Document:

Exhibit 4.4

	

Execution Copy 

AMENDMENT
NO. 2 

BY AND AMONG 

SCIENTIFIC
LEARNING CORPORATION 

WARBURG,
PINCUS VENTURES, L.P. 

AND 

WPV, INC. 

EFFECTIVE AS
OF NOVEMBER 30, 2001 

TO 

AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT 

ENTERED INTO
AS OF DECEMBER 30TH, 1998, 

AS AMENDED
BY AN AMENDMENT NO. 1 THERETO, 

EFFECTIVE AS
OF MARCH 9, 2001 

	

AMENDMENT
NO. 2 TO 

AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT 

     Reference
is made to the Amended and Restated Registration Rights Agreement entered into as of
December 30, 1998, by and among Scientific Learning Corporation, a Delaware corporation
(the “Company”), Warburg, Pincus Ventures, L.P. (“WP Ventures”), a Delaware limited
partnership and a holder of shares of Common Stock of the Company, par value $0.001 per
share (the “Common Stock”), and the parties listed on Exhibit A attached thereto (such
parties, together with WP Ventures and WPV, the “Other Parties”), as amended by an
Amendment No. 1, effective as of March 9, 2001, by and among the Company, WP Ventures and
WPV, Inc. (“WPV”), a Delaware corporation (such agreement, as so amended, the
“Agreement”).   

     This
Amendment No. 2, effective as of November 30, 2001, by and among the Company, WP Ventures
and WPV, is attached to and made a part of the Agreement, and the Agreement is hereby
amended and supplemented as follows:  

     WHEREAS,
the Company and the Other Parties entered the Agreement to provide the right to the Other
Parties to require that the Company prepare and file a registration statement under the
U.S. Securities Act of 1933 under specified circumstances relating to the offer and sale
of the Company’s securities held by such Other Parties; and  

     WHEREAS,
the Company is issuing 4,000,000 shares of Common Stock (the “Common Shares”) to WP
Ventures under a Stock Purchase Agreement, made as of November 7, 2001 between the
Company and WP Ventures (the “Stock Purchase Agreement”), in consideration of the payment
by WP Ventures of $5,000,000 to the Company, and, in consideration of, and as further
inducement to, WP Ventures to purchase the Common Shares, the Company desires to amend
certain provisions of the Agreement to include the Common Shares among the securities
with respect to which WP Ventures has registration rights under the Agreement; and  

     WHEREAS,
Section 2.10 of the Agreement provides that any provision of Section 2 of the Agreement
may be amended “...with the written consent of the Company and the Holders of at least a
majority of the Registrable Securities,” and that “[a]ny amendment... effected in
accordance with... Section 2.10 shall be binding on each Holder and the Company;” and  

     WHEREAS,
WP Ventures and WPV are Holders of a majority of the Registrable Securities pursuant to
the definitions of such terms contained in Section 1.1 of the Agreement; and  

     NOW,
THEREFORE, in consideration of the premises set forth above and the mutual
representations, warranties and agreements contained herein, the adequacy and sufficiency
of which consideration is hereby agreed by the parties to be satisfactory, the parties
hereby agree to amend the Agreement as follows:  

	

	A.  	 	 Definition
of “Registrable Securities”:  Section 1.1 of the Agreement is hereby amended by deleting
the current definition of “Registrable Securities” in its entirety and replacing it with
the following:   

	 	
““REGISTRABLE
SECURITIES” means: (i) any Common Stock of the Company issued or issuable upon conversion
of the Shares; (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities; (iii) all of the shares of Common Stock of the Company
issuable upon exercise of the warrants issued to Warburg, Pincus Ventures, L.P., a
Delaware limited partnership, on June 4, 1998 and October 23, 1998; (iv) all of the
shares of Common Stock of the Company issuable upon exercise of the warrants issued to
WPV, Inc., a Delaware corporation, on March 9, 2001; (v) all of the 4,000,000 shares of
Common Stock issued to Warburg, Pincus Ventures, L.P. under the terms of that certain
Stock Purchase Agreement, made as of November 7, 2001 between the Company and Warburg,
Pincus Ventures, L.P., and (vi) up to an aggregate of 1,000,000 additional shares of
Common Stock now held or hereafter acquired by Warburg, Pincus Ventures, L.P., WPV, Inc.
or any of their affiliates (as such term is defined in Rule 405 under the Exchange Act),
whether purchased from the Company or in the open market, or acquired by any other means,
such 1,000,000 shares of Common Stock being in addition to any other shares of Common
Stock included as Registrable Securities pursuant to clauses (i) through (v) of this
definition.” 

	II.  	 	General.   

	

(a) All capitalized terms defined
in the Agreement and used herein, except as otherwise defined herein, shall have
the same meanings as in the Agreement.  

(b) The Agreement together
with this Amendment replaces and supersedes all other agreements, written or
oral with respect to its subject matter.  

(c) Except as expressly
amended and supplemented hereby, the Agreement remains in full force and effect.  

(d) If any term of this Amendment
conflicts with the terms of the Agreement, the terms of this Amendment shall
prevail.  

(e) This Amendment may be
signed in counterparts, each of which shall constitute an original and which
together shall constitute one and the same amendment.  

(f) This Amendment shall be
governed by and construed in accordance with the laws of the State of California
applicable to contracts between California residents entered into and to be
performed entirely within the State of California without giving effect to the
conflict or choice of law principles thereof.  

[The following page is
the signature page]  

	

     IN
WITNESS WHEREOF, the parties’ duly authorized representatives hereby have executed this
Agreement as of the date first written above.  

