Document:

EXHIBIT 10.31

 

AFTERMARKET TECHNOLOGY CORP.

2002 STOCK INCENTIVE PLAN

 

SECTION 1.                            PURPOSE
OF PLAN

 

The purpose of this 2002 Stock Incentive Plan (this
“Plan”) of Aftermarket Technology Corp., a Delaware corporation (the
“Company”), is to enable the Company to attract, retain and motivate its
employees, non-employee directors and independent contractors, and to further
align the interests of such employees, non-employee directors and independent
contractors with those of the stockholders of the Company by providing for or
increasing the proprietary interest of such employees, non-employee directors
and independent contractors in the Company.

 

SECTION
2.                            ADMINISTRATION
OF PLAN

 

2.1                               Composition
of Committee.  Subject to
Section 2.04, this Plan shall be administered by the Compensation and
Human Resources Committee of the Board of Directors (the “Committee”), as appointed from time to time by the Board of
Directors, provided, however, that with respect to any
Award  (as defined in Section 5.1)
intended to qualify as “performance-based compensation” within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”),
the term “Committee” shall refer to a committee of two or more “outside
directors” as determined for purposes of applying Code Section 162(m).  The
Board of Directors shall fill vacancies on, and from time to time may remove or
add members to, the Committee. The Committee shall act pursuant to a majority
vote or unanimous written consent.  The
Committee may designate the Secretary of the Company or other Company employees
to assist the Committee in the administration of this Plan and may grant
authority to such persons to execute agreements or other documents evidencing
Awards made under this Plan or other documents entered into under this Plan on
behalf of the Committee or the Company.

 

2.2                               Powers
of the Committee.  Subject to
the express provisions of this Plan, the Committee shall be authorized and
empowered to do all things necessary or desirable, in its sole discretion, in
connection with the administration of this Plan, including, without limitation,
the following:

 

(a)                                  to
prescribe, amend and rescind rules and regulations relating to this Plan and to
define terms not otherwise defined herein; provided that, unless the Committee shall
specify otherwise, for purposes of this Plan (i) the term “fair market value”
shall mean, as of any date, the closing price for a Share (as defined in
Section 3.1) reported for that date by the Nasdaq National Market System (or
such other stock exchange or quotation system on which Shares are then listed
or quoted) or, if no Shares are traded on the Nasdaq National Market System (or
such other stock exchange or quotation system) on the date in question, then
for the next preceding date for which Shares are traded on the Nasdaq National
Market System (or such other stock exchange or quotation system); and (ii) the
term “Company” shall mean the Company and its subsidiaries and affiliates
unless the context otherwise requires;

 

(b)                                 to
determine which persons are Eligible Persons (as defined in Section 4), to
which of Eligible Persons, if any, Awards shall be granted hereunder and the
timing of any such Awards;

 

(c)                                  to
determine the number of Shares subject to Awards and the exercise or purchase price
of such Shares;

 

 

(d)                                 to
establish and verify the extent of satisfaction of any performance goals
applicable to Awards;

 

(e)                                  to
prescribe and amend the terms of the agreements or other documents evidencing
Awards made under this Plan (which need not be identical);

 

(f)                                    to
determine whether, and the extent to which, adjustments are required pursuant
to Section 10;

 

(g)                                 to
interpret and construe this Plan, any rules and regulations under this Plan and
the terms and conditions of any Award granted hereunder and to make exceptions
to any such provisions in good faith and for the benefit of the Company;  and

 

(h)                                 to
make all other determinations deemed necessary or advisable for the
administration of this Plan.

 

2.3                               Determinations
of the Committee.  All decisions,
determinations and interpretations by the Committee regarding this Plan shall
be final and binding on all Eligible Persons and Participants (as defined in
Section 4).  The Committee shall
consider such factors as it deems relevant to making such decisions,
determinations and interpretations including, without limitation, the
recommendations or advice of any director, officer or employee of the Company
and such attorneys, consultants and accountants as it may select.

 

2.4.                            Authority
of the Board of Directors.  The
Board of Directors, in its sole discretion, may exercise any authority of the
Committee under this Plan in lieu of the Committee’s exercise thereof.

 

SECTION 3.                            STOCK
SUBJECT TO PLAN

 

3.1                               Aggregate
Limits.  At any time, the
aggregate number of shares of the Company’s Common Stock, $.01 par value
(“Shares”), issued and issuable pursuant to all Awards (including all ISOs (as
defined in Section 5.1)) granted under this Plan shall not exceed 1,000,000; provided
that, notwithstanding Section 3.3, the aggregate number of Shares that may
be issued pursuant to the exercise of ISOs (as defined in Section 5.1(a))
granted under this Plan shall not exceed 1,000,000.  The Shares subject to this Plan may be either Shares reacquired
by the Company, including Shares purchased in the open market, or authorized
but unissued Shares.  Such limits shall
be subject to adjustment as provided in Section 10.

 

3.2                               Code
Section 162(m) Limits.  The
aggregate number of Shares subject to Options (as defined in Section 5.1(a))
granted under this Plan during any calendar year to any one employee of the
Company (an “Employee)” shall not exceed 400,000.  The aggregate number of Shares issued or issuable under all
Awards granted under this Plan, other than Options, during any calendar year to
any one Employee shall not exceed 400,000. 
Notwithstanding anything to the contrary in this Plan, the foregoing
limitations shall be subject to adjustment under Section 10 only to the
extent that such adjustment will not affect the status of any Award intended to
qualify as “performance-based compensation” under Code Section 162(m).

