Document:

HEPALIFE TECHNOLOGIES, INC

EXHIBIT 10.1

HEPALIFE TECHNOLOGIES, INC.

NONSTATUTORY STOCK OPTION AGREEMENT

THIS NONSTATUTORY STOCK OPTION AGREEMENT (“Agreement”) is made and entered into as of the date set forth below, by and between HepaLife Technologies, Inc., a Florida corporation (the “Company”), and the following employee of the Company (“Optionee”):

In consideration of the covenants herein set forth, the parties hereto agree as follows:

1. Option Information.

(a) Date of Option:

June 11, 2008

(b) Optionee:

Frank Menzler

(c) Number of Shares: 

500,000

(d) Exercise Price: 

$ 0.61

2. Acknowledgements.

(a) Optionee is an employee of the Company.

(b) The Board of Directors (the “Board” which term shall include an authorized committee of the Board of Directors) and shareholders of the Company have heretofore adopted a 2001 Incentive Stock Plan (the “Plan”), pursuant to which this Option is being granted; and

(c) The Board has authorized the granting to Optionee of a stock option (“Option”) to purchase shares of common stock of the Company (“Stock”) upon the terms and conditions hereinafter stated and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”) provided by Rule 701 thereunder.

3. Shares; Price.  Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) above (the “Shares”) for cash (or other consideration as is authorized under the Plan and acceptable to the Board of Directors of the Company, in their sole and absolute discretion) at the price per Share set forth in Section 1(d) above (the “Exercise Price”), such price being not less than [e.g., 85%] of the fair market value per share of the Shares covered by this Option as of the date hereof.

4. Term of Option; Continuation of Service.  This Option shall expire, and all rights hereunder to purchase the Shares shall terminate 10 years from the date hereof. This Option shall earlier terminate subject to Sections 7 hereof upon, and as of the date of, the termination of Optionee’s employment if such termination occurs prior to the end of such 10 year period. Following the termination of the Optionee’s employment, if the Optionee continues to serve as an employee of the Company, this Option shall nevertheless be terminated as of the date of the termination of  the Optionee’s employment. Nothing contained herein shall confer upon Optionee the right to the continuation of his or her employment by the Company or to interfere with the right of the Company to terminate such employment or to increase or decrease the compensation of Optionee from the rate in existence at the date hereof.

5. Vesting of Option.  Subject to the provisions of Sections 7 hereof, this Option shall vest and become exercisable during the term of Optionee’s employment as follows:

The options will vest in five equal annual installments of 100,000 options commencing on October 1, 2008, the second anniversary of the Optionee’s employment agreement, and annually thereafter. 

The installments shall be cumulative (i.e., this option may be exercised, as to any or all shares covered by an installment, at any time or times after an installment becomes exercisable and until expiration or termination of this option).

6. Exercise.  This Option shall be exercised by delivery to the Company of (a) written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A, (b) a check or cash in the amount of the Exercise Price of the Shares covered by the notice (or such other consideration as has been approved by the Board of Directors consistent with the Plan) and (c) a written investment representation as provided for in Section 12 hereof. This Option shall not be assignable or transferable, except by will or by the laws of descent and distribution, and shall be exercisable only by Optionee during his or her lifetime. 

 

7. Termination of Employment.  If Optionee shall cease to be employed by the Company for any reason whatsoever, whether voluntarily or involuntarily, Optionee, this Option shall terminate as of the date of the termination of such employment and shall be null and void. No options, including those previously vested but not exercised, may be exercised after the date of Optionee’s termination of employment with or by the Company.

Unless earlier terminated, all rights under this Option shall terminate in any event on the expiration date of this Option as defined in Section 4 hereof.

8. No Rights as Shareholder.  Optionee shall have no rights as a shareholder with respect to the Shares covered by any installment of this Option until the effective date of issuance of the Shares following exercise of this Option, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Section 9 hereof.

9. Recapitalization.  Subject to any required action by the shareholders of the Company, the number of Shares covered by this Option, and the Exercise Price thereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been “effected without receipt of consideration by the Company”.

In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a “Reorganization”), unless otherwise provided by the Board, this Option shall terminate immediately prior to such date as is determined by the Board, which date shall be no later than the consummation of such Reorganization. In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the Option or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options without regard to the installment provisions of Section 5; provided, however, that such exercise shall be subject to the consummation of such Reorganization.

Subject to any required action by the shareholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the installment provisions of Section 5 shall continue to apply.

In the event of a change in the shares of the Company as presently constituted, which is limited to a change of all of its authorized Stock without par value into the same number of shares of Stock with a par value, the shares resulting from any such change shall be deemed to be the Shares within the meaning of this Option.

To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of shares of Stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of Shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.

10. Taxation upon Exercise of Option.  Optionee understands that, upon exercise of this Option, Optionee will recognize income, for Federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, determined as of the date of exercise, exceeds the Exercise Price. The acceptance of the Shares by Optionee shall constitute an agreement by Optionee to report such income in accordance with then applicable law and to cooperate with Company in establishing the amount of such income and corresponding deduction to the Company for its income tax 

 

purposes. Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Optionee’s then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Optionee to make a cash payment to cover such liability as a condition of the exercise of this Option.

11. Modification, Extension and Renewal of Options.  The Board or Committee, as described in the Plan, may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised), subject at all times to the Plan, the Code and the corporate securities rules of Florida. Notwithstanding the foregoing provisions of this Section 11, no modification shall, without the consent of the Optionee, alter to the Optionee’s detriment or impair any rights of Optionee hereunder.

12. Investment Intent; Restrictions on Transfer.

(a)  Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares represented by this Option are registered under the Securities Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

(b) Optionee further represents that Optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information

(c) Unless and until the Shares represented by this Option are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE ‘SECURITIES ACT’) OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM.

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THAT CERTAIN NONSTATUTORY STOCK OPTION AGREEMENT DATED OCTOBER 1, 2007, BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.

and/or such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company’s transfer agent.