SCIENTIFIC
LEARNING CORPORATION 

By:     /s/ Sheryle J. Bolton

      ———————————————————

       Name:  Sheryle J. Bolton

       Title:  Chairman and Chief Executive Officer  

	Address: 	300 Frank H. Ogawa Plaza, Suite 500
Oakland, CA 94612-2040
Fax: (510) 665-1717 

	WARBURG, PINCUS VENTURES, L.P  	WPV, INC.  
	  
	By: 	Warburg, Pincus & Co., its general partner

          By: /s/ Rodman W. Moorhead, III
—————————————
          
Name: Rodman W. Moorhead, III
Title: Managing Director 	 
 
By: 	 
 
/s/ Rodman W. Moorhead, III
          
—————————————
          
Name: Rodman W. Moorhead, III
Title: Managing Director 

	Address: 	466 Lexington Avenue
New York, NY 10017
Fax: (212) 878-9200 	Address: 	466 Lexington Avenue
New York, NY 10017
Fax: (212) 878-9200 

	

[Signature page to
Amendment No. 2 to Amended and Restated Registration Rights Agreement
entered into as of
December 30, 1998, as amended by an Amendment No. 1 thereto effective as
of March 9, 2001]EXHIBIT 4.5

                        ADVANCED OPTICS ELECTRONICS, INC.

                          SECURITIES PURCHASE AGREEMENT

                                November 7, 2001

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

1.  AGREEMENT TO SELL AND PURCHASE...........................................1

2.  FEES AND WARRANTS........................................................1

3.  CLOSING, DELIVERY AND PAYMENT............................................2

    3.1      Closing.........................................................2

    3.2      Delivery........................................................2

4.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................3

    4.1      Organization, Good Standing and Qualification...................3

    4.2      Subsidiaries....................................................3

    4.3      Capitalization; Voting Rights...................................3

    4.4      Authorization; Binding Obligations..............................4

    4.5      Liabilities.....................................................5

    4.6      Agreements; Action..............................................5

    4.7      Obligations to Related Parties..................................5

    4.8      Changes.........................................................6

    4.9      Title to Properties and Assets; Liens, Etc......................7

    4.10     Intellectual Property...........................................7

    4.11     Compliance with Other Instruments...............................8

    4.12     Litigation......................................................8

    4.13     Tax Returns and Payments........................................8

    4.14     Employees.......................................................8

    4.15     Registration Rights and Voting Rights...........................9

    4.16     Compliance with Laws; Permits...................................9

    4.17     Environmental and Safety Laws...................................9

    4.18     Valid Offering.................................................10

    4.19     Full Disclosure................................................10

    4.20     Insurance......................................................10

    4.21     SEC Reports....................................................10

    4.22     No Market Manipulation.........................................10

    4.23     Listing........................................................10

    4.24     No Integrated Offering.........................................11

    4.25     Stop Transfer..................................................11

    4.26     Dilution.......................................................11

5.  REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................11

    5.1      Requisite Power and Authority..................................11

    5.2      Investment Representations.....................................12

                                      -i-
<PAGE>

    5.3      Purchaser Bears Economic Risk..................................12

    5.4      Acquisition for Own Account....................................12

    5.5      Purchaser Can Protect Its Interest.............................12

    5.6      Accredited Investor............................................12

    5.7      Legends........................................................12

6.  COVENANTS OF THE COMPANY................................................13

    6.1      Stop-Orders....................................................13

    6.2      Listing........................................................13

    6.3      Market Regulations.............................................14

    6.4       Reporting Requirements........................................14

    6.5      Use of Funds...................................................14

    6.6      Access to Facilities...........................................14

    6.7      Taxes..........................................................14

    6.8      Insurance......................................................15

    6.9      Books and Records..............................................15

    6.10     Intellectual Property..........................................15

    6.11     Properties.....................................................15

    6.12     Confidentiality................................................15

    6.13     Required Approvals.............................................15

    6.14     Reissuance of Securities.......................................16

    6.15     Opinion........................................................17

7.  COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.......17

    7.1      Company Indemnification........................................17

    7.2      Purchaser's Indemnification....................................17

    7.3      Procedures.....................................................17

8.  CONVERSION OF CONVERTIBLE NOTES.........................................18

    8.1      Mechanics of Conversion........................................18

    8.2      Mandatory Redemption...........................................19

    8.3      Maximum Conversion.............................................19

    8.4      Injunction - Posting of Bond...................................19

    8.5      Buy-In.........................................................20

9.  REGISTRATION RIGHTS.....................................................20

    9.1      Registration Rights Granted....................................20

    9.2      Registration Procedures........................................22

    9.3      Provision of Documents.........................................23

    9.4      Non-Registration Events........................................23

    9.5      Expenses.......................................................24

                                      -ii-
<PAGE>

    9.6      Indemnification and Contribution...............................24

10. OFFERING RESTRICTIONS...................................................27

11. INTENTIONALLY OMITTED...................................................27

12. MISCELLANEOUS...........................................................27

    12.1     Governing Law..................................................27

    12.2     Survival.......................................................27

    12.3     Successors and Assigns.........................................27

    12.4     Entire Agreement...............................................27

    12.5     Severability...................................................28

    12.6     Amendment and Waiver...........................................28

    12.7     Delays or Omissions............................................28

    12.8     Notices........................................................28

    12.9     Attorneys' Fees................................................28

    12.10    Titles and Subtitles...........................................29

    12.11    Counterparts...................................................29

    12.12    Broker's Fees..................................................29

    12.13    Indemnification................................................29

    12.14    Construction...................................................29

                                      -iii-
<PAGE>

                        ADVANCED OPTICS ELECTRONICS, INC.
                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES  PURCHASE  AGREEMENT (the  "Agreement") is made and entered
into as of November ___, 2001, by and among Advanced Optics Electronics, Inc., a
Nevada corporation (the "Company"), and the Purchaser listed on Exhibit A hereto
(the "Purchaser").