 

3.3                               Issuance
of Shares.  For purposes of
Section 3.1, the aggregate number of Shares issued under this Plan at any time
shall equal only the number of Shares actually issued upon exercise or
settlement of an Award and not returned to the Company upon cancellation,
expiration or forfeiture of an Award or in payment or satisfaction of the
purchase price, exercise price or tax withholding obligation of an Award.

 

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SECTION 4.                            PERSONS
ELIGIBLE UNDER PLAN

 

Any person who is an employee, prospective employee,
consultant, director or advisor of the Company (an “Eligible Person”) shall be
eligible to be considered for the grant of Awards hereunder.  A “Participant” is any current or former
Eligible Person to whom an Award has been made and any person (including any
estate) to whom an Award has been assigned or transferred pursuant to
Section 9.1.

 

SECTION 5.                            PLAN
AWARDS

 

5.1                               Award
Types.  The Committee, on behalf
of the Company, is authorized under this Plan to grant certain types of
arrangements to Eligible Persons and to confer certain benefits on them.  The following arrangements or benefits are
authorized under this Plan if their terms and conditions are not inconsistent
with the provisions of this Plan: 
Options, Incentive Bonuses and Incentive Stock.  Such arrangements and benefits are sometimes
referred to herein as “Awards.”  The
authorized types of arrangements and benefits for which Awards may be granted
are defined as follows:

 

(a)                                  Options:  An Option is a right granted under
Section 6 to purchase a number of Shares at such exercise price, at such
times and on such other terms and conditions as are specified in the agreement
or other document evidencing the Award (the “Option Document “).  Options intended to qualify as Incentive
Stock Options (“ISOs”) pursuant to Code Section 422 and Options not
intended to qualify as ISOs (“Nonqualified Options”) may be granted under
Section 6.

 

(b)                                 Incentive
Bonus:  An Incentive Bonus is
a bonus opportunity awarded under Section 7 pursuant to which a
Participant may become entitled to receive an amount based on satisfaction of
such performance criteria as are specified in the agreement or other document
evidencing the Award (the “Incentive Bonus Document”).

 

(c)                                  Incentive
Stock:  Incentive Stock is an
award or issuance of Shares made under Section 8, the grant, issuance,
retention, vesting and/or transferability of which is subject during specified
periods of time to such conditions (including performance conditions) and terms
as are expressed in the agreement or other document evidencing the Award (the
“Incentive Stock Document”).

 

5.2                               Grants
of Awards.  An Award may consist
of one such arrangement or benefit or two or more of them in tandem or in the
alternative.

 

SECTION 6.                            OPTIONS

 

The Committee may grant an Option or provide for the
grant of an Option, either from time to time in the discretion of the Committee
or automatically upon the occurrence of specified events, including, without
limitation, the achievement of performance goals, the satisfaction of an event
or condition within the control of the recipient of the Award or within the
control of others.

 

6.1                               Option
Document.  Each Option
Document shall contain provisions regarding (a) the number of Shares that
may be issued upon exercise of the Option, (b) the purchase price of the
Shares and the means of payment for the Shares, (c) the term of the
Option, (d) such terms and conditions of exercisability as may be
determined from time to time by the Committee, (e) restrictions on the
transfer of the Option and forfeiture provisions, and (f) such further
terms and conditions, in each case not inconsistent with this Plan, as may be
determined from time to time by the Committee. 
Option Documents evidencing ISOs shall contain such terms and conditions
as may be necessary to comply with the applicable provisions of Section 422 of
the Code.

 

6.2                               Option
Price.  The purchase price per
share of the Shares subject to each Option granted under this Plan shall equal
or exceed 100% of the fair market value of such Shares on the date the Option
is granted except that (i) the exercise price of an Option may be higher
or lower in the case of Options granted 

 

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to
employees of a company acquired by the Company in assumption and substitution
of options held by such employees at the time such company is acquired, (ii) in
the event an Employee is required to pay or forego the receipt of any cash
amount in consideration of receipt of an Option, the exercise price plus such
cash amount shall equal or exceed 100% of the fair market value of such Stock
on the date the Option is granted, and (iii) the exercise price of an
Option granted to a director who is not an Employee may be lower.

 

6.3                               Option
Term.   The “Term” of each
Option granted under this Plan, including any ISOs, shall be ten (10) years
from the date of its grant unless the Committee shall provide otherwise.

 

6.4                               Option
Vesting.  Options granted under
this Plan shall be exercisable at such time and in such installments during the
period prior to the expiration of the Option’s Term as determined by the
Committee.  The Committee shall have the
right to make the timing of the ability to exercise any Option granted under
this Plan subject to such performance requirements as deemed appropriate by the
Committee.  At any time after the grant
of an Option the Committee may reduce or eliminate any restrictions surrounding
any Participant’s right to exercise all or part of the Option.

 

6.5                               Termination
of Employment.  Subject
to Section 11, upon a termination of employment by a Participant prior to
the full exercise of an Option, the unexercised portion of the Option shall be
subject to such procedures as the Committee may establish except, in the case
of an ISO, if and to the extent that other procedures are necessary to comply
with the provisions of Section 421, 422 or 424 of the Code.

