**Exhibit 4.1**

**FORM OF SECURITIES PURCHASE AGREEMENT**

This SECURITIESPURCHASE AGREEMENT (this “Agreement”) is dated as of October __, 2003 by and among NANO-PROPRIETARY, INC., a Texascorporation with its principal office at 3006 Longhorn Boulevard, Suite 107, Austin, Texas 78758 (the “Company”), andthe persons listed as the Purchasers on the signature pages hereto (the “Purchasers”).

WHEREAS, the Companydesires to issue and sell to the Purchasers shares (“Shares”) of the Company’s authorized but unissued commonstock, $.001 par value per share (the “Common Stock”), in connection with an offering (the “Offering”) ofup to $2,000,000 of Common Stock; and

WHEREAS, eachPurchaser wishes to purchase the Shares on the terms and subject to theconditions set forth in this Agreement.

NOW THEREFORE,in consideration of the mutual agreements, representations, warranties andcovenants herein contained, the parties hereto agree as follows:

1.             Definitions.  As used in thisAgreement, the following terms shall have the following respective meanings:

(a)          “Affiliate” of a party, means any corporation or other business entity controlled by, controlling or under commoncontrol with such party.  For this purpose “control” shall mean direct or indirect beneficial ownership of fiftypercent (50%) or more of the voting or income interest in such corporation or other business entity.

(b)          “Closing Date” means, with respect to any Purchaser, the date of the Closing of such Purchaser’s purchase ofShares hereunder.

(c)          “EGE” means Emerging Growth Equities, Ltd., a Pennsylvania limited partnership.

(d)          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and all of the rules and regulationspromulgated there under.

(e)          “Placement Agent” means EGE.

(f)          “Registration Rights Agreement” shall mean that certain Registration Rights Agreement, dated as of the date hereof,among the Company and the Purchasers.

(g)          “SEC” shall mean the Securities and Exchange Commission.)

(h)          “Securities Act” shall mean theSecurities Act of 1933, as amended, and all of the rules and regulations promulgated thereunder.

----

2.          Purchase and Sale of the Shares.

2.1          Purchase and Sale.  Subject to and upon the terms and conditions set forth in this Agreement, the Company agrees toissue and sell to the Purchasers severally and not jointly, and each Purchaser hereby agrees to purchase from the Company severallyand not jointly, at the Closing, at a purchase price per Share of $1.70 (the “Purchase Price”), the number of Sharesobtained by dividing (a) the amount set forth on such Purchaser’s signature page hereto under the heading “AggregateSubscription Amount” by (b) the Purchase Price.  In the event that, with respect to any Purchaser, a fraction resultsfrom such calculation, the Company shall issue and sell to such Purchaser the greatest number of whole Shares obtained from suchcalculation and shall return to the Purchaser the difference between such Purchaser’s Aggregate Subscription Amount and theactual aggregate Purchase Price for the Shares so purchased by such Purchaser.

2.2          Closing.  Subject to the satisfaction or waiver of the conditions set forth in Section 5 of this Agreement, thepurchase and sale of the Shares shall take place at a closing (the “Closing”) at the offices of the Company’scounsel, Donald T. Locke, 434 Fayetteville Street, Suite 600, Raleigh, North Carolina 27610, upon the acceptance by the Company ofeach Purchaser’s purchase of the Shares.  On or prior to the Closing, each Purchaser shall (a) execute this Agreementand the Registration Rights Agreement, together with such other documents relating to the purchase of the Shares as the Company mayreasonably request, and deliver the same to Placement Agent to be held in escrow pending the Closing, and (b) deliver, by wiretransfer or other form of payment in same day funds the amount of such Purchaser’s Aggregate Subscription Amount, to theescrow account established by Placement Agent and the Company with Donald T. Locke as escrow agent (the “EscrowAgent”), pursuant to the terms of that certain Escrow Agreement (the “Escrow Agreement”), dated as of October __,2003, by and among the Company, the Escrow Agent and the Placement Agent.  Upon each Closing, (i) the Company shall executethis Agreement and the Registration Rights Agreement, together with such other documents relating to the purchase of the Shares asthe Purchasers may reasonably request, and deliver the same to each Purchaser in such Closing, (ii) Placement Agent shall releaseeach such Purchaser’s executed Agreement, Registration Rights Agreement and other documents to the Company and (iii) theEscrow Agent shall release the funds in the escrow account to the Company.  Within three business days after the Closing, theCompany or its transfer agent shall deliver to each Purchaser a stock certificate registered in the name of the Purchaser,representing the number of Shares purchased by the Purchaser, as computed pursuant to Section 2.1 hereof. 