                                    RECITALS

     WHEREAS,  the Company has authorized the sale of 8% Convertible Notes in an
aggregate principal amount of $300,000 (the "Notes"), convertible into shares of
the Company's common stock, $0.001 par value per share (the "Common Stock");

     WHEREAS,  the Company  wishes to issues  warrants (the  "Warrants")  to the
Purchaser to purchase  shares of the Company's  Common Stock in connection  with
Purchaser's purchase of the Notes;

     WHEREAS,  Purchaser desires to purchase the Notes and Warrants on the terms
and conditions set forth herein; and

     WHEREAS,  the Company  desires to issue and sell the Notes and  Warrants to
Purchaser on the terms and conditions set forth herein.

                                    AGREEMENT

     NOW,  THEREFORE,  in consideration of the foregoing recitals and the mutual
promises,  representations,  warranties and covenants  hereinafter set forth and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

     1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set
forth in this  Agreement,  on the  Closing  Date (as  defined in Section 3), the
Company  agrees to sell to the  Purchaser,  and the  Purchaser  hereby agrees to
purchase from the Company Notes in the amount set forth next to the  Purchaser's
name on Exhibit A under the column heading "Closing Date Notes,"  convertible in
accordance  with the terms  thereof into shares of the  Company's  Common Stock,
which amount shall be equal to $300,000. The Notes purchased on the Closing Date
shall be known as the "Offering." The form of Notes is annexed hereto as Exhibit
B. The Notes will have a Maturity  Date (as defined in the Notes) two years from
the date of  issuance.  Collectively,  the Notes and  Warrants  (as  defined  in
Section 2) and Common Stock  issuable upon  conversion of the Notes and exercise
of the Warrants are referred to as the "Securities."

     2. FEES AND WARRANTS.

               (a) The Company  will issue and deliver to the persons  listed on
Exhibit A under the column heading "Warrant  Holders",  or to such other persons
as the Purchaser shall otherwise  designate (such named persons,  as they may be
so  otherwise  designated,  being  referred  to as  the  "Warrant  Recipients"),
Warrants to purchase shares of Common Stock in the amounts designated on Exhibit
A hereto in connection with the Offering (the "Warrants")  pursuant to Section 1
hereof. The Warrants must be delivered on the Closing Date. The aggregate number
of shares of Common Stock  purchasable  upon exercise of the Warrants granted on
the Closing Date is set forth on Exhibit A hereto.  A form of Warrant is annexed
hereto as Exhibit C. The per share  "Purchase  Price" of Common Stock as defined
in the  Warrants  shall be equal to the lowest  closing  bid price of the Common
Stock as reported  by  Bloomberg  Financial  for the Pink  Sheets,  the NASD OTC
Bulletin Board, NASDAQ SmallCap Market,  NASDAQ National Market,  American Stock
Exchange,  or New York Stock  Exchange  (each of the  foregoing  the  "Principal
Market"),  or such other principal  market or exchange where the Common Stock is
listed or traded,  for the ten (10) trading days preceding but not including the
Closing Date. All the representations,  covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the benefit of

<PAGE>

Purchaser  are hereby also made and  granted to the  holders of the  Warrants in
respect of the Warrants and shares of the Company's  Common Stock  issuable upon
exercise of the Warrants (the "Warrant Shares").

               (b) The Company  shall  reimburse  Purchaser  for its  reasonable
legal fees of $5,000 for services  rendered to Purchaser in  preparation of this
Agreement and the Related Agreements. Amounts required to be paid hereunder will
be paid at the Closing.

               (c) The  Company  will  pay (x) a cash fee in the  amount  of ten
percent (10%) of the aggregate  gross  purchase  price to be paid to the Company
from the sale of Notes in the  Offering  and (y) a cash fee in the amount of ten
percent  (10%) of the  aggregate  gross  proceeds  received by the Company  upon
exercise of the Warrants (the "Warrant Exercise  Compensation" and, collectively
with the fees referred to in subsection (x) above,  the "Fund Manager's Fee") to
the persons  listed on Exhibit A under the column  heading  "Fund  Manager's Fee
Recipient." The Fund Manager's Fee must be paid on the Closing Date. The Warrant
Exercise  Compensation  must be paid by the Company  within ten (10) days of the
exercise of a Warrant by the holder thereof.  The aforementioned  Fund Manager's
Fee and legal fees will be payable at the Closing out of funds held  pursuant to
a Funds Escrow  Agreement to be entered  into by the Company,  Purchaser  and an
Escrow Agent. Failure to timely deliver the Fund Manager's Fee, Warrant Exercise
Compensation  or the Warrants  shall be deemed an Event of Default as defined in
Article III of the Notes.

     3. CLOSING, DELIVERY AND PAYMENT.

          3.1 Closing.  Subject to the terms and conditions  herein, the closing
of the  transactions  contemplated  hereby  (the  "Closing"),  which  closing is
comprised of Purchaser's  purchase of Notes in the aggregate principal amount of
$300,000,  shall  take  place on the date  hereof,  at the  offices of Daniel M.
Laifer,  Esq. 135 West 50th Street,  Suite 1700, New York, New York 10020, or at
such other time or place as the Company and Purchaser  may mutually  agree (such
date is hereinafter referred to as the "Closing Date").

