Document:

Exhibit
      4.3

    

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

    

    SERIES
      B-2 WARRANT TO PURCHASE

    

    SHARES
      OF
      COMMON STOCK

    

    OF

    

    HIENERGY
      TECHNOLOGIES, INC.

    

    Expires
      June __, 2011

    

    
      
        	
                No.: W-B-2-06-__

                
                  Date
                    of Issuance: June __, 2006

                

              	
                 Number
                  of Shares:
                  ___________

              

      

    

     

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

    

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

    

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

    

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

    

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

    

    X
      = Y -
(A)(Y)

        
      B

    

    
      	
              Where

            	
              X
                =

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

            

    

    

    
      	 	
              Y
                =

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

            

    

    

    
      	 	
              A
                =

            	
              the
                Warrant Price. 

            

    

     

    
      	 	
              B
                =

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

            

    

    

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

     

    
      
        
        

      

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

    

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

     

    
      
        
        

      

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

    

    (h) Compliance
      with Securities Laws.

    

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

    

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

    

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

    

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

     

    
      
        
        

      

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

    

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

    

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

    

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

     

    
      
        
        

      

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

    

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

    

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

    

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

     

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

     

    
      
        
        

      

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

    

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

    

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

    

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

    

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

     

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

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

    

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

     

    
      
        
        

      

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

    

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

    

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

    

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

     

    
      
        
        

      

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

    

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

     

    
      
        
        

      

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

    

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

    

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

     

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

    

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

     

    
      
        
        

      

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

    

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

    

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

     

    
      
        
        

      

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

    

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

    

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

     

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

     

    
      
        
        

      

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

    

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

    

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

    

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

    

    "Original
      Issue Date"
      means
      June __, 2006.

    

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

    

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

    

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

     

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

    

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

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

    

    "Warrant
      Price"
      initially means U.S. $0.60, as such Warrant Price may be adjusted from time
      to
      time as shall result from the adjustments specified in this Warrant, including
      Section 4 hereto.

    

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

    

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

    

    10. Other
      Notices.
      In case
      at any time:

    

    
      	 	
              (A)

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

            

    

    

    
      	 	
              (B)

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

            

    

    

    
      	 	
              (C)

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

            

    

    

    
      	 	
              (D)

            	
              there
                shall be any capital reorganization by the Issuer;
                or

            

    

    

    
      	 	
              (E)

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

            

    

    

    
      	 	
              (F)

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

            

    

    

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

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

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

    

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

     

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

     

    
      	
              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

            

    

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    
      	
              with
                copies (which shall not constitute notice) to:

            	 	
              August
                Law Group, P.C.

              The
                Atrium Building

              19200
                Von Karman Ave., Suite 500

              Irvine,
                California 92612

              Attention:
                Kenneth S. August

              Tel
                No.: (949) 752-7772

              Fax
                No.: (949) 752-7776

            
	 	 	 
	
              If
                to any Purchaser:

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

            
	 	 	 
	
              with
                copies (which shall not constitute notice) to:

            	 	
              Kramer
                Levin Naftalis & Frankel LLP

              1177
                Avenue of the Americas

              New
                York, New York 10036

              Attention:
                Christopher S. Auguste

              Tel
                No.: (212) 715-9100

              Fax
                No.: (212) 715-8000

            

    

     

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

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

    

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

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the Issuer has executed this Series B-2 Warrant as of the
      day
      and year first above written.

     

    
      	 	 	 
	 	
              HIENERGY
                TECHNOLOGIES, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              
Name:
	 	Title: 

    

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    EXERCISE
      FORM

    SERIES
      B-2 WARRANT

    

    HIENERGY
      TECHNOLOGIES, INC. 

    

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

     

     

     

    
      	Dated: _________________	Signature	_____________________
	 	 	Address	_____________________
	 	 	 	_____________________

    

      

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

    

    ASSIGNMENT

    

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

     

    
      	Dated:
              _________________	Signature	_________________________
	 	 	Address	_________________________
	 	 	 	_________________________

    

     

    PARTIAL
      ASSIGNMENT

    

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

     

    
      	Dated: _________________	Signature	_____________________
	 	 	Address	_____________________
	 	 	 	_____________________

    

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

     

    FOR
      USE
      BY THE ISSUER ONLY:

    

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

    

    
      
        
        

      

      
        -23-Exhibit
        10.1

       

      

       

      SERIES
        B CONVERTIBLE PREFERRED STOCK PURCHASE

       

      AGREEMENT

       

       

       

      

       

      Dated
        as of _______ ___, 2006

       

       

       

      

       

      among

       

       

      HIENERGY
        TECHNOLOGIES, INC.

       

      
 

       

      and

       

       

       

      _____________________________________

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      TABLE
        OF CONTENTS

      

        
          	 	 	 
	 	 	
                  PAGE

                
	
                  ARTICLE
                    I Purchase and Sale of Preferred Stock

                	
                  1

                
	 	 
	
                  Section
                    1.1

                	
                  Purchase
                    and Sale of Stock

                	
                  1

                
	
                  Section
                    1.2

                	
                  The
                    Conversion Shares

                	
                  1

                
	
                  Section
                    1.3

                	
                  Purchase
                    Price and Closing

                	
                  2

                
	
                  Section
                    1.4

                	
                  Warrants

                	
                  2

                
	 	 
	
                  ARTICLE
                    II Representations and Warranties

                	
                  3

                
	 	 
	
                  Section
                    2.1

                	
                  Representations
                    and Warranties of the Company

                	
                  3

                
	
                  Section
                    2.2

                	
                  Representations
                    and Warranties of the Purchasers

                	
                  13

                
	 	 
	
                  ARTICLE
                    III Covenants

                	
                  16

                
	 	 
	
                  Section
                    3.1

                	
                  Securities
                    Compliance

                	
                  16

                
	
                  Section
                    3.2

                	
                  Registration
                    and Listing

                	
                  16

                
	
                  Section
                    3.3

                	
                  Inspection
                    Rights

                	
                  16

                
	
                  Section
                    3.4

                	
                  Compliance
                    with Laws

                	
                  
                    17

                  

                
	
                  Section
                    3.5

                	
                  Keeping
                    of Records and Books of Account

                	
                  
                    17

                  

                
	
                  Section
                    3.6

                	
                  Reporting
                    Requirements

                	
                  
                    17

                  

                
	
                  Section
                    3.7

                	
                  Amendments

                	
                  
                    17

                  

                
	
                  Section
                    3.8

                	
                  Other
                    Agreements.

                	
                  17

                
	
                  Section
                    3.9

                	
                  Distributions.

                	
                  17

                
	
                   
                    Section 3.10

                	
                  Status
                    of Dividends

                	
                  
                    18

                  

                
	
                   
                    Section 3.11

                	
                  Use
                    of Proceeds

                	
                  19

                
	
                   
                    Section 3.12

                	
                  Reservation
                    of Shares

                	
                  19

                
	
                   
                    Section 3.13

                	
                  Transfer
                    Agent Instructions

                	
                  19

                
	
                   
                    Section 3.14

                	
                  Disposition
                    of Assets

                	
                  20
                    

                
	
                   
                    Section 3.15

                	
                  Reporting
                    Status

                	
                  20
                    

                
	
                   
                    Section 3.16

                	
                  Disclosure
                    of Transaction 

                	
                  20
                    

                
	
                   
                    Section 3.17

                	
                  Disclosure
                    of Material Information

                	
                  20
                    

                
	
                   
                    Section 3.18

                	
                  Pledge
                    of Securities

                	
                  20

                
	
                   
                    Section 3.19

                	
                  Form
                    SB-2 Eligibility

                	
                  21

                
	
                   
                    Section 3.20

                	
                  Restrictions
                    on Certain Issuances of Securities 

                	
                  21

                
	
                   
                    Section 3.21

                	
                  Future
                    Financings; Right of First Offer and Refusal

                	
                  21

                
	
                   
                    Section 3.22

                	
                  Increase
                    in Authorized Shares

                	
                  23

                
	 	 
	
                  ARTICLE
                    IV Conditions

                	
                  Error!
                    Bookmark not defined.

                
	 	 
	
                  Section
                    4.1

                	
                  Conditions
                    Precedent to the Obligation of the Company to Sell the
                    Shares

                	
                  23

                
	
                  Section
                    4.2

                	
                  Conditions
                    Precedent to the Obligation of the Purchasers to Purchase the
                    Shares

                	
                  24

                

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          	 	 
	
                  ARTICLE
                    V Stock Certificate Legend

                	
                  26

                
	 	 
	
                  Section
                    5.1

                	
                  Legend

                	
                  26

                
	 	 
	
                  ARTICLE
                    VI Indemnification

                	
                  27

                
	 	 
	
                  Section
                    6.1

                	
                  General
                    Indemnity

                	
                  27

                
	
                  Section
                    6.2

                	
                  Indemnification
                    Procedure

                	
                  27

                
	 	 
	
                  ARTICLE
                    VII Miscellaneous

                	
                  28

                
	 	 
	
                  Section
                    7.1

                	
                  Fees
                    and Expenses

                	
                  28

                
	
                  Section
                    7.2

                	
                  Specific
                    Enforcement, Consent to Jurisdiction.

                	
                  29

                
	
                  Section
                    7.3

                	
                  Entire
                    Agreement; Amendment

                	
                  29

                
	
                  Section
                    7.4

                	
                  Notices

                	
                  30

                
	
                  Section
                    7.5

                	
                  Waivers

                	
                  30

                
	
                  Section
                    7.6

                	
                  Headings

                	
                  31

                
	
                  Section
                    7.7

                	
                  Successors
                    and Assigns

                	
                  31

                
	
                  Section
                    7.8

                	
                  No
                    Third Party Beneficiaries

                	
                  31

                
	
                  Section
                    7.9

                	
                  Governing
                    Law

                	
                  31

                
	
                   Section
                    7.10

                	
                  Survival

                	
                  31

                
	
                   Section
                    7.11

                	
                  Counterparts

                	
                  31

                
	
                   Section
                    7.12

                	
                  Publicity

                	
                  31

                
	
                   Section
                    7.13

                	
                  Severability

                	
                  31

                
	
                   Section
                    7.14

                	
                  Further
                    Assurances

                	
                  32

                

        

      

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

      
         

        SERIES
          B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT 

         

        This
          SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”) is
          dated as of _______ __, 2006 by and among HiEnergy Technologies, Inc.,
          a
          Delaware corporation (the “Company”), and each of the Purchasers of shares of
          Series B Convertible Preferred Stock of the Company whose names are set
          forth on
Exhibit
          A
          hereto
          (individually, a “Purchaser” and collectively, the “Purchasers”).

        

        The
          parties hereto agree as follows:

         

        ARTICLE
          I  

         

        Purchase
          and Sale of Preferred Stock

         

        Section
          1.1   Purchase
          and Sale of Stock.
          Upon
          the following terms and conditions, the Company shall issue and sell to
          the
          Purchasers and each of the Purchasers shall purchase from the Company,
          the
          number of shares of the Company’s Series B Convertible Preferred Stock, par
          value $.001 per share (the “Preferred Shares”), at a purchase price of $10,000
          per share, set forth opposite such Purchaser’s name on Exhibit
          A
          hereto.
          Upon the following terms and conditions, each of the Purchasers shall be
          issued
          Series B-1 Warrants, in substantially the form attached hereto as Exhibit
          B-1
          (the
“Series B-1 Warrants”), to purchase the number of shares of the Company’s common
          stock, par value $.001 per share (the “Common Stock”) set forth opposite such
          Purchaser’s name on Exhibit
          A
          hereto,
          and Series B-2 Warrants, in substantially the form attached hereto as
Exhibit
          B-2
          (the
“Series B-2 Warrants” and, together with the Series B-1 Warrants, the
“Warrants”), to purchase the number of shares of Common Stock set forth opposite
          such Purchaser’s name on Exhibit
          A
          hereto.
          The aggregate purchase price for the Preferred Shares and the Warrants
          shall be
          not less than Two Million Dollars ($2,000,000) and not more than Five Million
          Dollars ($5,000,000). The designation, rights, preferences and other terms
          and
          provisions of the Series B Convertible Preferred Stock are as set forth
          in the
          Certificate of Designation of the Relative Rights and Preferences of the
          Series
          B Convertible Preferred Stock attached hereto as Exhibit
          C
          (the
“Certificate of Designation”). The Company and the Purchasers are executing and
          delivering this Agreement in accordance with and in reliance upon (i) the
          exemption from registration of the Securities under Section 5 of the Securities
          Act of 1933, as amended (the “Securities Act”) afforded by Rule 506 of
          Regulation D (“Regulation D”) as promulgated by the United States Securities and
          Exchange Commission (the “Commission”), or by Section 4(2) of the Securities
          Act, and (ii) all applicable state securities laws and regulations in the
          several states where Preferred Shares are sold by the Company. 

         

        Section
          1.2   The
          Conversion Shares.
          The
          Company has authorized and has reserved and covenants to continue to reserve,
          free of preemptive rights and other similar contractual rights of stockholders,
          a number of shares of Common Stock equal to one hundred percent (100%)
          of the
          number of shares of Common Stock as shall from time to time be sufficient
          to
          effect the conversion of all of the Preferred Shares and exercise of the
          Warrants then outstanding; provided,
          however,
          upon
          the Company filing the Charter Amendment (as defined in Section 3.22 hereof),
          the Company shall authorize and reserve and continue to reserve, free of
          preemptive rights and other similar contractual rights of stockholders,
          a number
          of shares of Common Stock equal to one hundred twenty percent (120%) of
          the
          number of shares of Common Stock as shall from time to time be sufficient
          to
          effect the conversion of all of the Preferred Shares and exercise of the
          Warrants then outstanding. Any shares of Common Stock issuable upon conversion
          of the Preferred Shares and exercise of the Warrants (and such shares when
          issued) are herein referred to as the “Conversion Shares” and the "Warrant
          Shares", respectively. The Preferred Shares, the Conversion Shares and
          the
          Warrant Shares are sometimes collectively referred to as the
“Shares”.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

           

        

        Section
          1.3   Purchase
          Price and Closing.
          The
          Company agrees to issue and sell to the Purchasers and, in consideration
          of and
          in express reliance upon the representations, warranties, covenants, terms
          and
          conditions of this Agreement, the Purchasers, severally but not jointly,
          agree
          to purchase that number of Preferred Shares and Warrants set forth opposite
          their respective names on Exhibit
          A.
          The
          aggregate purchase price (the “Purchase Price”) of the Preferred Shares and
          Warrants being acquired by each Purchaser is set forth opposite such Purchaser’s
          name on Exhibit
          A.
          The
          Purchase Price for the Preferred Shares and the Warrants shall be not less
          than
          Two Million Dollars ($2,000,000) and not more than Five Million Dollars
          ($5,000,000). The Company acknowledges that a portion of the Purchase Price
          shall be paid by certain Purchasers surrendering for cancellation certain
          promissory notes issued by the Company to such Purchasers as more fully
          set
          forth on Schedule
          1.3
          hereto.
          The Company shall be entitled to issue and sell such number of Preferred
          Shares
          and Warrants to Purchasers at one or more closings (each, a “Closing”)
          consummated prior to the filing of the registration statement providing
          for the
          resale of the Conversion Shares and the Warrant Shares, in each case pursuant
          to
          terms of this Agreement and provided that each such Purchaser executes
          a
          signature page hereto and to each of the other Transaction Documents (as
          defined
          in Section 2.1(b) hereof) to which the Purchasers are a party, and thereby
          agrees to be bound by and subject to the terms and conditions hereof and
          thereof. Each date on which a Closing takes place under the terms of this
          Agreement shall be deemed to be a “Closing Date.” Each Closing shall take place
          at the offices of Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the
          Americas, New York, New York 10036 or such other place as the Purchasers
          and the
          Company may agree upon, upon the satisfaction of each of the conditions
          set
          forth in Article IV hereof. Funding
          with respect to each Closing shall take place by wire transfer of immediately
          available funds on or prior to the applicable Closing Date.

