Document:

Exhibit
      10.2

    

    REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement (this "Agreement")
      is
      made and entered into as of June __, 2006, by and among HiEnergy Technologies,
      Inc., a Delaware corporation (the "Company"),
      and
      the purchasers listed on Schedule
      I
      hereto
      (the "Purchasers").

    

    This
      Agreement is being entered into pursuant to the Series B Convertible Preferred
      Stock Purchase Agreement dated as of the date hereof among the Company and
      the
      Purchasers (the "Purchase
      Agreement").

    

    The
      Company and the Purchasers hereby agree as follows:

    

    1.       
       Definitions.

    

    Capitalized
      terms used and not otherwise defined herein shall have the meanings given such
      terms in the Purchase Agreement. As used in this Agreement, the following terms
      shall have the following meanings:

    

    "Advice"
      shall
      have meaning set forth in Section 3(m).

    

    "Affiliate"
      means,
      with respect to any Person, any other Person that directly or indirectly
      controls or is controlled by or under common control with such Person. For
      the
      purposes of this definition, "control,"
      when
      used with respect to any Person, means the possession, direct or indirect,
      of
      the power to direct or cause the direction of the management and policies of
      such Person, whether through the ownership of voting securities, by contract
      or
      otherwise; and the terms of "affiliated,"
      "controlling"
      and
      "controlled"
      have
      meanings correlative to the foregoing.

    

    "Board"
      shall
      have meaning set forth in Section 3(n).

    

    "Business
      Day"
      means
      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 generally are
      authorized or required by law or other government actions to close.

    

    "Closing
      Date"
      means
      the date of the closing of the purchase and sale of the Preferred Stock and
      Warrants pursuant to the Purchase Agreement.

    

    "Commission"
      means
      the Securities and Exchange Commission.

    

    "Common
      Stock"
      means
      the Company's Common Stock, par value $.001 per share.

    

    "Effectiveness
      Date"
      means
      with respect to the Registration Statement the earlier of the one hundred
      twentieth (120th)
      day
      following the Closing Date or the
      date
      which is within three (3) Business Days after the date on which the Commission
      informs the Company (i) that the Commission will not review the Registration
      Statement or (ii) that
      the
      Company may request the acceleration of the effectiveness of the Registration
      Statement and the Company makes such request.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    "Effectiveness
      Period"
      shall
      have the meaning set forth in Section 2.

    

    "Event"
      shall
      have the meaning set forth in Section 7(e).

    

    "Event
      Date"
      shall
      have the meaning set forth in Section 7(e).

    

    "Exchange
      Act"
      means
      the Securities Exchange Act of 1934, as amended.

    

    "Filing
      Date"
      means
      the forty-fifth (45th)
      day
      following the Closing Date. 

    

    "Holder"
      or
      "Holders"
      means
      the holder or holders, as the case may be, from time to time of Registrable
      Securities.

    

    "Indemnified
      Party"
      shall
      have the meaning set forth in Section 5(c).

    

    "Indemnifying
      Party"
      shall
      have the meaning set forth in Section 5(c).

    

    "Losses"
      shall
      have the meaning set forth in Section 5(a).

    

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

    

    "Preferred
      Stock"
      means
      shares of the Company’s Series B Convertible Preferred Stock, par value $.001
      per share and stated value $10,000 per share, issued to the Purchasers pursuant
      to the Purchase Agreement.

    

    "Proceeding"
      means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

    

    "Prospectus"
      means
      the prospectus included in the Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated under the Securities Act), as amended or supplemented
      by
      any prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by the Registration Statement,
      and
      all other amendments and supplements to the Prospectus, including post-effective
      amendments, and all material incorporated by reference in such
      Prospectus.

    

    "Registrable
      Securities
      means
      the (i) shares of Common Stock issuable upon conversion of the Preferred Stock
      and any dividends payable thereon and (ii) the shares of Common Stock issuable
      upon exercise of the Warrants.

     

    
      
        
        

      

      
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    "Registration
      Statement"
      means
      the registration statements and any additional registration statements
      contemplated by Section 2, including (in each case) the Prospectus, amendments
      and supplements to such registration statement or Prospectus, including pre-
      and
      post-effective amendments, all exhibits thereto, and all material incorporated
      by reference in such registration statement.

    

    "Rule
      144"
      means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

    

    "Rule
      158"
      means
      Rule 158 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
such
      Rule.

    

    "Rule
      415"
      means
      Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

    

    "Securities
      Act"
      means
      the Securities Act of 1933, as amended.

    

    "Special
      Counsel"
      means
      Kramer Levin Naftalis & Frankel LLP, for which the Holders will be
      reimbursed by the Company pursuant to Section 4.

    

    2.           
       Resale
      Registration.

    

    On
      or
      prior to the Filing Date, the Company shall prepare and file with the Commission
      a "resale" Registration Statement covering all Registrable Securities for an
      offering to be made on a continuous basis pursuant to Rule 415. The Registration
      Statement shall be on Form SB-2 (except if the Company is not then eligible
      to
      register for resale the Registrable Securities on Form SB-2, in which case
      such
      registration shall be on another appropriate form in accordance herewith).
      The
      Company shall (i) not permit any securities other than the Registrable
      Securities and the securities listed on Schedule
      II
      hereto
      to be included in the Registration Statement and (ii) use its best efforts
      to
      cause the Registration Statement to be declared effective under the Securities
      Act as promptly as possible after the filing thereof, but in any event prior
      to
      the Effectiveness Date, and to keep such Registration Statement continuously
      effective under the Securities Act until such date as is the earlier of (x)
      the
      date when all Registrable Securities covered by such Registration Statement
      have
      been sold or (y) the date on which the Registrable Securities may be sold
      without any restriction pursuant to Rule 144 as determined by the counsel to
      the
      Company pursuant to a written opinion letter, addressed to the Company's
      transfer agent to such effect (the "Effectiveness
      Period").
      If at
      any time and for any reason, an additional Registration Statement is required
      to
      be filed because at such time the actual number of shares of Common Stock into
      which the Preferred Stock is convertible and the Warrants are exercisable plus
      the number of shares of Common Stock exceeds the number of shares of Registrable
      Securities remaining under the Registration Statement, the Company shall have
      twenty (20) Business Days to file such additional Registration Statement, and
      the Company shall use its best efforts to cause such additional Registration
      Statement to be declared effective by the Commission as soon as possible, but
      in
      no event later than sixty (60) days after filing. 

     

    
      
        
        

      

      
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    3.           
       Registration
      Procedures.

    

     In
      connection with the Company's registration obligations hereunder, the Company
      shall:

     

    (a)
       Prepare
      and file with the Commission, on or prior to the Filing Date, a Registration
      Statement on Form SB-2 (or if the Company is not then eligible to register
      for
      resale the Registrable Securities on Form SB-2 such registration shall be on
      another appropriate form in accordance herewith) in accordance with the method
      or methods of distribution thereof as specified by the Holders (except if
      otherwise directed by the Holders) and in accordance with applicable law, and
      cause the Registration Statement to become effective and remain effective as
      provided herein; provided,
      however,
      that
      not less than three (3) Business Days prior to the filing of the Registration
      Statement or any related Prospectus or any amendment or supplement thereto,
      the
      Company shall (i) furnish to the Holders and any Special Counsel, copies of
      all
      such documents proposed to be filed, which documents will be subject to the
      review of such Holders and such Special Counsel, and (ii) cause its officers
      and
      directors, counsel and independent certified public accountants to respond
      to
      such inquiries as shall be necessary, in the reasonable opinion of Special
      Counsel, to conduct a reasonable review of such documents. The Company shall
      not
      file the Registration Statement or any such Prospectus or any amendments or
      supplements thereto to which the Holders of a majority of the Registrable
      Securities or any Special Counsel shall reasonably object in writing within
      three (3) Business Days of their receipt thereof.