13. Stand-off Agreement.  Optionee agrees that, in connection with any registration of the Company’s securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company’s securities, Optionee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of at least one year following the effective date of registration of such offering.

14. Restriction Upon Transfer.  The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Optionee except as hereinafter provided.

(a) Repurchase Right on Termination Other Than for Cause. For the purposes of this Section, a “Repurchase Event” shall mean an occurrence of one of (i) termination of Optionee’s employment by the Company, voluntary or involuntary and with or without cause; (ii) retirement or death of Optionee; (iii) bankruptcy of Optionee, which shall be deemed to have occurred as of the date on which a voluntary or involuntary petition in bankruptcy is filed with a court of competent jurisdiction; (iv) dissolution of the marriage of Optionee, to the extent that any of the Shares are allocated as the sole and separate property of Optionee’s spouse pursuant thereto (in which case, this Section shall only apply to the Shares so affected); or (v) any 

 

attempted transfer by the Optionee of Shares, or any interest therein, in violation of this Agreement. Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to repurchase all or any portion of the Shares of Optionee at a price equal to the fair value of the Shares as of the date of the Repurchase Event.

(b) Repurchase Right on Termination for Cause. In the event Optionee’s employment is terminated by the Company “for cause”, then the Company shall have the right (but not an obligation) to repurchase Shares of Optionee at a price equal to the Exercise Price. Such right of the Company to repurchase Shares shall apply to 100% of the Shares for one (1) year from the date of this Agreement; and shall thereafter lapse at the rate of twenty percent (20%) of the Shares on each anniversary of the date of this Agreement. In addition, the Company shall have the right, in the sole discretion of the Board and without obligation, to repurchase upon termination for cause all or any portion of the Shares of Optionee, at a price equal to the fair value of the Shares as of the date of termination, which right is not subject to the foregoing lapsing of rights. In the event the Company elects to repurchase the Shares, the stock certificates representing the same shall forthwith be returned to the Company for cancellation.

(c) Exercise of Repurchase Right. Any Repurchase Right under Paragraphs 14(a) or 14(b) shall be exercised by giving notice of exercise as provided herein to Optionee or the estate of Optionee, as applicable. Such right shall be exercised, and the repurchase price thereunder shall be paid, by the Company within a ninety (90) day period beginning on the date of notice to the Company of the occurrence of such Repurchase Event (except in the case of termination of employment or retirement, where such option period shall begin upon the occurrence of the Repurchase Event). Such repurchase price shall be payable only in the form of cash (including a check drafted on immediately available funds) or cancellation of purchase money indebtedness of the Optionee for the Shares. If the Company can not purchase all such Shares because it is unable to meet the financial tests set forth in the Florida corporation law, the Company shall have the right to purchase as many Shares as it is permitted to purchase under such sections. Any Shares not purchased by the Company hereunder shall no longer be subject to the provisions of this Section 14.

(d) Right of First Refusal. In the event Optionee desires to transfer any Shares during his or her lifetime, Optionee shall first offer to sell such Shares to the Company. Optionee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Optionee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Optionee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Optionee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.

(e) Acceptance of Restrictions. Acceptance of the Shares shall constitute the Optionee’s agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Optionee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.

(f) Permitted Transfers. Notwithstanding any provisions in this Section 14 to the contrary, the Optionee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Optionee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Optionee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 14(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Optionee and the Company.

(g) Release of Restrictions on Shares. All other restrictions under this Section 14 shall terminate five (5) years following the date of this Agreement, or when the Company’s securities are publicly traded, whichever occurs earlier.

15. Notices.  Any notice required to be given pursuant to this Option or the Plan shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to Optionee at the address last provided by Optionee for his or her employee records.

16. Agreement Subject to Plan; Applicable Law.  This Option is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of such Plan is available to Optionee, at no charge, at the principal office of the Company. Any provision of this Option inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. This 

 

Option has been granted, executed and delivered in the State of Florida, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts therein.

17.  For purposes of this Option a termination of employment for "for cause" occurs if the Optionee’s employment is terminated for any of the following reasons: 

(i) theft, dishonesty, or falsification of any employment or Company records; 

(ii) improper disclosure of the Company’s confidential or proprietary information; 

(iii) any intentional act by the Optionee which has a material detrimental effect on the Company’s reputation or business; 

(v) the Optionee’s failure or inability to perform any reasonable assigned duties after written notice from the Company of, and a reasonable opportunity to cure, such failure or inability; and 

(vi) any material breach by the Optionee of an agreement, including this Option, between the Company and the Optionee,  which breach is not cured within 10 days following written notice of such breach from the Company. 

IN WITNESS WHEREOF, the parties hereto have executed this Option as of the date first above written.

HepaLife Technologies, Inc.

By: /s/ Harmel S. Rayat

Harmel S. Rayat, CFO

By:  /s/ Frank Menzler

Frank Menzler, Optionee

(one of the following, as appropriate, shall be signed)

I certify that as of the date

By his or her signature, the

hereof I am unmarried

spouse of Optionee hereby agrees

to be bound by the provisions of

the foregoing NONSTATUTORY STOCK

OPTION AGREEMENT

Abida Kearney

____________________________

/s/ Abida Kearney

Optionee

Name, Signature Spouse of Optionee

 

Appendix A

NOTICE OF EXERCISE

HepaLife Technologies, Inc.

60 State Street, Suite 700

Boston, MA  02109

Attention: Chief Financial Officer

Re: Nonstatutory Stock Option

Notice is hereby given pursuant to Section 6 of my Nonstatutory Stock Option Agreement that I elect to purchase the number of shares set forth below at the exercise price set forth in my option agreement:

Nonstatutory Stock Option Agreement dated: ____________

Number of shares being purchased: ____________

Exercise Price: $____________

A check in the amount of the aggregate price of the shares being purchased is attached.

I hereby confirm that such shares are being acquired by me for my own account for investment purposes, and not with a view to, or for resale in connection with, any distribution thereof. I will not sell or dispose of my Shares in violation of the Securities Act of 1933, as amended, or any applicable federal or state securities laws.