         

        Section
          1.4   Warrants.
          The
          Company agrees to issue to each of the Purchasers (A) Series B-1 Warrants
          to
          purchase a number of Warrant Shares equal to thirty percent (30%) of the
          number
          of Conversion Shares issuable upon conversion of such Purchaser’s Preferred
          Shares purchased and (B) Series B-2 Warrants to purchase a number of Warrant
          Shares equal to twenty percent (20%) of the number of Conversion Shares
          issuable
          upon conversion of such Purchaser’s Preferred Shares purchased. The Series B-1
          Warrants shall expire five (5) years from the Closing Date and shall have
          an
          exercise price per Warrant Share equal to $0.45. The Series B-2 Warrants
          shall
          expire five (5) years from the Closing Date and shall have an exercise
          price per
          Warrant Share equal to $0.60. The number of Warrants each Purchaser shall
          be
          issued pursuant to this Agreement is set forth opposite such Purchaser's
          name on
Exhibit
          A
          hereto.

         

        ARTICLE
          II  

         

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

        

         

        Representations
          and Warranties

         

        Section
          2.1   Representations
          and Warranties of the Company.
          The
          Company hereby makes the following
          representations and warranties to the Purchasers, except as set forth in
          the
          Company’s disclosure schedule delivered with this Agreement as follows (where
          used below, and elsewhere in this Agreement, the term “Current SEC Filings”
refers to the Company’s Annual Report on Form 10-KSB for the Fiscal Year ended
          April 30, 2005 (the “Form 10-KSB”), and each subsequent Quarterly Report on Form
          10-QSB (the “Form 10-QSB”), in each case as amended and as filed with the
          Commission on or prior to the date of this Agreement; and any reference
          to a
          specific Schedule
          in this
          Agreement shall be deemed to include therein all applicable items disclosed
          in
          the Current SEC filings as well as all subsequent disclosures, as applicable,
          on
          the specific Schedule
          itself):

         

        (a)  Organization,
          Good Standing and Power.
          The
          Company is a corporation duly incorporated, validly existing and in good
          standing under the laws of the State of Delaware and has the requisite
          corporate
          power to own, lease and operate its properties and assets and to conduct
          its
          business as it is now being conducted. The Company does not have any
          subsidiaries except as set forth in the Form 10-KSB, or in the Form 10-QSB,
          or
          on Schedule
          2.1(a)
          hereto.
          The Company and each such subsidiary is duly qualified as a foreign corporation
          to do business and is in good standing in every jurisdiction in which the
          nature
          of the business conducted or property owned by it makes such qualification
          necessary except for any jurisdiction(s) (alone or in the aggregate) in
          which
          the failure to be so qualified will not have a Material Adverse Effect
          (as
          defined in Section 2.1(c) hereof) on the Company’s financial
          condition.

         

        (b)  Authorization;
          Enforcement.
          The
          Company has the requisite corporate power and authority: (i) to enter into
          and
          perform this Agreement, the Registration Rights Agreement attached hereto
          as
Exhibit
          D
          (the
“Registration Rights Agreement”) and the Warrants, (ii) to adopt the Certificate
          of Designation, (iii) to deliver the Irrevocable Transfer Agent Instructions
          (as
          defined in Section 3.13) in accordance with their respective terms (each
          of such
          documents and instruments being hereinafter collectively referred to as
          the
“Transaction Documents”), and (iv) to issue and sell the Shares and the Warrants
          in accordance with the terms hereof. The execution, delivery and performance
          of
          the Transaction Documents by the Company and the consummation by it of
          the
          transactions contemplated hereby and thereby have been duly and validly
          authorized by all necessary corporate action, and no further consent or
          authorization of the Company or its Board of Directors or stockholders
          is
          required. This Agreement has been duly executed and delivered by the Company.
          The other Transaction Documents will have been duly executed and delivered
          by
          the Company at the Closing. Each of the Transaction Documents constitutes,
          or
          shall constitute when executed and delivered, a valid and binding obligation
          of
          the Company, enforceable against the Company in accordance with its respective
          terms, except as such enforceability may be limited by applicable bankruptcy,
          insolvency, reorganization, moratorium, liquidation, conservatorship,
          receivership or similar laws relating to, or affecting generally the enforcement
          of, creditor’s rights and remedies or by other equitable principles of general
          application. 

         

        (c)  Capitalization.
          The
          authorized capital stock of the Company and the shares thereof currently
          issued
          and outstanding as of the date hereof are as set forth on Schedule
          2.1(c)
          hereto.
          All of the outstanding shares of the Company’s Common Stock and Series B
          Convertible Preferred Stock have been duly and validly authorized. Except
          as set
          forth in this Agreement and the Registration Rights Agreement and as set
          forth
          on Schedule
          2.1(c)
          hereto,
          no shares of Common Stock are entitled to preemptive rights or registration
          rights and there are no outstanding options, warrants, scrip, rights to
          subscribe to, call or commitments of any character whatsoever relating
          to, or
          securities or rights convertible into, any shares of capital stock of the
          Company. Furthermore, except as set forth in this Agreement and the Registration
          Rights Agreement, or on Schedule
          2.1(c)
          hereto,
          there are no contracts, commitments, understandings, or arrangements by
          which
          the Company is or may become bound to issue additional shares of the capital
          stock of the Company or options, securities or rights convertible into
          shares of
          capital stock of the Company. Except for customary transfer restrictions
          contained in agreements entered into by the Company in order to sell restricted
          securities or as set forth on Schedule
          2.1(c)
          hereto,
          the Company is not a party to any agreement granting registration or
          anti-dilution rights to any person with respect to any of its equity or
          debt
          securities. The Company is not a party to, and it has no knowledge of,
          any
          agreement restricting the voting or transfer of any shares of the capital
          stock
          of the Company. Except as set forth on Schedule
          2.1(c)
          hereto,
          the offer and sale of all capital stock, convertible securities, rights,
          warrants, or options of the Company issued prior to the Closing complied
          with
          all applicable Federal and state securities laws, and no stockholder has
          a right
          of rescission or claim for damages with respect thereto which would have
          a
          Material Adverse Effect (as defined below). The Company has furnished or
          made
          available to the Purchasers true and correct copies of the Company’s Certificate
          of Incorporation as in effect on the date hereof (the “Certificate”), and the
          Company’s Bylaws as in effect on the date hereof (the “Bylaws”). For the
          purposes of this Agreement, “Material Adverse Effect” means any material adverse
          effect on the business, operations, properties, prospects, or financial
          condition of the Company and its subsidiaries, taken as a whole, and/or
          any
          condition, circumstance, or situation that would prohibit or otherwise
          materially interfere with the ability of the Company to perform any of
          its
          obligations under this Agreement in any material respect.

         

        
          
            
            

          

          
            3

            
              

            

          

          
            
            

          

        

         

        (d)  Issuance
          of Shares.
          The
          Preferred Shares and the Warrants to be issued at the Closing have been
          duly
          authorized by all necessary corporate action and the Preferred Shares,
          when paid
          for or issued in accordance with the terms hereof, shall be validly issued
          and
          outstanding, fully paid and nonassessable and entitled to the rights and
          preferences set forth in the Certificate of Designation. When the Conversion
          Shares and the Warrant Shares are issued in accordance with the terms of
          the
          Certificate of Designation and the Warrants, respectively, such shares
          will be
          duly authorized by all necessary corporate action and validly issued and
          outstanding, fully paid and nonassessable, and the holders shall be entitled
          to
          all rights accorded to a holder of Common Stock. 

         

         

        (e)  No
          Conflicts.
          The
          execution, delivery and performance of the Transaction Documents by the
          Company,
          the performance by the Company of its obligations under the Certificate
          of
          Designation and the consummation by the Company of the transactions contemplated
          herein and therein do not and will not (i) violate any provision of the
          Company’s Certificate or Bylaws, (ii) conflict with, or constitute a default (or
          an event which with notice or lapse of time or both would become a default)
          under, or give to others any rights of termination, amendment, acceleration
          or
          cancellation of, any agreement, mortgage, deed of trust, indenture, note,
          bond,
          license, lease agreement, instrument or obligation to which the Company
          is a
          party or by which it or its properties or assets are bound, (iii) create
          or
          impose a lien, mortgage, security interest, charge or encumbrance of any
          nature
          on any property of the Company under any agreement or any commitment to
          which
          the Company is a party or by which the Company is bound or by which any
          of its
          respective properties or assets are bound, or (iv) result in a violation
          of any
          federal, state, local or foreign statute, rule, regulation, order, judgment
          or
          decree (including Federal and state securities laws and regulations) applicable
          to the Company or any of its subsidiaries or by which any property or asset
          of
          the Company or any of its subsidiaries are bound or affected, except, in
          all
          cases other than violations pursuant to clauses (i) and (iv) above, for
          such
          conflicts, defaults, terminations, amendments, accelerations, cancellations
          and
          violations as would not, individually or in the aggregate, have a Material
          Adverse Effect. The business of the Company and its subsidiaries is not
          being
          conducted in violation of any laws, ordinances or regulations of any
          governmental entity, except for possible violations which singularly or
          in the
          aggregate do not and will not have a Material Adverse Effect. The Company
          is not
          required under Federal, state or local law, rule or regulation to obtain
          any
          consent, authorization or order of, or make any filing or registration
          with, any
          court or governmental agency in order for it to execute, deliver or perform
          any
          of its obligations under the Transaction Documents, or issue and sell the
          Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares
          in
          accordance with the terms hereof or thereof (other than any filings which
          may be
          required to be made by the Company with the Commission or state securities
          administrators subsequent to the Closing, any registration statement which
          may
          be filed pursuant hereto, and the Certificate of Designation); provided
          that,
          for purposes of the representation made in this sentence, the Company is
          assuming and relying upon the accuracy of the relevant representations
          and
          agreements of the Purchasers herein.

         

        
          
            
            

          

          
            4

            
              

            

          

          
            
            

          

        

         

        (f)  Commission
          Documents, Financial Statements.
          The
          Common Stock is registered pursuant to Section 12(b) or 12(g) of the Securities
          Exchange Act of 1934, as amended (the “Exchange Act”), and, since October 31,
          2004, the Company has timely filed all reports, schedules, forms, statements
          and
          other documents required to be filed by it with the Commission pursuant
          to the
          reporting requirements of the Exchange Act, including material filed pursuant
          to
          Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
          filings incorporated by reference therein being referred to herein as the
          “Commission Documents”). The Company has delivered or made available to each of
          the Purchasers true and complete copies of the Commission Documents filed
          with
          the Commission since April 30, 2004. The Company has not provided to the
          Purchasers any material non-public information or other information which,
          according to applicable law, rule or regulation, was required to have been
          disclosed publicly by the Company but which has not been so disclosed,
          other
          than with respect to the transactions contemplated by this Agreement. At
          the
          times of their respective filings, the Form 10-KSB and the Form 10-QSB
          complied
          in all material respects with the requirements of the Exchange Act and
          the rules
          and regulations of the Commission promulgated thereunder and other federal,
          state and local laws, rules and regulations applicable to such documents,
          and,
          as of their respective dates, none of the Form 10-KSB and the Form 10-QSB
          contained any untrue statement of a material fact or omitted to state a
          material
          fact required to be stated therein or necessary in order to make the statements
          therein, in light of the circumstances under which they were made, not
          misleading. The financial statements of the Company included in the Commission
          Documents comply as to form in all material respects with applicable accounting
          requirements and the published rules and regulations of the Commission
          or other
          applicable rules and regulations with respect thereto. Such financial statements
          have been prepared in accordance with United States generally accepted
          accounting principles (“GAAP”) applied on a consistent basis during the periods
          involved (except (i) as may be otherwise indicated in such financial statements
          or the notes thereto or (ii) in the case of unaudited interim statements,
          to the
          extent they may not include footnotes or may be condensed or summary
          statements), and fairly present in all material respects the financial
          position
          of the Company and its subsidiaries as of the dates thereof and the results
          of
          operations and cash flows for the periods then ended (subject, in the case
          of
          unaudited statements, to normal year-end audit adjustments).

         

        
          
            
            

          

          
            5

            
              

            

          

          
            
            

          

           

        

        (g)  Subsidiaries.
          Schedule
          2.1(g)
          hereto
          sets forth each subsidiary of the Company, showing the jurisdiction of
          its
          incorporation or organization and showing the percentage of each person’s
          ownership. For the purposes of this Agreement, “subsidiary” shall mean any
          corporation or other entity of which at least a majority of the securities
          or
          other ownership interest having ordinary voting power (absolutely or
          contingently) for the election of directors or other persons performing
          similar
          functions are at the time owned directly or indirectly by the Company and/or
          any
          of its other subsidiaries. All of the outstanding shares of capital stock
          of
          each subsidiary have been duly authorized and validly issued, and are fully
          paid
          and nonassessable. There are no outstanding preemptive, conversion or other
          rights, options, warrants or agreements granted or issued by or binding
          upon any
          subsidiary for the purchase or acquisition of any shares of capital stock
          of any
          subsidiary or any other securities convertible into, exchangeable for or
          evidencing the rights to subscribe for any shares of such capital stock.
          Neither
          the Company nor any subsidiary is subject to any obligation (contingent
          or
          otherwise) to repurchase or otherwise acquire or retire any shares of the
          capital stock of any subsidiary or any convertible securities, rights,
          warrants
          or options of the type described in the preceding sentence. Neither the
          Company
          nor any subsidiary is party to, nor has any knowledge of, any agreement
          restricting the voting or transfer of any shares of the capital stock of
          any
          subsidiary.

