transaction or otherwise) shares of Common Stock to deliver
      in satisfaction of a sale by the Holder of the Warrant Stock which the Holder
      anticipated receiving upon such exercise (a “Buy-In”),
      then
      the Issuer shall (1) pay in cash to the Holder the amount by which (x) the
      Holder’s total purchase price (including brokerage commissions, if any) for the
      shares of Common Stock so purchased exceeds (y) the amount obtained by
      multiplying (A) the number of shares of Warrant Stock that the Issuer was
      required to deliver to the Holder in connection with the exercise at issue
      times
      (B) the price at which the sell order giving rise to such purchase obligation
      was executed, and (2) at the option of the Holder, either reinstate the portion
      of the Warrant and equivalent number of shares of Warrant Stock for which such
      exercise was not honored or deliver to the Holder the number of shares of Common
      Stock that would have been issued had the Issuer timely complied with its
      exercise and delivery obligations hereunder. For example, if the Holder
      purchases Common Stock having a total purchase price of $11,000 to cover a
      Buy-In with respect to an attempted exercise of shares of Common Stock with
      an
      aggregate sale price giving rise to such purchase obligation of $10,000, under
      clause (1) of the immediately preceding sentence the Issuer shall be required
      to
      pay the Holder $1,000. The Holder shall provide the Issuer written notice
      indicating the amounts payable to the Holder in respect of the Buy-In, together
      with applicable confirmations and other evidence reasonably requested by the
      Issuer. Nothing herein shall limit a Holder’s right to pursue any other remedies
      available to it hereunder, at law or in equity including, without limitation,
      a
      decree of specific performance and/or injunctive relief with respect to the
      Issuer’s failure to timely deliver certificates representing shares of Common
      Stock upon exercise of this Warrant as required pursuant to the terms
      hereof.

    

    (f) Transferability
      of Warrant.
      Subject
      to Section 2(h), this Warrant may be transferred by a Holder without the consent
      of the Issuer. If transferred pursuant to this paragraph and subject to the
      provisions of subsection (h) of this Section 2, this Warrant may be transferred
      on the books of the Issuer by the Holder hereof in person or by duly authorized
      attorney, upon surrender of this Warrant at the principal office of the Issuer,
      properly endorsed (by the Holder executing an assignment in the form attached
      hereto) and upon payment of any necessary transfer tax or other governmental
      charge imposed upon such transfer. This Warrant is exchangeable at the principal
      office of the Issuer for Warrants for the purchase of the same aggregate number
      of shares of Warrant Stock, each new Warrant to represent the right to purchase
      such number of shares of Warrant Stock as the Holder hereof shall designate
      at
      the time of such exchange. All Warrants issued on transfers or exchanges shall
      be dated the Original Issue Date and shall be identical with this Warrant except
      as to the number of shares of Warrant Stock issuable pursuant
      thereto.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (g) Continuing
      Rights of Holder.
      The
      Issuer will, at the time of or at any time after each exercise of this Warrant,
      upon the request of the Holder hereof, acknowledge in writing the extent, if
      any, of its continuing obligation to afford to such Holder all rights to which
      such Holder shall continue to be entitled after such exercise in accordance
      with
      the terms of this Warrant, provided
      that if
      any such Holder shall fail to make any such request, the failure shall not
      affect the continuing obligation of the Issuer to afford such rights to such
      Holder.

    

    (h) Compliance
      with Securities Laws.

    

    (i) The
      Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant
      or
      the shares of Warrant Stock to be issued upon exercise hereof are being acquired
      solely for the Holder's own account and not as a nominee for any other party,
      and for investment, and that the Holder will not offer, sell or otherwise
      dispose of this Warrant or any shares of Warrant Stock to be issued upon
      exercise hereof except pursuant to an effective registration statement, or
      an
      exemption from registration, under the Securities Act and any applicable state
      securities laws.

    

    (ii) Except
      as
      provided in paragraph (iii) below, this Warrant and all certificates
      representing shares of Warrant Stock issued upon exercise hereof shall be
      stamped or imprinted with a legend in substantially the following
      form:

    

    THIS
      WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
      ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
      DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
      STATE SECURITIES LAWS OR HIENERGY TECHNOLOGIES, INC. SHALL
      HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HIENERGY
      TECHNOLOGIES, INC. THAT
      REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
      PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

    

    (iii) The
      Issuer agrees to reissue this Warrant or certificates representing any of the
      Warrant Stock, without the legend set forth above if at such time, prior to
      making any transfer of any such securities, the Holder shall give written notice
      to the Issuer describing the manner and terms of such transfer and removal
      as
      the Issuer may reasonably request. Such proposed transfer and removal will
      not
      be effected until: (a) either (i) the Issuer has received an opinion of counsel
      reasonably satisfactory to the Issuer, to the effect that the registration
      of
      such securities under the Securities Act is not required in connection with
      such
      proposed transfer, (ii) a registration statement under the Securities Act
      covering such proposed disposition has been filed by the Issuer with the
      Securities and Exchange Commission and has become effective under the Securities
      Act and the holder has complied with any prospectus delivery requirements,
      (iii)
      the Issuer has received other evidence reasonably satisfactory to the Issuer
      that such registration and qualification under the Securities Act and state
      securities laws are not required, or (iv) the Holder provides the Issuer with
      reasonable assurances that such security can be sold pursuant to Rule 144 under
      the Securities Act; and (b) either (i) the Issuer has received an opinion of
      counsel reasonably satisfactory to the Issuer, to the effect that registration
      or qualification under the securities or "blue sky" laws of any state is not
      required in connection with such proposed disposition, or (ii) compliance with
      applicable state securities or "blue sky" laws has been effected or a valid
      exemption exists with respect thereto. The Issuer will respond to any such
      notice from a holder within five (5) business days. In the case of any proposed
      transfer under this Section 2(h), the Issuer will use reasonable efforts to
      comply with any such applicable state securities or "blue sky" laws, but shall
      in no event be required, (x) to qualify to do business in any state where it
      is
      not then qualified, or (y) to take any action that would subject it to tax
      or to
      the general service of process in any state where it is not then subject. The
      restrictions on transfer contained in this Section 2(h) shall be in addition
      to,
      and not by way of limitation of, any other restrictions on transfer contained
      in
      any other section of this Warrant. Whenever
      a
      certificate representing the Warrant Stock is required to be issued to the
      Holder without a legend, in lieu of delivering physical certificates
      representing the Warrant Stock (provided
      that a registration statement under the Securities Act providing for the resale
      of the Warrant Stock is then in effect and the Holder complies with all
      applicable securities laws in connection with the sale, including, without
      limitation, the prospectus delivery requirements),
      the
      Issuer shall cause its transfer agent to electronically transmit the Warrant
      Stock to the Holder by crediting the account of the Holder's Prime Broker with
      DTC through its DWAC system (to the extent not inconsistent with any provisions
      of this Warrant or the Purchase Agreement). 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (i) Accredited
      Investor Status.
      In no
      event may the Holder exercise this Warrant in whole or in part unless the Holder
      is an “accredited investor” as defined in Regulation D under the Securities
      Act.