3.          Representations and Warranties of the Company.  The Company hereby represents and warrants to the Purchasers as ofthe date of this Agreement as follows:

3.1          Incorporation.  Each of the Company and its Subsidiaries (as defined in Rule 405 under the Securities Act) is acorporation duly organized, validly existing and in good standing under the laws of its respective state of incorporation (Texas,in the case of the Company) and is qualified to do business in each jurisdiction in which the character of its properties or thenature of its business requires such qualification, except where the failure to so qualify would not have a material adverse effectupon the Company and its Subsidiaries taken as a whole.  Each of the Company and its Subsidiaries has all requisite corporatepower and authority to carry on its business as now conducted.

2

----

3.2          Capitalization.  The authorized capital stock of the Company as of September 28, 2003 consists of 120,000,000 sharesof Common Stock, $.001 par value per share, of which 93,361,425 shares are outstanding on the date hereof, and 2,000,000 shares ofConvertible Preferred Stock, $1.00 par value per share, of which no shares are outstanding on the date hereof.  Except as setforth in Schedule 3.2 hereto, there are no existing options, warrants, calls, preemptive (or similar) rights, subscriptions orother rights, agreements, arrangements or commitments of any character obligating the Company to issue, transfer or sell, or causeto be issued, transferred or sold, any shares of the capital stock of the Company or other equity interests in the Company or anysecurities convertible into or exchangeable for such shares of capital stock or other equity interests, and there are nooutstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of its capital stock orother equity interests.  Except as set forth in Schedule 3.2,  the Company owns the entire equity interest in each of itsSubsidiaries, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest.  Except as setforth in the SEC Documents, there are no shareholders agreements, voting agreements or other similar agreements with respect to theCommon Stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’sshareholders.

3.3          Authorization.  All corporate action on the part of the Company and its officers, directors and stockholdersnecessary for the authorization, execution, delivery and performance of this Agreement and the Registration Rights Agreement andthe consummation of the transactions contemplated herein and therein has been taken.  When executed and delivered by theCompany, each of this Agreement and the Registration Rights Agreement shall constitute the legal, valid and binding obligation ofthe Company, enforceable against the Company in accordance with its terms, except as such may be limited by bankruptcy, insolvency,reorganization or other laws affecting creditors’ rights generally and by general equitable principles.  The Company hasall requisite corporate power to enter into this Agreement and the Registration Rights Agreement and to carry out and perform itsobligations under the terms of this Agreement, and the Registration Rights Agreement.

3.4          Sarbanes-Oxley Act; Internal Accounting Controls.  The Company is in compliance in all material respects with theapplicable provisions of the Sarbanes-Oxley Act of 2002, and the applicable rules and regulations promulgated thereunder, that arecurrently effective with respect to the Company.  The Company and its Subsidiaries maintain a system of internal accountingcontrols sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’sgeneral or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements inconformity with GAAP and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities ispermitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability forassets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is takenwith respect to any difference.

2

----

3.5          Valid Issuance of the Shares.  The Shares being purchased hereunder will, upon issuance pursuant to the termshereof, be duly authorized and validly issued, fully paid and nonassessable, and free of all liens, encumbrances and restrictionsimposed by law or the Company except for restrictions on transfer set forth herein or in the Registration Rights Agreement orimposed by applicable securities laws.

3.6          Offering.  No form of general solicitation or general advertising was used by the Company or its representatives inconnection with the offer, sale or issuance of the Shares. In reliance on, and assuming the accuracy of, the representations andwarranties of the Purchasers in Section 4 hereof, the offer, sale and issuance of the Shares in conformity with the terms of thisAgreement will not result in a violation of the requirements of Section 5 of the Securities Act.