          3.2  Delivery.  At the  Closing,  subject to the terms and  conditions
hereof,   the  Company  will  deliver  to  the  Purchaser  an  applicable   Note
representing  the  aggregate  principal  amount  borrowed  by the Company at the
Closing  from  the  Purchaser  and  a  warrant  certificate  registered  in  the
Purchaser's  name  representing  the  number of  Warrant  Shares as to which the
Warrant  is  exercisable  pursuant  to this  Agreement,  against  payment of the
purchase price therefor by certified  funds or wire transfer made payable to the
order of the Company,  cancellation  of  indebtedness  or any combination of the
foregoing.

     4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company hereby  represents and warrants to the Purchaser as of the date
of this Agreement as set forth below.

          4.1 Organization,  Good Standing and  Qualification.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of  Nevada.  The  Company  has all  requisite  corporate  power and
authority to own and operate its properties  and assets,  to execute and deliver
this Agreement, the Warrants to be issued in connection with this Agreement, the
Funds Escrow Agreement, the Security Agreement and all other agreements referred
to herein (collectively,  the "Related Agreements"), to issue and sell the Notes
and the  shares of Common  Stock  issuable  upon  conversion  of the Notes  (the
"Conversion Shares"), to issue and sell the Warrants and the Warrant Shares, and
to carry out the provisions of this Agreement and the Related  Agreements and to
carry on its business as  presently  conducted  and as presently  proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good  standing as a foreign  corporation  in all  jurisdictions  in which the
nature of its  activities  and of its  properties  (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so would not have a material adverse effect on the Company or its business.

                                      -2-
<PAGE>

          4.2  Subsidiaries.  Except as disclosed  on Schedule  4.2, the Company
does not own or  control  any equity  security  or other  interest  of any other
corporation,  limited  partnership  or other business  entity.  If any entity is
listed on Schedule  4.2.  and the Company  owns a  controlling  interest in such
entity,  each of the  representations and warranties set forth in this Section 4
are being hereby  restated with respect to such entity  (modified as appropriate
to the nature of such entity.)

          4.3 Capitalization; Voting Rights.

               (a) The  authorized  capital  stock of the  Company,  immediately
prior to the Closing,  consists of (i) 150,000,000  shares of Common Stock,  par
value $0.001 per share,  65,892,158  shares of which are issued and outstanding,
and (ii) 10,000,000  shares of Preferred  Stock,  par value $0.001 per share, no
shares of which are issued and outstanding.

               (b) Other than (i) the shares  reserved  for  issuance  under the
Company's  Stock Option Plan; and (iii) shares which may be granted  pursuant to
this Agreement and the Related  Agreements,  there are no  outstanding  options,
warrants,  rights (including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements,  or arrangements or agreements of any
kind for the purchase or acquisition  from the Company of any of its securities.
Neither  the offer,  issuance  or sale of any of the Notes or  Warrants,  or the
issuance of any of the Conversion Shares or Warrant Shares, nor the consummation
of any transaction  contemplated  hereby will result in a change in the price or
number of any  securities of the Company  outstanding,  under  anti-dilution  or
other similar provisions contained in or affecting any such securities.

               (c) All issued and  outstanding  shares of the  Company's  Common
Stock and Preferred  Stock (to the extent  Preferred  Stock has been issued) (i)
have  been  duly   authorized   and  validly  issued  and  are  fully  paid  and
nonassessable  and (ii) were issued in compliance with all applicable  state and
federal laws concerning the issuance of securities.

               (d) The rights,  preferences,  privileges and restrictions of the
shares of Preferred  Stock and the Common Stock are as stated in the Articles of
Incorporation  (the  "Charter").  The Conversion  Shares and Warrant Shares have
been duly and validly reserved for issuance.  When issued in compliance with the
provisions of this  Agreement and the Company's  Charter,  the Notes,  Warrants,
Conversion Shares and Warrant Shares (sometimes  collectively referred to herein
as the "Securities") will be validly issued,  fully paid and nonassessable,  and
will  be  free  of any  liens  or  encumbrances;  provided,  however,  that  the
Securities may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at the
time a transfer is proposed.

               (e)  No  stock  plan,  stock  purchase,  stock  option  or  other
agreement  or  understanding  between  the  Company and any holder of any equity
securities or rights to purchase equity securities  provides for acceleration or
other  changes in the vesting  provisions  or other terms of such  agreement  or
understanding as the result of any merger, consolidated sale of stock or assets,
change in control or any other  transaction(s)  by the  Company,  including  the
transactions contemplated hereunder.

               (f) The  provisions of NSR 78.378 to 78.3793,  inclusive,  of the
Nevada Revised  Statutes,  do not apply to the purchase of any Securities by the
Purchasers, or to, or as a result of, any of the matters or actions contemplated
in this  Agreement  or in any of the Related  Agreements.  The Company is not an
"issuing  corporation"  as such term is  defined  in NRS  78.3788  of the Nevada
Revised Statutes.

          4.4 Authorization;  Binding  Obligations.  All corporate action on the
part of the Company, its officers,  directors and stockholders necessary for the
authorization of this Agreement and the Related  Agreements,  the performance of
all obligations of the Company hereunder at each Closing and the  authorization,
sale,  issuance and delivery of the Securities  pursuant  hereto and the Related
Agreements  has been taken or will be taken prior to the Closing.  The Agreement
and the Related  Agreements,  when  executed  and  delivered,  will be valid and
binding  obligations of the Company  enforceable in accordance with their terms,
except (a) as  limited by  applicable  bankruptcy,  insolvency,

                                      -3-
<PAGE>

reorganization,  moratorium  or  other  laws of  general  application  affecting
enforcement  of  creditors'  rights,  and (b) general  principles of equity that
restrict the availability of equitable  remedies.  The sale of the Notes and the
subsequent  conversion of the Notes into Conversion  Shares are not and will not
be subject to any  preemptive  rights or rights of first  refusal  that have not
been  properly  waived  or  complied  with.  The  sale of the  Warrants  and the
subsequent  exercise of the Warrants for Warrant  Shares are not and will not be
subject to any  preemptive  rights or rights of first refusal that have not been
properly waived or complied with. The Notes and the Warrants,  when executed and
delivered  in  accordance  with the terms of this  Agreement,  will be valid and
binding  obligations  of the  Company,  enforceable  in  accordance  with  their
respective terms.