    

    (b) (i)
      Prepare and file with the Commission such amendments, including post-effective
      amendments, to the Registration Statement as may be necessary to keep the
      Registration Statement continuously effective as to the applicable Registrable
      Securities for the Effectiveness Period and prepare and file with the Commission
      such additional Registration Statements in order to register for resale under
      the Securities Act all of the Registrable Securities; (ii) cause the related
      Prospectus to be amended or supplemented by any required Prospectus supplement,
      and as so supplemented or amended to be filed pursuant to Rule 424 (or any
      similar provisions then in force) promulgated under the Securities Act; (iii)
      respond as promptly as possible, but in no event later than ten (10) Business
      Days, to any comments received from the Commission with respect to the
      Registration Statement or any amendment thereto and as promptly as possible
      provide the Holders true and complete copies of all correspondence from and
      to
      the Commission relating to the Registration Statement; and (iv) comply in all
      material respects with the provisions of the Securities Act and the Exchange
      Act
      with respect to the disposition of all Registrable Securities covered by the
      Registration Statement during the Effectiveness Period in accordance with the
      intended methods of disposition by the Holders thereof set forth in the
      Registration Statement as so amended or in such Prospectus as so
      supplemented.

    

    (c) Notify
      the Holders of Registrable Securities and any Special Counsel as promptly as
      possible (and, in the case of (i)(A) below, not less than three (3) days prior
      to such filing) and (if requested by any such Person) confirm such notice in
      writing no later than two (2) Business Days following the day (i)(A) when a
      Prospectus or any Prospectus supplement or post-effective amendment to the
      Registration Statement is filed; (B) when the Commission notifies the Company
      whether there will be a "review" of such Registration Statement and whenever
      the
      Commission comments in writing on such Registration Statement and (C) with
      respect to the Registration Statement or any post-effective amendment, when
      the
      same has become effective; (ii) of any request by the Commission or any other
      Federal or state governmental authority for amendments or supplements to the
      Registration Statement or Prospectus or for additional information; (iii) of
      the
      issuance by the Commission of any stop order suspending the effectiveness of
      the
      Registration Statement covering any or all of the Registrable Securities or
      the
      initiation or threatening of any Proceedings for that purpose; (iv) if at any
      time any of the representations and warranties of the Company contained in
      any
      agreement contemplated hereby ceases to be true and correct in all material
      respects; (v) of the receipt by the Company of any notification with respect
      to
      the suspension of the qualification or exemption from qualification of any
      of
      the Registrable Securities for sale in any jurisdiction, or the initiation
      of
      any Proceeding for such purpose; and (vi) of the occurrence of any event that
      makes any statement made in the Registration Statement or Prospectus or any
      document incorporated or deemed to be incorporated therein by reference untrue
      in any material respect or that requires any revisions to the Registration
      Statement, Prospectus or other documents so that, in the case of the
      Registration Statement or the Prospectus, as the case may be, it will not
      contain any untrue statement of a material fact or omit to state any material
      fact required to be stated therein or necessary to make the statements therein,
      in the light of the circumstances under which they were made, not
      misleading.

     

    
      
        
        

      

      
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       (d) Use
      its
      best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
      of,
      as promptly as possible, (i) any order suspending the effectiveness of the
      Registration Statement or (ii) any suspension of the qualification (or exemption
      from qualification) of any of the Registrable Securities
      for sale in any jurisdiction.

    

    (e) If
      requested by the Holders of a majority in interest of the Registrable
      Securities, (i) promptly incorporate in a Prospectus supplement or
      post-effective amendment to the Registration Statement such information as
      the
      Company reasonably agrees should be included therein and (ii) make all required
      filings of such Prospectus supplement or such post-effective amendment as soon
      as practicable after the Company has received notification of the matters to
      be
      incorporated in such Prospectus supplement or post-effective
      amendment.

    

    (f)  If
      requested by any Holder, furnish to such Holder and any Special Counsel, without
      charge, at least one conformed copy of each Registration Statement and each
      amendment thereto, including financial statements and schedules, all documents
      incorporated or deemed to be incorporated therein by reference, and all exhibits
      to the extent requested by such Person (including those previously furnished
      or
      incorporated by reference) promptly after the filing of such documents with
      the
      Commission.

    

    (g)  Promptly
      deliver to each Holder and any Special Counsel, without charge, as many copies
      of the Prospectus or Prospectuses (including each form of prospectus) and each
      amendment or supplement thereto as such Persons may reasonably request; and
      subject to the provisions of Sections 3(m) and 3(n), the Company hereby consents
      to the use of such Prospectus and each amendment or supplement thereto by each
      of the selling Holders in connection with the offering and sale of the
      Registrable Securities covered by such Prospectus and any amendment or
      supplement thereto.

    

    (h)  Prior
      to
      any public offering of Registrable Securities, use its best efforts to register
      or qualify or cooperate with the selling Holders and any Special Counsel in
      connection with the registration or qualification (or exemption from such
      registration or qualification) of such Registrable Securities for offer and
      sale
      under the securities or Blue Sky laws of such jurisdictions within the United
      States as any Holder requests in writing, to keep each such registration or
      qualification (or exemption therefrom) effective during the Effectiveness Period
      and to do any and all other acts or things necessary or advisable to enable
      the
      disposition in such jurisdictions of the Registrable Securities covered by
      a
      Registration Statement; provided,
      however,
      that
      the Company shall not be required to qualify generally to do business in any
      jurisdiction where it is not then so qualified or to take any action that would
      subject it to general service of process in any such jurisdiction where it
      is
      not then so subject or subject the Company to any material tax in any such
      jurisdiction where it is not then so subject.

     

    
      
        
        

      

      
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        (i) Cooperate
      with the Holders to facilitate the timely preparation and delivery of
      certificates representing Registrable Securities to be sold pursuant to a
      Registration Statement, which certificates, to the extent permitted by the
      Purchase Agreement and applicable federal and state securities laws, shall
      be
      free of all restrictive legends, and to enable such Registrable Securities
      to be
      in such denominations and registered in such names as any Holder may request
      in
      connection with any sale of Registrable Securities.

    

    (j) Upon
      the
      occurrence of any event contemplated by Section 3(c)(vi), as promptly as
      possible, prepare a supplement or amendment, including a post-effective
      amendment, to the Registration Statement or a supplement to the related
      Prospectus or any document incorporated or deemed to be incorporated therein
      by
      reference, and file any other required document so that, as thereafter
      delivered, neither the Registration Statement nor such Prospectus will contain
      an untrue statement of a material fact or omit to state a material fact required
      to be stated therein or necessary to make the statements therein, in the light
      of the circumstances under which they were made, not misleading.

    

    (k) Use
      its
      best efforts to cause all Registrable Securities relating to the Registration
      Statement to be listed on the OTC Bulletin Board or any other securities
      exchange, quotation system or market, if any, on which similar securities issued
      by the Company are then listed as and when required pursuant to the Purchase
      Agreement.

    

    (l) Comply
      in
      all material respects with all applicable rules and regulations of the
      Commission and make generally available to its security holders all documents
      filed or required to be filed with the Commission. 

    

    (m) The
      Company may require each selling Holder to furnish to the Company information
      regarding such Holder and the distribution of such Registrable Securities as
      is
      required by law to be disclosed in the Registration Statement, Prospectus,
      or
      any amendment or supplement thereto, and the Company may exclude from such
      registration the Registrable Securities of any such Holder who unreasonably
      fails to furnish such information within a reasonable time after receiving
      such
      request.

    

    Each
      Holder covenants and agrees that (i) it will not sell any Registrable Securities
      under the Registration Statement until it has received copies of the Prospectus
      as then amended or supplemented as contemplated in Section 3(g) and notice
      from
      the Company that such Registration Statement and any post-effective amendments
      thereto have become effective as contemplated by Section 3(c) and (ii) it and
      its officers, directors or Affiliates, if any, will comply with the prospectus
      delivery requirements of the Securities Act as applicable to them in connection
      with sales of Registrable Securities pursuant to the Registration
      Statement.

     

    
      
        
        

      

      
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    Each
      Holder agrees by its acquisition of such Registrable Securities that, upon
      receipt of a notice from the Company of the occurrence of any event of the
      kind
      described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(n),
      such Holder will forthwith discontinue disposition of such Registrable
      Securities under the Registration Statement until such Holder's receipt of
      the
      copies of the supplemented Prospectus and/or amended Registration Statement
      contemplated by Section 3(j), or until it is advised in writing (the
      "Advice")
      by the
      Company that the use of the applicable Prospectus may be resumed, and, in either
      case, has received copies of any additional or supplemental filings that are
      incorporated or deemed to be incorporated by reference in such Prospectus or
      Registration Statement.