    

    3. Stock
      Fully Paid; Reservation and Listing of Shares; Covenants.

    

    (a) Stock
      Fully Paid.
      The
      Issuer represents, warrants, covenants and agrees that all shares of Warrant
      Stock which may be issued upon the exercise of this Warrant or otherwise
      hereunder will, when issued in accordance with the terms of this Warrant, be
      duly authorized, validly issued, fully paid and non-assessable and free from
      all
      taxes, liens and charges created by or through the Issuer. The Issuer further
      covenants and agrees that during the period within which this Warrant may be
      exercised, the Issuer will at all times have authorized and reserved for the
      purpose of the issue upon exercise of this Warrant a sufficient number of shares
      of Common Stock to provide for the exercise of this Warrant.

    

    (b) Reservation.
      If any
      shares of Common Stock required to be reserved for issuance upon exercise of
      this Warrant or as otherwise provided hereunder require registration or
      qualification with any governmental authority under any federal or state law
      before such shares may be so issued, the Issuer will in good faith use its
      reasonable best efforts as expeditiously as possible at its expense to cause
      such shares to be duly registered or qualified. If the Issuer shall list any
      shares of Common Stock on any securities exchange or market it will, at its
      expense, list thereon, maintain and increase when necessary such listing, of,
      all shares of Warrant Stock from time to time issued upon exercise of this
      Warrant or as otherwise provided hereunder (provided that such Warrant Stock
      has
      been registered pursuant to a registration statement under the Securities Act
      then in effect), and, to the extent permissible under the applicable securities
      exchange rules, all unissued shares of Warrant Stock which are at any time
      issuable hereunder, so long as any shares of Common Stock shall be so listed.
      The Issuer will also so list on each securities exchange or market, and will
      maintain such listing of, any other securities which the Holder of this Warrant
      shall be entitled to receive upon the exercise of this Warrant if at the time
      any securities of the same class shall be listed on such securities exchange
      or
      market by the Issuer.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (c) Covenants.
      The
      Issuer shall not by any action including, without limitation, amending the
      Certificate of Incorporation or the by-laws of the Issuer, or through any
      reorganization, transfer of assets, consolidation, merger, dissolution, issue
      or
      sale of securities or any other action, avoid or seek to avoid the observance
      or
      performance of any of the terms of this Warrant, but will at all times in good
      faith assist in the carrying out of all such terms and in the taking of all
      such
      actions as may be necessary or appropriate to protect the rights of the Holder
      hereof against dilution (to the extent specifically provided herein) or
      impairment. Without limiting the generality of the foregoing, the Issuer will
      (i) not permit the par value, if any, of its Common Stock to exceed the then
      effective Warrant Price, (ii) not amend or modify any provision of the
      Certificate of Incorporation or by-laws of the Issuer in any manner that would
      adversely affect the rights of the Holders of the Warrants in their capacity
      as
      Holders of the Warrants, (iii) take all such action as may be reasonably
      necessary in order that the Issuer may validly and legally issue fully paid
      and
      nonassessable shares of Common Stock, free and clear of any liens, claims,
      encumbrances and restrictions (other than as provided herein) upon the exercise
      of this Warrant, and (iv) use its reasonable best efforts to obtain all such
      authorizations, exemptions or consents from any public regulatory body having
      jurisdiction thereof as may be reasonably necessary to enable the Issuer to
      perform its obligations under this Warrant.

    

    (d) Loss,
      Theft, Destruction of Warrants.
      Upon
      receipt of evidence satisfactory to the Issuer of the ownership of and the
      loss,
      theft, destruction or mutilation of any Warrant and, in the case of any such
      loss, theft or destruction, upon receipt of indemnity or security satisfactory
      to the Issuer or, in the case of any such mutilation, upon surrender and
      cancellation of such Warrant, the Issuer will make and deliver, in lieu of
      such
      lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
      representing the right to purchase the same number of shares of Common
      Stock.

    

    4. Adjustment
      of Warrant Price.
      The
      price at which shares of Warrant Stock may be purchased upon exercise of this
      Warrant shall be subject to adjustment from time to time as set forth in this
      Section 4. The Issuer shall give the Holder notice of any event described below
      which requires an adjustment pursuant to this Section 4 in accordance with
      Section 5. 

    

    (a) Recapitalization,
      Reorganization, Reclassification, Consolidation, Merger or Sale.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (i)
      In
      case the Issuer after the Original Issue Date shall do any of the following
      (each, a "Triggering
      Event"):
      (a)
      consolidate or merge with or into another corporation where the holders of
      outstanding Voting Stock prior to such merger or consolidation do not own over
      50% of the outstanding Voting Stock of the merged or consolidated entity
      immediately after such merger or consolidation, or (b) sell all or substantially
      all of its properties or assets to any other Person, or (c) change the Common
      Stock to the same or different number of shares of any class or classes of
      stock, whether by reclassification, exchange, substitution or otherwise (other
      than by way of a stock split or combination of shares or stock dividends or
      distributions provided for in Section 4(b) or Section 4(c)), or (d) effect
      a
      capital reorganization (other than by way of a stock split or combination of
      shares or stock dividends or distributions provided for in Section 4(b) or
      Section 4(c)), then, and in the case of each such Triggering Event, proper
      provision shall be made so that, upon the basis and the terms and in the manner
      provided in this Warrant, the Holder of this Warrant shall be entitled upon
      the
      exercise hereof at any time after the consummation of such Triggering Event,
      to
      the extent this Warrant is not exercised prior to such Triggering Event, to
      receive at the Warrant Price in effect at the time immediately prior to the
      consummation of such Triggering Event in lieu of the Common Stock issuable
      upon
      such exercise of this Warrant prior to such Triggering Event, the securities,
      cash and property to which such Holder would have been entitled upon the
      consummation of such Triggering Event if such Holder had exercised the rights
      represented by this Warrant immediately prior thereto, subject to adjustments
      (subsequent to such corporate action) as nearly equivalent as possible to the
      adjustments provided for elsewhere in this Section 4.

    

    (ii) Notwithstanding
      anything contained in this Warrant to the contrary, a Triggering Event shall
      not
      be deemed to have occurred if, prior to the consummation thereof, each Person
      (other than the Issuer) which may be required to deliver any securities, cash
      or
      property upon the exercise of this Warrant as provided herein shall assume,
      by
      written instrument delivered to, and reasonably satisfactory to, the Holder
      of
      this Warrant, (A) the obligations of the Issuer under this Warrant (and if
      the
      Issuer shall survive the consummation of such Triggering Event, such assumption
      shall be in addition to, and shall not release the Issuer from, any continuing
      obligations of the Issuer under this Warrant) and (B) the obligation to deliver
      to such Holder such shares of securities, cash or property as, in accordance
      with the foregoing provisions of this subsection (a), such Holder shall be
      entitled to receive, and such Person shall have similarly delivered to such
      Holder a written acknowledgement executed by the President or Chief Financial
      Officer of the Company, stating that this Warrant shall thereafter continue
      in
      full force and effect and the terms hereof (including, without limitation,
      all
      of the provisions of this subsection (a)) shall be applicable to the securities,
      cash or property which such Person may be required to deliver upon any exercise
      of this Warrant or the exercise of any rights pursuant hereto. 