          4.5 Liabilities.  The Company has no material  liabilities and, to the
best of its  knowledge,  knows of no  material  contingent  liabilities,  except
current  liabilities  incurred in the ordinary course of business which have not
been, either in any individual case or in the aggregate, materially adverse.

          4.6 Agreements; Action.

               (a)  There  are  no  agreements,   understandings,   instruments,
contracts,  proposed transactions,  judgments, orders, writs or decrees to which
the  Company  is a party or to its  knowledge  by which  it is bound  which  may
involve (i)  obligations  (contingent  or  otherwise)  of, or  payments  to, the
Company in excess of $50,000  (other than  obligations  of, or payments  to, the
Company  arising from purchase or sale  agreements  entered into in the ordinary
course of business),  or (ii) the transfer or license of any patent,  copyright,
trade  secret or other  proprietary  right to or from the  Company  (other  than
licenses  arising  from the  purchase  of "off  the  shelf"  or  other  standard
products),  or (iii)  provisions  restricting  the  development,  manufacture or
distribution of the Company's products or services,  or (iv)  indemnification by
the Company with respect to infringements of proprietary rights.

               (b) The Company has not (i)  declared or paid any  dividends,  or
authorized or made any distribution  upon or with respect to any class or series
of its capital stock,  (ii) incurred any  indebtedness for money borrowed or any
other  liabilities  individually  in  excess  of  $50,000  or,  in the  case  of
indebtedness  and/or  liabilities  individually less than $50,000,  in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.

               (c) For the  purposes  of  subsections  (a)  and (b)  above,  all
indebtedness,  liabilities, agreements,  understandings,  instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the  individual  minimum dollar amounts of
such subsections.

               (d) The  Company  has not  engaged  in the past two  years in any
discussion  (i) with  any  representative  of any  corporation  or  corporations
regarding  the  consolidation  or  merger of the  Company  with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other  business  entity or any individual  regarding the sale,  conveyance or
disposition  of all or  substantially  all of the  assets of the  Company,  or a
transaction  or series of  related  transactions  in which  more than 50% of the
voting power of the Company is disposed of or (iii)  regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.

          4.7  Obligations to Related  Parties.  There are no obligations of the
Company to officers,  directors,  stockholders or employees of the Company other
than (a) for payment of salary for  services  rendered,  (b)  reimbursement  for
reasonable expenses incurred on behalf of the Company and (c) for other standard
employee  benefits made generally  available to all employees  (including  stock
option agreements  outstanding under any stock option plan approved by the Board
of Directors of the Company). None of the officers, directors or stockholders of
the Company,  or any members of their  immediate  families,  are indebted to the
Company.  None of the  officers,  directors  or,  to the  best of the  Company's
knowledge,  key employees or stockholders of the Company or any members of their
immediate  families,  are indebted to the Company or have any direct or indirect
ownership  interest  in any  firm or  corporation  with  which  the  Company  is

                                      -4-
<PAGE>

affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company,  other than passive  investments in
publicly traded companies  (representing less than 1% of such company) which may
compete with the Company. No officer, director or stockholder,  or any member of
their immediate families, is, directly or indirectly, interested in any material
contract  with  the  Company  and  no  agreements,  understandings  or  proposed
transactions  are  contemplated  between the Company  and any such  person.  The
Company  is not a  guarantor  or  indemnitor  of any  indebtedness  of any other
person, firm or corporation.

          4.8 Changes. Since June 30, 2001, there has not been:

               (a) Any change in the assets,  liabilities,  financial condition,
prospects  or  operations  of the  Company,  other than  changes in the ordinary
course of business, none of which individually or in the aggregate has had or is
reasonably   expected  to  have  a  material  adverse  effect  on  such  assets,
liabilities, financial condition, prospects or operations of the Company;

               (b) Any  resignation or termination of any officer,  key employee
or group of employees of the Company;

               (c)  Any  material  change,  except  in the  ordinary  course  of
business,  in the  contingent  obligations  of the  Company by way of  guaranty,
endorsement, indemnity, warranty or otherwise;

               (d) Any damage,  destruction  or loss,  whether or not covered by
insurance,  materially  and  adversely  affecting  the  properties,  business or
prospects or financial condition of the Company;

               (e)  Any  waiver  by the  Company  of a  valuable  right  or of a
material debt owed to it;

               (f) Any  direct or  indirect  loans  made by the  Company  to any
stockholder,  employee,  officer or director of the Company, other than advances
made in the ordinary course of business;

               (g)  Any  material  change  in any  compensation  arrangement  or
agreement with any employee, officer, director or stockholder;

               (h)  Any   declaration  or  payment  of  any  dividend  or  other
distribution of the assets of the Company;

               (i) Any labor organization activity related to the Company;

               (j) Any  debt,  obligation  or  liability  incurred,  assumed  or
guaranteed by the Company,  except those for immaterial  amounts and for current
liabilities incurred in the ordinary course of business;

               (k) Any sale, assignment or transfer of any patents,  trademarks,
copyrights, trade secrets or other intangible assets;

               (l) Any change in any material  agreement to which the Company is
a party or by which it is bound which may  materially  and adversely  affect the
business, assets, liabilities,  financial condition,  operations or prospects of
the Company;

               (m) Any other event or condition of any  character  that,  either
individually  or  cumulatively,  has or may materially and adversely  affect the
business, assets, liabilities,  financial condition,  prospects or operations of
the Company; or

               (n) Any arrangement or commitment by the Company to do any of the
acts described in subsection (a) through (m) above.