    

    (n) If
      (i)
      there is material non-public information regarding the Company which the
      Company's Board of Directors (the "Board")
      reasonably determines not to be in the Company's best interest to disclose
      and
      which the Company is not otherwise required to disclose, or (ii) there is a
      significant business opportunity (including, but not limited to, the acquisition
      or disposition of assets (other than in the ordinary course of business) or
      any
      merger, consolidation, tender offer or other similar transaction) available
      to
      the Company which the Board reasonably determines not to be in the Company's
      best interest to disclose, then the Company may postpone or suspend filing
      or
      effectiveness of a registration statement for a period not to exceed 20
      consecutive days, provided that the Company may not postpone or suspend its
      obligation under this Section 3(n) for more than 45 days in the aggregate during
      any 12 month period; provided,
      however,
      that no
      such postponement or suspension shall be permitted for consecutive 20 day
      periods, arising out of the same set of facts, circumstances or
      transactions.

    

    4.                           Registration
      Expenses.

    

    All
      fees
      and expenses incident to the performance of or compliance with this Agreement
      by
      the Company, except as and to the extent specified in Section 4, shall be borne
      by the Company whether or not the Registration Statement is filed or becomes
      effective and whether or not any Registrable Securities are sold pursuant to
      the
      Registration Statement. The fees and expenses referred to in the foregoing
      sentence shall include, without limitation, (i) all registration and filing
      fees
      (including, without limitation, fees and expenses (A) with respect to filings
      required to be made with each securities exchange or market on which Registrable
      Securities are required hereunder to be listed, (B) with respect to filing
      fees
      required to be paid by the Company to the National Association of Securities
      Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance with state
      securities or Blue Sky laws (including, without limitation, fees and
      disbursements of counsel for the Holders in connection with Blue Sky
      qualifications of the Registrable Securities and determination of the
      eligibility of the Registrable Securities for investment under the laws of
      such
      jurisdictions as the Holders of a majority of Registrable Securities may
      designate)), (ii) printing expenses (including, without limitation, expenses
      of
      printing certificates for Registrable Securities and of printing prospectuses
      if
      the printing of prospectuses is requested by the holders of a majority of the
      Registrable Securities included in the Registration Statement), (iii) messenger,
      telephone and delivery expenses, (iv) fees and disbursements of counsel for
      the
      Company and Special Counsel for the Holders, in the case of the Special Counsel,
      to a maximum amount of $5,000, (v) Securities Act liability insurance, if the
      Company so desires such insurance, and (vi) fees and expenses of all other
      Persons retained by the Company in connection with the consummation of the
      transactions contemplated by this Agreement, including, without limitation,
      the
      Company's independent public accountants (including the expenses of any comfort
      letters or costs associated with the delivery by independent public accountants
      of a comfort letter or comfort letters). In addition, the Company shall be
      responsible for all of its internal expenses incurred in connection with the
      consummation of the transactions contemplated by this Agreement (including,
      without limitation, all salaries and expenses of its officers and employees
      performing legal or accounting duties), the expense of any annual audit, the
      fees and expenses incurred in connection with the listing of the Registrable
      Securities on any securities exchange as required hereunder.

     

    
      
        
        

      

      
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    5.                          
      Indemnification.

    

    (a) Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless each Holder, the officers, directors, agents, brokers (including
      brokers who offer and sell Registrable Securities as principal as a result
      of a
      pledge or any failure to perform under a margin call of Common Stock),
      investment advisors and employees of each of them, each Person who controls
      any
      such Holder (within the meaning of Section 15 of the Securities Act or Section
      20 of the Exchange Act) and the officers, directors, agents and employees of
      each such controlling Person, to the fullest extent permitted by applicable
      law,
      from and against any and all losses, claims, damages, liabilities, costs
      (including, without limitation, costs of preparation and attorneys' fees) and
      expenses (collectively, "Losses"),
      as
      incurred, arising out of or based upon any untrue or alleged untrue statement
      of
      a material fact contained in the Registration Statement, any Prospectus or
      any
      form of prospectus or in any amendment or supplement thereto or in any
      preliminary prospectus, or arising out of or based upon any omission or alleged
      omission of a material fact required to be stated therein or necessary to make
      the statements therein (in the case of any Prospectus or form of prospectus
      or
      supplement thereto), in the light of the circumstances under which they were
      made, not misleading, except to the extent, but only to the extent, that such
      untrue statements or omissions arise out of or are based upon information
      regarding the Holders or such other Indemnified Party furnished in writing
      to
      the Company by a Holder expressly for use therein, which information was
      reasonably relied on by the Company for use therein or to the extent that such
      information relates to a Holder or such Holder's proposed method of distribution
      of Registrable Securities and was reviewed and expressly approved in writing
      by
      a Holder expressly for use in the Registration Statement, such Prospectus or
      such form of Prospectus or in any amendment or supplement thereto. The Company
      shall notify the Holders promptly of the institution, threat or assertion of
      any
      Proceeding of which the Company is aware in connection with the transactions
      contemplated by this Agreement.

    

    (b) Indemnification
      by Holders.
      Each
      Holder shall, severally and not jointly, indemnify and hold harmless the
      Company, its directors, officers, agents and employees, each Person who controls
      the Company (within the meaning of Section 15 of the Securities Act and Section
      20 of the Exchange Act), and the directors, officers, agents or employees of
      such controlling Persons, to the fullest extent permitted by applicable law,
      from and against all Losses, as incurred, arising out of or based upon any
      untrue or alleged untrue statement of a material fact contained in the
      Registration Statement, any Prospectus, or any form of prospectus, or in any
      amendment or supplement thereto or in any preliminary prospectus, or arising
      out
      of or based upon any omission or alleged omission of a material fact required
      to
      be stated therein or necessary to make the statements therein (in the case
      of
      any Prospectus or form of prospectus or supplement thereto), in the light of
      the
      circumstances under which they were made, not misleading, to the extent, but
      only to the extent, that such untrue statement or omission is contained in
      any
      information so furnished in writing by such Holder or other Indemnified Party
      to
      the Company expressly for use therein and that such information was reasonably
      relied upon by the Company for use therein, or to the extent that such
      information relates to such Holder or such Holder's proposed method of
      distribution of Registrable Securities and was reviewed and expressly approved
      in writing by such Holder expressly for use in the Registration Statement,
      such
      Prospectus or such form of Prospectus or any amendment or supplement thereto.
      Notwithstanding anything to the contrary contained herein, the Holders shall
      be
      liable under this Section 5(b) for only that amount as does not exceed the
      net
      proceeds to such Holder as a result of the sale of Registrable Securities
      pursuant to such Registration Statement.

     

    
      
        
        

      

      
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    (c) Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an "Indemnified
      Party"),
      such
      Indemnified Party promptly shall notify the Person from whom indemnity is sought
      (the "Indemnifying
      Party)
      in
      writing, and the Indemnifying Party shall be entitled to assume the defense
      thereof, including the employment of counsel reasonably satisfactory to the
      Indemnified Party and the payment of all fees and expenses incurred in
      connection with defense thereof; provided, that the failure of any Indemnified
      Party to give such notice shall not relieve the Indemnifying Party of its
      obligations or liabilities pursuant to this Agreement, except (and only) to
      the
      extent that it shall be finally determined by a court of competent jurisdiction
      (which determination is not subject to appeal or further review) that such
      failure shall have proximately and materially adversely prejudiced the
      Indemnifying Party.

    

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; or (2) the Indemnifying Party shall have failed promptly to assume
      the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (3) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and such parties shall have been advised by counsel
      that a conflict of interest is likely to exist if the same counsel were to
      represent such Indemnified Party and the Indemnifying Party (in which case,
      if
      such Indemnified Party notifies the Indemnifying Party in writing that it elects
      to employ separate counsel at the expense of the Indemnifying Party, the
      Indemnifying Party shall not have the right to assume the defense thereof and
      such counsel shall be at the expense of the Indemnifying Party). The
      Indemnifying Party shall not be liable for any settlement of any such Proceeding
      effected without its written consent, which consent shall not be unreasonably
      withheld or delayed. No Indemnifying Party shall, without the prior written
      consent of the Indemnified Party, effect any settlement of any pending or
      threatened Proceeding in respect of which any Indemnified Party is a party
      and
      indemnity has been sought hereunder, unless such settlement includes an
      unconditional release of such Indemnified Party from all liability on claims
      that are the subject matter of such Proceeding.