    

    (b) Stock
      Dividends, Subdivisions and Combinations.
      If at
      any time the Issuer shall:

    

       (i) make
      or
      issue or set a record date for the holders of its Common Stock for the purpose
      of entitling them to receive a dividend payable in, or other distribution of,
      shares of Common Stock, 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

       (ii)
       subdivide
      its outstanding shares of Common Stock into a larger number of shares of Common
      Stock, or

    

       (iii)
       combine
      its outstanding shares of Common Stock into a smaller number of shares of Common
      Stock,

    

    then
      (1)
      the number of shares of Common Stock for which this Warrant is exercisable
      immediately after the occurrence of any such event shall be adjusted to equal
      the number of shares of Common Stock which a record holder of the same number
      of
      shares of Common Stock for which this Warrant is exercisable immediately prior
      to the occurrence of such event would own or be entitled to receive after the
      happening of such event, and (2) the Warrant Price then in effect shall be
      adjusted to equal (A) the Warrant Price then in effect multiplied by the number
      of shares of Common Stock for which this Warrant is exercisable immediately
      prior to the adjustment divided by (B) the number of shares of Common Stock
      for
      which this Warrant is exercisable immediately after such
      adjustment.

    

    Notwithstanding
      the foregoing, if such record date shall have been fixed and such dividend
      is
      not fully paid or if such distribution is not fully made on the date fixed
      therefor, the Warrant Price shall be adjusted pursuant to this paragraph as
      of
      the time of actual payment of such dividends or distributions.

    

    (c) Certain
      Other Distributions.
      If at
      any time the Issuer shall make or issue or set a record date for the
      determination of the holders of its Common Stock for the purpose of entitling
      them to receive any divi-dend or other distribution of:

    

    (i) cash
      (other than a cash dividend payable out of earnings or earned surplus legally
      available for the payment of dividends under the laws of the jurisdiction of
      incorporation of the Issuer),

    

    (ii) any
      evidences of its indebtedness, any shares of stock of any class or any other
      securities or property of any nature whatsoever (other than cash, Common Stock
      Equivalents or Additional Shares of Common Stock), or

    

    (iii) any
      warrants or other rights to subscribe for or purchase any evidences of its
      indebtedness, any shares of stock of any class or any other securities or
      property of any nature whatsoever (other than cash, Common Stock Equivalents
      or
      Additional Shares of Common Stock), 

    

    then
      (1)
      the number of shares of Common Stock for which this Warrant is exercisable
      shall
      be adjusted to equal the product of the number of shares of Common Stock for
      which this Warrant is exercisable immediately prior to such adjustment
      multiplied by a fraction (A) the numerator of which shall be the Per Share
      Market Value of Common Stock at the date of taking such record and (B) the
      denominator of which shall be such Per Share Market Value minus the amount
      allocable to one share of Common Stock of any such cash so distributable and
      of
      the fair value (as determined in good faith by the Board of Directors of the
      Issuer and supported by an opinion from an investment banking firm of recognized
      national standing acceptable to (but not affiliated with) the Holder) of any
      and
      all such evidences of indebtedness, shares of stock, other securities or
      property or warrants or other subscription or purchase rights so distributable,
      and (2) the Warrant Price then in effect shall be adjusted to equal (A) the
      Warrant Price then in effect multiplied by the number of shares of Common Stock
      for which this Warrant is exercisable immediately prior to the adjustment
      divided by (B) the number of shares of Common Stock for which this Warrant
      is
      exercisable immediately after such adjustment. A reclassification of the Common
      Stock (other than a change in par value, or from par value to no par value
      or
      from no par value to par value) into shares of Common Stock and shares of any
      other class of stock shall be deemed a distribution by the Issuer to the holders
      of its Common Stock of such shares of such other class of stock within the
      meaning of this Section 4(c) and, if the outstanding shares of Common Stock
      shall be changed into a larger or smaller number of shares of Common Stock
      as a
      part of such reclassification, such change shall be deemed a subdivision or
      combination, as the case may be, of the outstanding shares of Common Stock
      within the meaning of Section 4(b). 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Notwithstanding
      the foregoing, if such record date shall have been fixed and such dividend
      is
      not fully paid or if such distribution is not fully made on the date fixed
      therefor, the Warrant Price shall be adjusted pursuant to this Section 4(c)
      as
      of the time of actual payment of such dividends or distributions.

    

    (d) Issuance
      of Additional Shares of Common Stock.
      In the
      event the Issuer shall at any time following the Original Issue Date issue
      any
      Additional Shares of Common Stock (otherwise than as provided in the foregoing
      subsections (a) through (c) of this Section 4), at a price per share less than
      the Warrant Price then in effect or without consideration, then the Warrant
      Price upon each such issuance shall be adjusted to the price equal to the
      consideration per share paid for such Additional Shares of Common
      Stock.

    

    (e) Issuance
      of Common Stock Equivalents.
      If at
      any time the Issuer shall issue or sell any Common Stock Equivalents, whether
      or
      not the rights to exchange or convert thereunder are immediately exercisable,
      and the aggregate price per share for which Common Stock is issuable upon such
      conversion or exchange plus the consideration received by the Issuer for
      issuance of such Common Stock Equivalent divided by the number of shares of
      Common Stock issuable pursuant to such Common Stock Equivalent (the
“Aggregate
      Per Common Share Price”)
      shall
      be less than the Warrant Price then in effect, or if, after any such issuance
      of
      Common Stock Equivalents, the price per share for which Additional Shares of
      Common Stock may be issuable thereafter is amended or adjusted, and such price
      as so amended shall make the Aggregate Per Common Share Price be less than
      the
      Warrant Price in effect at the time of such amendment or adjustment, then the
      Warrant Price upon each such issuance or amendment shall be adjusted as provided
      in Section 4(d). No further adjustment of the Warrant Price then in effect
      shall
      be made under this Section 4(e) upon the issuance of any Common Stock
      Equivalents which are issued pursuant to the exercise of any warrants or other
      subscription or purchase rights therefor, if any such adjustment shall
      previously have been made upon the issuance of such warrants or other rights
      pursuant to this Section 4(e). No further adjustments of the Warrant Price
      then
      in effect shall be made upon the actual issue of such Common Stock upon
      conversion or exchange of such Common Stock Equivalents. 