 

6.6                               Payment
of Exercise Price.  The exercise
price of an Option shall be paid in the form of one of more of the following,
as the Committee shall specify, either through the terms of the Option Document
or at the time of exercise of an Option: 
(a) cash or certified or cashiers’ check, (b) shares of capital
stock of the Company that have been held by the Participant for such period of
time as the Committee may specify, (c) other property deemed acceptable by
the Committee, (d) a reduction in the number of Shares or other property
otherwise issuable pursuant to such Option, (e) a promissory note of or
other commitment to pay by the Participant or of a third party, the terms and
conditions of which shall be determined by the Committee, or (f) any
combination of (a) through (e).

 

SECTION
7.                            INCENTIVE
BONUSES

 

Each Incentive Bonus
Award will confer upon the Employee the opportunity to earn a future payment
tied to the level of achievement with respect to one or more performance
criteria established for a performance period.

 

7.1                               Incentive
Bonus Document.  Each Incentive Bonus Document shall
contain provisions regarding (a) the target and maximum amount payable to the
Participant as an Incentive Bonus, (b) the performance criteria and level of
achievement versus these criteria that shall determine the amount of such
payment, (c) the term of the performance period as to which performance shall
be measured for determining the amount of any payment, (d) the timing of any
payment earned by virtue of performance, (e) restrictions on the alienation or
transfer of the Incentive Bonus prior to actual payment, (f) forfeiture
provisions, and (g) such further terms and conditions, in each case not
inconsistent with this Plan as may be determined from time to time by the
Committee.  The maximum amount payable
as an Incentive Bonus may be a multiple of the target amount payable, but the
maximum amount payable pursuant to that portion of an Incentive Bonus Award
granted under this Plan for any fiscal year to any Participant that is intended
to satisfy the requirements for “performance-based compensation” under Code
Section 162(m) shall not exceed $3,000,000 in the case of any Award
payable in cash.

 

7.2                               Performance
Criteria.  The Committee shall
establish the performance criteria and level of achievement versus these
criteria that shall determine the target and maximum amount payable under an
Incentive Bonus Award, which criteria may be based on financial performance
and/or personal performance evaluations. 
The Committee may specify the percentage of the target Incentive Bonus
that is intended to satisfy the requirements for “performance-based
compensation” under Code Section 162(m).

 

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Notwithstanding
anything to the contrary herein, the performance criteria for any portion of an
Incentive Bonus that is intended by the Committee to satisfy the requirements
for “performance-based compensation” under Code Section 162(m) shall be a
measure based on one or more Qualifying Performance Criteria (as defined in Section 9.2)
selected by the Committee and specified within the time period required under
Code Section 162(m).  The Committee
shall certify the extent to which any Qualifying Performance Criteria has been
satisfied and the amount payable as a result thereof prior to payment of any
Incentive Bonus that is intended to satisfy the requirements for
“performance-based compensation” under Code Section 162(m).

 

7.3                               Timing
and Form of Payment.  The Committee shall determine the timing
of payment of any Incentive Bonus.  The
Committee may provide for or, subject to such terms and conditions as the
Committee may specify, may permit a Participant to elect the payment of any
Incentive Bonus to be deferred to a specified date or event.

 

7.4                               Discretionary
Adjustments.  Notwithstanding
satisfaction of any performance goals, the amount paid under an Incentive Bonus
Award on account of either financial performance or personal performance
evaluations may be reduced by the Committee on the basis of such further
considerations as the Committee shall determine.

 

SECTION
8.                            INCENTIVE
STOCK

 

Incentive Stock is an
award or issuance of Shares the grant, issuance, retention, vesting and/or
transferability of which is subject during specified periods of time to such
conditions (including performance conditions) and terms as the Committee deems
appropriate.

 

8.1                               Incentive
Stock Document.  Each
Incentive Stock Document shall contain provisions regarding (a) the number of
Shares subject to such Award or a formula for determining such, (b) the
performance criteria, if any, and level of achievement versus these criteria
that shall determine the number of Shares granted, issued, retainable and/or
vested, (c) the period, if any, as to which performance shall be measured
for determining achievement of performance, (d) forfeiture,
(e) transferability and (f) such further terms and conditions, not
inconsistent with this Plan as may be determined from time to time by the
Committee.

 

8.2                               Sale
Price.  Subject to the
requirements of applicable law, the Committee shall determine the price, if
any, at which Shares of Incentive Stock shall be sold or awarded to an Eligible
Person, which may vary from time to time and among Eligible Persons and which
may be below the fair market value of such Shares at the date of grant or
issuance.

 

8.3                               Performance
Criteria.  The grant, issuance,
retention and/or vesting of Incentive Stock may but need not be subject to such
performance criteria and level of achievement versus these criteria as the
Committee shall determine, which criteria may be based on financial performance
and/or personal performance evaluations. 
Notwithstanding anything to the contrary herein, the performance
criteria for any Incentive Stock that is intended to satisfy the requirements
for “performance-based compensation” under Code Section 162(m) shall be a
measure based on one or more Qualifying Performance Criteria selected by the
Committee and specified within the time period required under Code
Section 162(m).

 

8.4                               Discretionary
Adjustments.  Notwithstanding
satisfaction of any performance goals, the number of Shares granted, issued,
retainable and/or vested under an Incentive Stock Award on account of either
financial performance or personal performance evaluations may be reduced by the
Committee on the basis of such further considerations as the Committee shall
determine.