    

    All
      fees
      and expenses of the Indemnified Party (including reasonable fees and expenses
      to
      the extent incurred in connection with investigating or preparing to defend
      such
      Proceeding in a manner not inconsistent with this Section) shall be paid to
      the
      Indemnified Party, as incurred, within ten (10) Business Days of written notice
      thereof to the Indemnifying Party (regardless of whether it is ultimately
      determined that an Indemnified Party is not entitled to indemnification
      hereunder; provided,
      that the Indemnified Party shall reimburse all such fees and expenses to the
      extent it is finally judicially determined that such Indemnified Party is not
      entitled to indemnification hereunder).

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    

    (d) Contribution.
      If a
      claim for indemnification under Section 5(a) or 5(b) is due but unavailable
      to
      an Indemnified Party because of a failure or refusal of a governmental authority
      to enforce such indemnification in accordance with its terms (by reason of
      public policy or otherwise), then each Indemnifying Party, in lieu of
      indemnifying such Indemnified Party, shall contribute to the amount paid or
      payable by such Indemnified Party as a result of such Losses, in such proportion
      as is appropriate to reflect the relative fault of the Indemnifying Party and
      Indemnified Party in connection with the actions, statements or omissions that
      resulted in such Losses as well as any other relevant equitable considerations.
      The relative fault of such Indemnifying Party and Indemnified Party shall be
      determined by reference to, among other things, whether any action in question,
      including any untrue or alleged untrue statement of a material fact or omission
      or alleged omission of a material fact, has been taken or made by, or relates
      to
      information supplied by, such Indemnifying, Party or Indemnified Party, and
      the parties'
      relative intent, knowledge, access to information and opportunity to correct
      or
      prevent such action, statement or omission. The amount paid or payable by a
      party as a result of any Losses shall be deemed to include, subject to the
      limitations set forth in Section 5(c), any reasonable attorneys' or other
      reasonable fees or expenses incurred by such party in connection with any
      Proceeding to the extent such party would have been indemnified for such fees
      or
      expenses if the indemnification provided for in this Section was available
      to
      such party in accordance with its terms.

    

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5(d) were determined by pro rata allocation or by
      any
      other method of allocation that does not take into account the equitable
      considerations referred to in the immediately preceding paragraph. No Person
      guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
      of
      the Securities Act) shall be entitled to contribution from any Person who was
      not guilty of such fraudulent misrepresentation.

    

    The
      indemnity and contribution agreements contained in this Section are in addition
      to any liability that the Indemnifying Parties may have to the Indemnified
      Parties pursuant to the law.

     

    6.                    Rule
      144.

    

    As
      long
      as any Holder owns Shares, Conversion Shares, Warrants or Warrant Shares, the
      Company covenants to timely file (or obtain extensions in respect thereof and
      file within the applicable grace period) all reports required to be filed by
      the
      Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
      Act. As long as any Holder owns Shares, Conversion Shares, Warrants or Warrant
      Shares, if the Company is not required to file reports pursuant to Section
      13(a)
      or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and
      make publicly available in accordance with Rule 144(c) promulgated under the
      Securities Act annual and quarterly financial statements, together with a
      discussion and analysis of such financial statements in form and substance
      substantially similar to those that would otherwise be required to be included
      in reports required by Section 13(a) or 15(d) of the Exchange Act, as well
      as
      any other information required thereby, in the time period that such filings
      would have been required to have been made under the Exchange Act. The Company
      further covenants that it will take such further action as any Holder may
      reasonably request, all to the extent required from time to time to enable
      such
      Person to sell Conversion Shares and Warrant Shares without registration under
      the Securities Act within the limitation of the exemptions provided by Rule
      144
      promulgated under the Securities Act, including providing any legal opinions
      relating to such sale pursuant to Rule 144. Upon the request of any Holder,
      the
      Company shall deliver to such Holder a written certification of a duly
      authorized officer as to whether it has complied with such
      requirements.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    

    7.                    Miscellaneous.

    

    (a) Remedies.
      In the
      event of a breach by the Company or by a Holder, of any of their obligations
      under this Agreement, such Holder or the Company, as the case may be, in
      addition to being entitled to exercise all rights granted by law and under
      this
      Agreement, including recovery of damages, will be entitled to specific
      performance of its rights under this Agreement.
      The Company and each Holder agree that monetary damages would not
      provide adequate
      compensation for any losses incurred by reason of a breach by it of any of
      the
      provisions of this Agreement and hereby further agrees that, in the event of
      any
      action for specific performance in respect of such breach, it shall waive the
      defense that a remedy at law would be adequate.

    

    (b) No
      Inconsistent Agreements.
      Neither
      the Company nor any of its subsidiaries has, as of the date hereof entered
      into
      and currently in effect, nor shall the Company or any of its subsidiaries,
      on or
      after the date of this Agreement, enter into any agreement with respect to
      its
      securities that is inconsistent with the rights granted to the Holders in this
      Agreement or otherwise conflicts with the provisions hereof. Except as disclosed
      in Schedule
      2.1(c)
      of the
      Purchase Agreement, neither the Company nor any of its subsidiaries has
      previously entered into any agreement currently in effect granting any
      registration rights with respect to any of its securities to any Person. Without
      limiting the generality of the foregoing, without the written consent of the
      Holders of a majority of the then outstanding Registrable Securities, the
      Company shall not grant to any Person the right to request the Company to
      register any securities of the Company under the Securities Act unless the
      rights so granted are subject in all respects to the prior rights in full of
      the
      Holders set forth herein, and are not otherwise in conflict with the provisions
      of this Agreement.

    

    (c) No
      Piggyback on Registrations.
      Neither
      the Company nor any of its security holders (other than the Holders in such
      capacity pursuant hereto or as disclosed in Schedule
      2.1(c)
      of the
      Purchase Agreement or Schedule
      II
      hereto)
      may include securities of the Company in the Registration Statement, and the
      Company shall not after the date hereof enter into any agreement providing
      such
      right to any of its securityholders, unless the right so granted is subject
      in
      all respects to the prior rights in full of the Holders set forth herein, and
      is
      not otherwise in conflict with the provisions of this Agreement.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    