3.7          Financial Statements.  The Company has furnished or otherwise made available to each Purchaser its auditedConsolidated Statements of Income, Stockholders’ Equity and Cash Flows for the fiscal year ended December 31, 2002, itsaudited Consolidated Balance Sheet as of December 31, 2002, and its unaudited Consolidated Statements of Operations,Stockholders’ Equity and Cash Flows for the six months ended June 30, 2003 and its unaudited Consolidated Balance Sheet as ofJune 30, 2003.  All such financial statements are hereinafter referred to collectively as the “FinancialStatements.”  The Financial Statements have been prepared in accordance, assuming that the Company will continue as agoing concern, with generally accepted accounting principles applied on a consistent basis during the periods involved, and fairlypresent, in all material respects, the financial position of the Company on a consolidated basis and the results of its operationsas of the date and for the periods indicated thereon, except that the unaudited financial statements may not be in accordance withgenerally accepted accounting principles because of the absence of footnotes normally contained therein and are subject to normalyear-end audit adjustments which, individually, and in the aggregate, will not be material.  As discussed in Note 1 to theCompany’s Annual Report on From 10-KSB for the fiscal year ended December 31, 2002, the Company has suffered recurring lossesfrom operations and has a working capital deficiency. The Company has relied primarily on capital raised through offerings ofcommon stock, preferred stock, and convertible debt securities to fund its operations.  It is uncertain whether the Companywill be able to secure additional capital to fund its operations and this raises substantial doubt about the Company's ability tocontinue as a going concern. The Company can make no assurances as to when or if this going concern qualification by its auditorswill cease.  Since June 30, 2003, there has been no material adverse change (actual or threatened) in the assets, liabilities(contingent or other), affairs, operations, prospects or condition (financial or other) of the Company or its Subsidiariesconsidered as one enterprise.  Notwithstanding anything to the contrary in this Agreement, the Company’s currentfinancial performance may vary materially from expectations disclosed in the Company’s SEC Documents (as such term is definedbelow) and other publicly released information by the Company due to, among other things, recent market volatility, the timing ofthe receipt of customer orders, customer seasonality and uncertainty in global markets and the Company’s markets, and suchother factors as are set forth in the SEC Documents and other publicly released information by the Company.

4

----

3.8          SEC Documents.  The Company has furnished or otherwise made available to each Purchaser a true and complete copy ofthe Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002, the Company’s Quarterly Reportson Form 10-QSB for the quarters ended June 30, 2003 and March 31, 2003 and any other statement, report, registration statement(other than registration statements on Form S-8) or definitive proxy statement filed by the Company with the SEC during the periodcommencing December 31, 2002, and ending on the date hereof (all such materials being called, collectively, the “SECDocuments”).  As of their respective filing dates, the SEC Documents complied as to form in all material respects withthe requirements of the Exchange Act or the Securities Act, as applicable, and none of the SEC Documents contained any untruestatement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make thestatements made therein, in light of the circumstances under which they were made, not misleading, as of their respective filingdates, except to the extent corrected by a subsequently filed SEC Document, filed prior to the date hereof. 

3.9          Consents.  All consents, approvals, orders and authorizations required on the part of the Company in connection withthe execution, delivery or performance of this Agreement and the Registration Rights Agreement and the consummation of thetransactions contemplated herein, other than for Regulation D and state blue sky filings with respect to the sale of Shares whichwill be made post-closing in accordance with such laws, and therein have been obtained and will be effective as of the ClosingDate, provided that this representation and warranty is made in reliance on, and assuming the accuracy of, the representations andwarranties of the Purchasers in Section 4 hereof to the extent that the accuracy of such representations and warranties arerelevant to the determination of whether any such consent, approval, order or authorization is required.

3.10          No Conflict.  The execution and delivery of this Agreement and the Registration Rights Agreement by the Company andthe consummation of the transactions contemplated hereby and thereby will not conflict with or result in any violation of ordefault (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation oracceleration of any obligation or to a loss of a material benefit under (i) any provision of the Articles of Incorporation orBylaws of the Company, (ii) any agreement or instrument, permit, franchise, license, judgment, order, statute, law, ordinance, ruleor regulations applicable to the Company, its Subsidiaries or their respective properties or assets, except in the case of clause(ii)to the extent that such violations and defaults would not, individually or in the aggregate, reasonably be expected to have amaterial adverse effect on the Company, its Subsidiaries and their respective properties and assets.

3.11          Placement Agents.   In consideration for services rendered by the Placement Agent in placing the Shares, theCompany has agreed to pay the Placement Agent an aggregate cash commission equal to six percent (6%) of the gross proceeds of thesale of the Shares sold under this Agreement.  Other than as set forth herein, the Company has no obligation to paybrokers’ fees or commissions by virtue of the sale of the Shares.  It is understood and agreed that each of thePlacement Agent (or any of their respective affiliates, employees and partners) may, solely at such person’s discretion andwithout any obligation to do so, purchase Shares as principal so long as the fact that the Placement Agent (or any of theirrespective affiliates, employees or partners) is a Purchaser is disclosed to the Company.