 

8.5                               Termination
of Employment.   Subject
to Section 11,  upon a termination of employment by a
Participant prior to the vesting of or the lapsing of restrictions on Incentive
Stock, the Incentive Stock Awards granted to such Participant shall be subject
to such procedures as determined by the Committee.

 

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SECTION
9.                            OTHER
PROVISIONS APPLICABLE TO AWARDS

 

9.1                               Transferability.  Unless the agreement or other document
evidencing an Award (or an amendment thereto authorized by the Committee)
expressly states that the Award is transferable as provided hereunder, no Award
granted under this Plan (nor any interest in such Award) may be sold, assigned,
conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner
prior to the vesting or lapse of any and all restrictions applicable thereto,
other than by will or the laws of descent and distribution.  The Committee may grant an Award or amend an
outstanding Award to provide that the Award is transferable or assignable to a
member or members of the Participant’s “immediate family,” as such term is
defined in Rule 16a-1(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), or to a trust for the benefit solely of a member or
members of the Participant’s immediate family or to a partnership or other
entity whose only owners are members of the Participant’s immediate family, provided
that (i) no consideration is given in connection with the transfer of such
Award, and (ii) following any such transfer or assignment the Award will remain
subject to substantially the same terms applicable to the Award while held by
the Participant, as modified as the Committee shall deem appropriate, and the
transferee shall execute an agreement agreeing to be bound by such terms.

 

9.2                               Qualifying
Performance Criteria.  For
purposes of this Plan, the term “Qualifying Performance Criteria” shall mean
any one or more of the following performance criteria, either individually,
alternatively or in any combination, applied to either the Company as a whole
or to a business unit or subsidiary, either individually, alternatively or in
any combination, and measured either annually or cumulatively over a period of
years, on an absolute basis or relative to a pre-established target, previous
years’ results or a designated comparison group, in each case as specified by
the Committee in the Award:  (a) cash
flow, (b) earnings per share, (c) earnings before interest, taxes,
depreciation and amortization, (d) earnings before interest, taxes and
amortization, (e) earnings before interest and taxes, (f) return on
equity, (g) total stockholder return, (h) return on capital, (i) return
on assets or net assets, (j) revenue, (k) income or net income,
(l) operating income or net operating income, (m) operating profit or
net operating profit, (n) operating margin, (o) return on operating
revenue, (p) market share, and (q) overhead or other expense
reduction.  The Committee shall
appropriately adjust any evaluation of performance under a Qualifying
Performance Criteria to exclude any of the following events that occurs during
a performance period:  (i) asset
write-downs, (ii) litigation or claim judgments or settlements,
(iii) the effect of changes in tax law, accounting principles or other
such laws or provisions affecting reported results, (iv) accruals for
reorganization and restructuring programs, (v) divestitures, and
(vi) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management’s discussion and analysis
of financial condition and results of operations appearing in the Company’s
annual report to stockholders for the applicable year.

 

9.3                               Dividends.  Unless otherwise provided by the Committee,
no adjustment shall be made in Shares issuable under Awards on account of cash
dividends that may be paid or other rights that may be issued to the holders of
Shares prior to their issuance under any Award.  The Committee shall specify whether dividends or dividend
equivalent amounts shall be paid to any Participant with respect to the Shares
subject to any Award that have not vested or been issued or that are subject to
any restrictions or conditions on the record date for dividends.

 

9.4                               Documents
Evidencing Awards.  The
Committee shall, subject to applicable law, determine the date an Award is
deemed to be granted, which, for purposes of this Plan, shall not be affected
by the fact that an Award is contingent on subsequent stockholder approval of
this Plan.  The Committee or, except to
the extent prohibited under applicable law, its delegate(s) may establish the
terms of agreements or other documents evidencing Awards under this Plan and
may, but need not, require as a condition to any such agreement’s or document’s
effectiveness that such agreement or document be executed by the Participant
and that such Participant agree to such further terms and conditions as
specified in such agreement or document. 
The grant of an Award under this Plan shall not confer any rights upon
the Participant holding such Award other than such terms, and subject to such
conditions, as are specified in this Plan as being applicable to such type of
Award (or to all Awards) or as are expressly set forth in the agreement or
other document evidencing such Award.

 

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9.5                               Tandem
Stock or Cash Rights.  Either at
the time an Award is granted or by subsequent action, the Committee may, but
need not, provide that an Award shall contain as a term thereof, a right,
either in tandem with the other rights under the Award or as an alternative
thereto, of the Participant to receive, without payment to the Company, a
number of Shares, cash or a combination thereof, the amount of which is
determined by reference to the value of the Award.

 

9.6                               Financing.  The Committee may provide financing to a
Participant in a principal amount sufficient to pay the purchase price of any
Award and/or to pay the amount of taxes required by law to be withheld with
respect to any Award.  Any such loan
shall be subject to all applicable legal requirements and restrictions
pertinent thereto, including Regulation U promulgated by the Federal
Reserve Board.  The grant of an Award shall
in no way obligate the Company or the Committee to provide any financing
whatsoever in connection therewith.