I understand that the certificate representing the Option Shares will bear a restrictive legend within the contemplation of the Securities Act and as required by such other state or federal law or regulation applicable to the issuance or delivery of the Option Shares.

Further, I understand that, as a result of this exercise of rights, I will recognize income in an amount equal to the amount by which the fair market value of the Shares exceeds the exercise price. I agree to report such income in accordance with then applicable law and to cooperate with Company in establishing the withholding and corresponding deduction to the Company for its income tax purposes.

I agree to provide to the Company such additional documents or information as may be required pursuant to the Company’s 2001 Incentive Stock Plan.

_______________________________

(signature)

_______________________________

(print name of Optionee)EXHIBIT 4.6

#                                                          Date:
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NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE  BEEN  REGISTERED  WITH  THE  SECURITIES  AND  EXCHANGE  COMMISSION  OR THE
SECURITIES   COMMISSION  OF  ANY  STATE  IN  RELIANCE  UPON  AN  EXEMPTION  FROM
REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "SECURITIES
ACT"),  AND,  ACCORDINGLY,  MAY NOT BE OFFERED  OR SOLD  EXCEPT  PURSUANT  TO AN
EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR PURSUANT TO AN
AVAILABLE  EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS  OF THE  SECURITIES  ACT AND IN ACCORDANCE  WITH  APPLICABLE  STATE
SECURITIES  LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH  EFFECT,  THE  SUBSTANCE  OF WHICH SHALL BE  REASONABLY  ACCEPTABLE  TO THE
COMPANY.  THIS  SECURITY  AND THE  SECURITIES  ISSUABLE  UPON  EXERCISE  OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION  WITH A BONA FIDE MARGIN  ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                          COMMON STOCK PURCHASE WARRANT

               To Purchase _____________ Shares of Common Stock of

                    ENVIRONMENTAL SERVICE PROFESSIONALS, INC.

THIS COMMON STOCK PURCHASE  WARRANT (the  "WARRANT")  certifies  that, for value
received,   _______________,  or  its  registered  assigns  (the  "HOLDER"),  is
entitled, upon the terms and subject to the conditions hereinafter set forth, at
any time on or after the date hereof  (the  "INITIAL  EXERCISE  DATE") and on or
prior to the close of  business on the FIFTH  (5TH)  anniversary  of the Initial
Exercise Date (the  "TERMINATION  DATE") to purchase up to _________ shares (the
"WARRANT  SHARES") of Common  Stock,  par value  $_______ per share (the "COMMON
STOCK"), of ENVIRONMENTAL SERVICE PROFESSIONALS, INC., a Nevada corporation (the
"COMPANY").  The purchase  price of one share of Common Stock under this Warrant
shall be equal to the Exercise Price, as defined in Section 2(b).

         SECTION  1.  DEFINITIONS.  Capitalized  terms  used  and not  otherwise
defined  herein shall have the  meanings  (i) set forth in that  certain  Senior
Secured  Note,  dated the date  hereof  (the  "NOTE"),  from the  Company to the
initial  Holder and in the principal  amount of $_________ and (ii) set forth in
Exhibit A hereto.

         SECTION 2. EXERCISE.

         a) EXERCISE OF WARRANT.  Exercise of the purchase rights represented by
this Warrant may be made,  in whole or in part, at any time or times on or after
the Initial  Exercise Date and on or before the Termination  Date by delivery to
the Company of a duly  executed  facsimile  copy of the Notice of Exercise  Form
annexed  hereto  (or such  other  office  or  agency  of the  Company  as it may

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<PAGE>

designate by notice in writing to the  registered  Holder at the address of such
Holder appearing on the books of the Company);  and, within five Trading Days of
the date said Notice of Exercise is delivered to the Company,  the Company shall
have received  payment of the  aggregate  Exercise  Price of the shares  thereby
purchased  by wire  transfer or cashier's  check drawn on a United  States bank.
Notwithstanding  anything  herein  to the  contrary,  the  Holder  shall  not be
required to  physically  surrender  this Warrant to the Company until the Holder
has purchased all of the Warrant Shares available  hereunder and the Warrant has
been exercised in full, in which case,  the Holder shall  surrender this Warrant
to the Company for cancellation  within three Trading Days of the date the final
Notice of  Exercise is  delivered  to the  Company.  Partial  exercises  of this
Warrant  resulting  in  purchases  of a portion  of the total  number of Warrant
Shares  available  hereunder  shall have the effect of lowering the  outstanding
number  of  Warrant  Shares  purchasable  hereunder  in an  amount  equal to the
applicable number of Warrant Shares purchased.  The Holder and the Company shall
maintain  records showing the number of Warrant Shares purchased and the date of
such  purchases.  The  Company  shall  deliver  any  objection  to any Notice of
Exercise Form within one Business Day of receipt of such notice. In the event of
any dispute or  discrepancy,  the records of the Holder shall be controlling and
determinative   in  the  absence  of  manifest  error,   negligence  or  willful
misconduct.  The Holder, by acceptance of this Warrant,  acknowledges and agrees
that, by reason of the provisions of this paragraph, following the purchase of a
portion of the Warrant Shares hereunder,  the number of Warrant Shares available
for purchase  hereunder at any given time may be less than the amount  stated on
the face hereof.

         b) EXERCISE  PRICE.  The  exercise  price per share of the Common Stock
under this Warrant shall be $______ subject to adjustment  herein (the "EXERCISE
PRICE").

         c) MECHANICS OF EXERCISE.

                  i. AUTHORIZATION OF WARRANT SHARES. The Company covenants that
         all  Warrant  Shares  which  may be  issued  upon the  exercise  of the
         purchase rights  represented by this Warrant will, upon exercise of the
         purchase  rights  represented  by this  Warrant,  be  duly  authorized,
         validly issued,  fully paid and  nonassessable and free from all taxes,
         liens and  charges  created  by the  Company  in  respect  of the issue
         thereof  (other  than  taxes  in  respect  of  any  transfer  occurring
         contemporaneously with such issue).