         

        (h)  No
          Material Adverse Change.
          Since
          April 30, 2005, the Company has not experienced or suffered any Material
          Adverse
          Effect, other than as disclosed in this Agreement or the Schedules
          hereto.

         

        (i)  No
          Undisclosed Liabilities.
          Except
          as set forth on Schedule
          2.1(i)
          hereto,
          neither the Company nor any of its subsidiaries has any liabilities,
          obligations, claims or losses (whether liquidated or unliquidated, secured
          or
          unsecured, absolute, accrued, contingent or otherwise) other than those
          incurred
          in the ordinary course of the Company’s or its subsidiaries respective
          businesses since April 30, 2005 and which, individually or in the aggregate,
          do
          not or would not have a Material Adverse Effect on the Company or its
          subsidiaries.

         

        (j)  No
          Undisclosed Events or Circumstances.
          Except
          as set forth on Schedule
          2.1(j)
          hereto,
          no event or circumstance has occurred or exists with respect to the Company
          or
          its subsidiaries or their respective businesses, properties, prospects,
          operations or financial condition, which, under applicable law, rule or
          regulation, requires public disclosure or announcement by the Company but
          which
          has not been so publicly announced or disclosed.

         

        (k)  Indebtedness.
          Schedule
          2.1(k)
          hereto
          sets forth as of a recent date all outstanding secured and unsecured
          Indebtedness of the Company or any subsidiary, or for which the Company
          or any
          subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess
          of
          $100,000 (other than trade accounts payable incurred in the ordinary course
          of
          business), (b) all guaranties, endorsements and other contingent obligations
          in
          respect of Indebtedness of others, whether or not the same are or should
          be
          reflected in the Company’s balance sheet (or the notes thereto), except
          guaranties by endorsement of negotiable instruments for deposit or collection
          or
          similar transactions in the ordinary course of business; and (c) the present
          value of any lease payments in excess of $25,000 due under leases required
          to be
          capitalized in accordance with GAAP. Except as set forth on Schedule
          2.1(k),
          neither
          the Company nor any subsidiary is in default with respect to any
          Indebtedness.

         

        
          
            
            

          

          
            6

            
              

            

          

          
            
            

          

           

        

        (l)  Title
          to Assets.
          Each of
          the Company and the subsidiaries has good and marketable title to all of
          its
          real and personal property reflected in the Form 10-KSB, free and clear
          of any
          mortgages, pledges, charges, liens, security interests or other encumbrances,
          except for those disclosed on Schedule
          2.1(l)
          hereto
          or such that, individually or in the aggregate, do not cause a Material
          Adverse
          Effect on the Company’s financial condition or operating results. All said
          leases of the Company and each of its subsidiaries are valid and subsisting
          and
          in full force and effect.

         

        (m)  Actions
          Pending.
          There
          is no action, suit, claim, investigation, arbitration, alternate dispute
          resolution proceeding or any other proceeding pending or, to the knowledge
          of
          the Company, threatened against the Company or any subsidiary which questions
          the validity of this Agreement or any of the other Transaction Documents
          or the
          transactions contemplated hereby or thereby or any action taken or to be
          taken
          pursuant hereto or thereto. Except as set forth on Schedule
          2.1(m)
          hereto,
          there is no action, suit, claim, investigation, arbitration, alternate
          dispute
          resolution proceeding or any other proceeding pending or, to the knowledge
          of
          the Company, threatened, against or involving the Company, any subsidiary
          or any
          of their respective properties or assets. Except as set forth on Schedule
          2.1(m)
          hereto,
          there are no outstanding orders, judgments, injunctions, awards or decrees
          of
          any court, arbitrator or governmental or regulatory body against the Company
          or
          any subsidiary or any officers or directors of the Company or subsidiary
          in
          their capacities as such.

         

        (n)  Compliance
          with Law.
          The
          business of the Company and the subsidiaries has been and is presently
          being
          conducted in accordance with all applicable federal, state and local
          governmental laws, rules, regulations and ordinances, except as set forth
          in the
          Current SEC Filings, or such that, individually or in the aggregate, do
          not
          cause a Material Adverse Effect. The Company and each of its subsidiaries
          have
          all franchises, permits, licenses, consents and other governmental or regulatory
          authorizations and approvals necessary for the conduct of its business
          as now
          being conducted by it unless the failure to possess such franchises, permits,
          licenses, consents and other governmental or regulatory authorizations
          and
          approvals, individually or in the aggregate, could not reasonably be expected
          to
          have a Material Adverse Effect.

         

        (o)  Taxes.
          Except
          as has been disclosed in the Company’s Current SEC Filings, the Company and each
          of the subsidiaries has accurately prepared and filed all federal, state
          and
          other tax returns required by law to be filed by it, has paid or made provisions
          for the payment of all taxes shown to be due and all additional assessments,
          and
          adequate provisions have been and are reflected in the financial statements
          of
          the Company and the subsidiaries for all current taxes and other charges
          to
          which the Company or any subsidiary is subject and which are not currently
          due
          and payable. None of the federal income tax returns of the Company or any
          subsidiary have been audited by the Internal Revenue Service. The Company
          has no
          knowledge of any additional assessments, adjustments or contingent tax
          liability
          (whether federal or state) of any nature whatsoever, whether pending or
          threatened against the Company or any subsidiary for any period, nor of
          any
          basis for any such assessment, adjustment or contingency.

         

        
          
            
            

          

          
            7

            
              

            

          

          
            
            

          

           

        

        (p)  Certain
          Fees.
          Except
          as set forth in this Agreement or on Schedule
          2.1(p)
          hereto,
          no brokers, finders or financial advisory fees or commissions will be payable
          by
          the Company or any subsidiary or any Purchaser with respect to the transactions
          contemplated by this Agreement.

         

        (q)  Disclosure.
          Neither
          this Agreement or the Schedules hereto nor any other documents, certificates
          or
          instruments furnished to the Purchasers by or on behalf of the Company
          or any
          subsidiary in connection with the transactions contemplated by this Agreement
          contain any untrue statement of a material fact or omit to state a material
          fact
          necessary in order to make the statements made herein or therein, in the
          light
          of the circumstances under which they were made herein or therein, not
          misleading.

         

        (r)  Operation
          of Business.
          The
          Company and each of the subsidiaries owns or possesses valid licenses for
          the
          use of all patents, trademarks, domain names (whether or not registered)
          and any
          patentable improvements or copyrightable derivative works thereof, websites
          and
          intellectual property rights relating thereto, service marks, trade names,
          copyrights, licenses and authorizations as set forth on Schedule
          2.1(r)
          hereto,
          and all rights with respect to the foregoing, which are necessary for the
          conduct of its business as now conducted without any conflict with the
          rights of
          others.

         

        (s)  Environmental
          Compliance.
          The
          Company and each of its subsidiaries have obtained all material approvals,
          authorization, certificates, consents, licenses, orders and permits or
          other
          similar authorizations of all governmental authorities, or from any other
          person, that are required under any Environmental Laws. The Current SEC
          Filings
          describe all material permits, licenses and other authorizations issued
          under
          any Environmental Laws to the Company or its subsidiaries. “Environmental Laws”
shall mean all applicable laws relating to the protection of the environment
          including, without limitation, all requirements pertaining to reporting,
          licensing, permitting, controlling, investigating or remediating emissions,
          discharges, releases or threatened releases of hazardous substances, chemical
          substances, pollutants, contaminants or toxic substances, materials or
          wastes,
          whether solid, liquid or gaseous in nature, into the air, surface water,
          groundwater or land, or relating to the manufacture, processing, distribution,
          use, treatment, storage, disposal, transport or handling of hazardous
          substances, chemical substances, pollutants, contaminants or toxic substances,
          material or wastes, whether solid, liquid or gaseous in nature. Except
          where any
          failure would individually or in the aggregate have a Material Adverse
          Effect on
          the Company, (i) the Company has all necessary governmental approvals required
          under all Environmental Laws and used in its business or in the business
          of any
          of its subsidiaries; and (ii) the Company and each of its subsidiaries
          are in
          compliance with all other limitations, restrictions, conditions, standards,
          requirements, schedules and timetables required or imposed under all
          Environmental Laws. Except for such instances as would not individually
          or in
          the aggregate have a Material Adverse Effect, there are no past or present
          events, conditions, circumstances, incidents, actions or omissions relating
          to
          or in any way affecting the Company or its subsidiaries that violate or
          may
          violate any Environmental Law after the Closing Date or that may give rise
          to
          any environmental liability, or otherwise form the basis of any claim,
          action,
          demand, suit, proceeding, hearing, study or investigation (iii) under any
          Environmental Law, or (iv) based on or related to the manufacture, processing,
          distribution, use, treatment, storage (including without limitation underground
          storage tanks), disposal, transport or handling, or the emission, discharge,
          release or threatened release of any hazardous substance. 

         

        
          
            
            

          

          
            8

            
              

            

          

          
            
            

          

        

         

        (t)  Books
          and Records, Internal Accounting Controls.
          The
          books and records of the Company and its subsidiaries accurately reflect
          in all
          material respects the information relating to the business of the Company
          and
          the subsidiaries, the location and collection of their assets, and the
          nature of
          all transactions giving rise to the obligations or accounts receivable
          of the
          Company or any subsidiary. The Company and each of its subsidiaries maintain
          a
          system of internal accounting controls sufficient, in the judgment of the
          Company, to provide reasonable assurance that (i) transactions are executed
          in
          accordance with management’s general or specific authorizations, (ii)
          transactions are recorded as necessary to permit preparation of financial
          statements in conformity with GAAP and to maintain asset accountability,
          (iii)
          access to assets is permitted only in accordance with management’s general or
          specific authorization and (iv) the recorded accountability for assets
          is
          compared with the existing assets at reasonable intervals and appropriate
          actions is taken with respect to any differences.

         

        (u)  Material
          Agreements.
          Except
          as set forth on Schedule
          2.1(u)
          hereto,
          neither the Company nor any subsidiary is a party to any written or oral
          contract, instrument, agreement, commitment, obligation, plan or arrangement,
          a
          copy of which would be required to be filed with the Commission as an exhibit
          to
          a registration statement on Form S-3 or applicable form (collectively,
“Material
          Agreements”) if the Company or any subsidiary were registering securities under
          the Securities Act. Except as set forth on Schedule
          2.1(u)
          or in
          the Commission Documents, the Company and each of its subsidiaries has
          in all
          material respects performed all the obligations required to be performed
          by them
          to date under the foregoing agreements, have received no notice of default
          and,
          to the best of the Company’s knowledge are not in default under any Material
          Agreement now in effect, the result of which could cause a Material Adverse
          Effect. Except as set forth on Schedule
          2.1(u)
          hereto,
          no written or oral contract, instrument, agreement, commitment, obligation,
          plan
          or arrangement of the Company or of any subsidiary limits or shall limit
          the
          payment of dividends on the Company’s Preferred Shares, other Preferred Stock,
          if any, or its Common Stock.

         

        (v)  Transactions
          with Affiliates.
          Except
          as set forth on Schedule
          2.1(v)
          hereto,
          there are no loans, leases, agreements, contracts, royalty agreements,
          management contracts or arrangements or other continuing transactions between
          (i) the Company or any subsidiary on the one hand, and (ii) on the other
          hand,
          any officer, employee, consultant or director of the Company, or any of
          its
          subsidiaries, or any person owning any capital stock of the Company or
          any
          subsidiary or any member of the immediate family of such officer, employee,
          consultant, director or stockholder or any corporation or other entity
          controlled by such officer, employee, consultant, director or stockholder,
          or a
          member of the immediate family of such officer, employee, consultant, director
          or stockholder.

         

        
          
            
            

          

          
            9

            
              

            

          

          
            
            

          

        

         

        (w)  Securities
          Act of 1933.
          Based
          in material part upon the representations herein of the Purchasers, the
          Company
          has complied and will comply with all applicable federal and state securities
          laws in connection with the offer, issuance and sale of the Shares and
          the
          Warrants hereunder. Neither the Company nor anyone acting on its behalf,
          directly or indirectly, has or will sell, offer to sell or solicit offers
          to buy
          any of the Shares, the Warrants or similar securities to, or solicit offers
          with
          respect thereto from, or enter into any preliminary conversations or
          negotiations relating thereto with, any person, or has taken or will take
          any
          action so as to bring the issuance and sale of any of the Shares and the
          Warrants under the registration provisions of the Securities Act and applicable
          state securities laws, and neither the Company nor any of its affiliates,
          nor
          any person acting on its or their behalf, has engaged in any form of general
          solicitation or general advertising (within the meaning of Regulation D
          under
          the Securities Act) in connection with the offer or sale of any of the
          Shares
          and the Warrants.

         

        (x)  Governmental
          Approvals.
          Except
          for the filing of any notice prior or subsequent to the Closing Date that
          may be
          required under applicable state and/or federal securities laws (which if
          required, shall be filed on a timely basis), including the filing of a
          Form D
          and applicable Blue Sky filings in the states where the Purchasers reside,
          a
          registration statement or statements pursuant to the Registration Rights
          Agreement, and the filing of the Certificate of Designation with the Secretary
          of State for the State of Delaware, no authorization, consent, approval,
          license, exemption of, filing or registration with any court or governmental
          department, commission, board, bureau, agency or instrumentality, domestic
          or
          foreign, is or will be necessary for, or in connection with, the execution
          or
          delivery of the Preferred Shares and the Warrants, or for the performance
          by the
          Company of its obligations under the Transaction Documents.

         

        (y)  Employees.
          Neither
          the Company nor any subsidiary has any collective bargaining arrangements
          or
          agreements covering any of its employees, except as set forth in the Form
          10-KSB, Form 10-QSB or on Schedule
          2.1(y)
          hereto.
          Except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule
          2.1(y)
          hereto,
          neither the Company nor any subsidiary has any employment contract, agreement
          regarding proprietary information, non-competition agreement, non-solicitation
          agreement, confidentiality agreement, or any other similar contract or
          restrictive covenant, relating to the right of any officer, employee or
          consultant to be employed or engaged by the Company or such subsidiary.
          Since
          April 30, 2005, no officer, consultant or key employee of the Company or
          any
          subsidiary whose termination, either individually or in the aggregate,
          could
          have a Material Adverse Effect, has terminated or, to the knowledge of
          the
          Company, has any present intention of terminating his or her employment
          or
          engagement with the Company or any subsidiary.