 

SECTION
10.                     CHANGES
IN CAPITAL STRUCTURE

 

If the outstanding securities of the class then
subject to this Plan are increased, decreased or exchanged for or converted
into cash, property or a different number or kind of shares or securities, or
if cash, property or shares or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, dividend
(other than a regular, quarterly cash dividend) or other distribution, stock
split, reverse stock split, spin-off or the like, or if substantially all of
the property and assets of the Company are sold, then, unless the terms of such
transaction shall provide otherwise, the Committee shall make appropriate and
proportionate adjustments in (i) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Awards
theretofore granted under this Plan and the exercise or settlement price of
such Awards, provided, however, that such adjustment shall be made in
such a manner that will not affect the status of any Award intended to qualify
as an ISO under Code Section 422 or as “performance-based compensation”
under Code Section 162(m), and (ii) the maximum number and type of
shares or other securities that may be issued pursuant to such Awards
thereafter granted under this Plan.

 

SECTION
11.                     CHANGE
OF CONTROL

 

11.1                        Effect
of Change of Control.  The
Committee may, through the terms of the Award or otherwise, provide that any or
all of the following shall occur in connection with a Change of Control or a
Change of Control Transaction (as those terms are defined in Section 11.2)
or upon termination of the Participant’s employment following a Change of
Control or a Change of Control Transaction: 
(a) in the case of an Option, the acceleration of the Participant’s
ability to exercise any portion of the Option not previously exercisable,
(b) in the case of an Incentive Bonus, the acceleration of the
Participant’s right to receive a payment equal to the target amount payable or,
if greater, a payment based on performance through a date determined by the Committee
prior to the Change of Control, and (c) in the case of Shares issued in
payment of any Incentive Bonus and/or in the case of Incentive Stock, the lapse
and expiration of any conditions to the grant, issuance, retention, vesting or
transferability of, or any other restrictions applicable to, such Award.  The Committee also may, through the terms of
the Award or otherwise, provide for an absolute or conditional exercise,
payment or lapse of conditions or restrictions on an Award that shall only be effective
if, upon the announcement of a Change of Control Transaction, no provision is
made in such Change of Control Transaction for the exercise, payment or lapse
of conditions or restrictions on the Award or other procedure whereby the
Participant may realize the full benefit of the Award.

 

11.2                        Definitions.  Unless the Committee shall provide
otherwise,

 

“Change of Control” shall mean an occurrence of any of
the following events:

 

(a)                                  an
acquisition (other than directly from the Company) of any voting securities of
the Company (the “Voting Securities”) by any “person or group” (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) immediately after
which such person or group has “Beneficial Ownership” (within the meaning of
Rule 13d-3 under the Exchange Act) of more than 50% of the combined voting
power of the Company’s then outstanding Voting Securities, except 

 

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in the case of an acquisition by any person or group
that immediately prior to such acquisition already had Beneficial Ownership of
more than 50% of the combined voting power of the Company’s then outstanding
Voting Securities;

 

(b)                                 consummation
of (i) a merger, consolidation or reorganization involving the Company
unless the company resulting from such merger, consolidation or reorganization
(the “Surviving Corporation”) shall adopt or assume this Plan and all
Participants’ Awards under this Plan and either (A) the stockholders of
the Company immediately before such merger, consolidation or reorganization
own, directly or indirectly immediately following such merger, consolidation or
reorganization, more than 50% of the combined voting power of the Surviving
Corporation in substantially the same proportion as their ownership immediately
before such merger, consolidation or reorganization, or (B) at least a
majority of the members of the Board of Directors of the Surviving Corporation
were directors of the Company immediately prior to the execution of the
agreement providing for such merger, consolidation or reorganization, or (ii) a
complete liquidation or dissolution of the Company; or

 

(c)                                  such
other events as the Committee from time to time may specify.

 

“Change of Control Transaction” shall mean any tender
offer, offer, exchange offer, solicitation, merger, consolidation,
reorganization or other transaction that is intended to or reasonably expected
to result in a Change of Control.

 

SECTION
12.                     TAXES

 

12.1                        Withholding
Requirements.  The Committee may
make such provisions or impose such conditions as it may deem appropriate for
the withholding or payment by a Participant of any taxes that the Committee
determines are required in connection with any Award granted under this Plan,
and a Participant’s rights in any Award are subject to satisfaction of such
conditions.

 

12.2                        Payment
of Withholding Taxes. 
Notwithstanding the terms of Section 12.1, the Committee may provide in
the agreement or other document evidencing an Award or otherwise that all or
any portion of the taxes required to be withheld by the Company or, if
permitted by the Committee, desired to be paid by the Participant, in
connection with the exercise of a Nonqualified Option or the exercise, vesting,
settlement or transfer of any other Award shall be paid or, at the election of
the Participant, may be paid by the Company by withholding shares of the
Company’s capital stock otherwise issuable or subject to such Award or by the
Participant delivering previously owned shares of the Company’s capital stock,
in each case having a fair market value equal to the amount required or elected
to be withheld or paid.  Any such
election is subject to such conditions or procedures as may be established by
the Committee and may be subject to disapproval by the Committee.

 

SECTION
13.                     AMENDMENTS
OR TERMINATION

 

The Board may amend,
alter or discontinue this Plan or any agreement or other document evidencing an
Award made under this Plan, but no such amendment shall be made which (i) would
materially impair the rights of any Award holder, without such holder’s
consent, under any Award theretofore granted, provided that no such consent
shall be required if the Committee determines in its sole discretion and prior
to the date of any Change of Control that such amendment or alteration is not
reasonably likely to significantly diminish the benefits provided under such
Award, or that any such diminution has been adequately compensated, or (ii)
would have any of the following effects, unless approved by the stockholders of
the Company:

 

(a)                                  materially
increase the maximum number of Shares for which Awards may be granted under
this Plan;

 

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(b)                                 reduce
the price at which Options may be granted below the price provided for in
Section 6.2;

 

(c)                                  reduce
the exercise price of outstanding Options;

 

(d)                                 extend
the term of this Plan; or

 

(e)                                  change
the class of persons eligible to be Participants.