5

----

3.12          Absence of Litigation.  There is no action, suit, proceeding or, to the Company’s knowledge, investigation,pending, or, to the Company’s knowledge, threatened by or before any governmental body against the Company or any of itsSubsidiaries and in which an unfavorable outcome, ruling or finding in any said matter, or for all matters taken as a whole, couldreasonably be expected to have a material adverse effect on the Company or its Subsidiaries considered as one enterprise.  Theforegoing includes, without limitation, any such action, suit, proceeding or investigation that questions this Agreement or theRegistration Rights Agreement or the right of the Company to execute, deliver and perform under same.

3.13          Reserved.

3.14          Reporting Status; Form S-2 Eligibility.  The Company has filed in a timely manner all documents that the Company wasrequired to file under the Exchange Act during the 12 months preceding the date of this Agreement.  The Company satisfies theeligibility requirements for the use of Form S-2 under the Securities Act.  All documents filed with the SEC in the 12 monthspreceding the applicable closing date complied in all material respects with the SEC’s requirements as of their respectivefiling dates and do not contain any non-GAAP financial measures prohibited by Regulation G, and the information contained thereinas of the date thereof did not contain an untrue statement of a material fact or omit to state a material fact required to bestated therein or necessary to make the statements therein, in light of the circumstances under which they were made, notmisleading.

3.15          No Violations.  Neither the Company nor any Subsidiary is in violation of its charter, bylaws, or otherorganizational document, or in violation of any law, administrative regulation, ordinance or order of any court or governmentalagency, arbitration panel or authority applicable to the Company or any Subsidiary, which violation, individually or in theaggregate, would be reasonably likely to have a material adverse effect on the Company or its Subsidiaries, considered as oneenterprise, or is in default (and there exists no condition which, with the passage of time or otherwise, would constitute adefault) in the performance of any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed oftrust or any other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or anySubsidiary is bound or by which the properties of the Company or any Subsidiary are bound, which would be reasonably likely to havea material adverse effect on the Company or its Subsidiaries, considered as one enterprise.

3.16          Property.  Except as disclosed in the SEC Documents, the Company and its Subsidiaries (i) have good andmarketable title to all real properties and all other properties and assets owned by them, in each case free from liens,encumbrances and defects that would interfere with the use made thereof by them and (ii) hold any leased real or personal propertyunder valid and enforceable leases with no exceptions that would interfere with the use made thereof by them, except in each casewhen the failure to so have or hold such properties would not have a material adverse effect on the Company or its Subsidiaries,considered as one enterprise.

6

----

3.17          Intellectual Property.  Except as specifically disclosed in the SEC Documents (i) each of the Company and itsSubsidiaries owns or possesses sufficient rights to use all patents, patent rights, trademarks, copyrights, licenses, inventions,trade secrets, trade names, designs, manufacturing or other processes, systems, data compilation, research results, know-how orother proprietary rights (collectively, “Intellectual Property”) that are necessary for the conduct of its business asnow conducted or as proposed to be conducted as described in the SEC Documents except where the failure to currently own or possesswould not have a material adverse effect on the Company or its Subsidiaries, considered as one enterprise, (ii) neither theCompany nor any of its Subsidiaries is infringing, or has received any notice of, or has any knowledge of, any assertedinfringement by the Company or any of its Subsidiaries of, any rights of a third party with respect to any Intellectual Propertythat, individually or in the aggregate, would have a material adverse effect on the Company or its Subsidiaries, considered as oneenterprise and (iii) neither the Company nor any of its Subsidiaries has received any notice of, or has any knowledge of,infringement by a third party with respect to any Intellectual Property rights of the Company or of any Subsidiary that,individually or in the aggregate, would have a material adverse effect on the Company or its Subsidiaries, considered as oneenterprise.  The consummation of the transactions contemplated by this Agreement will not result in the alteration, loss,impairment of or restriction on the Company’s or any of its Subsidiaries’ ownership or right to use any of theIntellectual Property.

                       Except as disclosed in the SEC Documents, all material licenses or other material agreements under which (i) the Company isgranted rights in Intellectual Property, other than Intellectual Property generally available on commercial terms from othersources, and (ii) the Company has granted rights to others in Intellectual Property owned or licensed by the Company, are infull force and effect and, to the knowledge of the Company, there is no material default by the Company thereunder.