                  ii. DELIVERY OF CERTIFICATES  UPON EXERCISE.  Certificates for
         shares  purchased  hereunder shall be transmitted by the transfer agent
         of the Company to the Holder by  crediting  the account of the Holder's
         prime  broker with the  Depository  Trust  Company  through its Deposit
         Withdrawal  Agent  Commission  ("DWAC")  system  if  the  Company  is a
         participant in such system,  and otherwise by physical  delivery to the
         address  specified by the Holder in the Notice of Exercise  within five
         Trading Days of receipt by the Company of the Notice of Exercise  Form,
         surrender of this Warrant (if  required)  and payment of the  aggregate
         Exercise Price as set forth above ("WARRANT SHARE DELIVERY DATE"). This

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<PAGE>

         Warrant shall be deemed to have been exercised on the date the Exercise
         Price is received by the Company. The Warrant Shares shall be deemed to
         have been issued,  and the Holder or any other Person so  designated to
         be named  therein  shall be deemed to have become a holder of record of
         such  shares  for all  purposes,  as of the date the  Warrant  has been
         exercised by payment to the Company of the Exercise Price and all taxes
         required to be paid by the Holder, if any, pursuant to Section 2(c)(vi)
         prior to the issuance of such shares, have been paid.

                  iii.  DELIVERY OF NEW WARRANTS UPON EXERCISE.  If this Warrant
         shall have been exercised in part, the Company shall, at the request of
         a Holder and upon surrender of this Warrant certificate, at the time of
         delivery  of  the  certificate  or  certificates  representing  Warrant
         Shares, deliver to Holder a new Warrant evidencing the rights of Holder
         to purchase the unpurchased  Warrant Shares called for by this Warrant,
         which new Warrant  shall in all other  respects be identical  with this
         Warrant.

                  iv.  RESCISSION  RIGHTS.  If the  Company  fails to cause  its
         transfer agent to transmit to the Holder a certificate or  certificates
         representing  the Warrant  Shares  pursuant to Section  2(c)(ii) by the
         Warrant  Share  Delivery  Date,  then the Holder will have the right to
         rescind such exercise.

                  v. NO  FRACTIONAL  SHARES OR SCRIP.  No  fractional  shares or
         scrip representing  fractional shares shall be issued upon the exercise
         of this  Warrant.  As to any  fraction  of a share which  Holder  would
         otherwise be entitled to purchase upon such exercise, the Company shall
         at its election,  either pay a cash adjustment in respect of such final
         fraction in an amount equal to such fraction multiplied by the Exercise
         Price or round up to the next whole share.

                  vi. CHARGES, TAXES AND EXPENSES.  Issuance of certificates for
         Warrant Shares shall be made without charge to the Holder for any issue
         or transfer tax or other incidental  expense in respect of the issuance
         of such  certificate,  all of which taxes and expenses shall be paid by
         the Company,  and such certificates  shall be issued in the name of the
         Holder  or in such  name or names  as may be  directed  by the  Holder;
         PROVIDED,  HOWEVER,  that in the event  certificates for Warrant Shares
         are to be  issued in a name  other  than the name of the  Holder,  this
         Warrant when  surrendered  for  exercise  shall be  accompanied  by the
         Assignment  Form attached  hereto duly executed by the Holder;  and the
         Company  may  require,  as a  condition  thereto,  the payment of a sum
         sufficient to reimburse it for any transfer tax incidental thereto.

                                      -3-
<PAGE>
                  vii.  CLOSING  OF  BOOKS.  The  Company  will  not  close  its
         stockholder  books or records in any manner  that  prevents  the timely
         exercise of this Warrant, pursuant to the terms hereof.

         d) EXERCISE  LIMITATIONS.  The Company shall not effect any exercise of
this  Warrant and a Holder  shall not have the right to exercise  any portion of
this Warrant,  pursuant to Section 2(a) or  otherwise,  to the extent that after
giving effect to such issuance after exercise,  such Holder  (together with such
Holder's  Affiliates,  and any other person or entity acting as a group together
with  such  Holder  or any of such  Holder's  Affiliates),  as set  forth on the
applicable Notice of Exercise,  would beneficially own in excess of 4.99% of the
number of shares of the Common Stock outstanding immediately after giving effect
to such issuance.  For purposes of the foregoing sentence,  the number of shares
of Common  Stock  beneficially  owned by such  Holder and its  Affiliates  shall
include  the number of shares of Common  Stock  issuable  upon  exercise of this
Warrant with respect to which the  determination of such sentence is being made,
but shall  exclude the number of shares of Common  Stock which would be issuable
upon  (A)  exercise  of the  remaining,  nonexercised  portion  of this  Warrant
beneficially  owned by such Holder or any of its  Affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the  Company  (including,   without  limitation,  any  Warrants)  subject  to  a
limitation  on  conversion  or exercise  analogous to the  limitation  contained
herein beneficially owned by such Holder or any of its Affiliates. Except as set
forth in the preceding sentence,  for purposes of this Section 2(d),  beneficial
ownership  shall be calculated in accordance  with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder,  it being acknowledged
by the Holder that the Holder is solely  responsible for any schedules  required
to be filed in accordance  with Section 13(d) of the Exchange Act. To the extent
that the limitation contained in this Section 2(d) applies, the determination of
whether this Warrant is exercisable  (in relation to other  securities  owned by
such Holder) and of which a portion of this Warrant is  exercisable  shall be in
the sole  discretion of the Holder,  and the  submission of a Notice of Exercise
shall be deemed to be the  Holder's  determination  of whether  this  Warrant is
exercisable (in relation to other  securities  owned by the Holder) and of which
portion of this Warrant is  exercisable,  in each case subject to such aggregate
percentage  limitation,  and the Company  shall have no  obligation to verify or
confirm the accuracy of such determination.  In addition,  a determination as to
any group status as  contemplated  above shall be determined in accordance  with
Section  13(d) of the  Exchange  Act and the rules and  regulations  promulgated
thereunder.  For purposes of this Section  2(d),  in  determining  the number of
outstanding  shares  of  Common  Stock,  a  Holder  may  rely on the  number  of
outstanding shares of Common Stock as reflected in (x) the Company's most recent
Form  10-QSB  or Form  10-KSB,  as the case  may be,  (y) a more  recent  public
announcement  by the  Company  or (z) any  other  notice by the  Company  or the
Company's  Transfer  Agent  setting  forth the number of shares of Common  Stock
outstanding.  Upon the written or oral request of the Holder,  the Company shall
within two Trading Days  confirm  orally and in writing to the Holder the number
of  shares  of  Common  Stock  then  outstanding.  In any  case,  the  number of
outstanding  shares of Common Stock shall be  determined  after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,