    (d) Piggy-Back
      Registrations.
      If at
      any time when there is not an effective Registration Statement covering (i)
      Conversion Shares or (ii) Warrant Shares, the Company shall determine to prepare
      and file with the Commission a registration statement relating to an offering
      for its own account or the account of others under the Securities Act of any
      of
      its equity securities, other than on Form S-4 or Form S-8 (each as promulgated
      under the Securities Act) or their then equivalents relating to equity
      securities to be issued solely in connection with any acquisition of any entity
      or business or equity securities issuable in connection with stock option or
      other employee benefit plans, the Company shall send to each holder of
      Registrable Securities written notice of such determination and, if within
      thirty (30) days after receipt of such notice, or within such shorter period
      of
      time as may be specified by the Company in such written notice as may be
      necessary for the Company to comply with its obligations with respect to the
      timing of the filing of such registration statement, any such holder shall
      so
      request in writing, (which request shall specify the Registrable Securities
      intended to be disposed of by the Purchasers), the Company will cause the
      registration under the Securities Act of all Registrable Securities which the
      Company has been so requested to register by the holder, to the extent requisite
      to permit the disposition of the Registrable Securities so to be registered,
      provided that if at any time after giving written notice of its intention to
      register any securities and prior to the effective date of the registration
      statement filed in connection with such registration, the Company shall
      determine for any reason not to register or to delay registration of such
      securities, the Company may, at its election, give written notice of such
      determination to such holder and, thereupon, (i) in the case of a determination
      not to register, shall be relieved of its obligation to register any Registrable
      Securities in connection with such registration (but not from its obligation
      to
      pay expenses in accordance with Section 4 hereof), and (ii) in the case of
      a
      determination to delay registering, shall be permitted to delay registering
      any
      Registrable Securities being registered pursuant to this Section 7(d) for the
      same period as the delay in registering such other securities. The Company
      shall
      include in such registration statement all or any part of such Registrable
      Securities such holder requests to be registered; provided,
      however,
      that
      the Company shall not be required to register any Registrable Securities
      pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k)
      of the Securities Act. In the case of an underwritten public offering, if the
      managing underwriter(s) or underwriter(s) should reasonably object to the
      inclusion of the Registrable Securities in such registration statement, then
      if
      the Company after consultation with the managing underwriter should reasonably
      determine that the inclusion of such Registrable Securities would materially
      adversely affect the offering contemplated in such registration statement,
      and
      based on such determination recommends inclusion in such registration statement
      of fewer or none of the Registrable Securities of the Holders, then (x) the
      number of Registrable Securities of the Holders included in such registration
      statement shall be reduced pro-rata among such Holders (based
      upon the number of Registrable Securities requested to be included in the
      registration), if the Company after consultation with the underwriter(s)
      recommends the inclusion of fewer Registrable Securities, or (y) none of the
      Registrable Securities of the Holders shall be included in such registration
      statement, if the Company after consultation with the underwriter(s) recommends
      the inclusion of none of such Registrable Securities; provided,
      however,
      that if
      securities are being offered for the account of other persons or entities as
      well as the Company, such reduction shall not represent a greater fraction
      of
      the number of Registrable securities intended to be offered by the Holders
      than
      the fraction of similar reductions imposed on such other persons or entities
      (other than the Company).

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    

    (e) Failure
      to File Registration Statement and Other Events.
      The
      Company and the Holders agree that the Holders will suffer damages if the
      Registration Statement is not filed on or prior to the Filing Date and not
      declared effective by the Commission on or prior to the Effectiveness Date
      and
      maintained in the manner contemplated herein during the Effectiveness Period
      or
      if certain other events occur. The Company and the Holders further agree that
      it
      would not be feasible to ascertain the extent of such damages with precision.
      Accordingly, if, except as set forth in Section 3(n), (A) the Registration
      Statement is not filed on or prior to the Filing Date, or (B) the Registration
      Statement is not declared effective by the Commission on or prior to the
      Effectiveness Date (or in the event an additional Registration Statement is
      filed because the actual number of shares of Common Stock into which the
      Preferred Stock is convertible and the Warrants are exercisable plus the number
      of Common Shares exceeds the number of shares of Common Stock initially
      registered is not filed and declared effective with the time periods set forth
      in Section 2), or (C) the Company fails to file with the Commission a request
      for acceleration in accordance with Rule 461 promulgated under the Securities
      Act within three (3) Business Days of the date that the Company is notified
      (orally or in writing, whichever is earlier) by the Commission that a
      Registration Statement will not be "reviewed," or is not subject to further
      review, or (D) the Registration Statement is filed with and declared effective
      by the Commission but thereafter ceases to be effective as to all Registrable
      Securities at any time prior to the expiration of the Effectiveness Period,
      without being succeeded immediately by a subsequent Registration Statement
      filed
      with and declared effective by the Commission in accordance with Section 2
      hereof or (E) the Company has breached Section 3(n), or (F) trading in the
      Common Stock shall be suspended or if the Common Stock is delisted from the
      OTC
      Bulletin Board (or other principal exchange on which the Common Stock is traded)
      for any reason for more than three (3) Business Days in the aggregate without
      subsequent listing on another exchange (any such failure or breach being
      referred to as an "Event,"
      and
      for purposes of clauses (A) and (B) the date on which such Event occurs, or
      for
      purposes of clause (C) the date on which such three (3) Business Day period
      is
      exceeded, or for purposes of clause (D) after more than twenty (20) Business
      Days, or for purposes of clause (F) the date on which such three (3) Business
      Day period is exceeded, being referred to as "Event
      Date"),
      the
      Company shall pay an amount as liquidated damages to each Holder in cash equal
      to 2.0% for the first calendar month (prorated for shorter periods) and 1.0%
      per
      calendar month thereafter (prorated for shorter periods) of the Holder’s initial
      investment in the Preferred Stock from the Event Date, until the applicable
      Event is cured. Notwithstanding anything to the contrary in this paragraph
      (e),
      if (I) any of the Events described in clauses (A), (B), (C) or (D) shall have
      occurred, (II) on or prior to the applicable Event Date, the Company shall
      have
      exercised its rights under Section 3(n) hereof and (III) the postponement or
      suspension permitted pursuant to such Section 3(n) shall remain effective as
      of
      such applicable Event Date, then the applicable Event Date shall be deemed
      instead to occur on the second Business Day following the termination of such
      postponement or suspension. 

    

    (f) Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the Company and the Holders of seventy-five percent (75%) of the
      Registrable Securities outstanding. 

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

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

     

    
      	
              If
                to the Company:

            	 	
              HiEnergy
                Technologies, Inc. 

              1601-B
                Alton Parkway, Unit B 

              Irvine,
                California 92606

              Attention:
                Senior Vice President

              and
                Corporate Secretary

              Tel.
                No.: (949) 757-0855

              Fax
                No.: (949) 757-1477

            
	 	 	 
	
              with
                copies (which shall not constitute notice) to:

            	 	
              August
                Law Group, P.C.

              The
                Atrium Building

              19200
                Von Karman Ave., Suite 500

              Irvine,
                California 92612

              Attention:
                Kenneth S. August

              Tel
                No.: (949) 752-7772

              Fax
                No.: (949) 752-7776

            
	 	 	 
	
              If
                to any Purchaser:

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

            
	 	 	 
	
              with
                copies (which shall not constitute notice) to:

            	 	
              Kramer
                Levin Naftalis & Frankel LLP

              1177
                Avenue of the Americas

              New
                York, New York 10036

              Attention:
                Christopher S. Auguste

              Tel
                No.: (212) 715-9100

              Fax
                No.: (212) 715-8000

            

    

     

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

    

    (h) Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns and shall inure to the benefit of each
      Holder and its successors and assigns. The Company may not assign this Agreement
      or any of its rights or obligations hereunder without the prior written consent
      of each Holder. Each Purchaser may assign its rights hereunder in the manner
      and
      to the Persons as permitted under the Purchase Agreement.

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    

    (i) Assignment
      of Registration Rights.
      The
      rights of each Holder hereunder, including the right to have the Company
      register for resale Registrable Securities in accordance with the terms of
      this
      Agreement, shall be automatically assignable by each Holder to any Affiliate
      of
      such Holder or any other Holder or
      Affiliate of any other Holder
      of
      all or a portion of
      the
      Preferred Stock, the Common Shares or the Registrable Securities if: (i) the
      Holder agrees in writing with the transferee or assignee to assign such rights,
      and a copy of such agreement is furnished to the Company within a reasonable
      time after such assignment, (ii) the Company is, within a reasonable time after
      such transfer or assignment, furnished with written notice of (a) the name
      and
      address of such transferee or assignee, and (b) the securities with respect
      to
      which such registration rights are being transferred or assigned, (iii)
      following such transfer or assignment the further disposition of such securities
      by the transferee or assignees is restricted under the Securities Act and
      applicable state securities laws, (iv) at or before the time the Company
      receives the written notice contemplated by clause (ii) of this Section, the
      transferee or assignee agrees in writing with the Company to be bound by all
      of
      the provisions of this Agreement, and (v) such transfer shall have been made
      in
      accordance with the applicable requirements of the Purchase Agreement. In
      addition, each Holder shall have the right to assign its rights hereunder to
      any
      other Person with the prior written consent of the Company, which consent shall
      not be unreasonably withheld. The rights to assignment shall apply to the
      Holders (and to subsequent) successors and assigns. 