                       The Company and the Subsidiaries have taken commercially reasonable steps required in accordance with sound business practice andbusiness judgment to establish and preserve their ownership of all Intellectual Property with respect to their business plans,strategies, products and technology.  Each employee, consultant and contractor who has had access to material confidentialinformation or trade secrets of the Company or its Subsidiaries has executed an agreement to maintain the confidentiality of suchinformation and, except under confidentiality obligations, to the knowledge of the Company, there has been no material disclosureof any of the Company’s or its Subsidiary’s confidential information or trade secrets to any third party.  To theknowledge of the Company, the Company is not making unauthorized use of any confidential information or trade secrets of anyperson.  Neither the Company nor, to the knowledge of the Company, any of its employees have any agreements or arrangementswith any persons other than the Company related to confidential information or trade secrets of such persons or restricting anysuch employee’s engagement in business activities of any nature that, individually or in the aggregate, would have a materialadverse effect on the Company or its Subsidiaries, considered as one enterprise.  To the knowledge of the Company, no personis making unauthorized use of any confidential information or trade secrets of the Company.

3.18          Company not an “Investment Company”.  The Company has been advised of the rules and requirements underthe Investment Company Act of 1940, as amended (the “Investment Company Act”).  The Company is not, andimmediately after receipt of payment for the Securities will not be, an “investment company” or an entity“controlled” by an “investment company” within the meaning of the Investment Company Act and shall conductits business in a manner so that it will not become subject to the Investment Company Act.

7

----

3.19          Reserved.

3.20          Taxes.  The Company has filed all necessary federal, state and foreign income and franchise tax returns and has paidor accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been or might be assertedor threatened against it which would have a material adverse effect on the Company.

3.21          NASDAQ OTC BB.  The Company’s Common Stock is listed on the NASDAQ OTC Bulletin Board, there are noproceedings pending or, to the Company’s knowledge, threatened to revoke or suspend such listing and the Company has notreceived any communication from the NASDAQ OTC BB Market with respect to any pending or threatened proceeding that would give riseto a delisting.

4.                   Representations and Warranties of the Purchasers.  Each Purchaser, severally and not jointly, represents andwarrants to the Company as of the Closing Date as follows:

4.1          Authorization.  All action on the part of the Purchaser and, if applicable, its officers, directors andshareholders, necessary for the authorization, execution, delivery and performance of this Agreement and the Registration RightsAgreement and the consummation of the transactions contemplated herein and therein has been taken.  When executed anddelivered, each of this Agreement and the Registration Rights Agreement will constitute the legal, valid and binding obligation ofthe Purchaser, enforceable against the Purchaser in accordance with its terms, except as such may be limited by bankruptcy,insolvency, reorganization or other laws affecting creditors’ rights generally and by general equitable principles.  ThePurchaser has all requisite power or corporate power, whichever is applicable, to enter into each of this Agreement and theRegistration Rights Agreement and to carry out and perform its obligations under the terms of this Agreement and the RegistrationRights Agreement.

4.2          Purchase Entirely for Own Account.  The Purchaser is acquiring the Shares being purchased by it hereunder forinvestment, for its own account, and not for resale or with a view to distribution thereof in violation of the SecuritiesAct.  The name of the Purchaser as it appears on the signature page hereto is the name such Shares shall be issued to and isthe name that is to appear in any registration statement filed pursuant to the Registration Rights Agreement.

4.3          Investor Status; Etc.  The Purchaser is an “Accredited Investor” as defined in Rule 501 of Regulation Dpromulgated under the Securities Act and was not organized for the purpose of acquiring the Shares.  The Purchaser’sfinancial condition is such that it is able to bear the risk of holding the Shares for an indefinite period of time and the risk ofloss of its entire investment.  The Purchaser has been afforded the opportunity to ask questions of and receive answers fromthe management of the Company concerning this investment and has sufficient knowledge and experience in investing in companiessimilar to the Company in terms of the Company’s stage of development so as to be able to evaluate the risks and merits ofits investment in the Company.  The Purchaser has carefully read the SEC Documents and has relied solely on the informationcontained therein and herein.

8

----

4.4          Shares Not Registered.  The Purchaser understands that the Shares have not been registered under the Securities Actor the securities laws of any state, by reason of their issuance by the Company in a transaction exempt from the registrationrequirements of the Securities Act and applicable state securities laws, and that the Shares must continue to be held by thePurchaser unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration. The Purchaser understands that the exemptions from registration afforded by Rule 144 (the provisions of which are known to it)promulgated under the Securities Act depend on the satisfaction of various conditions, and that, if applicable, Rule 144 may affordthe basis for sales only in limited amounts.  The Purchaser further understands that, except as provided in the RegistrationRights Agreement, the Company is under no obligation to register any of the Shares on the Purchaser’s behalf or to assist thePurchaser in complying with any exemption under the Securities Act or applicable state securities laws.