                                      -4-
<PAGE>

by the  Holder  or its  Affiliates  since  the date as of which  such  number of
outstanding shares of Common Stock was reported.  The provisions of this Section
2(d) may be waived by the Holder,  at the election of the Holder,  upon not less
than 61 days' prior notice to the Company,  and the  provisions  of this Section
2(d)  shall  continue  to apply  until  such 61st day (or such  later  date,  as
determined by such Holder, as may be specified in such notice of waiver).

         SECTION 3. CERTAIN ADJUSTMENTS.

         a) STOCK DIVIDENDS AND SPLITS.  If the Company,  at any time while this
Warrant  is  outstanding:  (A)  pays a  stock  dividend  or  otherwise  makes  a
distribution or  distributions on shares of its Common Stock or any other equity
or equity equivalent  securities  payable in shares of Common Stock (which,  for
avoidance  of doubt,  shall not include any shares of Common Stock issued by the
Company upon exercise of this  Warrant),  (B) subdivides  outstanding  shares of
Common Stock into a larger number of shares,  (C) combines  (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares,  or (D) issues by  reclassification  of shares of the  Common  Stock any
shares of capital stock of the Company,  then in each case,  the Exercise  Price
shall be multiplied by a fraction of which the numerator  shall be the number of
shares  of  Common  Stock  (excluding   treasury  shares,  if  any)  outstanding
immediately  before such event and of which the denominator  shall be the number
of shares  of  Common  Stock  outstanding  immediately  after  such  event.  Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders  entitled to receive
such dividend or distribution and shall become effective  immediately  after the
effective date in the case of a subdivision, combination or re-classification.

         b) PRO RATA  DISTRIBUTIONS.  If the  Company,  at any time prior to the
Termination  Date,  shall  distribute to all holders of Common Stock (and not to
the  Holder  of  the  Warrant  on  an  as-exercised   basis)  evidences  of  its
indebtedness or assets (including cash and cash dividends) or rights or warrants
to subscribe  for or purchase  any  security  other than the Common Stock (which
shall be subject to Section  3(b) or 3(c)),  then in each such case the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect  immediately
prior to the record date fixed for  determination  of  stockholders  entitled to
receive such  distribution by a fraction of which the  denominator  shall be the
VWAP  determined  as of the  record  date  mentioned  above,  and of  which  the
numerator  shall be such VWAP on such  record  date less the then per share fair
market  value at such  record  date of the portion of such assets or evidence of
indebtedness so distributed  applicable to one  outstanding  share of the Common
Stock as determined  by the Board of Directors of the Company in good faith.  In
either case the  adjustments  shall be described in a statement  provided to the
Holder of the portion of assets or evidences of  indebtedness  so distributed or
such  subscription  rights  applicable  to  one  share  of  Common  Stock.  Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.

                                      -5-
<PAGE>
         c)  FUNDAMENTAL  TRANSACTION.  If, at any time  while  this  Warrant is
outstanding,  (A) the Company effects any merger or consolidation of the Company
with  or into  another  Person,  (B)  the  Company  effects  any  sale of all or
substantially all of its assets in one or a series of related transactions,  (C)
any tender offer or exchange offer (whether by the Company or another Person) is
completed  pursuant to which  holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D) the Company
effects  any  reclassification  of the  Common  Stock  or any  compulsory  share
exchange  pursuant to which the Common Stock is  effectively  converted  into or
exchanged  for  other  securities,  cash  or  property  (in  any  such  case,  a
"FUNDAMENTAL TRANSACTION"),  then, upon any subsequent exercise of this Warrant,
the Holder shall have the right to receive,  for each  Warrant  Share that would
have been  issuable upon such exercise  immediately  prior to the  occurrence of
such Fundamental Transaction,  at the option of the Holder, (a) upon exercise of
this Warrant, the number of shares of Common Stock of the successor or acquiring
corporation  or of the  Company,  if it is the  surviving  corporation,  and any
additional consideration (the "ALTERNATE CONSIDERATION") receivable upon or as a
result  of  such  reorganization,  reclassification,  merger,  consolidation  or
disposition  of assets by a Holder of the  number of shares of Common  Stock for
which this Warrant is exercisable  immediately prior to such event or (b) if the
Company is acquired in an all cash transaction,  cash equal to the value of this
Warrant as  determined  in  accordance  with the  Black-Scholes  option  pricing
formula.  For purposes of any such exercise,  the  determination of the Exercise
Price shall be appropriately  adjusted to apply to such Alternate  Consideration
based on the amount of Alternate  Consideration issuable in respect of one share
of Common Stock in such Fundamental Transaction, and the Company shall apportion
the Exercise  Price among the  Alternate  Consideration  in a reasonable  manner
reflecting  the relative  value of any  different  components  of the  Alternate
Consideration.  If  holders  of Common  Stock  are  given  any  choice as to the
securities,  cash or property to be received in a Fundamental Transaction,  then
the Holder shall be given the same choice as to the Alternate  Consideration  it
receives  upon  any  exercise  of  this  Warrant   following  such   Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or  surviving  entity in such  Fundamental  Transaction
shall issue to the Holder a new warrant consistent with the foregoing provisions
and  evidencing  the Holder's  right to exercise  such  warrant  into  Alternate
Consideration.  The  terms of any  agreement  pursuant  to  which a  Fundamental
Transaction  is affected  shall  include terms  requiring any such  successor or
surviving entity to comply with the provisions of this Section 3(e) and insuring
that this Warrant (or any such replacement  security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.

         d) CALCULATIONS. All calculations under this Section 3 shall be made to
the  nearest  cent or the  nearest  1/100th of a share,  as the case may be. For
purposes of this  Section 3, the number of shares of Common  Stock  deemed to be
issued  and  outstanding  as of a given  date  shall be the sum of the number of
shares  of  Common  Stock  (excluding   treasury  shares,  if  any)  issued  and
outstanding.