    

    (f) Superseding
      Adjustment.
      If, at
      any time after any adjustment of the number of shares of Common Stock for which
      this Warrant is exercisable and the Warrant Price then in effect shall have
      been
      made pursuant to Section 4(e) as the result of any issuance of Common Stock
      Equivalents, and (i) such Common Stock Equivalents, or the right of conversion
      or exchange in such Common Stock Equivalents, shall expire, and all or a portion
      of such or the right of conversion or exchange with respect to all or a portion
      of such Common Stock Equivalents, as the case may be, shall not have been
      exercised, or (ii) the consideration per share for which shares of Common Stock
      are issuable pursuant to such Common Stock Equivalents shall be increased,
      then
      such previous adjustment shall be rescinded and annulled and the Additional
      Shares of Common Stock which were deemed to have been issued by virtue of the
      computation made in connection with the adjustment so rescinded and annulled
      shall no longer be deemed to have been issued by virtue of such computation.
      Upon the occurrence of an event set forth in this Section 4(g) above, there
      shall be a recomputation made of the effect of such Common Stock Equivalents
      on
      the basis of: (i) treating the number of Additional Shares of Common Stock
      theretofore actually issued or issuable pursuant to the previous exercise of
      Common Stock Equivalents or any such right of conversion or exchange, as having
      been issued on the date or dates of any such exercise and for the consideration
      actually received and receivable therefor, and (ii) treating any such Common
      Stock Equivalents which then remain outstanding as having been granted or issued
      immediately after the time of such increase of the consideration per share
      for
      which Additional Shares of Common Stock are issuable under such Common Stock
      Equivalents; whereupon a new ad-justment of the number of shares of Common
      Stock
      for which this Warrant is exercisable and the Warrant Price then in effect
      shall
      be made, which new adjustment shall supersede the previous adjustment so
      rescinded and annulled. 

     

    
      
        
        

      

      
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    (g) Other
      Provisions applicable to Adjustments under this Section.
      The
      following provisions shall be ap-plicable to the making of adjustments of the
      number of shares of Common Stock for which this Warrant is exercisable and
      the
      Warrant Price then in effect provided for in this Section 4:

    

    (i) Computation
      of Consideration.
      To the
      extent that any Additional Shares of Common Stock or any Common Stock
      Equivalents (or any warrants or other rights therefor) shall be issued for
      cash
      consideration, the consideration received by the Issuer therefor shall be the
      amount of the cash received by the Issuer therefor, or, if such Additional
      Shares of Common Stock or Common Stock Equivalents are offered by the Issuer
      for
      subscription, the subscription price, or, if such Additional Shares of Common
      Stock or Common Stock Equivalents are sold to underwriters or dealers for public
      offering without a subscription offering, the initial public offering price
      (in
      any such case subtracting any amounts paid or receivable for accrued interest
      or
      accrued dividends and without taking into account any compensation, discounts
      or
      expenses paid or incurred by the Issuer for and in the underwriting of, or
      otherwise in connection with, the issuance thereof). In connection with any
      merger or consolidation in which the Issuer is the surviving corporation (other
      than any consolidation or merger in which the previously outstanding shares
      of
      Common Stock of the Issuer shall be changed to or exchanged for the stock or
      other securities of another corporation), the amount of consideration therefore
      shall be, deemed to be the fair value, as determined reasonably and in good
      faith by the Board, of such portion of the assets and business of the
      nonsurviving corporation as the Board may determine to be attributable to such
      shares of Common Stock or Common Stock Equivalents, as the case may be. The
      consideration for any Additional Shares of Common Stock issuable pursuant to
      any
      warrants or other rights to subscribe for or purchase the same shall be the
      consideration received by the Issuer for issuing such warrants or other rights
      plus the additional con-sideration payable to the Issuer upon exercise of such
      warrants or other rights. The consideration for any Additional Shares of Common
      Stock issuable pursuant to the terms of any Common Stock Equivalents shall
      be
      the consideration received by the Issuer for issuing war-rants or other rights
      to subscribe for or purchase such Common Stock Equivalents, plus the
      consideration paid or payable to the Issuer in respect of the subscription
      for
      or purchase of such Common Stock Equivalents, plus the additional consideration,
      if any, payable to the Issuer upon the exercise of the right of conversion
      or
      exchange in such Common Stock Equivalents. In the event of any consolidation
      or
      merger of the Issuer in which the Issuer is not the surviving corporation or
      in
      which the previously outstanding shares of Common Stock of the Issuer shall
      be
      changed into or exchanged for the stock or other securities of another
      corporation, or in the event of any sale of all or substantially all of the
      assets of the Issuer for stock or other securities of any corporation, the
      Issuer shall be deemed to have issued a number of shares of its Common Stock
      for
      stock or securities or other property of the other corporation computed on
      the
      basis of the actual exchange ratio on which the transaction was predicated,
      and
      for a consideration equal to the fair market value on the date of such
      transaction of all such stock or securities or other property of the other
      corporation. In the event any consideration received by the Issuer for any
      securities consists of property other than cash, the fair market value thereof
      at the time of issuance or as otherwise applicable shall be as determined in
      good faith by the Board. In the event Common Stock is issued with other shares
      or securities or other assets of the Issuer for consideration which covers
      both,
      the consideration computed as provided in this Section 4(h)(i) shall be
      allocated among such securities and assets as determined in good faith by the
      Board.

     

    
      
        
        

      

      
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    (ii) When
      Adjustments to Be Made.
      The
      adjustments required by this Section 4 shall be made whenever and as often
      as
      any specified event requiring an adjustment shall occur, except that any
      adjustment of the number of shares of Common Stock for which this Warrant is
      exercisable that would otherwise be required may be postponed (except in the
      case of a subdivision or combination of shares of the Common Stock, as provided
      for in Section 4(b)) up to, but not beyond the date of exercise if such
      adjustment either by itself or with other adjustments not previously made adds
      or subtracts less than one percent (1%) of the shares of Common Stock for which
      this Warrant is exercisable immediately prior to the making of such adjustment.
      Any adjustment representing a change of less than such minimum amount (except
      as
      aforesaid) which is postponed shall be carried forward and made as soon as
      such
      adjustment, together with other adjustments required by this Section 4 and
      not
      previously made, would result in a minimum adjustment or on the date of
      exercise. For the purpose of any adjustment, any specified event shall be deemed
      to have occurred at the close of business on the date of its
      occurrence.

    

    (iii) Fractional
      Interests.
      In
      computing ad-justments under this Section 4, fractional interests in Common
      Stock shall be taken into account to the near-est one one-hundredth
      (1/100th)
      of a
      share.

    

    (iv) When
      Adjustment Not Required.
      If the
      Issuer shall take a record of the holders of its Common Stock for the purpose
      of
      entitling them to receive a dividend or distribution or subscription or purchase
      rights and shall, thereafter and before the distribution to stockholders
      thereof, legally abandon its plan to pay or deliver such dividend, distribution,
      subscription or purchase rights, then thereafter no adjustment shall be required
      by reason of the taking of such record and any such adjustment previously made
      in respect thereof shall be rescinded and annulled.