4.5          No Conflict.  The execution and delivery of this Agreement and the Registration Rights Agreement by the Purchaserand the consummation of the transactions contemplated hereby and thereby will not conflict with or result in any violation of ordefault by the Purchaser (with or without notice or lapse of time, or both) under, or give rise to a right of termination,cancellation or acceleration of any obligation or to a loss of a material benefit under (i) any provision of the organizationaldocuments of the Purchaser or (ii) any agreement or instrument, permit, franchise, license, judgment, order, statute, law,ordinance, rule or regulations, applicable to the Purchaser or its respective properties or assets.

4.6          Consents.  All consents, approvals, orders and authorizations required on the part of the Purchaser in connectionwith the execution, delivery or performance of this Agreement and the consummation of the transactions contemplated herein havebeen obtained and are effective as of the Closing Date.

4.7          Company Representations and Warranties.  No representations or warranties have been made to the Purchaser by theCompany, or any officer, employee, agent, affiliate or subsidiary of the Company, other than the representations and warranties ofthe Company contained herein, and in purchasing the Shares the Purchaser is not relying on any representations relating to theCompany other than those contained herein.

4.8          No Recommendation.  The Purchaser understands that no federal or state agency has made any findings or determinationas to the fairness of the offering of the Shares hereunder (or any part thereof) for public investment, or any recommendation orendorsement of the Shares (or any part thereof).

5.                    Conditions Precedent.

5.1          Conditions to the Obligation of the Purchasers to Consummate the Closing.  The obligation of each Purchaser toconsummate the Closing and to purchase and pay for the Shares being purchased by it pursuant to this Agreement is subject to thesatisfaction of the following conditions precedent:

9

----

                   (a)          The representations and warranties contained herein of the Company shall be true and correct on and as of the Closing Date withthe same force and effect as though made on and as of the Closing Date (it being understood and agreed by the Purchasers that, inthe case of any representation and warranty of the Company contained herein which is not hereinabove qualified by applicationthereto of a materiality standard, such representation and warranty need be true and correct only in all material respects in orderto satisfy as to such representation or warranty the condition precedent set forth in the foregoing provisions of this Section5.1(a)).

                   (b)          The Registration Rights Agreement shall have been executed and delivered by the Company.

                   (c)          The Company shall have performed in all material respects all obligations and conditions herein required to be performed orobserved by the Company on or prior to the Closing Date.

                   (d)          No proceeding challenging this Agreement or the transactions contemplated hereby, or seeking to prohibit, alter, prevent ormaterially delay the Closing, shall have been instituted before any court, arbitrator or governmental body, agency or official andshall be pending.

                   (e)          The purchase of and payment for the Shares by the Purchasers shall not be prohibited by any law or governmental order orregulation.  All necessary consents, approvals, licenses, permits, orders and authorizations of, or registrations,declarations and filings with, any governmental or administrative agency or of any other person with respect to any of thetransactions contemplated hereby, other than for Regulation D and state blue sky filings with respect to the sale of the Shares,shall have been duly obtained or made and shall be in full force and effect.

                   (f)          All instruments and corporate proceedings in connection with the transactions contemplated by this Agreement to be consummatedat the Closing shall be satisfactory in form and substance to the Purchasers, and the Purchasers shall have received copies(executed or certified, as may be appropriate) of all documents which the Purchasers may have reasonably requested in connectionwith such transactions.

                   (g)          A legal opinion of Donald T. Locke , counsel to the Company, in form and substance reasonably satisfactory to thePurchasers.

5.2          Conditions to the Obligation of the Company to Consummate the Closing. The obligation of the Company to consummate theClosing and to issue and sell to the Purchasers the Shares to be purchased at the Closing is subject to the satisfaction of thefollowing conditions precedent:

10

----

                   (a)          The representations and warranties contained herein of each Purchaser shall be true and correct on and as of the Closing Datewith the same force and effect as though made on and as of the Closing Date (it being understood and agreed by the Company that, inthe case of any representation and warranty of a Purchaser contained herein which is not hereinabove qualified by applicationthereto of a materiality standard, such representation and warranty need be true and correct only in all material respects in orderto satisfy as to such representation or warranty the condition precedent set forth in the foregoing provisions of this Section5.2(a)).

                   (b)          The Registration Rights Agreement shall have been executed and delivered by the Purchasers.

                   (c)          The Purchasers shall have performed all obligations and conditions herein required to be performed or observed by the Purchaserson or prior to the Closing Date.