    

    (j) Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    (k) Governing
      Law; Jurisdiction.
      This
      Agreement shall be governed by and construed in accordance with the internal
      laws of the State of New York, without giving effect to any of the conflicts
      of
      law principles which would result in the application of the substantive law
      of
      another jurisdiction. This Agreement shall not be interpreted or construed
      with
      any presumption against the party causing this Agreement to be drafted.
Each
      of
      the Company and the Purchasers (i) hereby irrevocably submits to the
      jurisdiction of the United States District Court sitting in the Southern
      District of New York and the courts of the State of New York located in New
      York
      county for the purposes of any suit, action or proceeding arising out of or
      relating to this Agreement or any of the other Transaction Documents or the
      transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
      not to assert in any such suit, action or proceeding, any claim that it is
      not
      personally subject to the jurisdiction of such court, that the suit, action
      or
      proceeding is brought in an inconvenient forum or that the venue of the suit,
      action or proceeding is improper. Each of the Company and the Purchasers
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof to such party at the address in effect for notices to
      it
      under this Agreement and agrees that such service shall constitute good and
      sufficient service of process and notice thereof. Nothing in this Section 7(k)
      shall affect or limit any right to serve process in any other manner permitted
      by law.

    

    (l) Cumulative
      Remedies.
      The
      remedies provided herein are cumulative and not exclusive of any remedies
      provided by law.

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    

    (m) Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held to be
      invalid, illegal, void or unenforceable in any respect, the remainder of the
      terms, provisions, covenants and restrictions set forth herein shall remain
      in
      full force and effect and shall in no way be affected, impaired or invalidated,
      and the parties hereto shall use their reasonable efforts to find and employ
      an
      alternative means to achieve the same or substantially the same result as that
      contemplated by such term, provision, covenant or restriction. It is hereby
      stipulated and declared to
      be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

    

    (n) Headings.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

    

    (o) Shares
      Held by the Company and its Affiliates.
      Whenever the consent or approval of Holders of a specified percentage of
      Registrable Securities is required hereunder, Registrable Securities held by
      the
      Company or its Affiliates (other than any Holder or transferees or successors
      or
      assigns thereof if such Holder is deemed to be an Affiliate solely by reason
      of
      its holdings of such Registrable Securities) shall not be counted in determining
      whether such consent or approval was given by the Holders of such required
      percentage.

    

    (p) Independent
      Nature of Purchasers.
      The
      Company acknowledges that the obligations of each Purchaser under the
      Transaction Documents are several and not joint with the obligations of any
      other Purchaser, and no Purchaser shall be responsible to the Company in any
      way
      for the performance of the obligations of any other Purchaser under the
      Transaction Documents. The Company acknowledges that nothing contained herein,
      or in any Transaction Document, and no action taken by any Purchaser pursuant
      hereto or thereto (including, but not limited to, the (i) inclusion of a
      Purchaser in the Registration Statement and (ii) review by, and consent to,
      such
      Registration Statement by a Purchaser) shall be deemed by the Company to
      constitute the Purchasers as a partnership, an association, a joint venture
      or
      any other kind of entity, or create a presumption by the Company that the
      Purchasers are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Documents.
      The
      Company acknowledges that each Purchaser shall be entitled to independently
      protect and enforce its rights, including without limitation, the rights arising
      out of this Agreement or out of the other Transaction Documents against the
      Company, and it shall not be necessary for any other Purchaser to be joined
      as
      an additional party in any proceeding for such purpose. The Company acknowledges
      that for reasons of administrative convenience only, the Transaction Documents
      have been prepared by counsel for the placement agent and such counsel does
      not
      represent the Purchasers and the Purchasers have retained their own individual
      counsel with respect to the transactions contemplated hereby.  The Company
      acknowledges that it has elected to provide all Purchasers with the same terms
      and Transaction Documents for the convenience of the Company and not because
      it
      was required or requested to do so by the Purchasers. The Company acknowledges
      that such procedure with respect to the Transaction Documents in no way creates
      a presumption by the Company that the Purchasers are in any way acting in
      concert or as a group with respect to the Transaction Documents or the
      transactions contemplated hereby or thereby.

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Registration Rights
      Agreement to be duly executed by their respective authorized persons as of
      the
      date first indicated above.

     

    
      	 	 	 
	 	
              HIENERGY
                TECHNOLOGIES, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              
Name:
	 	Title 

    

    
      	 	 	 
	 	
              
                PURCHASER:

              

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              
Name:
	 	Title 

    

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    Schedule
      I

    Purchasers

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    Schedule
      II

    Other
      Securities to be Included on the Registration Statement

    

    1. Shares
      of
      Common Stock issuable upon the exercise of warrants issuable to the placement
      agent and its designees in connection with the transactions contemplated by
      the
      Purchase Agreement.

     

    
      
        
        

      

      
        -19-Unassociated Document

    EXHIBIT
      4.1

    

    NEITHER
      THESE WARRANTS NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THESE WARRANTS
      HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
      OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
      TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
      SECURITIES UNDER THE ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
      AVAILABLE.

    

    
      	
              4,770,000
                Warrants

            	
              July
                9, 2006

            

    

    

    NATURALNANO
      INC.

    

    WARRANTS

    

    

    NaturalNano
      Inc., a Nevada corporation (“NaturalNano”),
      certifies that, for value received, SBI Brightline XIII LLC (“SBI”), or
      registered assigns (the “Holder”),
      is
      the owner of Four Million Seven Hundred Seventy Thousand (4,770,000 ) Warrants
      of NaturalNano (the “Warrants”).
      Each
      Warrant entitles the Holder to purchase from NaturalNano at any time prior
      to
      the Expiration Date (as defined below) one share of the common stock of
      NaturalNano (the “Common
      Stock”)
      for
      the per share prices set forth on Schedule I, which is attached hereto and
      made
      part hereof (the “Exercise
      Price”),
      on
      the terms and conditions hereinafter provided. The Exercise Price and the number
      of shares of Common Stock purchasable upon exercise of each Warrant are subject
      to adjustment as provided in this Certificate. 

     

    1. Expiration
      Date; Exercise

     

    1.1 Expiration
      Date. The Warrants shall expire on March 30, 2009 (the “Expiration
      Date”).

     

    1.2 Manner
      of
      Exercise. The Warrants are exercisable by delivery to NaturalNano of the
      following (the “Exercise
      Documents”):
      (a)
      this Certificate (b) a written notice of election to exercise the Warrants;
      and
      (c) payment of the Exercise Price by certified check, wire transfer of funds
      or
      cashless exercise. Within three business days following receipt of the
      foregoing, NaturalNano shall execute and deliver to the Holder: (a) a
      certificate or certificates representing the aggregate number of shares of
      Common Stock purchased by the Holder, and (b) if less than all of the Warrants
      evidenced by this Certificate are exercised, a new certificate evidencing the
      Warrants not so exercised.

     

    1.3 Warrant
      Exercise Limitation. Notwithstanding any other provision of this Agreement,
      if
      as of the date of exercise NaturalNano has a class of securities registered
      under Section 12 of the Securities Exchange Act of 1934, as amended, Holder
      may
      not exercise Warrants under this Section 1 to the extent that immediately
      following such exercise Holder would beneficially own 5% or more of the
      outstanding Common Stock of NaturalNano. For this purpose, a representation
      of
      the Holder that following such exercise it would not beneficially own 5% or
      more
      of the outstanding Common Stock of NaturalNano shall be conclusive and binding
      upon NaturalNano unless the number of shares of Common Stock for which the
      Holder seeks to exercise Warrants would themselves represent 5% or more of
      the
      outstanding Common Stock of NaturalNano following such exercise.