         

        (z)  Absence
          of Certain Developments.
          Except
          as provided on Schedule
          2.1(z)
          hereto,
          since January 31, 2006, neither the Company nor any subsidiary has:

         

        
          
            
            

          

          
            10

            
              

            

          

          
            
            

          

        

         

        
          (i) issued
            any stock, bonds or other corporate securities or any rights, options
            or
            warrants with respect thereto;

           

          (ii) borrowed
            any amount or incurred or become subject to any liabilities (absolute
            or
            contingent) except current liabilities incurred in the ordinary course
            of
            business which are comparable in nature and amount to the current liabilities
            incurred in the ordinary course of business during the comparable portion
            of its
            prior fiscal year, as adjusted to reflect the current nature and volume
            of the
            Company’s or such subsidiary’s business;

           

          (iii) discharged
            or satisfied any lien or encumbrance or paid any obligation or liability
            (absolute or contingent), other than current liabilities paid in the
            ordinary
            course of business;

           

          (iv) declared
            or made any payment or distribution of cash or other property to stockholders
            with respect to its stock, or purchased or redeemed, or made any agreements
            so
            to purchase or redeem, any shares of its capital stock;

           

          (v) sold,
            assigned or transferred any other tangible assets, or canceled any debts
            or
            claims, except in the ordinary course of business;

           

          (vi) sold,
            assigned or transferred any patent rights, trademarks, trade names, copyrights,
            trade secrets or other intangible assets or intellectual property rights,
            or
            disclosed any proprietary confidential information to any person except
            to
            customers in the ordinary course of business or to the Purchasers or
            their
            representatives;

           

          (vii) suffered
            any substantial losses or waived any rights of material value, whether
            or not in
            the ordinary course of business, or suffered the loss of any material
            amount of
            prospective business;

           

          (viii) made
            any
            changes in employee compensation except in the ordinary course of business
            and
            consistent with past practices;

           

          (ix) made
            capital expenditures or commitments therefor that aggregate in excess
            of
            $100,000;

           

          (x) entered
            into any other transaction other than in the ordinary course of business,
            or
            entered into any other material transaction, whether or not in the ordinary
            course of business;

           

          (xi) made
            charitable contributions or pledges in excess of $25,000;

           

          (xii) suffered
            any material damage, destruction or casualty loss, whether or not covered
            by
            insurance;

           

          (xiii) experienced
            any material problems with labor or management in connection with the
            terms and
            conditions of their employment;

           

        

        
          
            
            

          

          
            11

            
              

            

          

          
            
            

          

           

          
            (xiv) effected
              any two or more events of the foregoing kind which in the aggregate
              would be
              material to the Company or its subsidiaries; or

             

            (xv) entered
              into an agreement, written or otherwise, to take any of the foregoing
              actions.

             

          

        

        (aa)  Public
          Utility Holding Company Act and Investment Company Act Status.
          The
          Company is not a “holding company” or a “public utility company” as such terms
          are defined in the Public Utility Holding Company Act of 1935, as amended.
          The
          Company is not, and as a result of and immediately upon the Closing will
          not be,
          an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
          amended.

         

        (bb)  ERISA.
          No
          liability to the Pension Benefit Guaranty Corporation has been incurred
          with
          respect to any Plan by the Company or any of its subsidiaries which is
          or would
          be materially adverse to the Company and its subsidiaries. The execution
          and
          delivery of this Agreement and the issuance and sale of the Preferred Shares
          will not involve any transaction which is subject to the prohibitions of
          Section
          406 of ERISA or in connection with which a tax could be imposed pursuant
          to
          Section 4975 of the Internal Revenue Code of 1986, as amended, provided
          that, if
          any of the Purchasers, or any person or entity that owns a beneficial interest
          in any of the Purchasers, is an “employee pension benefit plan” (within the
          meaning of Section 3(2) of ERISA) with respect to which the Company is
          a “party
          in interest” (within the meaning of Section 3(14) of ERISA), the requirements of
          Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used
          in this
          Section 2.1(ac), the term “Plan” shall mean an “employee pension benefit plan”
(as defined in Section 3 of ERISA) which is or has been established or
          maintained, or to which contributions are or have been made, by the Company
          or
          any subsidiary or by any trade or business, whether or not incorporated,
          which,
          together with the Company or any subsidiary, is under common control, as
          described in Section 414(b) or (c) of the Code.

         

        (cc)  Dilutive
          Effect.
          The
          Company understands and acknowledges that the number of Conversion Shares
          issuable upon conversion of the Preferred Shares and the Warrant Shares
          issuable
          upon exercise of the Warrants will increase in certain circumstances. The
          Company further acknowledges that its obligation to issue Conversion Shares
          upon
          conversion of the Preferred Shares in accordance with this Agreement and
          the
          Certificate of Designation and its obligations to issue Warrant Shares
          upon the
          exercise of the Warrants in accordance with this Agreement and the Warrants,
          is,
          in each case, absolute and unconditional regardless of the dilutive effect
          that
          such issuance may have on the ownership interest of other
          stockholders of the Company.

         

        (dd)  No
          Integrated Offering.
          Neither
          the Company, nor any of its affiliates, nor any person acting on its or
          their
          behalf, has directly or indirectly made any offers or sales of any security
          or
          solicited any offers to buy any security under circumstances that would
          cause
          the offering of the Shares pursuant to this Agreement to be integrated
          with
          prior offerings by the Company for purposes of the Securities Act which
          would
          prevent the Company from selling the Shares pursuant to Rule 506 under
          the
          Securities Act, or any applicable exchange-related stockholder approval
          provisions, nor will the Company or any of its affiliates or subsidiaries
          take
          any action or steps that would cause the offering of the Shares to be integrated
          with other offerings.
          The
          Company does not have any registration statement pending before the Commission
          or currently under the Commission’s review and, other than as set forth on
Schedule
          2.1(c),
          since September
          1, 2005, the Company has not offered or sold any of its equity securities
          or
          debt securities convertible into shares of Common Stock.

         

        
          
            
            

          

          
            12

            
              

            

          

          
            
            

          

           

        

        (ee)  Sarbanes-Oxley
          Act.
          The
          Company is in compliance with the provisions of the Sarbanes-Oxley Act
          of 2002
          (the “Sarbanes-Oxley Act”), and the rules and regulations promulgated
          thereunder, that are effective and applicable to the Company, and intends
          to
          comply with other provisions of the Sarbanes-Oxley Act, and the rules and
          regulations promulgated thereunder, upon the effectiveness of such provisions
          or
          their becoming applicable to the Company.

         

        (ff)  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, 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.

         

        Section
          2.2   Representations
          and Warranties of the Purchasers.
          Each of
          the Purchasers hereby makes the following representations and warranties
          to the
          Company with respect solely to itself and not with respect to any other
          Purchaser:

         

        (a)  Organization
          and Standing of the Purchasers.
          If the
          Purchaser is an entity, such Purchaser is a corporation or partnership
          duly
          incorporated or organized, validly existing and in good standing under
          the laws
          of the jurisdiction of its incorporation or organization.

         

        (b)  Authorization
          and Power.
          Each
          Purchaser has the requisite power and authority to enter into and perform
          this
          Agreement and to purchase the Preferred Shares and Warrants being sold
          to it
          hereunder. The execution, delivery and performance of this Agreement and
          the
          Registration Rights Agreement by such Purchaser and the consummation by
          it of
          the transactions contemplated hereby and thereby have been duly authorized
          by
          all necessary corporate or partnership action, and no further consent or
          authorization of such Purchaser or its Board of Directors, stockholders,
          or
          partners, as the case may be, is required. Each of this Agreement and the
          Registration Rights Agreement has been duly authorized, executed and delivered
          by such Purchaser and constitutes, or shall constitute when executed and
          delivered, a valid and binding obligation of the Purchaser enforceable
          against
          the Purchaser in accordance with the terms thereof.

         

        
          
            
            

          

          
            13

            
              

            

          

          
            
            

          

        

         

        (c)  No
          Conflicts.
          The
          execution, delivery and performance of this Agreement and the Registration
          Rights Agreement and the consummation by such Purchaser of the transactions
          contemplated hereby and thereby or relating hereto do not and will not
          (i)
          result in a violation of such Purchaser’s charter documents or bylaws or other
          organizational documents or (ii) conflict with, or constitute a default
          (or an
          event which with notice or lapse of time or both would become a default)
          under,
          or give to others any rights of termination, amendment, acceleration or
          cancellation of any agreement, indenture or instrument or obligation to
          which
          such Purchaser is a party or by which its properties or assets are bound,
          or
          result in a violation of any law, rule, or regulation, or any order, judgment
          or
          decree of any court or governmental agency applicable to such Purchaser
          or its
          properties (except for such conflicts, defaults and violations as would
          not,
          individually or in the aggregate, have a material adverse effect on such
          Purchaser). Such Purchaser is not required to obtain any consent, authorization
          or order of, or make any filing or registration with, any court or governmental
          agency in order for it to execute, deliver or perform any of its obligations
          under this Agreement or the Registration Rights Agreement or to purchase
          the
          Preferred Shares or acquire the Warrants in accordance with the terms hereof,
          provided that for purposes of the representation made in this sentence,
          such
          Purchaser is assuming and relying upon the accuracy of the relevant
          representations and agreements of the Company herein.

         

        (d)  Acquisition
          for Investment.
          Each
          Purchaser is acquiring the Preferred Shares and the Warrants solely for
          its own
          account for the purpose of investment and not with a view to or for sale
          in
          connection with the distribution thereof. Such Purchaser does not have
          a present
          intention to sell the Preferred Shares or the Warrants, nor a present
          arrangement (whether or not legally binding) or intention to effect any
          distribution of the Preferred Shares or the Warrants to or through any
          person or
          entity; provided,
          however,
          that by
          making the representations herein and subject to Section 2.2(h) below,
          such
          Purchaser does not agree to hold the Shares or the Warrants for any minimum
          or
          other specific term and reserves the right to dispose of the Shares or
          the
          Warrants at any time in accordance with Federal and state securities laws
          applicable to such disposition. Each Purchaser acknowledges that it is
          able to
          bear the financial risks associated with an investment in the Preferred
          Shares
          and the Warrants and that it has been given full access to such records
          of the
          Company and the subsidiaries and to the officers of the Company and the
          subsidiaries and received such information as it has deemed necessary or
          appropriate to conduct its due diligence investigation and has sufficient
          knowledge and experience in investing in companies similar to the Company
          in
          terms of the Company’s stage of development so as to be able to evaluate the
          risks and merits of its investment in the Company.

         

        
          
            
            

          

          
            14

            
              

            

          

          
            
            

          

        

         

        (e)  Status
          of Purchasers.
          Such
          Purchaser is an “accredited investor” as defined in Regulation D promulgated
          under the Securities Act. Such Purchaser is not required to be registered
          as a
          broker-dealer under Section 15 of the Exchange Act and such Purchaser is
          not and
          does not act as a broker-dealer, nor as an underwriter under Section 2(11)
          of
          the Securities Act.

         

        (f)  Opportunities
          for Additional Information.
          Each
          Purchaser acknowledges that such Purchaser has had the opportunity to ask
          questions of and receive answers from, or obtain additional information
          from,
          the executive officers of the Company concerning the financial and other
          affairs
          of the Company, and to the extent deemed necessary in light of such Purchaser’s
          personal knowledge of the Company’s affairs, such Purchaser has asked such
          questions and received answers to the full satisfaction of such Purchaser,
          and
          such Purchaser desires to invest in the Company.

         

        (g)  No
          General Solicitation.
          Each
          Purchaser acknowledges that the Preferred Shares and the Warrants were
          not
          offered to such Purchaser by means of any form of general or public solicitation
          or general advertising, or publicly disseminated advertisements or sales
          literature, including (i) any advertisement, article, notice or other
          communication published in any newspaper, magazine, or similar media, or
          broadcast over television or radio, or (ii) any seminar or meeting to which
          such
          Purchaser was invited by any of the foregoing means of
          communications.

         

        (h)  Rule
          144.
          Such
          Purchaser understands that the Shares and the Warrants must be held indefinitely
          unless they are registered under the Securities Act or an exemption from
          registration is available. Such Purchaser acknowledges that such Purchaser
          is
          familiar with Rule 144 of the rules and regulations of the Commission,
          as
          amended, promulgated pursuant to the Securities Act (“Rule 144”), and that such
          person has been advised that Rule 144 permits resales only under certain
          circumstances. Such Purchaser understands that to the extent that Rule
          144 is
          not available, such Purchaser will be unable to sell any Shares or Warrants
          without either registration under the Securities Act or the existence of
          another
          exemption from such registration requirement.

         

        (i)  General.
          Such
          Purchaser understands that the Shares and the Warrants are being offered
          and
          sold in reliance on a transactional exemption from the registration requirement
          of federal and state securities laws and regulations, and the Company is
          relying
          upon the truth and accuracy of the representations, warranties, agreements,
          acknowledgments and understandings of such Purchaser set forth herein in
          order
          to determine the applicability of such exemptions and the suitability of
          such
          Purchaser to acquire the Shares and the Warrants.

         

        (j)  Independent
          Investment.
          Except
          as may be disclosed in any filings with the Commission by the Purchasers,
          or any
          of them, under Section 13 and/or Section 16 of the Exchange Act, no Purchaser
          has agreed to act with any other Purchaser for the purpose of acquiring,
          holding, voting or disposing of the Shares purchased hereunder for purposes
          of
          Section 13(d) under the Exchange Act, and each Purchaser is acting independently
          with respect to its investment in the Shares and the Warrants.

         

        
          
            
            

          

          
            15

            
              

            

          

          
            
            

          

           

        

        (k)  No
          Shorting.
          No
          Purchaser has engaged in any short sales of the Common Stock or instructed
          any
          third parties to engage in any short sales of the Common Stock on its behalf
          prior to the Closing Date. Each Purchaser covenants and agrees that it
          will not
          be in a net short position with respect to the shares of Common
          Stock.

         

        (l)  Trading
          Restrictions.
          Commencing on the date that the Purchasers were initially contacted regarding
          an
          investment in the Securities, none of the Purchasers has engaged in any
          trading
          activities with respect to the Common Stock and will not engage in any
          trading
          activities with respect to the Common Stock prior to the public announcement
          of
          the consummation of the transactions contemplated by this Agreement in
          accordance with Section 3.16 hereof.