 

SECTION
14.                     COMPLIANCE
WITH OTHER LAWS AND REGULATIONS.

 

This Plan, the grant and exercise of Awards thereunder,
and the obligation of the Company to sell, issue or deliver Shares under such
Awards, shall be subject to all applicable federal, state and foreign laws,
rules and regulations and to such approvals by any governmental or regulatory
agency as may be required.  The Company
shall not be required to register in a Participant’s name or deliver any Shares
prior to the completion of any registration or qualification of such Shares
under any federal, state or foreign law or any ruling or regulation of any
government body which the Committee shall determine to be necessary or
advisable.  This Plan is intended to
constitute an unfunded arrangement for a select group of management or other
key employees, directors and consultants.

 

No Option shall be exercisable unless a registration
statement with respect to the Option is effective or the Company has determined
that such registration is unnecessary. 
Unless the Awards and Shares covered by this Plan have been registered
under the Securities Act of 1933, as amended, or the Company has determined
that such registration is unnecessary, each person receiving an Award and/or
Shares pursuant to any Award may be required by the Company to give a
representation in writing that such person is acquiring such Shares for his or her
own account for investment and not with a view to, or for sale in connection
with, the distribution of any part thereof.

 

SECTION
15.                     OPTION
GRANTS BY SUBSIDIARIES

 

In
the case of a grant of an option to any Eligible Person employed by a
subsidiary of the Company, such grant may, if the Committee so directs, be
implemented by the Company issuing any subject shares to the subsidiary for
such lawful consideration as the Committee may determine, upon the condition or
understanding that the subsidiary will transfer the shares to the optionholder
in accordance with the terms of the option specified by the Committee pursuant
to the provisions of this Plan. 
Notwithstanding any other provision hereof, such option may be issued by
and in the name of the subsidiary and shall be deemed granted on such date as
the Committee shall determine.

 

SECTION
16.                     NO
RIGHT TO COMPANY EMPLOYMENT

 

Nothing in this Plan or as a result of any Award
granted pursuant to this Plan shall confer on any individual any right to
continue in the employ of the Company or interfere in any way with the right of
the Company to terminate an individual’s employment at any time.  The agreements or other documents evidencing
Awards may contain such provisions as the Committee may approve with reference
to the effect of approved leaves of absence.

 

SECTION
17.                     EFFECTIVENESS
AND EXPIRATION OF PLAN

 

This Plan shall be effective on the date the Board
adopts this Plan.  All Awards granted
under this Plan are subject to, and may not be exercised before, the approval
of this Plan by the stockholders prior to the first anniversary date of the
effective date of this Plan, by the affirmative vote of the holders of a
majority of the outstanding shares of the Company present, or represented by
proxy, and entitled to vote at a meeting of the Company’s stockholders or by
written consent in accordance with the laws of the State of Delaware; provided
that if such approval by the stockholders of the Company is not forthcoming,
all 

 

9

 

Awards
previously granted under this Plan shall be void.  No Awards shall be granted pursuant to this Plan more than ten
(10) years after the effective date of this Plan.

 

SECTION
18.                     NON-EXCLUSIVITY
OF PLAN

 

Neither the adoption of this Plan by the Board nor the
submission of this Plan to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or the
Committee to adopt such other incentive arrangements as either may deem desirable,
including without limitation, the granting of restricted stock or stock options
otherwise than under this Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.

 

SECTION
19.                     GOVERNING
LAW

 

This Plan and any agreements
or other documents hereunder shall be interpreted and construed in accordance
with the laws of the State of Delaware and applicable federal law.  The Committee may provide that any dispute
as to any Award shall be presented and determined in such forum as the
Committee may specify, including through binding arbitration.  Any reference in this Plan or in the
agreement or other document evidencing any Award to a provision of law or to a
rule or regulation shall be deemed to include any successor law, rule or
regulation of similar effect or applicability.

 

SECTION
20.                     SUCCESSORS

 

Upon
a reorganization, merger or consolidation of the Company as a result of which
the outstanding securities of the class then subject to Awards hereunder are
changed into or exchanged for securities issued by an entity (a “Surviving
Corporation”) other than the Company or as a result of which the Company
becomes a direct or indirect subsidiary of another entity whose equity
securities are publicly traded (similarly, a “Surviving Corporation”) and the
class of securities subject to Awards under this Plan cease to be publicly
traded, then unless the Company specifies otherwise in the agreement providing
for such transaction, either (a) this Plan and the Awards then outstanding
under this Plan shall be assumed by the Surviving Corporation and the equity
securities of the Surviving Corporation substituted for Shares issuable under
this Plan and such Awards, provided that the number of shares subject to the
Plan and such Awards and the terms of such Awards shall be adjusted in
accordance with Section 10 hereof, or (b) the Surviving Corporation shall
substitute equivalent awards for the Awards then outstanding under this
Plan, provided that the number
of shares subject to and the terms of such Awards shall be adjusted in
accordance with Section 10 hereof, or shall provide substantially
similar consideration to Participants for their Awards as was provided to
stockholders of the Company (after taking into account the existing provisions
of the Awards).