     

    2. Adjustments
      of Exercise Price and Number and Kind of Conversion Shares

     

    2.1 In
      the
      event that NaturalNano shall at any time hereafter (a) pay a dividend in Common
      Stock or securities convertible into Common Stock; (b) subdivide or split its
      outstanding Common Stock; (c) combine its outstanding Common Stock into a
      smaller number of shares; then the number of shares to be issued immediately
      after the occurrence of any such event shall be adjusted so that the Holder
      thereafter may receive the number of shares of Common Stock it would have owned
      immediately following such action if it had exercised the Warrants immediately
      prior to such action and the Exercise Price shall be appropriately adjusted
      to
      reflect such proportionate increases or decreases in the number of
      shares.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.2 In
      case
      of any reclassification, capital reorganization, consolidation, merger, sale
      of
      all or substantially all of NaturalNano’s assets or any other change in the
      Common Stock of NaturalNano, other than as a result of a subdivision,
      combination, or stock dividend provided for in Section 2.1 (any of which, a
      “Change Event”), then, as a condition of such Change Event, lawful provision
      shall be made, and duly executed documents evidencing the same from NaturalNano
      or its successor shall be delivered to the Holder, so that the Holder shall
      have
      the right at any time prior to the expiration of the Warrants to purchase,
      at a
      total price equal to that payable upon the exercise of the Warrants, the kind
      and amount of shares of stock and other securities and property receivable
      in
      connection with such Change Event by a holder of the same number of shares
      of
      Common Stock as were purchasable by the Holder immediately prior to such Change
      Event. In any such case appropriate provisions shall be made with respect to
      the
      rights and interest of the Holder so that the provisions hereof shall thereafter
      be applicable with respect to any shares of stock or other securities and
      property deliverable upon exercise hereof, and appropriate adjustments shall
      be
      made to the Exercise Price per share payable hereunder, provided the Exercise
      Price for all the Warrants shall remain the same. The provisions of this Section
      2.2 shall similarly apply to successive reclassifications, capital
      reorganizations, mergers, consolidations, sales or other transfers.

     

    3. Reservation
      of Shares. NaturalNano
      shall at all times reserve and keep available out of its authorized but unissued
      shares of Common Stock, such number of shares of Common Stock as shall from
      time
      to time be issuable upon exercise of the Warrants. If at any time the number
      of
      authorized but unissued shares of Common Stock shall not be sufficient to permit
      the exercise of the Warrants, NaturalNano shall promptly seek such corporate
      action as may be necessary to increase its authorized but unissued shares of
      Common Stock to such number of shares as shall be sufficient for such
      purpose.

     

    4. Certificate
      as to Adjustments. In
      each
      case of any adjustment in the Exercise Price, or number or type of shares
      issuable upon exercise of these Warrants, the Chief Financial Officer of
      NaturalNano shall compute such adjustment in accordance with the terms of these
      Warrants and prepare a certificate setting forth such adjustment and showing
      in
      detail the facts upon which such adjustment is based, including a statement
      of
      the adjusted Exercise Price. NaturalNano shall promptly send (by facsimile
      and
      by either first class mail, postage prepaid or overnight delivery) a copy of
      each such certificate to the Holder.

     

    5. Loss
      or Mutilation. Upon
      receipt of evidence reasonably satisfactory to NaturalNano of the ownership
      of
      and the loss, theft, destruction or mutilation of this Certificate, and of
      indemnity reasonably satisfactory to it, and (in the case of mutilation) upon
      surrender and cancellation of these Warrants, NaturalNano will execute and
      deliver in lieu thereof a new Certificate of like tenor as the lost, stolen,
      destroyed or mutilated Certificate.

     

    6. Representations
      and Warranties of NaturalNano. NaturalNano
      hereby represents and warrants to Holder that:

     

    6.1 Due
      Authorization. All corporate action on the part of NaturalNano, its officers,
      directors and shareholders necessary for (a) the authorization, execution and
      delivery of, and the performance of all obligations of NaturalNano under, these
      Warrants, and (b) the authorization, issuance, reservation for issuance and
      delivery of all of the Common Stock issuable upon exercise of these Warrants,
      has been duly taken. These Warrants constitute a valid and binding obligation
      of
      NaturalNano enforceable in accordance with their terms, subject, as to
      enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
      reorganization and similar laws affecting creditors’ rights generally and to
      general equitable principles.

     

    6.2 Organization.
      NaturalNano is a corporation duly organized, validly existing and in good
      standing under the laws of the State of Nevada and has all requisite corporate
      power to own, lease and operate its property and to carry on its business as
      now
      being conducted and as currently proposed to be conducted.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    6.3 Valid
      Issuance of Stock. Any shares of Common Stock issued upon exercise of the
      Warrants in accordance with their terms will be duly and validly issued, fully
      paid and non-assessable without any preemptive or similar rights relating or
      with respect thereto or resulting therefrom.

     

    6.4 Governmental
      Consents. All consents, approvals, orders, authorizations or registrations,
      qualifications, declarations or filings with any federal or state governmental
      authority on the part of NaturalNano required in connection with the issuance
      of
      the Warrants have been obtained.

     

    7. Representations
      and Warranties of SBI.
      SBI,
      and any subsequent holder of Warrants, by its acceptance hereof, represents
      and
      warrants to NaturalNano that:

     

    7.1 It
      is
      acquiring the Warrants for its own account, for investment purposes
      only.

     

    7.2 It
      understands that an investment in the Warrants and in the shares of Common
      Stock
      issuable upon exercise of the Warrants involves a high degree of risk, and
      it
      has the financial ability to bear the economic risk of this investment in the
      Warrants and such shares, including a complete loss of such investment. It
      has
      adequate means for providing for its current financial needs and has no need
      for
      liquidity with respect to this investment.

     

    7.3 It
      has
      such knowledge and experience in financial and business matters that it is
      capable of evaluating the merits and risks of an investment in the Warrants
      and
      in the shares of Common Stock issuable upon exercise of the Warrants and in
      protecting its own interest in connection with such transactions.

     

    7.4 It
      understands that neither the Warrants nor the shares of Common Stock issuable
      upon exercise of the Warrants have been registered under the Securities Act
      of
      1933, as amended (the “Securities
      Act”)
      or
      under any state securities laws. It is familiar with the provisions of the
      Securities Act and Rule 144 thereunder and understands that the restrictions
      on
      transfer on the Warrants and on the shares of Common Stock issuable upon
      exercise of the Warrants may result in it being required to hold the Warrants
      or
      such shares for an indefinite period of time.

     

    7.5 It
      agrees
      not to sell, transfer, assign, gift, create a security interest in, or otherwise
      dispose of, with or without consideration (collectively, “Transfer”)
      any of
      the Warrants or any of the shares of Common Stock issuable upon exercise of
      the
      Warrants except pursuant to an effective registration statement under the
      Securities Act or an exemption from registration. As a further condition to
      any
      such Transfer, except in the event that such Transfer is made pursuant to an
      effective registration statement under the Securities Act, if in the reasonable
      opinion of counsel to NaturalNano any such Transfer would not be exempt from
      the
      registration and prospectus delivery requirements of the Securities Act,
      NaturalNano may require the Holder and the contemplated transferee to furnish
      NaturalNano with letters setting forth such information and agreements as may
      be
      reasonably requested by NaturalNano to ensure compliance with the Securities
      Act.

     

    8. Notices
      of Record Date

    

    In
      the
      event:

     

    8.1 NaturalNano
      shall take a record of the holders of its Common Stock (or other stock or
      securities at the time receivable upon the exercise of these Warrants), for
      the
      purpose of entitling them to receive any dividend or other distribution, or
      any
      right to subscribe for or purchase any shares of stock of any class or any
      other
      securities or to receive any other right; or

     

    8.2 of
      any
      consolidation or merger of NaturalNano with or into another corporation, any
      capital reorganization of NaturalNano, any reclassification of the capital
      stock
      of NaturalNano, or any conveyance of all or substantially all of the assets
      of
      NaturalNano to another corporation in which holders of NaturalNano’s stock are
      to receive stock, securities or property of another corporation;
      or

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    8.3 of
      any
      voluntary dissolution, liquidation or winding-up of NaturalNano; or

     

    8.4 of
      any
      redemption or conversion of all outstanding Common Stock;

     

    then,
      and
      in each such case, NaturalNano will mail or cause to be mailed to the Holder
      a
      notice specifying, as the case may be, (a) the date on which a record is to
      be
      taken for the purpose of such dividend, distribution or right, or (b) the date
      on which such reorganization, reclassification, consolidation, merger,
      conveyance, dissolution, liquidation, winding-up, redemption or conversion
      is to
      take place, and the time, if any is to be fixed, as of which the holders of
      record of Common Stock (or such stock or securities as at the time are
      receivable upon the exercise of these Warrants), shall be entitled to exchange
      their shares of Common Stock (or such other stock or securities), for securities
      or other property deliverable upon such reorganization, reclassification,
      consolidation, merger, conveyance, dissolution, liquidation or winding-up.
      NaturalNano shall use all reasonable efforts to ensure such notice shall be
      delivered at least five days prior to the date therein specified. 