         

        ARTICLE
          III  

         

        Covenants

         

        The
          Company covenants with each of the Purchasers as follows, which covenants
          are
          for the benefit of the Purchasers and their permitted assignees (as defined
          herein).

         

        Section
          3.1   Securities
          Compliance.
          The
          Company shall notify the Commission in accordance with their rules and
          regulations, of the transactions contemplated by any of the Transaction
          Documents, including filing a Form D with respect to the Preferred Shares,
          Warrants, Conversion Shares and Warrant Shares as required under Regulation
          D,
          and shall take all other necessary action and proceedings as may be required
          and
          permitted by applicable law, rule and regulation, for the legal and valid
          issuance of the Preferred Shares, the Warrants, the Conversion Shares and
          the
          Warrant Shares to the Purchasers or subsequent holders. 

         

        Section
          3.2   Registration
          and Listing.
          The
          Company will cause its Common Stock to continue to be registered under
          Sections
          12(b) or 12(g) of the Exchange Act, will comply in all respects with its
          reporting and filing obligations under the Exchange Act, will comply with
          all
          requirements related to any registration statement filed pursuant to this
          Agreement or the Registration Rights Agreement, and will not take any action
          or
          file any document (whether or not permitted by the Securities Act or the
          rules
          promulgated thereunder) to terminate
          or suspend such registration or to terminate or suspend its reporting and
          filing
          obligations under the Exchange Act or Securities Act, except as permitted
          herein. The Company will take all action necessary to continue the listing
          or
          trading of its Common Stock on the OTC Bulletin Board or such other recognized
          exchange or market on which the Common Stock is or may in the future be
          trading. 

         

        Section
          3.3   Inspection
          Rights.
          The
          Company shall permit, during normal business hours and upon reasonable
          request
          and reasonable notice, each Purchaser or any employees, agents or
          representatives thereof, so long as such Purchaser shall be obligated hereunder
          to purchase the Preferred Shares or shall beneficially own any Preferred
          Shares,
          or shall own Conversion Shares which, in the aggregate, represent more
          than 2%
          of the total combined voting power of all voting securities then outstanding,
          for purposes reasonably related to such Purchaser’s interests as a stockholder
          to examine and make reasonable copies of and extracts from the records
          and books
          of account of, and visit and inspect the properties, assets, operations
          and
          business of the Company and any subsidiary, and to discuss the affairs,
          finances
          and accounts of the Company and any subsidiary with any of its officers,
          consultants, directors, and key employees. 

         

        
          
            
            

          

          
            16

            
              

            

          

          
            
            

          

        

         

        Section
          3.4   Compliance
          with Laws.
          The
          Company shall comply, and cause each subsidiary to comply, with all applicable
          laws, rules, regulations and orders, noncompliance with which could have
          a
          Material Adverse Effect.

         

        Section
          3.5   Keeping
          of Records and Books of Account.
          The
          Company shall keep and cause each subsidiary to keep adequate records and
          books
          of account, in which complete entries will be made in accordance with GAAP
          consistently applied, reflecting all financial transactions of the Company
          and
          its subsidiaries, and in which, for each fiscal year, all proper reserves
          for
          depreciation, depletion, obsolescence, amortization, taxes, bad debts and
          other
          purposes in connection with its business shall be made.

         

        Section
          3.6   Reporting
          Requirements.
          If the
          Commission ceases making periodic reports filed under Section 13 of the
          Exchange
          Act available via the Internet, then at a Purchaser’s request the Company shall
          furnish the following to such Purchaser so long as such Purchaser shall
          be
          obligated hereunder to purchase the Preferred Shares or shall beneficially
          own
          any Preferred Shares, or shall own Conversion Shares which, in the aggregate,
          represent more than 2% of the total combined voting power of all voting
          securities then outstanding:

         

        (a)  Quarterly
          Reports filed with the Commission on Form 10-QSB as soon as practical after
          the
          document is filed with the Commission, and in any event within five (5)
          days
          after the document is filed with the Commission;

         

        (b)  Annual
          Reports filed with the Commission on Form 10-KSB as soon as practical after
          the
          document is filed with the Commission, and in any event within five (5)
          days
          after the document is filed with the Commission; and

         

        (c)  Copies
          of
          all notices and information, including without limitation notices and proxy
          statements in connection with any meetings, that are provided to holders
          of
          shares of Common Stock, contemporaneously with the delivery of such notices
          or
          information to such holders of Common Stock.

         

        Section
          3.7   Amendments.
          For so
          long as any Preferred Shares are outstanding, the Company shall not amend
          or
          waive any provision of the Certificate or Bylaws of the Company in any
          way that
          would adversely affect the liquidation preferences, dividends rights, conversion
          rights, voting rights or redemption rights of the Preferred Shares; provided,
          however,
          that
          any creation and issuance of another series of Junior Stock (as defined
          in the
          Certificate of Designation) or any other class or series of equity securities
          which by its terms shall rank on parity with the Preferred Shares shall
          not be
          deemed to materially and adversely affect such rights, preferences or
          privileges.

         

        
          
            
            

          

          
            17

            
              

            

          

          
            
            

          

           

        

        Section
          3.8   Other
          Agreements.
          The
          Company shall not enter into any agreement in which the terms of such agreement
          would restrict or impair the right or ability to perform of the Company
          or any
          subsidiary under any Transaction Document.

         

        Section
          3.9   Distributions.
          So long
          as any Preferred Shares or Warrants remain outstanding, the Company agrees
          that
          it shall not (i) declare
          or pay any dividends or make any distributions to any holder(s) of Common
          Stock
          or (ii) purchase or otherwise acquire for value, directly or indirectly,
          any
          Common Stock or other equity security of the Company (other than issuances
          made
          by the Company in compliance with its pre-existing contractual agreements
          as
          disclosed in the Current SEC Filings or in any Schedule to this
          Agreement).

         

        Section
          3.10   Status
          of Dividends.
          The
          Company covenants and agrees that (i) no Federal income tax return or claim
          for
          refund of Federal income tax or other submission to the Internal Revenue
          Service
          will adversely affect the Preferred Shares, any other series of its Preferred
          Stock, or the Common Stock, and any deduction shall not operate to jeopardize
          the availability to Purchasers of the dividends received deduction provided
          by
          Section 243(a)(1) of the Code or any successor provision, (ii) in no report
          to
          shareholders or to any governmental body having jurisdiction over the Company
          or
          otherwise will it treat the Preferred Shares other than as equity capital
          or the
          dividends paid thereon other than as dividends paid on equity capital unless
          required to do so by a governmental body having jurisdiction over the accounts
          of the Company or by a change in generally accepted accounting principles
          required as a result of action by an authoritative accounting standards
          setting
          body, and (iii) other than pursuant to this Agreement or the Certificate
          of
          Designation, it will take no action which would result in the dividends
          paid by
          the Company on the Preferred Shares out of the Company’s current or accumulated
          earnings and profits being ineligible for the dividends received deduction
          provided by Section 243(a)(1) of the Code. The preceding sentence shall
          not be
          deemed to prevent the Company from designating the Preferred Stock as
“Convertible Preferred Stock” in its annual and quarterly financial statements
          in accordance with its prior practice concerning other series of preferred
          stock
          of the Company. Notwithstanding the foregoing, the Company shall not be
          required
          to restate or modify its tax returns for periods prior to the Closing Date.
          In
          the event that the Purchasers have reasonable cause to believe that dividends
          paid by the Company on the Preferred Shares out of the Company’s current or
          accumulated earnings and profits will not be treated as eligible for the
          dividends received deduction provided by Section 243(a)(1) of the Code,
          or any
          successor provision, the Company will, at the reasonable request of the
          Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
          in the submission to the Service of a request for a ruling that dividends
          paid
          on the Shares will be so eligible for Federal income tax purposes, at the
          Purchasers expense. In addition, the Company will reasonably cooperate
          with the
          Purchasers (at Purchasers’ expense) in any litigation, appeal or other
          proceeding challenging or contesting any ruling, technical advice, finding
          or
          determination that earnings and profits are not eligible for the dividends
          received deduction provided by Section 243(a)(1)
          of the Code, or any successor provision to the extent that the position
          to be
          taken in any such litigation, appeal, or other proceeding is not contrary
          to any
          provision of the Code or incurred in connection with any such submission,
          litigation, appeal or other proceeding. Notwithstanding the foregoing,
          nothing
          herein contained shall be deemed to preclude the Company from claiming
          a
          deduction with respect to such dividends if (i) the Code shall hereafter
          be
          amended, or final Treasury regulations thereunder are issued or modified,
          to
          provide that dividends on the Preferred Shares or Conversion Shares should
          not
          be treated as dividends for Federal income tax purposes or that a deduction
          with
          respect to all or a portion of the dividends on the Shares is allowable
          for
          Federal income tax purposes, or (ii) in the absence of such an amendment,
          issuance or modification and after a submission of a request for ruling
          or
          technical advice, the service shall rule or advise that dividends on the
          shares
          should not be treated as dividends for Federal income tax purposes. If
          the
          Service determines that the Preferred Shares or Conversion Shares constitute
          debt, the Company may file protective claims for refund.

         

        
          
            
            

          

          
            18

            
              

            

          

          
            
            

          

           

        

        Section
          3.11   Use
          of
          Proceeds.
          The
          proceeds from the sale of the Preferred Shares will be used by the Company
          for
          working capital and general corporate purposes. 

         

        Section
          3.12   Reservation
          of Shares.
          So long
          as any of the Preferred Shares or Warrants remain outstanding, the Company
          shall
          take all action necessary to at all times have authorized, and reserved
          for the
          purpose of issuance, no less than one hundred percent (100%) of the aggregate
          number of shares of Common Stock needed to provide for the issuance of
          the
          Conversion Shares and the Warrant Shares; provided,
          however,
          upon
          the Company filing the Charter Amendment (as defined in Section 3.22 hereof),
          the Company shall take all action necessary to at all times have authorized,
          and
          reserved for the purpose of issuance, no less than one hundred twenty percent
          (120%) of the aggregate number of shares of Common Stock needed to provide
          for
          the issuance of the Conversion Shares and the Warrant Shares.

         

        Section
          3.13   Transfer
          Agent Instructions.
          The
          Company shall issue irrevocable instructions to its transfer agent, and
          any
          subsequent transfer agent, to issue certificates, registered in the name
          of each
          Purchaser or its respective nominee(s), for the Conversion Shares and the
          Warrant Shares in such amounts as specified from time to time by each Purchaser
          to the Company upon conversion of the Preferred Shares or exercise of the
          Warrants in the form of Exhibit
          E
          attached
          hereto (the “Irrevocable Transfer Agent Instructions”). Prior to registration of
          the Conversion Shares and the Warrant Shares under the Securities Act,
          all such
          certificates shall bear the restrictive legend specified in Section 5.1
          of this
          Agreement. The Company warrants that no instruction other than the Irrevocable
          Transfer Agent Instructions referred to in this Section 3.13 will be given
          by
          the Company to its transfer agent and that the Shares shall otherwise be
          freely
          transferable on the books and records of the Company as and to the extent
          provided in this Agreement and the Registration Rights Agreement. If a
          Purchaser
          provides the Company with an opinion of counsel, in a generally acceptable
          form,
          to the effect that a public sale, assignment or transfer of the Shares
          may be
          made without registration
          under the Securities Act or the Purchaser provides the Company with reasonable
          assurances that the Shares can be sold pursuant to Rule 144 without any
          restriction as to the number of securities acquired as of a particular
          date that
          can then be immediately sold, the Company shall permit the transfer, and,
          in the
          case of the Conversion Shares and the Warrant Shares, promptly instruct
          its
          transfer agent to issue one or more certificates in such name and in such
          denominations as specified by such Purchaser and without any restrictive
          legend.
          The Company acknowledges that a breach by it of its obligations under this
          Section 3.13 will cause irreparable harm to the Purchasers by vitiating
          the
          intent and purpose of the transaction contemplated hereby. Accordingly,
          the
          Company acknowledges that the remedy at law for a breach of its obligations
          under this Section 3.13 will be inadequate and agrees, in the event of a
          breach or threatened breach by the Company of the provisions of this Section
          3.13, that the Purchasers shall be entitled, in addition to all other available
          remedies, to an order and/or injunction restraining any breach and requiring
          immediate issuance and transfer, without the necessity of showing economic
          loss
          and without any bond or other security being required.

         

        
          
            
            

          

          
            19

            
              

            

          

          
            
            

          

           

        

        Section
          3.14   Disposition
          of Assets.
          So long
          as the Preferred Shares remain outstanding, neither the Company nor any
          Subsidiary shall sell, transfer or otherwise dispose of any of its properties,
          assets and rights including, without limitation, its software and intellectual
          property, to any person except for sales to customers in the ordinary course
          of
          business, pursuant to strategic alliances, joint ventures or other similar
          arrangements approved by the Company’s Board of Directors, or with the prior
          written consent of the holders of a majority of the Preferred Shares then
          outstanding.

         

        Section
          3.15   Reporting
          Status. So
          long
          as a Purchaser beneficially owns any of the Securities, the Company shall
          timely
          file all reports required to be filed with the Commission pursuant to the
          Exchange Act, and the Company shall not terminate its status as an issuer
          required to file reports under the Exchange Act even if the Exchange Act
          or the
          rules and regulations thereunder would permit such termination. 

         

        Section
          3.16   Disclosure
          of Transaction.
          The
          Company shall issue a press release describing the material terms of the
          transactions contemplated hereby (the “Press Release”) as soon as practicable
          after each Closing but in no event later than one hour after the applicable
          Closing; provided,
          however,
          that if
          the Closing occurs after 4:00 P.M. Eastern Time on any Trading Day, the
          Company
          shall issue the Press Release no later than 9:00 A.M. Eastern Time on the
          first
          Trading Day following the Closing Date. The Company shall also file with
          the
          Commission a Current Report on Form 8-K (the “Form 8-K”) describing the material
          terms of the transactions contemplated hereby (and attaching as exhibits
          thereto
          this Agreement, the Registration Rights Agreement, the Certificate of
          Designation, the form of each series of Warrant and the Press Release)
          as soon
          as practicable following each Closing Date but in no event more than two
          (2)
          Trading Days following the applicable Closing Date, which Press Release
          and Form
          8-K shall be subject to prior review and comment by counsel to the placement
          agent on behalf of the Purchasers. "Trading Day" means any day during which
          the
          OTC Bulletin Board (or other principal exchange on which the Common Stock
          is
          traded) shall be open for trading.