     

    
      
        
        

      

      
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    (h) Form
      of Warrant after Adjustments.
      The
      form of this Warrant need not be changed because of any adjustments in the
      Warrant Price or the number and kind of Securities purchasable upon the exercise
      of this Warrant.

    

    (i) Escrow
      of Warrant Stock.
      If
      after any property becomes distributable pursuant to this Section 4 by reason
      of
      the taking of any record of the holders of Common Stock, but prior to the
      occurrence of the event for which such record is taken, and the Holder
      exer-cises this Warrant, any shares of Common Stock issuable upon exercise
      by
      reason of such adjustment shall be deemed the last shares of Common Stock for
      which this Warrant is exercised (notwithstanding any other provision to the
      contrary herein) and such shares or other property shall be held in escrow
      for
      the Holder by the Issuer to be issued to the Holder upon and to the extent
      that
      the event actually takes place, upon payment of the current Warrant Price.
      Notwithstanding any other provision to the contrary herein, if the event for
      which such record was taken fails to occur or is rescinded, then such escrowed
      shares shall be cancelled by the Issuer and escrowed property
      returned.

    

    5. Notice
      of Adjustments.
      Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant
      to
      Section 4 hereof (for purposes of this Section 5, each an "adjustment"),
      the
      Issuer shall cause its Chief Financial Officer to prepare and execute a
      certificate setting forth, in reasonable detail, the event requiring the
      adjustment, the amount of the adjustment, the method by which such adjustment
      was calculated (including a description of the basis on which the Board made
      any
      determination hereunder), and the Warrant Price and Warrant Share Number after
      giving effect to such adjustment, and shall cause copies of such certificate
      to
      be delivered to the Holder of this Warrant promptly after each adjustment.
      Any
      dispute between the Issuer and the Holder of this Warrant with respect to the
      matters set forth in such certificate may at the option of the Holder of this
      Warrant be submitted to the Issuer’s independent, outside accountant. The Issuer
      shall use its best efforts to cause the accountant to perform the calculations
      and notify the Issuer and the Holder of the results no later than five (5)
      business days from the time it receives the disputed calculation. Such
      accountant's calculation shall be binding upon all parties absent manifest
      error. The reasonable expenses of such accountant in making such determination
      shall be paid by the Issuer, in the event the Holder's calculation was correct,
      or by the Holder, in the event the Issuer’s calculation was correct, or equally
      by the Issuer and the Holder in the event that neither the Issuer's or the
      Holder's calculation was correct. 

    

    6. Fractional
      Shares.
      No
      fractional shares of Warrant Stock will be issued in connection with any
      exercise hereof, but in lieu of such fractional shares, the Issuer shall make
      a
      cash payment therefor equal in amount to the product of the applicable fraction
      multiplied by the Per Share Market Value then in effect.

    

    7. Ownership
      Cap and Certain Exercise Restrictions.
      (a)
      Notwithstanding anything to the contrary set forth in this Warrant, at no time
      may a Holder of this Warrant exercise this Warrant if the number of shares
      of
      Common Stock to be issued pursuant to such exercise would cause the number
      of
      shares of Common Stock owned by the Holder at such time to exceed, when
      aggregated with all other shares of Common Stock owned by such Holder at such
      time, the number of shares of Common Stock which would result in such Holder
      beneficially owning (as determined in accordance with Section 13(d) of the
      Exchange Act and the rules thereunder) in excess of 4.9% of all of the Common
      Stock outstanding at such time; provided,
      however,
      that
      upon the Holder of this Warrant providing the Issuer with sixty-one (61) days
      notice (pursuant to Section 13 hereof) (the "Waiver
      Notice")
      that
      such Holder would like to waive this Section 7(a) with regard to any or all
      shares of Common Stock issuable upon exercise of this Warrant, this Section
      7(a)
      will be of no force or effect with regard to all or a portion of the Warrant
      referenced in the Waiver Notice; provided,
      further,
      that
      this provision shall be of no further force or effect during the sixty-one
      (61)
      days immediately preceding the expiration of the term of this
      Warrant.

     

    
      
        
        

      

      
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    (b) Notwithstanding
      anything to the contrary set forth in this Warrant, at no time may a Holder
      of
      this Warrant exercise this Warrant if the number of shares of Common Stock
      to be
      issued pursuant to such exercise would cause the number of shares of Common
      Stock owned by the Holder at such time to exceed, when aggregated with all
      other
      shares of Common Stock owned by such Holder at such time, the number of shares
      of Common Stock which would result in such Holder beneficially owning (as
      determined in accordance with Section 13(d) of the Exchange Act and the rules
      thereunder) in excess of 9.9% of all of the Common Stock outstanding at such
      time; provided,
      however,
      that
      upon a holder of this Warrant providing the Issuer with a Waiver Notice that
      such holder would like to waive this Section 7(b) with regard to any or all
      shares of Common Stock issuable upon exercise of this Warrant, this Section
      7(b)
      shall be of no force or effect with regard to those shares of Warrant Stock
      referenced in the Waiver Notice; provided,
      further,
      that
      this provision shall be of no further force or effect during the sixty-one
      (61)
      days immediately preceding the expiration of the term of this
      Warrant.

    

    8.   Call.
      Notwithstanding anything herein to the contrary, following the effective date
      of
      the registration statement under the Securities Act providing for the resale of
      the Warrant Stock and the shares of Common Stock issuable upon conversion of
      the
      Issuer’s Series B Preferred Stock issued pursuant to the Purchase Agreement (the
“Registration
      Statement”),
      the
      Issuer, at its option, may call (a “Call”)
      up to
      one hundred percent (100%) of this Warrant if the Per Share Market Value of
      the
      Common Stock has been greater than two hundred percent (200%) of the Warrant
      Price as of the Original Issue Date (as may be adjusted for any stock splits
      or
      combinations of the Common Stock) for a period of ten (10) consecutive Trading
      Days immediately prior to the date of delivery of the Call Notice (a
      "Call
      Notice Period")
      by
      providing the Holder of this Warrant written notice pursuant to Section 13
      (the
      "Call
      Notice");
      provided,
      that
      (i) the
      Registration Statement is then in effect and has been effective, without lapse
      or suspension of any kind, for a period of sixty (60) consecutive calendar
      days,
      (ii) trading
      in the Common Stock shall not have been suspended by the Securities and Exchange
      Commission or the OTC Bulletin Board (or other exchange or market on which
      the
      Common Stock is trading), (iii) the Issuer is in material compliance with the
      terms and conditions of this Warrant and the other Transaction Documents (as
      defined in the Purchase Agreement) and (iv) the Issuer is not in possession
      of
      material non-public information;
      provided,
      further,
      that
      the Registration Statement is in effect from the date of delivery of the Call
      Notice until the date which is the later of (1) the date the Holder exercises
      the Warrant pursuant to the Call Notice and (2) the 20th
      day
      after the Holder receives the Call Notice (the "Early
      Termination Date").
      The
      rights and privileges granted pursuant to this Warrant with respect to the
      shares of Warrant Stock subject to the Call Notice (the "Called
      Warrant Shares")
      shall
      expire on the Early Termination Date if this Warrant is not exercised with
      respect to such Called Warrant Shares prior to such Early Termination Date.
      In
      the event this Warrant is not exercised with respect to the Called Warrant
      Shares, the Issuer shall remit to the Holder of this Warrant (A) $.001 per
      Called Warrant Share and (B) a new Warrant representing the number of shares
      of
      Warrant Stock, if any, which shall not have been subject to the Call Notice
      upon
      the Holder tendering to the Issuer the applicable Warrant certificate.
      Notwithstanding anything in the foregoing to the contrary, if the Holder may
      not
      exercise this Warrant as a result of the restrictions contained in Section
      7
      hereof, the Call Notice shall be deemed null and void and shall not be deemed
      effective until the date that the Holder may exercise this Warrant in accordance
      with Section 7 hereof.