                                      -6-
<PAGE>
         e) VOLUNTARY  ADJUSTMENT BY COMPANY. The Company may at any time during
the term of this Warrant  reduce the then current  Exercise  Price to any amount
and for any period of time deemed  appropriate  by the Board of Directors of the
Company.

         f) NOTICE TO HOLDERS.

                  i. ADJUSTMENT TO EXERCISE  PRICE.  Whenever the Exercise Price
         is adjusted  pursuant to any  provision  of this Section 3, the Company
         shall  promptly mail to each Holder a notice setting forth the Exercise
         Price after such  adjustment and setting forth a brief statement of the
         facts requiring such adjustment.

                  ii.  NOTICE TO ALLOW  EXERCISE  BY HOLDER.  If (A) the Company
         shall declare a dividend (or any other  distribution  in whatever form)
         on  the  Common  Stock;   (B)  the  Company  shall  declare  a  special
         nonrecurring  cash dividend on or a redemption of the Common Stock; (C)
         the approval of any  stockholders  of the Company  shall be required in
         connection  with  any   reclassification   of  the  Common  Stock,  any
         consolidation  or merger to which the  Company is a party,  any sale or
         transfer of all or substantially  all of the assets of the Company,  of
         any  compulsory  share  exchange  whereby the Common Stock is converted
         into  other  securities,  cash  or  property;  (D)  the  Company  shall
         authorize  the voluntary or  involuntary  dissolution,  liquidation  or
         winding  up of the  affairs of the  Company;  then,  in each case,  the
         Company  shall cause to be mailed to the Holder at its last  address as
         it shall appear upon the Warrant  Register of the Company,  at least 20
         calendar  days  prior  to  the  applicable  record  or  effective  date
         hereinafter  specified, a notice stating (x) the date on which a record
         is  to be  taken  for  the  purpose  of  such  dividend,  distribution,
         redemption,  rights or warrants, or if a record is not to be taken, the
         date as of which  the  holders  of the  Common  Stock of  record  to be
         entitled  to  such  dividend,  distributions,   redemption,  rights  or
         warrants  are  to  be   determined  or  (y)  the  date  on  which  such
         reclassification,   consolidation,  merger,  sale,  transfer  or  share
         exchange is expected to become  effective or close,  and the date as of
         which it is expected  that  holders of the Common Stock of record shall
         be  entitled  to  exchange   their  shares  of  the  Common  Stock  for
         securities,    cash   or   other   property   deliverable   upon   such
         reclassification,   consolidation,  merger,  sale,  transfer  or  share
         exchange;  provided  that the failure to mail such notice or any defect
         therein or in the mailing  thereof shall not affect the validity of the
         corporate action required to be specified in such notice. The Holder is
         entitled to exercise this Warrant  during the 20-day period  commencing
         on  the  date  of  such  notice  to the  effective  date  of the  event
         triggering such notice.

                  iii.  EFFECT OF FAILURE  TO GIVE  NOTICE.  The  failure of the
         Company  to  give  any  notice  required  under  this  section  or  any
         inaccuracy or other defect  therein shall not affect the  determination
         of the Exercise Price that shall be in effect as provided herein.

                                      -7-
<PAGE>

         SECTION 4. TRANSFER OF WARRANT; REGISTRATION RIGHTS.

         a)   TRANSFERABILITY.   Subject  to  compliance   with  any  applicable
securities  laws,  this  Warrant and all rights  hereunder  (including,  without
limitation, any registration rights) are transferable, in whole or in part, upon
surrender  of  this  Warrant  at the  principal  office  of the  Company  or its
designated   agent,   together  with  a  written   assignment  of  this  Warrant
substantially  in the form  attached  hereto duly  executed by the Holder or its
agent or attorney and funds  sufficient  to pay any transfer  taxes payable upon
the making of such transfer. Upon such surrender and, if required, such payment,
the Company  shall  execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations  specified in
such  instrument  of  assignment,  and shall issue to the assignor a new Warrant
evidencing  the portion of this Warrant not so assigned,  and this Warrant shall
promptly be cancelled.  A Warrant,  if properly assigned,  may be exercised by a
new holder for the  purchase  of Warrant  Shares  without  having a new  Warrant
issued.

         b) NEW  WARRANTS.  This  Warrant may be divided or combined  with other
Warrants  upon  presentation  hereof at the  aforesaid  office  of the  Company,
together with a written notice  specifying the names and  denominations in which
new  Warrants  are to be issued,  signed by the Holder or its agent or attorney.
Subject  to  compliance  with  Section  4(a),  as to any  transfer  which may be
involved in such division or combination,  the Company shall execute and deliver
a new Warrant or Warrants in exchange  for the Warrant or Warrants to be divided
or combined in accordance with such notice.

         c) WARRANT  REGISTER.  The Company shall  register  this Warrant,  upon
records  to be  maintained  by  the  Company  for  that  purpose  (the  "WARRANT
REGISTER"),  in the name of the  record  Holder  hereof  from time to time.  The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise  hereof or any  distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.