         

        Section
          3.17   Disclosure
          of Material Information.
          The
          Company covenants and agrees that neither it nor any other person acting
          on its
          behalf has provided or will provide any Purchaser or its agents or counsel
          with
          any information that the Company believes constitutes material non-public
          information, unless prior thereto such Purchaser shall have executed a
          written
          agreement regarding the confidentiality and use of such information.  The
          Company understands and confirms that each Purchaser shall be relying on
          the
          foregoing representations in effecting transactions in securities of the
          Company. Each Purchaser acknowledges and agrees that if, in order to comply
          with
          the provisions of this Section 3.17, the Company reasonably determines
          that it
          cannot provide any information or access to a Purchaser or its representative
          even if expressly required to do so by any provision of this Agreement
          or any
          other Transaction Document, then the failure to so provide such information
          or
          access will not be deemed a breach of the applicable Agreement (provided
          that the
          Company, prior to or promptly after its receipt of any such request, uses
          its
          reasonable efforts to attempt to procure from such Purchaser or representative
          a
          confidentiality agreement suitable to permit the Company, in its reasonable
          determination, the ability thereafter to provide such information or
          access.

         

        
          
            
            

          

          
            20

            
              

            

          

          
            
            

          

           

        

        Section
          3.18   Pledge
          of Securities.
          The
          Company acknowledges and agrees that the Securities may be pledged by a
          Purchaser in connection with a bona fide
          margin
          agreement or other loan or financing arrangement that is secured by the
          Common
          Stock. The pledge of Common Stock shall not be deemed to be a transfer,
          sale or
          assignment of the Common Stock hereunder, and no Purchaser effecting a
          pledge of
          Common Stock shall be required to provide the Company with any notice thereof
          or
          otherwise make any delivery to the Company pursuant to this Agreement or
          any
          other Transaction Document; provided that a Purchaser and its pledgee shall
          be
          required to comply with the provisions of Article V hereof in order to
          effect a
          sale, transfer or assignment of Common Stock to such pledgee. At the Purchasers'
          expense, the Company hereby agrees to execute and deliver such documentation
          as
          a pledgee of the Common Stock may reasonably request in connection with
          a pledge
          of the Common Stock to such pledgee by a Purchaser.

        

        Section
          3.19   Form
          SB-2 Eligibility. The
          Company currently meets, and will take all necessary action to continue
          to meet,
          the "registrant eligibility" and transaction requirements set forth in
          the
          general instructions to Form SB-2 applicable to "resale" registrations
          on
          Form SB-2 during the Effectiveness Period (as defined in the Registration
          Rights Agreement) and the Company shall file all reports required to be
          filed by
          the Company with the Commission in a timely manner so as to maintain such
          eligibility for the use of Form SB-2.

         

        Section
          3.20   Restrictions
          on Certain Issuances of Securities.
          So long
          as at least one hundred (100) Preferred Shares remain outstanding, the
          Company
          shall not issue any securities that rank pari passu or senior to the Preferred
          Shares without the prior written consent of at least seventy-five percent
          (75%)
          of the Preferred Shares outstanding at the time.

        

        Section
          3.21   Future
          Financings; Right of First Offer and Refusal.
          (a)
          For
          purposes of this Agreement, a “Subsequent Financing” shall be defined as any
          subsequent offer or sale to, or exchange with (or other type of distribution
          to), any third party of Common Stock or any securities convertible, exercisable
          or exchangeable into Common Stock, including convertible and non-convertible
          debt securities other than a Permitted Financing. For purposes of this
          Agreement, “Permitted Financing” shall mean any transaction involving (i) the
          Company’s issuance of any securities (other than for cash) in connection with a
          merger, acquisition or consolidation of the Company, (ii) the Company’s issuance
          of securities in connection with license agreements, joint ventures and
          other
          similar strategic partnering arrangements, so long as such issuances are
          not for
          the primary purpose of raising capital, (iii) the Company’s issuance of
          securities in connection with bona fide firm underwritten public offerings
          of
          its securities, (iv) the Company’s issuance of Common Stock or the issuance or
          grants of options to purchase Common Stock pursuant to the Company’s stock
          option plans and employee stock purchase plans outstanding on the date
          hereof,
          (v) as a result of the exercise of options or warrants or conversion of
          convertible notes or preferred stock which are granted or issued as of
          the date
          of this Agreement or issued pursuant to this Agreement, (vi) any Warrants
          issued
          to the Purchasers and any warrants issued to the placement agent for the
          transactions contemplated by this Agreement or in connection with other
          financial services rendered to the Company, and (vii) the payment of any
          dividend on the Preferred Shares.

         

        
          
            
            

          

          
            21

            
              

            

          

          
            
            

          

           

        

        (b)  During
          the period commencing on the Closing Date and ending on the date that is
          eighteen (18) months following the Closing Date, the Company covenants
          and
          agrees to promptly notify (in no event later than five (5) days after making
          or
          receiving an applicable offer) in writing (a “Rights Notice”) each Purchaser of
          the terms and conditions of any proposed Subsequent Financing. The Rights
          Notice
          shall describe, in reasonable detail, the proposed Subsequent Financing,
          the
          proposed closing date of the Subsequent Financing, which shall be within
          thirty
          (30) calendar days from the date of the Rights Notice, including, without
          limitation, all of the terms and conditions thereof
          and
          proposed definitive documentation to be entered into in connection
          therewith.
          The
          Rights Notice shall provide each Purchaser an option (the “Rights Option”)
          during the ten (10) trading days following delivery of the Rights Notice
          (the
“Option Period”) to inform the Company whether such Purchaser will purchase
the
          securities being
          offered in such Subsequent Financing on the same, absolute terms and conditions
          as contemplated by such Subsequent Financing in amount equal to up to fifty
          percent (50%) of the Liquidation Preference Amount (as defined in the
          Certificate of Designation) of the Preferred Shares then held by such Purchaser
          (the “First Refusal Rights”). Delivery of any Rights Notice constitutes a
          representation and warranty by the Company that there are no other material
          terms and conditions, arrangements, agreements or otherwise except for
          those
          disclosed in the Rights Notice, to provide additional compensation to any
          party
          participating in any proposed Subsequent Financing, including, but not
          limited
          to, additional compensation based on changes in the Purchase Price or any
          type
          of reset or adjustment of a purchase or conversion price or to issue additional
          securities at any time after the closing date of a Subsequent Financing.
          If the
          Company does not receive notice of exercise of the Rights Option from the
          Purchasers within the Option Period, the Company shall have the right to
          close
          the Subsequent Financing on the scheduled closing date with a third party;
          provided
          that all
          of the material terms and conditions of the closing are the same as those
          provided to the Purchasers in the Rights Notice. If the closing of the
          proposed
          Subsequent Financing does not occur on that date, any closing of the
          contemplated Subsequent Financing or any other Subsequent Financing shall
          be
          subject to all of the provisions of this Section 3.21, including, without
          limitation, the delivery of a new Rights Notice. The provisions of this
          Section
          3.21(b) shall not apply to issuances of securities in a Permitted
          Financing.

         

        (c)  So
          long
          as the Preferred Shares are outstanding, if the Company enters into any
          Subsequent Financing on terms more favorable than the terms governing the
          Preferred Shares, then the Purchasers in their sole discretion may exchange
          the
          Preferred Shares, valued at the Liquidation Preference Amount (as defined
          in the
          Certificate of Designation), together with accrued but unpaid dividends
          (which
          dividend payments shall be payable, at the sole option of the Purchasers,
          in
          cash or in the form of the new securities to be issued in the Subsequent
          Financing), for the securities issued or to be issued in the Subsequent
          Financing. The Company covenants and agrees to promptly notify in writing
          the
          Purchasers of the terms and conditions of any such proposed Subsequent
          Financing.

         

        
          
            
            

          

          
            22

            
              

            

          

          
            
            

          

           

        

        Section
          3.22   Increase
          in Authorized Shares.
          The
          Company shall obtain the approval of its stockholders at the Company’s next
          annual meeting which shall be no later than August 31, 2006 to increase
          the
          Company’s authorized shares of Common Stock from 100,000,000 to at least
          150,000,000 (the “Share Increase”). Within two (2) business days of receiving
          such stockholder approval, the Company shall file an amendment to the
          Certificate (the “Charter Amendment”) with the Delaware Secretary of State to
          effect the Share Increase. In the event the Company has not obtained the
          approval of its stockholders at such annual meeting, the Company shall
          pay to
          each Purchaser an amount, in cash, equal to one percent (1%) per calendar
          month
          (prorated for shorter periods) of each Purchaser’s initial investment in the
          Preferred Shares until the approval of its stockholders is obtained; provided,
          however, that such amount shall not exceed ten percent (10%) of such Purchaser’s
          initial investment.

         

        ARTICLE
          IV  

        

        CONDITIONS

         

        Section
          4.1   Conditions
          Precedent to the Obligation of the Company to Sell the Shares.
          The
          obligation hereunder of the Company to issue and sell the Preferred Shares
          and
          the Warrants to the Purchasers is subject to the satisfaction or waiver,
          at or
          before each Closing, of each of the conditions set forth below. These conditions
          are for the Company’s sole benefit and may be waived by the Company at any time
          in its sole discretion.

         

        (a)  Accuracy
          of Each Purchaser’s Representations and Warranties.
          The
          representations and warranties of each Purchaser shall be true and correct
          in
          all material respects as of the date when made and as of the Closing Date
          as
          though made at that time, except for representations and warranties that
          are
          expressly made as of a particular date, which shall be true and correct
          in all
          material respects as of such date.

         

        (b)  Performance
          by the Purchasers.
          Each
          Purchaser shall have performed, satisfied and complied in all respects
          with all
          covenants, agreements and conditions required by this Agreement to be performed,
          satisfied or complied with by such Purchaser at or prior to the
          Closing.

         

        (c)  No
          Injunction.
          No
          statute, rule, regulation, executive order, decree, ruling or injunction
          shall
          have been enacted, entered, promulgated or endorsed by any court or governmental
          authority of competent jurisdiction which prohibits the consummation of
          any of
          the transactions contemplated by this Agreement. 

         

        (d)  Delivery
          of Purchase Price.
          The
          Purchase Price for the Preferred Shares and Warrants has been delivered
          to the
          Company at the Closing Date.

         

        (e)  Delivery
          of Transaction Documents.
          The
          Transaction Documents have been duly executed and delivered by the Purchasers
          to
          the Company. 

         

        (f)  Minimum
          Purchase Price.
          The
          Purchase Price shall be no less than Two Million Dollars
          ($2,000,000).

         

        
          
            
            

          

          
            23

            
              

            

          

          
            
            

          

           

        

        Section
          4.2   Conditions
          Precedent to the Obligation of the Purchasers to Purchase the
          Shares.
          The
          obligation hereunder of each Purchaser to acquire and pay for the Preferred
          Shares and the Warrants is subject to the satisfaction or waiver, at or
          before
          the applicable Closing, of each of the conditions set forth below. These
          conditions are for each Purchaser’s sole benefit and may be waived by such
          Purchaser at any time in its sole discretion.

         

        (a)  Accuracy
          of the Company’s Representations and Warranties.
          Each of
          the representations and warranties of the Company in this Agreement and
          the
          Registration Rights Agreement shall be true and correct in all respects
          as of
          the date when made and as of the Closing Date as though made at that time
          (except for representations and warranties that are expressly made as of
          a
          particular date), which shall be true and correct in all material respects
          as of
          such date.

         

        (b)  Performance
          by the Company.
          The
          Company shall have performed, satisfied and complied in all respects with
          all
          covenants, agreements and conditions required by this Agreement to be performed,
          satisfied or complied with by the Company at or prior to the
          Closing.

         

        (c)  No
          Suspension, Etc.
          Trading
          in the Company’s Common Stock shall not have been suspended by the Commission or
          the OTC Bulletin Board (except for any suspension of trading of limited
          duration
          agreed to by the Company, which suspension shall be terminated prior to
          the
          applicable Closing), and, at any time prior to the Closing Date, trading
          in
          securities generally as reported by Bloomberg Financial Markets (“Bloomberg”)
          shall not have been suspended or limited, or minimum prices shall not have
          been
          established on securities whose trades are reported by Bloomberg, or on
          the New
          York Stock Exchange, nor shall a banking moratorium have been declared
          either by
          the United States or New York State authorities.

         

        (d)  No
          Injunction.
          No
          statute, rule, regulation, executive order, decree, ruling or injunction
          shall
          have been enacted, entered, promulgated or endorsed by any court or governmental
          authority of competent jurisdiction which prohibits the consummation of
          any of
          the transactions contemplated by this Agreement.

         

        (e)  No
          Proceedings or Litigation.
          No
          action, suit or proceeding before any arbitrator or any governmental authority
          shall have been commenced, and no investigation by any governmental authority
          shall have been threatened, against the Company or any subsidiary, or any
          of the
          officers, directors or affiliates of the Company or any subsidiary seeking
          to
          restrain, prevent or change the transactions contemplated by this Agreement,
          or
          seeking damages in connection with such transactions.

         

        (f)  Certificate
          of Designation of Rights and Preferences.
          Prior
          to the Closing, the Certificate of Designation in the form of Exhibit
          C
          attached
          hereto shall have been filed with the Secretary of State of
          Delaware.

         

        (g)  Opinion
          of Counsel, Etc.
          At the
          Closing, the Purchasers shall have received an opinion of counsel to the
          Company, dated the date of the Closing, in the form of Exhibit
          F
          hereto,
          and such other certificates and documents as the Purchasers or its counsel
          shall
          reasonably require incident to the Closing.

         

        
          
            
            

          

          
            24

            
              

            

          

          
            
            

          

           

        

        (h)  Registration
          Rights Agreement.
          At the
          Closing, the Company shall have executed and delivered the Registration
          Rights
          Agreement to each Purchaser.

         

        (i)  Certificates.
          The
          Company shall have executed and delivered to the Purchasers the certificates
          (in
          such denominations as such Purchaser shall request) for the Preferred Shares
          and
          Warrants being acquired by such Purchaser at the Closing (in such denominations
          as such Purchaser shall request).

         

        (j)  Resolutions.
          The
          Board of Directors of the Company shall have adopted resolutions consistent
          with
          Section 2.1(b) hereof in a form reasonably acceptable to such Purchaser
          (the
          "Resolutions").

         

        (k)  Reservation
          of Shares.
          As of
          the Closing Date, the Company shall have reserved out of its authorized
          and
          unissued Common Stock, solely for the purpose of effecting the conversion
          of the
          Preferred Shares and the exercise of the Warrants, a number of shares of
          Common
          Stock equal to one hundred percent (100%) of the aggregate number of Conversion
          Shares issuable upon conversion of the Preferred Shares outstanding on
          the
          Closing Date and the number of Warrant Shares issuable upon exercise of
          the
          number of Warrants assuming such Warrants were granted on the Closing
          Date.