                                      -5-
<PAGE>

          4.9 Title to Properties and Assets;  Liens,  Etc. The Company has good
and  marketable  title to its  properties  and  assets,  and  good  title to its
leasehold  estates,  in each case subject to no mortgage,  pledge,  lien, lease,
encumbrance or charge,  other than (a) those resulting from taxes which have not
yet become delinquent,  (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially  impair the
operations  of the  Company,  and (c) those  that have  otherwise  arisen in the
ordinary course of business.  All facilities,  machinery,  equipment,  fixtures,
vehicles and other properties  owned,  leased or used by the Company are in good
operating  condition  and  repair  and are  reasonably  fit and  usable  for the
purposes for which they are being used.  The Company is in  compliance  with all
material terms of each lease to which it is a party or is otherwise bound.

          4.10 Intellectual Property.

               (a) The Company owns or possesses  sufficient legal rights to all
patents,  trademarks,  service marks,  trade names,  copyrights,  trade secrets,
licenses,  information and other proprietary rights and processes  necessary for
its  business as now  conducted  and to the  Company's  knowledge  as  presently
proposed  to be  conducted  (the  "Intellectual  Property"),  without  any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing  proprietary  rights, nor is
the Company  bound by or a party to any options,  licenses or  agreements of any
kind with  respect to the  patents,  trademarks,  service  marks,  trade  names,
copyrights,  trade secrets,  licenses,  information and other proprietary rights
and  processes  of any other  person  or entity  other  than  such  licenses  or
agreements arising from the purchase of "off the shelf" or standard products.

               (b) The Company has not received any communications alleging that
the Company has violated any of the patents,  trademarks,  service marks,  trade
names,  copyrights  or trade  secrets or other  proprietary  rights of any other
person or entity, nor is the Company aware of any basis therefor.

               (c) The Company  does not believe it is or will be  necessary  to
utilize any inventions,  trade secrets or proprietary  information of any of its
employees made prior to their employment by the Company,  except for inventions,
trade secrets or proprietary  information that have been rightfully  assigned to
the Company.

          4.11  Compliance  with  Other  Instruments.  The  Company  is  not  in
violation  or default of any term of its  Amended  Charter or Bylaws,  or of any
provision  of  any  mortgage,  indenture,  contract,  agreement,  instrument  or
contract  to which  it is  party  or by  which  it is bound or of any  judgment,
decree, order or writ. The execution, delivery and performance of and compliance
with this  Agreement  and the Related  Agreements,  and the issuance and sale of
Securities  pursuant  hereto,  will not,  with or without the passage of time or
giving of notice, result in any such material violation,  or be in conflict with
or  constitute  a default  under any such  term or  provision,  or result in the
creation of any mortgage,  pledge,  lien,  encumbrance or charge upon any of the
properties or assets of the Company or the suspension,  revocation,  impairment,
forfeiture  or  nonrenewal  of any permit,  license,  authorization  or approval
applicable  to the Company,  its business or  operations or any of its assets or
properties.

          4.12 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this  Agreement or the Related  Agreements or the
right of the Company to enter into any of such agreements,  or to consummate the
transactions  contemplated  hereby or  thereby,  or which might  result,  either
individually or in the aggregate,  in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company,  nor is the Company aware
that there is any basis for any of the foregoing.  The Company is not a party or
subject to the provisions of any order, writ, injunction,  judgment or decree of
any court or government  agency or  instrumentality.  There is no action,  suit,
proceeding  or  investigation  by the  Company  currently  pending  or which the
Company intends to initiate.

                                      -6-
<PAGE>

          4.13 Tax Returns and  Payments.  The Company has timely  filed all tax
returns  (federal,  state and local) required to be filed by it. All taxes shown
to be due and  payable on such  returns,  any  assessments  imposed,  and to the
Company's  knowledge all other taxes due and payable by the Company on or before
the  Closing,  have  been  paid or will be paid  prior to the time  they  become
delinquent.  The  Company  has not been  advised  (a)  that any of its  returns,
federal,  state or other,  have been or are being audited as of the date hereof,
or (b) of any  deficiency  in  assessment  or proposed  judgment to its federal,
state or other taxes.  The Company has no knowledge of any  liability of any tax
to be imposed  upon its  properties  or assets as of the date of this  Agreement
that is not adequately provided for.

          4.14 Employees.  The Company has no collective  bargaining  agreements
with any of its employees.  There is no labor union organizing  activity pending
or, to the  Company's  knowledge,  threatened  with respect to the Company.  The
Company  is not a  party  to or  bound  by any  currently  effective  employment
contract, deferred compensation arrangement,  bonus plan, incentive plan, profit
sharing  plan,  retirement  agreement  or other  employee  compensation  plan or
agreement.  To the  Company's  knowledge,  no employee of the  Company,  nor any
consultant with whom the Company has contracted,  is in violation of any term of
any  employment  contract,   proprietary  information  agreement  or  any  other
agreement  relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company;  and to the Company's knowledge the continued  employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent  contractors,  will not result in any such  violation.  The
Company is not aware that any of its  employees is obligated  under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or  subject  to any  judgment,  decree or order of any  court or  administrative
agency,  that would interfere with their duties to the Company.  The Company has
not  received any notice  alleging  that any such  violation  has  occurred.  No
employee of the Company has been  granted the right to continued  employment  by
the Company or to any material compensation  following termination of employment
with the  Company.  The Company is not aware that any  officer,  key employee or
group of employees  intends to terminate his, her or their  employment  with the
Company,  nor does  the  Company  have a  present  intention  to  terminate  the
employment of any officer, key employee or group of employees.