    

    9.  Cashless
      Exercise.
      

     

    9.1 Definitions.
      For purposes of this Section 9, the following term shall have the meanings
      set
      forth below:

     

    9.1.1 “Market
      Price”
as
      of
      any date, (i) means the average of the last reported sale prices for the shares
      of Common Stock on the Over the Counter Bulletin Board (the "OTCBB")
      for
      the five (5) trading days immediately preceding such date as reported by
      Bloomberg Financial Markets or an equivalent reliable reporting service mutually
      acceptable to and hereafter designated by the holder of this Warrant and
      NaturalNano ("Bloomberg"), or (ii) if the OTCBB is not the principal trading
      market for the shares of Common Stock, the average of the last reported sale
      prices on the principal trading market for the Common Stock during the same
      period as reported by Bloomberg, or (iii) if market value cannot be calculated
      as of such date on any of the foregoing bases, the Market Price shall be the
      fair market value as reasonably determined in good faith by (a) the Board of
      Directors of the NaturalNano or, at the option of a majority-in-interest of
      the
      holders of the outstanding Warrants by (b) an independent investment bank of
      nationally recognized standing in the valuation of businesses similar to the
      business of the NaturalNano. The manner of determining the Market Price of
      the
      Common Stock set forth in the foregoing definition shall apply with respect
      to
      any other security in respect of which a determination as to market value must
      be made hereunder.

     

    9.2 
      Cashless
      Exercise. Notwithstanding anything to the contrary contained in this Warrant,
      this Warrant may be exercised by presentation and surrender of this Warrant
      to
      NaturalNano at its principal executive offices with a written notice of the
      holder's intention to effect a cashless exercise, including a calculation of
      the
      number of shares of Common Stock to be issued upon such exercise in accordance
      with the terms hereof (a "Cashless Exercise"). In the event of a Cashless
      Exercise, in lieu of paying the Exercise Price in cash, the holder shall
      surrender this Warrant for that number of shares of Common Stock determined
      by
      multiplying the number of shares of common stock to which it would otherwise
      be
      entitled by a fraction, the numerator of which shall be the difference between
      the then current Market Price per share of the Common Stock and the Exercise
      Price, and the denominator of which shall be the then current Market Price
      per
      share of Common Stock.

     

    10. Nontransferability.
      Without
      the consent of NaturalNano., SBI may not sell or transfer any Warrants to any
      person other than to a director, officer, employee, manager or affiliate of
      SBI
      (or a person controlled by one or more directors, officers, employees, managers
      or affiliates of SBI) or to a person or entity that assists SBI in providing
      services to NaturalNano.

     

    11. Severability.
      If
      any
      term, provision, covenant or restriction of these Warrants is held by a court
      of
      competent jurisdiction to be invalid, void or unenforceable, the remainder
      of
      the terms, provisions, covenants and restrictions of these Warrants shall remain
      in full force and effect and shall in no way be affected, impaired or
      invalidated.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    12. Notices.
      All
      notices, requests, consents and other communications required hereunder shall
      be
      in writing and shall be effective when delivered or, if delivered by registered
      or certified mail, postage prepaid, return receipt requested, shall be effective
      on the third day following deposit in United States mail: to the Holder, at
      SBI
      Brightline XIII LLC, 610 Newport Center Drive, Newport Beach, CA 92660; and
      if
      addressed to NaturalNano, at NaturalNano Inc., 150 Lucius Gordon Drive, West
      Henrietta, NY 14586, or such other address as Holder or NaturalNano may
      designate in writing.

     

    13. No
      Rights as Shareholder. The
      Holder shall have no rights as a shareholder of NaturalNano with respect to
      the
      shares issuable upon exercise of the Warrants until the receipt by NaturalNano
      of all of the Exercise Documents. 

     

    
      	
               

            	
              NaturalNano
                Inc.

               

              By:  
                /s/
                Kathleen A. Browne

              
                
Kathleen
                A. Browne, Chief Financial Officer

            

    

     

     

    Agreed
      to
      and accepted by:

    SBI
      Brightline XIII, LLC

    

    

    By: 
      /s/
      Shelly Singhal 
      
        

      

    

    Shelly
      Singhal, Manager

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      “A”

    NOTICE
      OF EXERCISE

    (To
      be signed only upon exercise of the Warrants)

    

    To: NaturalNano
      Inc.

     

    The
      undersigned hereby elects to purchase shares of Common Stock (the “Warrant
      Shares”)
      of
      NaturalNano Inc. (“NaturalNano”),
      pursuant to the terms of the enclosed warrant certificate (the “Certificate”).
      The
      undersigned tenders herewith payment of the exercise price pursuant to the
      terms
      of the Certificate. 

     

    The
      undersigned hereby represents and warrants to, and agrees with, NaturalNano
      as
      follows: 

     

    1. Holder
      is
      acquiring the Warrant Shares for its own account, for investment purposes only
      and not with a view to distribution in violation of the Securities Act of 1933,
      as amended (the “Securities
      Act”).

     

    2. Holder
      understands that an investment in the Warrant Shares involves a high degree
      of
      risk, and Holder has the financial ability to bear the economic risk of this
      investment in the Warrant Shares, including a complete loss of such investment.
      Holder has adequate means for providing for its current financial needs and
      has
      no need for liquidity with respect to this investment.

     

    3. Holder
      has such knowledge and experience in financial and business matters that it
      is
      capable of evaluating the merits and risks of an investment in the Warrant
      Shares and in protecting its own interest in connection with this
      transaction.

     

    4. Holder
      understands that the issuance of the Warrant Shares to Holder has not been
      registered under the Securities Act or under any state securities laws. Holder
      is familiar with the provisions of the Securities Act and Rule 144 thereunder
      and understands that the restrictions on transfer on the Warrant Shares may
      result in Holder being required to hold the Warrant Shares for an indefinite
      period of time unless the transfer by Holder is registered under the Securities
      Act.

     

    5. Holder
      agrees not to sell, transfer, assign, gift, create a security interest in,
      or
      otherwise dispose of, with or without consideration (collectively, “Transfer”)
      any of
      the Warrant Shares except pursuant to an effective registration statement under
      the Securities Act or an exemption from registration. As a further condition
      to
      any such Transfer, except in the event that such Transfer is made pursuant
      to an
      effective registration statement under the Securities Act, if in the reasonable
      opinion of counsel to NaturalNano any Transfer of the Warrant Shares by the
      contemplated transferee thereof would not be exempt from the registration and
      prospectus delivery requirements of the Securities Act, NaturalNano may require
      the contemplated transferee to furnish NaturalNano with an investment letter
      setting forth such information and agreements as may be reasonably requested
      by
      NaturalNano to ensure compliance by such transferee with the Securities
      Act.

    

    Each
      certificate evidencing the Warrant Shares will bear the following
      legend:

     

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933 (THE “ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS AND
      MAY NOT BE EXERCISED, SOLD, PLEDGED OR TRANSFERRED IN THE ABSENCE OF AN
      EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR UNLESS
      AN
      EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

     

    6. Immediately
      following this exercise of Warrants, if as of the date of exercise NaturalNano
      has a class of securities registered under Section 12 of the Securities Exchange
      Act of 1934, as amended, the undersigned will not beneficially own five percent
      (5%) or more of the then outstanding Common Stock of NaturalNano (based on
      the
      number of shares outstanding set forth in the most recent periodic report filed
      by NaturalNano with the Securities and Exchange Commission and any additional
      shares which have been issued since that date of which Holder is aware have
      been
      issued). 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Number
      of
      Warrants Exercised: ______________

    

    Dated:
      ____________________

     

     

    
      	
               

            	
              ____________________________________

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Schedule
      I

    

    
      	
              Number
                of Shares

            	
              Exercise
                Price

            
	
              The
                first 1,200,000 shares

            	
              $.75

            
	
              The
                next 895,000 shares

            	
              $.90

            
	
              The
                next 895,000 shares

            	
              $1.05

            
	
              The
                next 890,000 shares

            	
              $1.20

            
	
              The
                next 890,000 shares

            	
              $1.30

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