         d)  TRANSFER  RESTRICTIONS.  If, at the time of the  surrender  of this
Warrant in connection  with any transfer of this  Warrant,  the transfer of this
Warrant shall not be registered pursuant to an effective  registration statement
under the Securities Act and under applicable state securities or blue sky laws,
the Company may require, as a condition of allowing such transfer (i) that there
be furnished to the Company a written opinion of counsel (which opinion shall be
in form,  substance  and scope  customary  for opinions of counsel in comparable
transactions) to the effect that such transfer may be made without  registration
under the Securities Act and under applicable state securities or blue sky laws,
(ii) that the  holder or  transferee  execute  and  deliver  to the  Company  an
investment letter in form and substance acceptable to the Company and (iii) that
the transferee be an "accredited investor" as defined in Rule 501(a) promulgated
under the Securities Act or a "qualified institutional buyer" as defined in Rule
144A(a) under the  Securities  Act. The Company will  provide,  at the Company's
expense,  such legal opinions in the future as are reasonably  necessary for the
issuance and resale of the Common Stock  issuable  upon exercise of the Warrants
pursuant to an effective registration  statement,  Rule 144 under the Securities

                                      -8-
<PAGE>

Act or an exemption from registration. In the event that Common Stock is sold in
a manner that complies  with an exemption  from  registration,  the Company will
promptly  instruct its counsel (at its  expense) to issue to the transfer  agent
and opinion permitting removal of the legend (indefinitely,  if pursuant to Rule
144(k) of the 1933 Act, or to permit sale of the shares if pursuant to the other
provisions of Rule 144 of the 1933 Act).

         SECTION 5. MISCELLANEOUS.

         a) NO RIGHTS AS  SHAREHOLDER  UNTIL  EXERCISE.  This  Warrant  does not
entitle the Holder to any voting rights or other rights as a shareholder  of the
Company prior to the exercise hereof as set forth herein.

         b) LOSS,  THEFT,  DESTRUCTION  OR  MUTILATION  OF WARRANT.  The Company
covenants that upon receipt by the Company of evidence  reasonably  satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate  relating  to the  Warrant  Shares,  and in case of  loss,  theft or
destruction,  of indemnity or security reasonably  satisfactory to it (which, in
the case of the  Warrant,  shall not include the posting of any bond),  and upon
surrender and cancellation of such Warrant or stock  certificate,  if mutilated,
the Company  will make and deliver a new  Warrant or stock  certificate  of like
tenor  and  dated  as of such  cancellation,  in lieu of such  Warrant  or stock
certificate.

         c) SATURDAYS,  SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the  taking of any action or the  expiration  of any right  required  or granted
herein shall not be a Business  Day, then such action may be taken or such right
may be exercised on the next succeeding Business Day.

         d) AUTHORIZED SHARES.

                  The  Company  covenants  that during the period the Warrant is
         outstanding,  it will reserve from its authorized  and unissued  Common
         Stock a sufficient  number of shares to provide for the issuance of the
         Warrant  Shares upon the  exercise of any  purchase  rights  under this
         Warrant.  The  Company  further  covenants  that its  issuance  of this
         Warrant shall constitute full authority to its officers who are charged
         with the duty of executing stock  certificates to execute and issue the
         necessary  certificates for the Warrant Shares upon the exercise of the
         purchase  rights  under this  Warrant.  The Company  will take all such
         reasonable  action  as may be  necessary  to assure  that such  Warrant
         Shares  may be issued  as  provided  herein  without  violation  of any
         applicable  law or  regulation,  or of any  requirements  of any  stock
         exchange or Trading Market upon which the Common Stock may be listed.

                  Except  and to the  extent as waived  or  consented  to by the
         Holder,  the  Company  shall  not by  any  action,  including,  without
         limitation,  amending 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 of this

                                      -9-
<PAGE>

         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 Holder as set forth
         in this Warrant against impairment.  Without limiting the generality of
         the  foregoing,  the Company will (a) not increase the par value of any
         Warrant  Shares above the amount  payable  therefor  upon such exercise
         immediately  prior to such  increase  in par  value,  (b) take all such
         action as may be necessary or appropriate in order that the Company may
         validly and legally issue fully paid and  nonassessable  Warrant Shares
         upon the exercise of this Warrant, and (c) use commercially  reasonable
         efforts to obtain all such authorizations,  exemptions or consents from
         any  public  regulatory  body  having  jurisdiction  thereof  as may be
         necessary to enable the Company to perform its  obligations  under this
         Warrant.

                  Before  taking any action which would result in an  adjustment
         in the number of Warrant  Shares for which this Warrant is  exercisable
         or  in  the  Exercise   Price,   the  Company  shall  obtain  all  such
         authorizations or exemptions  thereof,  or consents thereto,  as may be
         necessary from any public regulatory body or bodies having jurisdiction
         thereof.

         e) JURISDICTION.  All questions concerning the construction,  validity,
enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Note.

         f)  RESTRICTIONS.  The  Holder  acknowledges  that the  Warrant  Shares
acquired  upon the  exercise  of this  Warrant,  if not  registered,  will  have
restrictions upon resale imposed by state and federal securities laws.

         g) NONWAIVER AND EXPENSES. No course of dealing or any delay or failure
to exercise any right  hereunder on the part of Holder shall operate as a waiver
of such  right or  otherwise  prejudice  Holder's  rights,  powers or  remedies,
notwithstanding  the fact that all rights hereunder terminate on the Termination
Date. If the Company  willfully and knowingly fails to comply with any provision
of this  Warrant,  which  results in any  material  damages to the  Holder,  the
Company  shall pay to Holder such  amounts as shall be  sufficient  to cover any
reasonable  costs  and  expenses  including,  but  not  limited  to,  reasonable
attorneys' fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise  enforcing any of its
rights, powers or remedies hereunder.

         h) NOTICES. Any notice, request or other document required or permitted
to be given or  delivered  to the Holder by the Company  shall be  delivered  in
accordance with the notice provisions of the Note.

         i) LIMITATION OF LIABILITY.  No provision hereof, in the absence of any
affirmative  action by Holder to  exercise  this  Warrant  to  purchase  Warrant
Shares, and no enumeration  herein of the rights or privileges of Holder,  shall
give rise to any liability of Holder for the purchase  price of any Common Stock
or as a stockholder  of the Company,  whether such  liability is asserted by the
Company or by creditors of the Company.