                   (d)          No proceeding challenging this Agreement or the transactions contemplated hereby, or seeking to prohibit, alter, prevent ormaterially delay the Closing, shall have been instituted before any court, arbitrator or governmental body, agency or official andshall be pending.

                   (e)          The sale of the Shares by the Company shall not be prohibited by any law or governmental order or regulation.  Allnecessary consents, approvals, licenses, permits, orders and authorizations of, or registrations, declarations and filings with,any governmental or administrative agency or of any other person with respect to any of the transactions contemplated hereby, otherthan for Regulation D and state blue sky filings with respect to the sale of the Shares, shall have been duly obtained or made andshall be in full force and effect.

                   (f)          All instruments and corporate proceedings in connection with the transactions contemplated by this Agreement to be consummatedat the Closing shall be satisfactory in form and substance to the Company, and the Company shall have received counterpartoriginals, or certified or other copies of all documents, including without limitation records of corporate or other proceedings,which it may have reasonably requested in connection therewith.

6.                    Transfer, Legends.

6.1          Securities Law Transfer Restrictions.  No Purchaser shall sell, assign, pledge, transfer or otherwise dispose orencumber any of the Shares being purchased by it hereunder, except (i) pursuant to an effective registration statement under theSecurities Act or (ii) pursuant to an available exemption from registration under the Securities Act and applicable statesecurities laws and, if requested by the Company or its transfer agent, upon delivery by the Purchaser of an opinion of counselreasonably satisfactory to the Company and its counsel to the effect that the proposed transfer is exempt from registration underthe Securities Act and applicable state securities laws.  Any transfer or purported transfer of the Shares in violation ofthis Section 6.1 shall be voidable by the Company.  The Company shall not register any transfer of the Shares in violation ofthis Section 6.1.  The Company may, and may instruct any transfer agent for the Company, to place such stop transfer orders asmay be required on the transfer books of the Company in order to ensure compliance with the provisions of this Section 6.1.

11

----

6.2          Legends.  Each certificate representing any of the Shares shall be endorsed with the legend set forth below, andeach Purchaser covenants that, except to the extent such restrictions are waived by the Company, it shall not transfer the Sharesrepresented by any such certificate without complying with the restrictions on transfer described in this Agreement and the legendsendorsed on such certificate:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF ANEFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND, IFREQUESTED BY THE COMPANY OR ITS TRANSFER AGENT, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY ANDITS COUNSEL THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT.”

7.                    Escrow Agreement.  In connection with and in consideration of this Agreement, each Purchaser severally and notjointly hereby adopts and agrees to be bound by the terms and conditions of the Escrow Agreement, as if the Purchaser had executedsuch Escrow Agreement.

8.                    Miscellaneous Provisions.

8.1          Public Statements or Releases.  None of the parties to this Agreement shall make, issue, or release anyannouncement, whether to the public generally, or to any of its suppliers or customers, with respect to this Agreement or thetransactions provided for herein, or make any statement or acknowledgment of the existence of, or reveal the status of, thisAgreement or the transactions provided for herein, without the prior consent of the other parties, which shall not be unreasonablywithheld or delayed, provided, that nothing in this Section 8.1 shall prevent any of the parties hereto from making such publicannouncements as it may consider necessary in order to satisfy its legal obligations, but to the extent not inconsistent with suchobligations, it shall provide the other parties with an opportunity to review and comment on any proposed public announcementbefore it is made.  The parties hereto agree that upon a Closing the Company may issue a press release in substantially theform attached hereto as Schedule 8.1.

8.2          Further Assurances.  Each party agrees to cooperate fully with the other party and to execute such furtherinstruments, documents and agreements and to give such further written assurances, as may be reasonably requested by the otherparty to better evidence and reflect the transactions described herein and contemplated hereby, and to carry into effect theintents and purposes of this Agreement.

8.3          Rights Cumulative.  Each and all of the various rights, powers and remedies of the parties shall be considered to becumulative with and in addition to any other rights, powers and remedies which such parties may have at law or in equity in theevent of the breach of any of the terms of this Agreement.  The exercise or partial exercise of any right, power or remedyshall neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to suchparty.

12

----

8.4          Pronouns.  All pronouns or any variation thereof shall be deemed to refer to the masculine, feminine or neuter,singular or plural, as the identity of the person, persons, entity or entities may require.