     

    
      
        
        

      

      
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    9.  Definitions.
      For the
      purposes of this Warrant, the following terms have the following
      meanings:

    

    "Additional
      Shares of Common Stock"
      means
      all shares of Common Stock issued by the Issuer after the Original Issue Date,
      and all shares of Other Common, if any, issued by the Issuer after the Original
      Issue Date, except: (i) securities issued pursuant to a bona fide firm
      underwritten public offering of the Issuer’s securities, (ii) securities issued
      pursuant to the conversion or exercise of convertible or exercisable securities
      issued or outstanding on or prior to the date hereof or issued pursuant to
      the
      Purchase Agreement, (iii) the Warrant Stock, (iv) the payment of any dividends
      on the Series B Preferred Stock of the Issuer issued pursuant to the Purchase
      Agreement, (v) securities issued (other than for cash) in connection with a
      merger, acquisition or consolidation of the Issuer, (vi) any warrants issued
      to
      the placement agent for the transactions contemplated by the Purchase Agreement
      or in connection with other financial services rendered to the Issuer, (vii)
      securities issued in connection with license agreements, joint ventures and
      other strategic partnering arrangements so long as such issuances are not for
      the primary purpose of raising capital, and (viii) the issuance of Common Stock
      or the issuance or grants of options to purchase Common Stock pursuant to the
      Issuer’s stock option plans and employee stock purchase plans outstanding on the
      date hereof. 

    

    "Board"
      shall
      mean the Board of Directors of the Issuer.

    

    "Capital
      Stock"
      means
      and includes (i) any and all shares, interests, participations or other
      equivalents of or interests in (however designated) corporate stock, including,
      without limitation, shares of preferred or preference stock, (ii) all
      partnership interests (whether general or limited) in any Person which is a
      partnership, (iii) all membership interests or limited liability company
      interests in any limited liability company, and (iv) all equity or ownership
      interests in any Person of any other type.

    

    "Certificate
      of Incorporation"
      means
      the Certificate of Incorporation of the Issuer as in effect on the Original
      Issue Date, and as hereafter from time to time amended, modified, supplemented
      or restated in accordance with the terms hereof and thereof and pursuant to
      applicable law.

    

    "Common
      Stock"
      means
      the Common Stock, par value $.001 per share, of the Issuer and any other Capital
      Stock into which such stock may hereafter be changed.

    

    "Common
      Stock Equivalent"
      means
      any Convertible Security or warrant, option or other right to subscribe for
      or
      purchase any Additional Shares of Common Stock or any Convertible
      Security.

    

    "Convertible
      Securities"
      means
      evidences of Indebtedness, shares of Capital Stock or other Securities which
      are
      or may be at any time convertible into or exchangeable for Additional Shares
      of
      Common Stock. The term "Convertible Security" means one of the Convertible
      Securities.

     

    
      
        
        

      

      
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    "Governmental
      Authority"
      means
      any governmental, regulatory or self-regulatory entity, department, body,
      official, authority, commission, board, agency or instrumentality, whether
      federal, state or local, and whether domestic or foreign.

    

    "Holders"
      mean
      the Persons who shall from time to time own any Warrant. The term "Holder"
      means
      one of the Holders.

    

    "Independent
      Appraiser"
      means a
      nationally recognized or major regional investment banking firm or firm of
      independent certified public accountants of recognized standing (which may
      be
      the firm that regularly examines the financial statements of the Issuer) that
      is
      regularly engaged in the business of appraising the Capital Stock or assets
      of
      corporations or other entities as going concerns, and which is not affiliated
      with either the Issuer or the Holder of any Warrant.

    

    "Issuer"
      means
      HiEnergy Technologies, Inc., a Delaware corporation, and its successors.

    

    "Majority
      Holders"
      means
      at any time the Holders of Warrants exercisable for a majority of the shares
      of
      Warrant Stock issuable under the Warrants at the time outstanding.

    

    "Original
      Issue Date"
      means
      June __, 2006.

    

    "OTC
      Bulletin Board"
      means
      the over-the-counter electronic bulletin board.

    

    "Other
      Common"
      means
      any other Capital Stock of the Issuer of any class which shall be authorized
      at
      any time after the date of this Warrant (other than Common Stock) and which
      shall have the right to participate in the distribution of earnings and assets
      of the Issuer without limitation as to amount.

    

    “Outstanding
      Common Stock”
means,
      at any given time, the aggregate amount of outstanding shares of Common Stock,
      assuming full exercise, conversion or exchange (as applicable) of all options,
      warrants and other Securities which are convertible into or exercisable or
      exchangeable for, and any right to subscribe for, shares of Common Stock that
      are outstanding at such time.

     

    "Person"
      means
      an individual, corporation, limited liability company, partnership, joint stock
      company, trust, unincorporated organization, joint venture, Governmental
      Authority or other entity of whatever nature.