                                      -10-
<PAGE>

         j)  REMEDIES.  Holder,  in addition to being  entitled to exercise  all
rights  granted by law,  including  recovery  of  damages,  will be  entitled to
specific  performance of its rights under this Warrant.  The Company agrees that
monetary  damages  would not be adequate  compensation  for any loss incurred by
reason of a breach by it of the  provisions of this Warrant and hereby agrees to
waive and not to assert the defense in any action for specific  performance that
a remedy at law would be adequate.

         k) SUCCESSORS AND ASSIGNS.  Subject to applicable securities laws, this
Warrant  and the rights and  obligations  evidenced  hereby  shall  inure to the
benefit of and be binding upon the  successors of the Company and the successors
and permitted assigns of Holder.  The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.

         l) AMENDMENT. This Warrant may be modified or amended or the provisions
hereof waived with the written consent of the Company and the Holder.

         m)  SEVERABILITY.  Wherever  possible,  each  provision of this Warrant
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable  law, but if any  provision of this Warrant shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

         n) HEADINGS.  The headings used in this Warrant are for the convenience
of  reference  only and shall  not,  for any  purpose,  be deemed a part of this
Warrant.

                              ********************

                                      -11-
<PAGE>

                  IN WITNESS WHEREOF,  the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.

Dated:  _____________

                                ENVIRONMENTAL SERVICE PROFESSIONALS, INC.

                                By:__________________________________________
                                     Name: Edward Torres
                                     Title:   CEO

                                      -12-

<PAGE>

                               NOTICE OF EXERCISE

TO:  ENVIRONMENTAL SERVICE PROFESSIONALS, INC.

         (1)The undersigned hereby elects to purchase ___________ Warrant Shares
of the Company  pursuant to the terms of the attached Warrant (only if exercised
in full), and tenders  herewith payment of the exercise price in full,  together
with all applicable transfer taxes, if any.

         (2)Payment shall take the form of (check applicable box):

                  [ ] by the  enclosed  cash or  check  in  lawful  money of the
                  United  States  made  payable to the  Company in the amount of
                  $_________;

                  [ ] by wire  transfer of United States funds to the account of
                  the Company in the amount of  $________,  which  transfer  has
                  been made before or  simultaneously  with the delivery of this
                  Notice pursuant to the instructions of the Company; or

         (3)Please issue a certificate or certificates representing said Warrant
Shares in the name of the  undersigned  or in such  other  name as is  specified
below:

                  ----------------------------------------

The Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

                  ----------------------------------------

                  ----------------------------------------

                  ----------------------------------------

         (4) ACCREDITED INVESTOR. The undersigned is an "accredited investor" as
defined  in  Regulation  D  promulgated  under the  Securities  Act of 1933,  as
amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: __________________________________________________________________________

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

         FOR VALUE RECEIVED,  [____] all of or [_______] shares of the foregoing
Warrant and all rights evidenced thereby are hereby assigned to

                                                          whose address is

----------------------------------------------------------

----------------------------------------------------------

----------------------------------------------------------

                                              Dated:
                                                     ----------------, ---------

                  Holder's Signature:
                                        -----------------------------------
                  Holder's Address:
                                        -----------------------------------

                                        -----------------------------------

Signature Guaranteed:
                        ---------------------------------------------------

NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatsoever,  and must be guaranteed by a bank or trust company.  Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

<PAGE>

                                    Exhibit A
                              (Certain Definitions)

         "AFFILIATE" means any Person that,  directly or indirectly  through one
or more intermediaries,  controls or is controlled by or is under common control
with a Person,  as such terms are used in and construed under Rule 144 under the
Securities Act.

         "BUSINESS  DAY" means any day except  Saturday,  Sunday,  any day which
shall be a  federal  legal  holiday  in the  United  States  or any day on which
banking  institutions  in the State of New Jersey are  authorized or required by
law or other governmental action to close.

         "COMMON STOCK  EQUIVALENTS"  means any securities of the Company or its
subsidiaries  which  would  entitle  the  holder  thereof to acquire at any time
Common Stock, including,  without limitation, any debt, preferred stock, rights,
options,  warrant or other  instrument that is at any time  convertible  into or
exercisable  or  exchangeable  for, or otherwise  entitles the holder thereof to
receive, Common Stock.

         "PERSON"  means  an  individual  or  corporation,  partnership,  trust,
incorporated or  unincorporated  association,  joint venture,  limited liability
company,  joint stock company,  government (or an agency or subdivision thereof)
or other entity of any kind.

         "TRADING  DAY" means a day on which the  Trading  Markets  are open for
business.

         "TRADING MARKET" means the following  markets or exchanges:  the Nasdaq
Capital Market,  the American Stock Exchange,  the New York Stock Exchange,  the
Nasdaq National Market or the Over-the-Counter Bulletin Board.

         "VWAP" means,  for any date,  the price  determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P.  (based on a
Trading Day from 9:30 a.m.  New York City time to 4:02 p.m. New York City time);
(b) if the OTC  Bulletin  Board is not a Trading  Market,  the  volume  weighted
average price of the Common Stock for such date (or the nearest  preceding date)
on the OTC Bulletin Board;  (c) if the Common Stock is not then listed or quoted
on the OTC Bulletin  Board and if prices for the Common Stock are then  reported
in the "Pink Sheets" published by Pink Sheets, LLC (or a similar organization or
agency  succeeding  to its functions of reporting  prices),  the most recent bid
price per share of the Common Stock so reported;  or (d) in all other cases, the
fair market value of a share of Common  Stock as  determined  by an  independent
appraiser selected in good faith by the Holder and reasonably  acceptable to the
Company.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00143-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00143-of-00352.parquet"}]]