         

        (l)  Transfer
          Agent Instructions.
          The
          Irrevocable Transfer Agent Instructions, in the form of Exhibit
          E
          attached
          hereto, shall have been delivered to and acknowledged in writing by the
          Company’s transfer agent.

         

        (m)  Secretary’s
          Certificate.
          The
          Company shall have delivered to such Purchaser a secretary’s certificate, dated
          as of the Closing Date, as to (i) the Resolutions, (ii) the Certificate,
          (iii)
          the Bylaws, (iv) the Certificate of Designation, each as in effect at the
          Closing, and (v) the authority and incumbency of the officers of the Company
          executing the Transaction Documents and any other documents required to
          be
          executed or delivered in connection therewith.

         

        (n)  Officer’s
          Certificate.
          The
          Company shall have delivered to the Purchasers a certificate of an executive
          officer of the Company, dated as of the Closing Date, confirming the accuracy
          of
          the Company’s representations, warranties and covenants as of such Closing Date
          and confirming the compliance by the Company with the conditions precedent
          set
          forth in this Section 4.2 as of the Closing Date.

         

        (o)  Material
          Adverse Effect.
          No
          Material Adverse Effect shall have occurred at or before the Closing Date.
          

         

        (p)  Minimum
          Purchase Price.
          The
          Purchase Price shall be no less than Two Million Dollars
          ($2,000,000).

         

        
          
            
            

          

          
            25

            
              

            

          

          
            
            

          

        

         

        ARTICLE
          V  

         

        Stock
          Certificate Legend

         

        Section
          5.1   Legend.
          Each
          certificate representing the Preferred Shares and the Warrants, and, if
          appropriate, securities issued upon conversion thereof, shall be stamped
          or
          otherwise imprinted with a legend substantially in the following form (in
          addition to any legend required by applicable state securities or “blue sky”
laws):

         

        THESE
          SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
          OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
          DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
          STATE SECURITIES LAWS OR HIENERGY TECHNOLOGIES, INC. SHALL HAVE RECEIVED
          AN
          OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
          ACT
          AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
          REQUIRED.

         

        The
          Company agrees to reissue certificates representing any of the Conversion
          Shares
          and the Warrant Shares, without the legend set forth above if at such time,
          prior to making any transfer of any such securities, such holder thereof
          shall
          give written notice to the Company describing the manner and terms of such
          transfer and removal as the Company may reasonably request. Such proposed
          transfer and removal will not be effected until: (a) either (i) the Company
          has
          received an opinion of counsel reasonably satisfactory to the Company,
          to the
          effect that the registration of the Conversion Shares or the Warrant Shares
          under the Securities Act is not required in connection with such proposed
          transfer, (ii) a registration statement under the Securities Act covering
          such
          proposed disposition has been filed by the Company with the Commission
          and has
          become effective under the Securities Act, (iii) the Company has received
          other
          evidence reasonably satisfactory to the Company that such registration
          and
          qualification under the Securities Act and state securities laws are not
          required, or (iv) the holder provides the Company with reasonable assurances
          that such security can be sold pursuant to Rule 144 under the Securities
          Act;
          and (b) either (i) the Company has received an opinion of counsel reasonably
          satisfactory to the Company, to the effect that registration or qualification
          under the securities or "blue sky" laws of any state is not required in
          connection with such proposed disposition, or (ii) compliance with applicable
          state securities or "blue sky" laws has been effected or a valid exemption
          exists with respect thereto. The Company will respond to any such notice
          from a
          holder within five (5) business days. In the case of any proposed transfer
          under
          this Section 5.1, the Company will use reasonable efforts to comply with
          any
          such applicable state securities or "blue sky" laws, but shall in no event
          be
          required, (x) to qualify to do business in any state where it is not then
          qualified, (y) to take any action that would subject it to tax or to the
          general
          service of process in any state where it is not then subject, or (z) to
          comply
          with state securities or “blue sky” laws of any state for which registration by
          coordination is unavailable to the Company. The restrictions on transfer
          contained in this Section 5.1 shall be in addition to, and not by way of
          limitation of, any other restrictions on transfer contained in any other
          section
          of this Agreement. Whenever
          a
          certificate representing the Conversion Shares or Warrant Shares is required
          to
          be issued to a Purchaser without a legend, in lieu of delivering physical
          certificates representing the Conversion Shares or Warrant Shares (provided
          that a registration statement under the Securities Act providing for the
          resale
          of the Warrant Shares and Conversion Shares is then in effect),
          the
          Company shall cause its transfer agent to electronically transmit the Conversion
          Shares or Warrant Shares to a Purchaser by crediting the account of such
          Purchaser's Prime Broker with the Depository Trust Company through its
          Deposit
          Withdrawal Agent Commission system (to the extent not inconsistent with
          any
          provisions of this Agreement).

         

        
          
            
            

          

          
            26

            
              

            

          

          
            
            

          

        

         

        ARTICLE
          VI  

         

        Indemnification

         

        Section
          6.1   General
          Indemnity.
          The
          Company agrees to indemnify and hold harmless the Purchasers (and their
          respective directors, officers, affiliates, agents, successors and assigns)
          from
          and against any and all losses, liabilities, deficiencies, costs, damages
          and
          expenses (including, without limitation, reasonable attorneys’ fees, charges and
          disbursements) incurred by the Purchasers as a result of any inaccuracy
          in or
          breach of the representations, warranties or covenants made by the Company
          herein. Each Purchaser severally but not jointly agrees to indemnify and
          hold
          harmless the Company and its directors, officers, affiliates, agents, successors
          and assigns from and against any and all losses, liabilities, deficiencies,
          costs, damages and expenses (including, without limitation, reasonable
          attorneys’ fees, charges and disbursements) incurred by the Company as result of
          any inaccuracy in or breach of the representations, warranties or covenants
          made
          by such Purchaser herein.
          The
          maximum aggregate liability of each Purchaser pursuant to its indemnification
          obligations under this Article VI shall not exceed the portion of the Purchase
          Price paid by such Purchaser hereunder.

         

        Section
          6.2   Indemnification
          Procedure.
          Any
          party entitled to indemnification under this Article VI (an “indemnified party”)
          will give written notice to the indemnifying party of any matters giving
          rise to
          a claim for indemnification; provided, that the failure of any party entitled
          to
          indemnification hereunder to give notice as provided herein shall not relieve
          the indemnifying party of its obligations under this Article VI except
          to the
          extent that the indemnifying party is actually prejudiced by such failure
          to
          give notice. In case any action, proceeding or claim is brought against
          an
          indemnified party in respect of which indemnification is sought hereunder,
          the
          indemnifying party shall be entitled to participate in and, unless in the
          reasonable judgment of the indemnified party a conflict of interest between
          it
          and the indemnifying party may exist with respect of such action, proceeding
          or
          claim, to assume the defense thereof with counsel reasonably satisfactory
          to the
          indemnified party. In the event that the indemnifying party advises an
          indemnified party that it will contest such a claim for indemnification
          hereunder, or fails, within thirty (30) days of receipt of any indemnification
          notice to notify, in writing, such person of its election to defend, settle
          or
          compromise, at its sole cost and expense, any action, proceeding or claim
          (or
          discontinues its defense at any time after it commences such defense),
          then the
          indemnified party may, at its option, defend, settle or otherwise compromise
          or
          pay such action or claim. In any event, unless and until the indemnifying
          party
          elects in writing to assume and does so assume the defense of any such
          claim,
          proceeding or action, the indemnified party’s costs and expenses arising out of
          the defense, settlement or compromise of any such action, claim or proceeding
          shall be losses subject to indemnification hereunder. The indemnified party
          shall cooperate fully with the indemnifying party in connection with any
          negotiation or defense of any such action or claim by the indemnifying
          party and
          shall furnish to the indemnifying party all information reasonably available
          to
          the indemnified party which relates to such action or claim. The indemnifying
          party shall keep the indemnified party fully apprised at all times as to
          the
          status of the defense or any settlement negotiations with respect thereto.
          If
          the indemnifying party elects to defend any such action
          or
          claim, then the indemnified party shall be entitled to participate in such
          defense with counsel of its choice at its sole cost and expense. The
          indemnifying party shall not be liable for any settlement of any action,
          claim
          or proceeding effected without its prior written consent. Notwithstanding
          anything in this Article VI to the contrary, the indemnifying party shall
          not,
          without the indemnified party’s prior written consent, settle or compromise any
          claim or consent to entry of any judgment in respect thereof which imposes
          any
          future obligation on the indemnified party or which does not include, as
          an
          unconditional term thereof, the giving by the claimant or the plaintiff
          to the
          indemnified party of a release from all liability in respect of such claim.
          The
          indemnification required by this Article VI shall be made by periodic payments
          of the amount thereof during the course of investigation or defense, as
          and when
          bills are received or expense, loss, damage or liability is incurred, so
          long as
          the indemnified party irrevocably agrees to refund such moneys if it is
          ultimately determined by a court of competent jurisdiction that such party
          was
          not entitled to indemnification. The indemnity agreements contained herein
          shall
          be in addition to (a) any cause of action or similar rights of the indemnified
          party against the indemnifying party or others, and (b) any liabilities
          the
          indemnifying party may be subject to pursuant to the law.

         

        
          
            
            

          

          
            27

            
              

            

          

          
            
            

          

        

         

        ARTICLE
          VII  

         

        Miscellaneous

         

        Section
          7.1   Fees
          and Expenses.
          Except
          as otherwise set forth in this Agreement, the Registration Rights Agreement
          or
          the Certificate of Designation, each party shall pay the fees and expenses
          of
          its advisors, counsel, accountants and other experts, if any, and all other
          expenses, incurred by such party incident to the negotiation, preparation,
          execution, delivery and performance of this Agreement, provided
          that the
          Company shall pay all actual attorneys' fees and expenses (including
          disbursements and out-of-pocket expenses) incurred by the Purchasers in
          connection with (i) the preparation, negotiation, execution and delivery
          of this
          Agreement, the Certificate of Designation, the Warrants, the Registration
          Rights
          Agreement and the transactions contemplated thereunder, which payment shall
          be
          made at the initial Closing and shall not exceed $35,000, (ii) the filing
          and
          declaration of effectiveness by the Commission of the Registration Statement
          (as
          defined in the Registration Rights Agreement) and (iii) any amendments,
          modifications or waivers of this Agreement or any of the other Transaction
          Documents. In addition, the Company shall pay all reasonable fees and expenses
          incurred by the Purchasers in connection with the enforcement of this Agreement
          or any of the other Transaction Documents, including, without limitation,
          all
          reasonable attorneys' fees and expenses. The Company shall pay all stamp
          or
          other similar taxes and duties levied in connection with issuance of the
          Preferred Shares pursuant hereto.

         

        
          
            
            

          

          
            28

            
              

            

          

          
            
            

          

        

         

        Section
          7.2   Specific
          Enforcement, Consent to Jurisdiction. 

         

        (a)  The
          Company and the Purchasers acknowledge and agree that irreparable damage
          would
          occur in the event that certain of the provisions of this Agreement, the
          Certificate of Designation or the Registration Rights Agreement were not
          performed in accordance with their specific terms or were otherwise breached.
          It
          is accordingly agreed that the parties shall be entitled to an injunction
          or
          injunctions to prevent or cure breaches of the provisions of this Agreement
          or
          the Registration Rights Agreement and to enforce specifically the terms
          and
          provisions hereof or thereof, this being in addition to any other remedy
          to
          which any of them may be entitled by law or equity.

         

        (b)  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
          7.2
          shall affect or limit any right to serve process in any other manner permitted
          by law.

         

        Section
          7.3   Entire
          Agreement; Amendment.
          This
          Agreement and the Transaction Documents contains the entire understanding
          and
          agreement of the parties with respect to the matters covered hereby and,
          except
          as specifically set forth herein or in the Transaction Documents or the
          Certificate of Designation, neither the Company nor any of the Purchasers
          makes
          any representations, warranty, covenant or undertaking with respect to
          such
          matters and they supersede all prior understandings and agreements with
          respect
          to said subject matter, all of which are merged herein. No provision of
          this
          Agreement may be waived or amended other than by a written instrument signed
          by
          the Company and the holders of at least seventy-five percent (75%) of the
          Preferred Shares then outstanding, and no provision hereof may be waived
          other
          than by an a written instrument signed by the party against whom enforcement
          of
          any such amendment or waiver is sought. No such amendment shall be effective
          to
          the extent that it applies to less than all of the holders of the Preferred
          Shares then outstanding. No consideration shall be offered or paid to any
          person
          to amend or consent to a waiver or modification of any provision of any
          of the
          Transaction Documents or the Certificate of Designation unless the same
          consideration is also offered to all of the parties to the Transaction
          Documents
          or holders of Preferred Shares, as the case may be.

         

        
          
            
            

          

          
            29

            
              

            

          

          
            
            

          

           

        

        Section
          7.4   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.

         

        Section
          7.5   Waivers.
          No
          waiver by either party of any default with respect to any provision, condition
          or requirement of this Agreement shall be deemed to be a continuing waiver
          in
          the future or a waiver of any other provisions, condition or requirement
          hereof,
          nor shall any delay or omission of any party to exercise any right hereunder
          in
          any manner impair the exercise of any such right accruing to it
          thereafter.

         

        
          
            
            

          

          
            30

            
              

            

          

          
            
            

          

           

        

        Section
          7.6   Headings.
          The
          article, section and subsection headings in this Agreement are for convenience
          only and shall not constitute a part of this Agreement for any other purpose
          and
          shall not be deemed to limit or affect any of the provisions
          hereof.

         

        Section
          7.7   Successors
          and Assigns.
          This
          Agreement shall be binding upon and inure to the benefit of the parties
          and
          their successors and assigns.  

         

        Section
          7.8   No
          Third Party Beneficiaries.
          This
          Agreement is intended for the benefit
          of the parties hereto and their respective permitted successors and assigns
          and
          is not for the benefit of, nor may any provision hereof be enforced by,
          any
          other person.

         

        Section
          7.9   Governing
          Law.
          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.