8.5          Notices.

                   (a)          Any notices, reports or other correspondence (hereinafter collectively referred to as “correspondence”) required orpermitted to be given hereunder shall be sent by postage prepaid first class mail, courier or telecopy or delivered by hand to theparty to whom such correspondence is required or permitted to be given hereunder.  The date of giving any notice shall be (i)if delivered by first-class mail, three business days after so mailed, (ii) if delivered by overnight carrier, one business dayafter so mailed, (iii) if delivered by hand, on the date of delivery, or (iv) if delivered by facsimile, upon electronicconfirmation of receipt.

                   (b)          All correspondence to the Company shall be addressed as follows:

Nano-Proprietary, Inc.3006 Longhorn Boulevard, Suite 107Austin, Texas  78758Attention: Marc Eller - CEOTelephone:  (512) 339-5020

with a copy to:

Donald T. LockeAttorney-at-Law434 Fayetteville Street, Suite 600Raleigh,  North Carolina 27601

                   (c)          All correspondence to the Purchasers shall be addressed to each Purchaser at its address set forth on its signature pagehereto.

                   (d)          Any party may change the address to which correspondence to it is to be addressed by notification as provided for herein.

8.6          Captions.  The captions and paragraph headings of this Agreement are solely for the convenience of reference andshall not affect its interpretation.

8.7          Severability.  Should any part or provision of this Agreement be held unenforceable or in conflict with theapplicable laws or regulations of any jurisdiction, the invalid or unenforceable part or provisions shall be replaced with aprovision which accomplishes, to the extent possible, the original business purpose of such part or provision in a valid andenforceable manner, and the remainder of this Agreement shall remain binding upon the parties hereto.

13

----

8.8          Governing Law.  This Agreement shall be governed by and construed in accordance with the internal and substantivelaws of the State of Texas and without regard to any conflicts of laws concepts which concepts, which would apply the substantivelaw of some other jurisdiction.

8.9          Waiver.  No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in anyone or more instances, shall be deemed to be, or be construed as, a further or continuing waiver of any such term, provision orcondition or as a waiver of any other term, provision or condition of this Agreement.

8.10          Expenses.  Each party will bear its own costs and expenses in connection with this Agreement. 

8.11          Assignment.  The rights and obligations of the parties hereto shall inure to the benefit of and shall be bindingupon the authorized successors and permitted assigns of each party.  No Purchaser may assign its rights or obligations underthis Agreement or designate another person (i) to perform all or part of its obligations under this Agreement or (ii) to have allor part of its rights and benefits under this Agreement, in each case without the prior written consent of the Company.  TheCompany may not assign its rights or obligations under this Agreement without the prior written consent of the Purchasers holding amajority of the Shares then outstanding.  In the event of any assignment in accordance with the terms of this Agreement, theassignee shall specifically assume and be bound by the provisions of the Agreement by executing and agreeing to an assumptionagreement reasonably acceptable to the other party.

8.12          Survival.  The respective representations and warranties given by the parties hereto, and the other covenants andagreements contained herein, shall survive the Closing Date and the consummation of the transactions contemplated herein for aperiod of one year.

8.13          Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto respecting the subjectmatter hereof and supersedes all prior agreements, negotiations, understandings, representations and statements respecting thesubject matter hereof, whether written or oral.  No modification, alteration, waiver or change in any of the terms of thisAgreement shall be valid or binding upon the parties hereto unless made in writing and duly executed by the Company and thePurchasers.

8.14          Counterparts.  This Agreement may be executed in a number of counterparts, each of which together, shall for allpurposes constitute one Agreement, binding on all of the parties hereto, notwithstanding that all such parties have not signed thesame counterpart.

14

----

            IN WITNESS WHEREOF, theparties hereto have executed this Securities Purchase Agreement as of the day and year first above written.

NANO-PROPRIETARY, INC.

 

By:                                                                        Doulgas P. Baker, Chief Financial Officer

PURCHASER:

Print Name of Purchaser:

                                                                       

By:                                                                 Name:Title:

 

Purchaser’s Address and Fax Number for Notice:

                                                                       

                                                                       

                                                                       

Social Security/Tax Identification Number: ___________________

Aggregate SubscriptionAmount:                                                         

Email Address or Fax Number for

Notification of Purchase PriceCalculation:                                           

All funds should be delivered to the Escrow Agent for the benefit of theCompany by bank wire transfer or other form of payment in same day funds as follows:

Donald T. Locke, Escrow Agent

 

 

----

**Schedule 3.2**

**Capitalization**

**Items convertible into shares of the Companies Common Stock as of September 28,2003**

Common StockOptions                                  5,270,840Common StockWarrants                                   155,000ConvertibleNotes                                                       -

 

 

 

 

 

----

**Schedule 8.1 – Form of Press Release**