          4.15 Registration  Rights and Voting Rights.  The Company is presently
not under any obligation, and has not granted any rights, to register any of the
Company's  presently  outstanding  securities or any of its securities  that may
hereafter be issued. To the Company's  knowledge,  no stockholder of the Company
has entered into any agreement  with respect to the voting of equity  securities
of the Company.

          4.16 Compliance with Laws; Permits.  To its knowledge,  the Company is
not  in  violation  of  any  applicable  statute,  rule,  regulation,  order  or
restriction  of any domestic or foreign  government  or any  instrumentality  or
agency thereof in respect of the conduct of its business or the ownership of its
properties  which violation would  materially and adversely affect the business,
assets,  liabilities,  financial  condition,  operations  or  prospects  of  the
Company.   No  governmental   orders,   permissions,   consents,   approvals  or
authorizations  are required to be obtained and no registrations or declarations
are required to be filed in  connection  with the execution and delivery of this
Agreement  and the  issuance of any of the  Securities,  except such as has been
duly and validly  obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner. The Company has all
franchises,  permits,  licenses  and any  similar  authority  necessary  for the
conduct of its  business as now being  conducted  by it, the lack of which could
materially and adversely affect the business, properties, prospects or financial
condition of the Company.

          4.17 Environmental and Safety Laws. The Company is not in violation of
any  applicable  statute,  law or  regulation  relating  to the  environment  or
occupational health and safety, and to its knowledge,  no material  expenditures
are or will be required in order to comply with any such existing  statute,  law
or regulation.  No Hazardous  Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or, to the Company's  knowledge,  by
any other person or entity on any property owned, leased or used by the Company.
For the purposes of the preceding sentence, "Hazardous Materials" shall mean (a)
materials which are listed or otherwise  defined as "hazardous" or "toxic" under
any applicable  local,  state,  federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property,  the protection
of the environment from contamination, the control of

                                      -7-
<PAGE>

hazardous wastes, or other activities involving hazardous substances,  including
building materials, or (b) any petroleum products or nuclear materials.

          4.18 Valid Offering.  Assuming the accuracy of the representations and
warranties of the Purchaser  contained in this  Agreement,  the offer,  sale and
issuance of the Securities will be exempt from the registration  requirements of
the Securities  Act of 1933, as amended (the  "Securities  Act"),  and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration,  permit or qualification  requirements of all applicable
state  securities  laws.  Neither  the  Company  nor any agent on its behalf has
solicited  or will  solicit  any  offers to sell or has  offered to sell or will
offer to sell all or any part of the  Securities  to any person or persons so as
to bring the sale of such  Securities  by the  Company  within the  registration
provisions of the Securities Act or any state securities laws.

          4.19 Full Disclosure.  The Company has provided the Purchaser with all
information  requested  by the  Purchaser  in  connection  with its  decision to
purchase the Notes and Warrants,  including all information the Company believes
is  reasonably  necessary  to  make  such  investment  decision.   Neither  this
Agreement,  the exhibits and schedules  hereto,  the Related  Agreements nor any
other document  delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby,  contain any untrue statement of a material fact nor omit to state a
material  fact  necessary in order to make the  statements  contained  herein or
therein not  misleading.  To the Company's  knowledge,  there are no facts which
(individually  or in the aggregate)  materially  adversely  affect the business,
assets, liabilities, financial condition, prospects or operations of the Company
that  have not been set  forth in the  Agreement,  the  exhibits  and  schedules
hereto, the Related  Agreements or in other documents  delivered to Purchaser or
its attorneys or agents in connection herewith.

          4.20 Insurance. The Company has general commercial, product liability,
fire and casualty  insurance  policies  with  coverage  customary  for companies
similarly situated to the Company.

          4.21 SEC Reports. The Company has filed all proxy statements,  reports
and other  documents  required  to be filed by it under the  Exchange  Act.  The
Company has furnished the Purchaser with copies of (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 2000 and (ii) its Quarterly  Reports
on Form 10-Q for the fiscal  quarter  ended  March 31,  2001,  June 30, 2001 and
September 20, 2001  (collectively,  the "SEC  Reports").  Each SEC Report was in
substantial  compliance with the requirements of its respective form and none of
the SEC Reports,  nor the financial  statements (and the notes thereto) included
in the SEC Reports, as of their respective dates, contained any untrue statement
of a material  fact or omitted to state a material  fact  required  to be stated
therein  or  necessary  to  make  the  statements   therein,  in  light  of  the
circumstances under which they were made, not misleading.

          4.22 No Market  Manipulation.  The Company has not taken, and will not
take,  directly or indirectly,  any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to  facilitate  the sale or resale of any of the
Securities  being  offered  hereby  or  affect  the  price at  which  any of the
Securities being offered hereby may be issued.

          4.23 Listing.  The Company's Common Stock is listed for trading on the
NASD OTC Bulletin Board and satisfies all  requirements  for the continuation of
such listing. The Company has not received any notice that its Common Stock will
be delisted  from the NASD OTC Bulletin  Board or that the Common Stock does not
meet all requirements for the continuation of such listing.