 

10<PAGE>
                                  EXHIBIT 10.26

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 ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER
THE  SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS  NOT  REQUIRED.

                               WARRANT TO PURCHASE

                             SHARES OF COMMON STOCK

                                       OF

                           HIENERGY TECHNOLOGIES, INC.

                              Expires: May 1, 2007

No.:  W-057                                         Number  of  Shares:  250,000

Date  of  Issuance:  December  9,  2002

     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 Wolfe Axelrod
                                   -------
Weinberger  Associates,  LLC  or its registered assigns is entitled to subscribe
for and purchase, during the period specified in this Warrant, up to Two Hundred
Fifty  Thousand (250,000) 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  right  to  subscribe  for and purchase shares of Warrant
            ----
Stock  represented hereby shall commence on December 9, 2002 and shall expire at
5:00  p.m.,  eastern  time,  on  May  1,  2007  (such  period being the "Term").
                                                                         ----

                                      -1-
<PAGE>

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 at any time and from time to time during
the  Term  commencing  on  December  9,  2002.

     (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  Securities  Act
qualifying  a  public  offering  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, if 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), 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:
<TABLE>
<CAPTION>
<S>           <C>

           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.

</TABLE>

     (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  or,  at  the  request  of  the  Holder,  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

                                      -2-
<PAGE>

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  such  time.

     (e)     Transferability  of Warrant.  Subject to Section 2(g), 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 (g) 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  hereto.

     (f)     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.

     (g)     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

                                      -3-
<PAGE>

          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 ITS
          COUNSEL  THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT
          AND  UNDER  THE  PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
          REQUIRED.

     (iii)     The restrictions imposed by this subsection (g) upon the transfer
of  this  Warrant  or  the shares of Warrant Stock to be purchased upon exercise
hereof  shall terminate (A) when such securities shall have been resold pursuant
to  an  effective  registration statement under the Securities Act, (B) upon the
Issuer's  receipt  of  an  opinion  of counsel, in form and substance reasonably
satisfactory  to  the  Issuer,  addressed  to the Issuer to the effect that such
restrictions are no longer required to ensure compliance with the Securities Act
and  state  securities  laws  or (C) upon the Issuer's receipt of other evidence
reasonably  satisfactory  to the Issuer that such registration and qualification
under  the  Securities  Act and state securities laws are not required. Whenever
such  restrictions  shall  cease  and  terminate  as to any such securities, the
Holder  thereof  shall  be  entitled to receive from the Issuer (or its transfer
agent  and registrar), without expense (other than applicable transfer taxes, if
any),  new  Warrants  (or,  in  the  case  of shares of Warrant Stock, new stock
certificates)  of  like  tenor  not  bearing  the  applicable legend required by
paragraph  (ii)  above relating to the Securities Act and state securities laws.

     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, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges  created  by  or through 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, upon
notice  from  the Holder of such requirement, in good faith use its 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,  and,  to  the  extent  permissible  under  the  applicable

                                      -4-
<PAGE>

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.

     (c)     Covenants.  The  Issuer  shall not by any action including, without
             ---------
limitation,  amending  the  certificate  of  incorporation  or the bylaws 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 Articles of Incorporation or by-laws of the Issuer
in  any  manner  that  would  adversely  affect the rights of the 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 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 and Warrant Share Number.  The number of
            ----------------------------------------------------
shares  of  Common Stock for which this Warrant is exercisable, and the price at
which  such  shares  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.
----------------

     (i)  In  case  the Issuer after the Original Issue Date shall do any of the
following  (each,  a "Triggering Event"): (a) consolidate with or merge into any
                      ----------------
other Person and the Issuer shall not be the continuing or surviving corporation
of  such  consolidation or merger, or (b) permit any other Person to consolidate
with  or  merge  into  the  Issuer  and  the  Issuer  shall be the continuing or
surviving  Person  but,  in  connection  with  such consolidation or merger, any

                                      -5-
<PAGE>

Capital Stock of the Issuer shall be changed into or exchanged for Securities of
any  other  Person  or  cash  or  any  other  property,  or  (c) transfer all or
substantially all of its properties or assets to any other Person, or (d) effect
a  capital reorganization or reclassification of its Capital Stock, 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,  the  Issuer  will  not  effect  any Triggering Event 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 an opinion of counsel for such Person, which
counsel  shall  be  reasonably  satisfactory  to  such Holder, 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)     take  a  record  of  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,

          (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

                                      -6-
<PAGE>

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.

     (c)     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.

     (d)  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 exercises 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 one of the national
accounting  firms  currently  known  as  the  "big five" selected by the Holder,
provided  that  the Issuer shall have ten (10) days after receipt of notice from
--------
such  Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection.  The  firm  selected by the Holder of this Warrant as provided in the
preceding  sentence  shall be instructed to deliver a written opinion as to such
matters  to  the Issuer and such Holder within thirty (30) days after submission
to  it  of such dispute.  Such opinion shall be final and binding on the parties
hereto.

     6.     Fractional  Shares.  No  fractional  shares of Warrant Stock will be
            ------------------
issued  in  connection  with and 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-
<PAGE>

     7.     [intentionally  omitted].