    

    "Per
      Share Market Value"
      means
      on any particular date (a) the last trading price per share of the Common Stock
      on such date on the OTC
      Bulletin Board or
      another registered national stock exchange on which the Common Stock is then
      listed, or if there is no such price on such date, then the closing bid price
      on
      such exchange or quotation system on the date nearest preceding such date,
      or
      (b) if the Common Stock is not listed then on the OTC Bulletin Board or any
      registered national stock exchange, the last trading price for a share of Common
      Stock in the over-the-counter market, as reported by the OTC Bulletin Board
      or
      in the National Quotation Bureau Incorporated or similar organization or agency
      succeeding to its functions of reporting prices) at the close of business on
      such date, or (c) if the Common Stock is not then reported by the OTC Bulletin
      Board or the National Quotation Bureau Incorporated (or similar organization
      or
      agency succeeding to its functions of reporting prices), then the average of
      the
      "Pink Sheet" quotes for the five (5) Trading Days preceding such date of
      determination, or (d) if the Common Stock is not then publicly traded the fair
      market value of a share of Common Stock as determined by an Independent
      Appraiser selected in good faith by the Majority Holders; provided,
      however,
      that
      the Issuer, after receipt of the determination by such Independent Appraiser,
      shall have the right to select an additional Independent Appraiser, in which
      case, the fair market value shall be equal to the average of the determinations
      by each such Independent Appraiser; and provided,
      further
      that all
      determinations of the Per Share Market Value shall be appropriately adjusted
      for
      any stock dividends, stock splits or other similar transactions during such
      period. The determination of fair market value by an Independent Appraiser
      shall
      be based upon the fair market value of the Issuer determined on a going concern
      basis as between a willing buyer and a willing seller and taking into account
      all relevant factors determinative of value, and shall be final and binding
      on
      all parties. In determining the fair market value of any shares of Common Stock,
      no consideration shall be given to any restrictions on transfer of the Common
      Stock imposed by agreement or by federal or state securities laws, or to the
      existence or absence of, or any limitations on, voting rights.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    

    "Purchase
      Agreement"
      means
      the Series B Convertible Preferred Stock Purchase Agreement dated as of June
      __,
      2006, among the Issuer and the investors a party thereto.

    

    "Securities"
      means
      any debt or equity securities of the Issuer, whether now or hereafter
      authorized, any instrument convertible into or exchangeable for Securities
      or a
      Security, and any option, warrant or other right to purchase or acquire any
      Security. "Security" means one of the Securities.

    

    "Securities
      Act"
      means
      the Securities Act of 1933, as amended, or any similar federal statute then
      in
      effect.

    

    "Subsidiary"
      means
      any corporation at least 50% of whose outstanding Voting Stock shall at the
      time
      be owned directly or indirectly by the Issuer or by one or more of its
      Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

    

    "Term"
      has the
      meaning specified in Section 1 hereof.

    

    "Trading
      Day"
      means
      (a) a day on which the Common Stock is traded on the OTC Bulletin Board, or
      (b)
      if the Common Stock is not traded on the OTC Bulletin Board, a day on which
      the
      Common Stock is quoted in the over-the-counter market as reported by the
      National Quotation Bureau Incorporated (or any similar organization or agency
      succeeding its functions of reporting prices); provided,
      however,
      that in
      the event that the Common Stock is not listed or quoted as set forth in (a)
      or
      (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and
      any
      day which shall be a legal holiday or a day on which banking institutions in
      the
      State of New York are authorized or required by law or other government action
      to close.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    

    "Voting
      Stock"
      means,
      as applied to the Capital Stock of any corporation, Capital Stock of any class
      or classes (however designated) having ordinary voting power for the election
      of
      a majority of the members of the Board of Directors (or other governing body)
      of
      such corporation, other than Capital Stock having such power only by reason
      of
      the happening of a contingency.

    

    "Warrants"
      means
      the Warrants issued and sold pursuant to the Purchase Agreement, including,
      without limitation, this Warrant, and any other warrants of like tenor issued
      in
      substitution or exchange for any thereof pursuant to the provisions of Section
      2(c), 2(d) or 2(e) hereof or of any of such other Warrants. 

    

    "Warrant
      Price"
      initially means U.S. $0.45, as such Warrant Price may be adjusted from time
      to
      time as shall result from the adjustments specified in this Warrant, including
      Section 4 hereto.

    

    "Warrant
      Share Number"
      means
      at any time the aggregate number of shares of Warrant Stock which may at such
      time be purchased upon exercise of this Warrant, after giving effect to all
      prior adjustments and increases to such number made or required to be made
      under
      the terms hereof.

    

    "Warrant
      Stock"
      means
      Common Stock issuable upon exercise of any Warrant or Warrants or otherwise
      issuable pursuant to any Warrant or Warrants.

     

    10. Other
      Notices.
      In case
      at any time:

    

    
      	 	
              (A)

            	
              the
                Issuer shall make any distributions to the holders of Common Stock;
                or

            

    

    

    
      	 	
              (B)

            	
              the
                Issuer shall authorize the granting to all holders of its Common
                Stock of
                rights to subscribe for or purchase any shares of Capital Stock of
                any
                class or other rights; or

            

    

    

    
      	 	
              (C)

            	
              there
                shall be any reclassification of the Capital Stock of the Issuer;
                or

            

    

    

    
      	 	
              (D)

            	
              there
                shall be any capital reorganization by the Issuer;
                or

            

    

    

    
      	 	
              (E)

            	
              there
                shall be any (i) consolidation or merger involving the Issuer or
                (ii)
                sale, transfer or other disposition of all or substantially all of
                the
                Issuer's property, assets or business (except a merger or other
                reorganization in which the Issuer shall be the surviving corporation
                and
                its shares of Capital Stock shall continue to be outstanding and
                unchanged
                and except a consolidation, merger, sale, transfer or other disposition
                involving a wholly-owned Subsidiary);
                or

            

    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (F)

            	
              there
                shall be a voluntary or involuntary dissolution, liquidation or winding-up
                of the Issuer or any partial liquidation of the Issuer or distribution
                to
                holders of Common Stock;

            

    

    

    then,
      in
      each of such cases, the Issuer shall give written notice to the Holder of the
      date on which (i) the books of the Issuer shall close or a record shall be
      taken
      for such dividend, distribution or subscription rights or (ii) such
      reorganization, reclassification, consolidation, merger, disposition,
      dissolution, liquidation or winding-up, as the case may be, shall take place.
      Such notice also shall specify the date as of which the holders of Common Stock
      of record shall participate in such dividend, distribution or subscription
      rights, or shall be entitled to exchange their certificates for Common Stock
      for
      securities or other property deliverable upon such reorganization,
      reclassification, consolidation, merger, disposition, dissolution, liquidation
      or winding-up, as the case may be. Such notice shall be given at least twenty
      (20) days prior to the record date or effective date for the event specified
      in
      such notice.

    

    11. Amendment
      and Waiver.
      Any
      term, covenant, agreement or condition in this Warrant may be amended, or
      compliance therewith may be waived (either generally or in a particular instance
      and either retroactively or prospectively), by a written instrument or written
      instruments executed by the Issuer and the Majority Holders; provided,
      however,
      that no
      such amendment or waiver shall reduce the Warrant Share Number, increase the
      Warrant Price, shorten the period during which this Warrant may be exercised
      or
      modify any provision of this Section 11 without the consent of the Holder of
      this Warrant.