         

        Section
          7.10   Survival.
          The
          representations and warranties of the Company and the Purchasers contained
          in
          Section 2.1(o) should survive until thirty (30) days after the passage
          of the
          applicable statute of limitations and those contained in Article II, with
          the
          exception of Sections 2.1(o), shall survive the execution and delivery
          hereof
          and the Closing until the date three (3) years from the Closing Date, and
          the
          agreements and covenants set forth in Articles I, III, VI and VII of this
          Agreement shall survive the execution and delivery hereof and the Closing
          hereunder until the Purchasers in the aggregate beneficially own (determined
          in
          accordance with Rule 13d-3 under the Exchange Act) less than 10% of the
          total
          combined voting power of all voting securities then outstanding, provided,
          that
          Sections 3.1, 3.2, 3.4, 3.5, 3.8, 3.9, 3.10, 3.12, 3.13, 3.14, 3.15. 3.17,
          3.18,
          3.19, 3.20 and 3.21 shall not expire until the Registration Statement required
          by Section 2 of the Registration Rights Agreement is no longer required
          to be
          effective under the terms and conditions of Registration Rights Agreement
          (or,
          in the case of any of the foregoing Sections which pertain to the Preferred
          Shares and/or the Warrants, then such Sections shall expire once there
          are no
          further Preferred Shares or Warrants outstanding, as applicable).

         

        Section
          7.11   Counterparts.
          This
          Agreement may be executed in any number of counterparts, all of which taken
          together shall constitute one and the same instrument and shall become
          effective
          when counterparts have been signed by each party and delivered to the other
          parties hereto, it being understood that all parties need not sign the
          same
          counterpart. In the event any signature is delivered by facsimile transmission,
          the party using such means of delivery shall cause four additional executed
          signature pages to be physically delivered to the other parties within
          five days
          of the execution and delivery hereof.

         

        Section
          7.12   Publicity.
          The
          Company agrees that it will not disclose, and will not include in any public
          announcement, the name of the Purchasers without the consent of the Purchasers
          unless and until such disclosure is required by law or applicable regulation,
          and then only to the extent of such requirement.

         

        Section
          7.13   Severability.
          The
          provisions of this Agreement, the Certificate of Designation and the
          Registration Rights Agreement are severable and, in the event that any
          court of
          competent jurisdiction shall determine that any one or more of the provisions
          or
          part of the provisions contained in this Agreement, the Certificate of
          Designation or the Registration Rights Agreement shall, for any reason,
          be held
          to be invalid, illegal or unenforceable in any respect, such invalidity,
          illegality or unenforceability shall not affect any other provision or
          part of a
          provision of this Agreement, the Certificate of Designation or the Registration
          Rights Agreement shall be reformed and construed as if such invalid or
          illegal
          or unenforceable provision, or part of such provision, had never been contained
          herein, so that such provisions would be valid, legal and enforceable to
          the
          maximum extent possible.

         

        
          
            
            

          

          
            31

            
              

            

          

          
            
            

          

           

        

        Section
          7.14   Further
          Assurances.
          From
          and after the date of this Agreement, upon the request of any Purchaser
          or the
          Company, each of the Company and the Purchasers shall execute and deliver
          such
          instrument, documents and other writings as may be reasonably necessary
          or desirable to confirm and carry out and to effectuate fully the intent
          and
          purposes of this Agreement, the Preferred Shares, the Conversion Shares,
          the
          Warrants, the Warrant Shares, the Certificate of Designation, and the
          Registration Rights Agreement.

        

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              KL2:2419018.9

            

            
            

          

          
            
            

            
              

            

          

          
            
            

            
              

              

              

            

          

        

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

        
          	 	 	 
	 	
                  HIENERGY
                    TECHNOLOGIES, INC.

                
	 
 	 
 	 
 
	 	By:  	 
	 	
                  

                  Name:

                  Title:

                
	 	 

        

        
          	 	 	 
	 	
                  PURCHASER:

                
	 
 	 
 	 
 
	 	By: 	 
	 	
                  

                  Name:
                    

                  Title:
                    

                
	 	 

        

        
          
            
              

              

              KL2:2419018.9

            

            
            

          

          
            
            

            
              

            

          

          
            
            

            
              

              

              

            

          

        

        EXHIBIT
          A to the

        SERIES
          B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

        HIENERGY
          TECHNOLOGIES, INC.

         

        
          
            	
                    Names
                      and Addresses
                      of Purchasers

                  	 	 	
                    Number
                      of Preferred Shares, Series
                      B-1 and B-2 Warrants
                      Purchased

                  	 	 	
                    Dollar
                      Amount of
                      Investment

                  	 

          

        

         

        
          
            

            KL2:2419018.9

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        EXHIBIT
          B-1 to the 

        SERIES
          B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

        HIENERGY
          TECHNOLOGIES, INC.

        

        FORM
          OF SERIES B-1 WARRANT 

        
          
            

            KL2:2419018.9

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        EXHIBIT
          B-2 to the 

        SERIES
          B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

        HIENERGY
          TECHNOLOGIES, INC.

        

        FORM
          OF SERIES B-2 WARRANT 

        

        
          
            

            KL2:2419018.9

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        EXHIBIT
          C to the 

        SERIES
          B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

        HIENERGY
          TECHNOLOGIES, INC.

        

        FORM
          OF CERTIFICATE OF DESIGNATION

        

        
          
            

            KL2:2419018.9

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        EXHIBIT
          D to the 

        SERIES
          B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

        HIENERGY
          TECHNOLOGIES, INC.

        

        FORM
          OF REGISTRATION RIGHTS AGREEMENT

        
          
            

            KL2:2419018.9

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        EXHIBIT
          E to the 

        SERIES
          B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR 

        HIENERGY
          TECHNOLOGIES, INC.

        

        FORM
          OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

        

        HIENERGY
          TECHNOLOGIES, INC.

        

         

        as
          of
          June __, 2006

         

        [Name
          and
          address of Transfer Agent]

        Attn:
          _____________

         

        Ladies
          and Gentlemen:

         

        Reference
          is made to that certain Series B Convertible Preferred Stock Purchase Agreement
          (the “Purchase Agreement”), dated as of June __, 2006, by and among HiEnergy
          Technologies, Inc., a Delaware corporation (the “Company”),
          and
          the purchasers named therein (collectively, the “Purchasers”)
          pursuant to which the Company is issuing to the Purchasers shares of its
          Series
          B Convertible Preferred Stock, par value $.001 per share, (the “Preferred
          Shares”)
          and
          warrants (the “Warrants”)
          to
          purchase shares of the Company’s common stock, par value $.001 per share (the
“Common
          Stock”).
          This
          letter shall serve as our irrevocable authorization and direction to you
          provided that you are the transfer agent of the Company at such time) to
          issue
          shares of Common Stock upon conversion of the Preferred Shares (the
“Conversion
          Shares”)
          and
          exercise of the Warrants (the “Warrant
          Shares”)
          to or
          upon the order of a Purchaser from time to time upon (a) surrender to you
          of a
          properly completed and duly executed Conversion Notice or Exercise Notice,
          as
          the case may be, in the form attached hereto as Exhibit I and Exhibit II,
          respectively, (b) in the case of the conversion of Preferred Shares, a
          copy of
          the certificates (with the original certificates delivered to the Company)
          representing Preferred Shares being converted or, in the case of Warrants
          being
          exercised, a copy of the Warrants (with the original Warrants delivered
          to the
          Company) being exercised (or, in each case, an indemnification undertaking
          with
          respect to such share certificates or the warrants in the case of their
          loss,
          theft or destruction), and (c) delivery of a treasury order or other appropriate
          order duly executed by a duly authorized officer of the Company. So long
          as you
          have previously received (x) written confirmation from counsel to the Company
          that a registration statement covering resales of the Conversion Shares
          or
          Warrant Shares, as applicable, has been declared effective by the Securities
          and
          Exchange Commission (the “SEC”)
          under
          the Securities Act of 1933, as amended (the “1933
          Act”),
          and
          no subsequent notice by the Company or its counsel of the suspension or
          termination of its effectiveness and (y) a copy of such registration statement,
          and if the Purchaser represents in writing that the Conversion Shares or
          the
          Warrant Shares, as the case may be, were sold pursuant to the Registration
          Statement, then certificates representing the Conversion Shares and the
          Warrant
          Shares, as the case may be, shall not bear any legend restricting transfer
          of
          the Conversion Shares and the Warrant Shares, as the case may be, thereby
          and
          should not be subject to any stop-transfer restriction. Provided, however,
          that
          if you have not previously received those items and representations listed
          above, then the certificates for the Conversion Shares and the Warrant
          Shares
          shall bear the following legend:

         

        “THE
          SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
          THE
          SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR ANY STATE
          SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
          OF UNLESS
          REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS,
          OR
          HIENERGY TECHNOLOGIES, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL
          THAT
          REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
          PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        and,
          provided further, that the Company may from time to time notify you to
          place
          stop-transfer restrictions on the certificates for the Conversion Shares
          and the
          Warrant Shares in the event a registration statement covering the Conversion
          Shares and the Warrant Shares is subject to amendment for events then
          current.

         

        A
          form of
          written confirmation from counsel to the Company that a registration statement
          covering resales of the Conversion Shares and the Warrant Shares has been
          declared effective by the SEC under the 1933 Act is attached hereto as
          Exhibit
          III.

         

        Please
          be
          advised that the Purchasers are relying upon this letter as an inducement
          to
          enter into the Securities Purchase Agreement and, accordingly, each Purchaser
          is
          a third party beneficiary to these instructions.

         

        Please
          execute this letter in the space indicated to acknowledge your agreement
          to act
          in accordance with these instructions. Should you have any questions concerning
          this matter, please contact me at ___________.

         

        
          	 	 	 Very
                  truly
                  yours,
	 	HIENERGY
                  TECHNOLOGIES, INC. 
	 
 	 
 	 
 
	 	By:  	 
	 	
                  

                  Name:
                    _______________________     

                  Title:
                    ________________________

                
	 	 

        

         

        
          	 	
                  ACKNOWLEDGED
                    AND
                    AGREED:

                   

                  [
                    TRANSFER
                    AGENT]

                   

                	 	 	 
	 By: 	 	 	 	 
	 	
                  

                	 	 	
                
	
                  Name:
                    ______________________       

                  Title: 
                    _______________________       

                  Date:
                    _____________

                	 	 	 

        

         

        
          
            

            KL2:2419018.9

            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        EXHIBIT
          I

         

        HIENERGY
          TECHNOLOGIES, INC.

        CONVERSION
          NOTICE

         

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

         

        
          
            Date
              of
              Conversion: ______________________________

            
Number
              of
              Preferred Shares to be converted: __________________________

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

            The
              Common Stock have been sold pursuant to the Registration Statement
              (as defined
              in the Registration Rights Agreement): YES ____ NO____

            

            Please
              confirm the following information:

            

            Conversion
              Price: _______________________________________ 

            

            Number
              of
              shares of Common Stock to
              be
              issued: ______________________________________ 

            

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

          

          

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

          

          Issue
            to:
            ___________________________________

                 
            ___________________________________

           

          Facsimile
            Number: ______________________________ 

           

           

          
            	Authorization: 	 	 
	 	 
	 
 	 
 	 
 
	 	By:  	 
	 	
                    

                  
	Dated:	Title :_______________________________

          

          
            
              
                

                KL2:2419018.9

                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

          EXHIBIT
            II

           

          FORM
            OF EXERCISE NOTICE

           

          EXERCISE
            FORM

           

          HIENERGY
            TECHNOLOGIES, INC.

           

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

           

          
            	 	 	 	 
	Dated:
	 	
                      Signature 

                  	 
	 	 	
                     Address

                  	 
	 	 	 	 

          

           

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

          

          ASSIGNMENT

          

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

           

          
            	
                  	 	 	 
	Dated:
                    _____________________	 	
                      Signature 

                  	 
	 	 	
                     Address

                  	 
	 	 	 	 

             

          

           

          PARTIAL
            ASSIGNMENT

          

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

          

          
            	
                  	 	 	 
	Dated:
                    _______________________	 	
                      Signature 

                  	 
	 	 	
                     Address

                  	 
	 	 	 	 

             

            FOR
              USE
              BY THE ISSUER ONLY:

          

          

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

          
            
              

              KL2:2419018.9

              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          EXHIBIT
            III

           

          FORM
            OF NOTICE OF EFFECTIVENESS

          OF
            REGISTRATION STATEMENT

           

          [Name
            and
            address of Transfer Agent]

          Attn:
            _____________

          

          Re: HiEnergy
            Technologies, Inc. 

           

          Ladies
            and Gentlemen:

           

          We
            are
            counsel to HiEnergy Technologies, Inc., a Delaware corporation (the
“Company”),
            and
            have represented the Company in connection with that certain Series B
            Convertible Preferred Stock Purchase Agreement (the “Purchase
            Agreement”),
            dated
            as of June __, 2006, by and among the Company and the purchasers named
            therein
            (collectively, the “Purchasers”)
            pursuant to which the Company issued to the Purchasers shares of its
            Series B
            Convertible Preferred Stock, par value $.001 per share, (the “Preferred
            Shares”)
            and
            warrants (the “Warrants”)
            to
            purchase shares of the Company’s common stock, par value $.001 per share (the
“Common
            Stock”).
            Pursuant to the Purchase Agreement, the Company has also entered into
            a
            Registration Rights Agreement with the Purchasers (the “Registration
            Rights Agreement”),
            dated
            as of June __, 2006, pursuant to which the Company agreed, among other
            things,
            to register the Registrable Securities (as defined in the Registration
            Rights
            Agreement), including the shares of Common Stock issuable upon conversion
            of the
            Preferred Shares and exercise of the Warrants, under the Securities Act
            of 1933,
            as amended (the “1933
            Act”).
            In
            connection with the Company’s obligations under the Registration Rights
            Agreement, on ________________, 2006, the Company filed a Registration
            Statement
            on Form SB-2 (File No. 333-_____) (the “Registration
            Statement”)
            with
            the Securities and Exchange Commission (the “SEC”)
            relating to the resale of the Registrable Securities which names each
            of the
            present Purchasers as a selling stockholder thereunder.

           

          In
            connection with the foregoing, we advise you that a member of the SEC’s staff
            has advised us by telephone that the SEC has entered an order declaring
            the
            Registration Statement effective under the 1933 Act at [ENTER
            TIME OF EFFECTIVENESS]
            on
[ENTER
            DATE OF EFFECTIVENESS]
            and we
            have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that
            any stop order suspending its effectiveness has been issued or that any
            proceedings for that purpose are pending before, or threatened by, the
            SEC and
            accordingly, the Registrable Securities are available for resale under
            the 1933
            Act pursuant to the Registration Statement.

          
            	 	 	 
	 	
                    Very
                      truly yours,

                     

                    [COMPANY COUNSEL]

                  
	 
 	 
 	 
 
	 	By:  	 
	 	
                    

                  
	cc: [LIST
                    NAMES OF PURCHASERS]

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