     8.  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 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 owning more than 4.999%
of  all  of  the  Common Stock outstanding at such time; provided, however, that
upon  a  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 8(a) with regard to any or all shares of Common
Stock  issuable  upon  exercise of this Warrant, this Section 8(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; provided, further, that the Holder shall
be  entitled to waive this provision immediately in connection with the exercise
of  this  Warrant  with  respect  to  Called  Warrant  Shares.

     (b)  The  Holder  may  not  exercise  the  Warrant  hereunder to the extent
such  exercise  would result in the Holder beneficially owning (as determined in
accordance  with  Section 13(d) of the Exchange Act and the rules thereunder) in
excess  of  9.999%  of  the  then issued and outstanding shares of Common Stock,
including  shares issuable upon exercise of the Warrant held by the Holder after
application  of  this  Section;  provided,  however,  that upon a holder of this
                                 --------   -------
Warrant  providing  the Company with a Waiver Notice that such holder would like
to  waive  this  Section  8(b)  with regard to any or all shares of Common Stock
issuable  upon  exercise of this Warrant, this Section 8(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; provided, further, that the Holder shall be entitled
to  waive  this  provision  immediately  in connection with the exercise of this
Warrant  with  respect  to  Called  Warrant  Shares.

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

     "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.

                                      -8-
<PAGE>

     "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 $0.001 per share, of the
      -------------
Issuer  and  any  other  Capital  Stock  into  which such stock may hereafter be
changed.

     "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  October  31,  2002.
      ---------------------

      "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.

     "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 closing bid
      ------------------------
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),

                                      -9-
<PAGE>

or as reported by such other senior United States trading facility as the Issuer
may  elect, at the close of business on such date, or (b) 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) or by such other senior United States trading facility as the
Issuer  may  elect, then the average of the "Pink Sheet" quotes for the relevant
conversion  period,  as  determined  in  good  faith by the Board, or (c) if the
Common  Stock  is  not  then publicly traded the fair market value of a share of
Common  Stock  as determined by the Board in good faith; provided, however, that
                                                         --------  -------
the  Majority  Holders,  after  receipt of the determination by the Board, shall
have  the right to select, jointly with the Issuer, an Independent Appraiser, in
which case, the fair market value shall be the determination by 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  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.

     "Registration  Statement"  means  a  registration  statement  on  Form SB-2
      ----------------------
registering the  Warrant  Stock.

     "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) or such
other  senior  United  States  trading  facility  as  in  the  issuer may elect;
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.

                                      -10-
<PAGE>

     "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 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. $2.12, as such 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 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

                                      -11-
<PAGE>

          (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 action in question and not less than twenty (20) days
prior  to  the  record date or the date on which the Issuer's transfer books are
closed  in  respect  thereto.  The  Holder  shall have the right to send two (2)
representatives  selected  by  it  to  each  meeting,  who shall be permitted to
attend,  but  not  vote  at,  such  meeting  and any adjournments thereof.  This
Warrant  entitles  the  Holder  to  receive  copies  of  all financial and other
information  distributed  or  required  to  be distributed to the holders of the
Common  Stock.

     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.  THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
             --------------
ACCORDANCE  WITH  THE  LAWS  OF  THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO
PRINCIPLES  OF  CONFLICTS  OF  LAW.

     13.     Notices.  Any and all notices or other communications or deliveries
             -------
required  or permitted to be provided hereunder shall be in writing and shall be
deemed  given  and  effective on the earlier of (i) the date of transmission, if
such  notice  or  communication  is  delivered  via  facsimile  at the facsimile
telephone  number  specified  for  notice prior to 5:00 p.m., eastern time, on a
Trading Day, (ii) the Trading Day after the date of transmission, if such notice
or  communication  is  delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., eastern time, on any date and earlier
than 11:59 p.m., eastern time, on such date, (iii) the Trading Day following the

                                      -12-
<PAGE>

date  of  mailing, if sent by nationally recognized overnight courier service or
(iv)  actual  receipt  by the party to whom such notice is required to be given.
The  addresses  for  such  communications shall be with respect to the Holder of
this  Warrant  or  of  Warrant  Stock  issued pursuant hereto, addressed to such
Holder  at  its last known address or facsimile number appearing on the books of
the  Issuer  maintained  for  such  purposes,  or  with  respect  to the Issuer,
addressed  to:

                    HiEnergy  Technologies,  Inc.
                    1601  Alton  Parkway,  Unit  B
                    Irvine,  California  92606
                    Attention:  President
                    Tel.  No.:  (949)  757-0855
                    Fax  No.:  (949)  757-1477

   with a copy to:  QED Law Group, P.L.L.C.
                    3200  NW  68th  Street
                    Seattle,  Washington  98117
                    Attention:  Shea  Wilson,  Esq.
                    Tel  No.:  (206)  781-7887
                    Fax  No.:  (206)  781-8002

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.

     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

                                      -13-
<PAGE>

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 Warrant as of the day and
year  first  above  written.

                              HIENERGY  TECHNOLOGIES,  INC.

                              By:     /s/  Tom  Pascoe
                                      ---------------------------

                                  Name:     Tom  Pascoe
                                         ------------------------

                                  Title:     CEO  and  President
                                         ------------------------

                                      -14-
<PAGE>
                                  EXERCISE FORM

                           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       ___________________________
                                                ___________________________

                                   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       ___________________________
                                                ___________________________

                           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  _______________.

                                      -15-

<PAGE>

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