    

    12. Governing
      Law; Jurisdiction.
      This
      Warrant shall be governed by and construed in accordance with the internal
      laws
      of the State of New York, without giving effect to any of the conflicts of
      law
      principles which would result in the application of the substantive law of
      another jurisdiction. This Warrant shall not be interpreted or construed with
      any presumption against the party causing this Warrant to be drafted.
Each
      of
      the Company and the Purchasers (i) hereby irrevocably submits to the
      jurisdiction of the United States District Court sitting in the Southern
      District of New York and the courts of the State of New York located in New
      York
      county for the purposes of any suit, action or proceeding arising out of or
      relating to this Warrant or any of the other Transaction Documents or the
      transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
      not to assert in any such suit, action or proceeding, any claim that it is
      not
      personally subject to the jurisdiction of such court, that the suit, action
      or
      proceeding is brought in an inconvenient forum or that the venue of the suit,
      action or proceeding is improper. Each of the Company and the Purchasers
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof to such party at the address in effect for notices to
      it
      under this Warrant and agrees that such service shall constitute good and
      sufficient service of process and notice thereof. Nothing in this Section 12
      shall affect or limit any right to serve process in any other manner permitted
      by law.

     

    13. Notices.
      Any
      notice, demand, request, waiver or other communication required or permitted
      to
      be given hereunder shall be in writing and shall be effective (a) upon hand
      delivery, telecopy or facsimile at the address or number designated below (if
      delivered on a business day during normal business hours where such notice
      is to
      be received), or the first business day following such delivery (if delivered
      other than on a business day during normal business hours where such notice
      is
      to be received) or (b) on the second business day following the date of mailing
      by express courier service, fully prepaid, addressed to such address, or upon
      actual receipt of such mailing, whichever shall first occur. The addresses
      for
      such communications shall be:

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    
      	
              If
                to the Company:

            	 	
              HiEnergy
                Technologies, Inc. 

              1601-B
                Alton Parkway, Unit B 

              Irvine,
                California 92606

              Attention:
                Senior Vice President

              and
                Corporate Secretary

              Tel.
                No.: (949) 757-0855

              Fax
                No.: (949) 757-1477

            
	 	 	 
	
              with
                copies (which shall not constitute notice) to:

            	 	
              August
                Law Group, P.C.

              The
                Atrium Building

              19200
                Von Karman Ave., Suite 500

              Irvine,
                California 92612

              Attention:
                Kenneth S. August

              Tel
                No.: (949) 752-7772

              Fax
                No.: (949) 752-7776

            
	 	 	 
	
              If
                to any Purchaser:

            	 	
              At
                the address of such Purchaser set forth on Exhibit
                A
                to
                this Agreement, with copies to Purchaser’s counsel as set forth on
                Exhibit
                A
                or
                as specified in writing by such:

            
	 	 	 
	
              with
                copies (which shall not constitute notice) to:

            	 	
              Kramer
                Levin Naftalis & Frankel LLP

              1177
                Avenue of the Americas

              New
                York, New York 10036

              Attention:
                Christopher S. Auguste

              Tel
                No.: (212) 715-9100

              Fax
                No.: (212) 715-8000

            

    

     

    Any
      party
      hereto may from time to time change its address for notices by giving at least
      ten (10) days written notice of such changed address to the other party
      hereto.

    

    14. Warrant
      Agent.
      The
      Issuer may, by written notice to each Holder of this Warrant, appoint an agent
      having an office in New York, New York for the purpose of issuing shares of
      Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of
      Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section
      2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3
      hereof, or any of the foregoing, and thereafter any such issuance, exchange
      or
      replacement, as the case may be, shall be made at such office by such
      agent.

    

    15. Remedies.
      The
      Issuer stipulates that the remedies at law of the Holder of this Warrant in
      the
      event of any default or threatened default by the Issuer in the performance
      of
      or compliance with any of the terms of this Warrant are not and will not be
      adequate and that, to the fullest extent permitted by law, such terms may be
      specifically enforced by a decree for the specific performance of any agreement
      contained herein or by an injunction against a violation of any of the terms
      hereof or otherwise.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    16. Successors
      and Assigns.
      This
      Warrant and the rights evidenced hereby shall inure to the benefit of and be
      binding upon the successors and assigns of the Issuer, the Holder hereof and
      (to
      the extent provided herein) the Holders of Warrant Stock issued pursuant hereto,
      and shall be enforceable by any such Holder or Holder of Warrant
      Stock.

    

    17. Modification
      and Severability.
      If, in
      any action before any court or agency legally empowered to enforce any provision
      contained herein, any provision hereof is found to be unenforceable, then such
      provision shall be deemed modified to the extent necessary to make it
      enforceable by such court or agency. If any such provision is not enforceable
      as
      set forth in the preceding sentence, the unenforceability of such provision
      shall not affect the other provisions of this Warrant, but this Warrant shall
      be
      construed as if such unenforceable provision had never been contained
      herein.

    

    18. Headings.
      The
      headings of the Sections of this Warrant are for convenience of reference only
      and shall not, for any purpose, be deemed a part of this Warrant.

    

    IN
      WITNESS WHEREOF, the Issuer has executed this Series B-1 Warrant as of the
      day
      and year first above written.

    

    
      	 	 	 
	 	
              HIENERGY
                TECHNOLOGIES, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:

            
	 	Title 

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    EXERCISE
      FORM

    SERIES
      B-1 WARRANT

    

    HIENERGY
      TECHNOLOGIES, INC. 

    

    The
      undersigned _______________, pursuant to the provisions of the within Warrant,
      hereby elects to purchase _____ shares of Common Stock of HiEnergy Technologies,
      Inc. covered by the within Warrant.

     

    
      	Dated: _________________	Signature	_____________________
	 	 	Address	_____________________
	 	 	 	_____________________

    

       

    Number
      of
      shares of Common Stock beneficially owned or deemed beneficially owned by the
      Holder on the date of Exercise: _________________________

    

    ASSIGNMENT

    

    FOR
      VALUE
      RECEIVED, _________________ hereby sells, assigns and transfers unto
      __________________ the within Warrant and all rights evidenced thereby and
      does
      irrevocably constitute and appoint _____________, attorney, to transfer the
      said
      Warrant on the books of the within named corporation.

     

    
      	Dated: _________________	Signature	_____________________
	 	 	Address	_____________________
	 	 	 	_____________________

    

     

    PARTIAL
      ASSIGNMENT

    

    FOR
      VALUE
      RECEIVED, _________________ hereby sells, assigns and transfers unto
      __________________ the right to purchase _________ shares of Warrant Stock
      evidenced by the within Warrant together with all rights therein, and does
      irrevocably constitute and appoint ___________________, attorney, to transfer
      that part of the said Warrant on the books of the within named
      corporation.

     

    
      	Dated: _________________	Signature	_____________________
	 	 	Address	_____________________
	 	 	 	_____________________

    

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

    FOR
      USE
      BY THE ISSUER ONLY:

    

    This
      Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
      ___________, _____, shares of Common Stock issued therefor in the name of
      _______________, Warrant No. W-_____ issued for ____ shares of Common Stock
      in
      the name of _______________.

     

    
      
        
        

      

      
        -22-

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