          4.24 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
Securities  pursuant to this Agreement to be integrated  with prior offerings by
the Company for  purposes of the 1933 Act which would  prevent the Company  from
selling  the  Securities  pursuant  to Rule  506  under

                                      -8-
<PAGE>

the  1933  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  Securities  to be
integrated with other offerings.

          4.25 Stop Transfer. The Securities are restricted securities as of the
date of this  Agreement.  The Company will not issue any stop transfer  order or
other order impeding the sale and delivery of any of the Securities at such time
as  the  Securities  are  registered  for  public  sale  or  an  exemption  from
registration is available, except as required by federal securities laws.

          4.26  Dilution.  The number of shares of Common  Stock  issuable  upon
conversion of the Notes and exercise of the Warrants may increase  substantially
in  certain  circumstances,  including,  but not  necessarily  limited  to,  the
circumstance  wherein the trading  price of the Common Stock  declines  prior to
conversion or exercise of such securities.  The Company's executive officers and
directors have studied and fully  understand the nature of the Securities  being
sold hereby and recognize that they have a potential  dilutive effect. The Board
of Directors of the Company has concluded,  in its good faith business judgment,
that  such  issuance  is in the  best  interests  of the  Company.  The  Company
specifically  acknowledges  that its  obligation  to issue the  shares of Common
Stock upon  conversion of the Notes and exercise of the Warrants is binding upon
the Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other shareholders of the Company.

     5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

     The Purchaser hereby represents and warrants to the Company with respect to
itself or himself as follows (such  representations and warranties do not lessen
or obviate the  representations  and warranties of the Company set forth in this
Agreement):

          5.1 Requisite  Power and Authority.  Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement  and the Related  Agreements  and to carry out their  provisions.  All
action on  Purchaser's  part  required for the lawful  execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery,  this Agreement and the
Related  Agreements  will  be  valid  and  binding   obligations  of  Purchaser,
enforceable in accordance with their terms,  except (a) as limited by applicable
bankruptcy,  insolvency,  reorganization,  moratorium  or other  laws of general
application  affecting  enforcement of creditors'  rights, and (b) as limited by
general  principles  of equity  that  restrict  the  availability  of  equitable
remedies.

          5.2  Investment   Representations.   Purchaser  understands  that  the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon  Purchaser's  representations
contained in the Agreement.

          5.3  Purchaser   Bears  Economic  Risk.   Purchaser  has   substantial
experience in  evaluating  and investing in private  placement  transactions  of
securities  in  companies  similar  to the  Company  so  that it is  capable  of
evaluating  the merits and risks of its  investment  in the  Company and has the
capacity to protect its own interests.  Purchaser must bear the economic risk of
this investment  until the Securities are registered  pursuant to the Securities
Act, or an exemption from registration is available.

          5.4 Acquisition for Own Account.  Purchaser is acquiring the Notes for
Purchaser's  own account for investment  only, and not with a view towards their
distribution.

          5.5 Purchaser Can Protect Its Interest.  Purchaser  represents that by
reason  of  its,  or of its  management's,  business  or  financial  experience,
Purchaser has the capacity to protect its own  interests in connection  with the
transactions  contemplated  in  this  Agreement,  and

                                      -9-
<PAGE>

the Related  Agreements.  Further,  Purchaser is aware of no  publication of any
advertisement in connection with the transactions contemplated in the Agreement.

          5.6 Accredited Investor. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.

          5.7 Legends.

               (a) The Notes shall bear the following legend until the Notes and
Conversion Shares are covered by an effective  registration statement filed with
the SEC:

          "THIS NOTE AND THE COMMON STOCK ISSUABLE UPON  CONVERSION OF THIS NOTE
          HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
          OR, IF APPLICABLE,  STATE  SECURITIES  LAWS.  THIS NOTE AND THE COMMON
          STOCK ISSUABLE UPON  CONVERSION OF THIS NOTE MAY NOT BE SOLD,  OFFERED
          FOR SALE,  PLEDGED OR  HYPOTHECATED  IN THE  ABSENCE  OF AN  EFFECTIVE
          REGISTRATION  STATEMENT  AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
          AND  APPLICABLE  STATE  SECURITIES  LAWS  OR  AN  OPINION  OF  COUNSEL
          REASONABLY SATISFACTORY TO ADVANCED OPTICS ELECTRONICS, INC. THAT SUCH
          REGISTRATION IS NOT REQUIRED."

               (b) The  Conversion  Shares and the Warrant  Shares  shall bear a
legend which shall be in substantially  the following form until such shares are
covered by an effective registration statement filed with the SEC:

          "THE SHARES  REPRESENTED BY THIS  CERTIFICATE HAVE NOT BEEN REGISTERED
          UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE,  STATE
          SECURITIES  LAWS.  THESE  SHARES  MAY NOT BE SOLD,  OFFERED  FOR SALE,
          PLEDGED OR  HYPOTHECATED  IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION
          STATEMENT  UNDER SUCH  SECURITIES ACT AND APPLICABLE  STATE LAWS OR AN
          OPINION  OF  COUNSEL   REASONABLY   SATISFACTORY  TO  ADVANCED  OPTICS
          ELECTRONICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

               (c) The Warrants shall bear the following legend:

          "THIS  WARRANT AND THE COMMON  SHARES  ISSUABLE  UPON EXERCISE OF THIS
          WARRANT HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
          AMENDED,  OR APPLICABLE  STATE  SECURITIES  LAWS. THIS WARRANT AND THE
          COMMON SHARES  ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
          OFFERED  FOR  SALE,  PLEDGED  OR  HYPOTHECATED  IN THE  ABSENCE  OF AN
          EFFECTIVE  REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
          SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE  STATE SECURITIES
          LAWS OR AN OPINION  OF COUNSEL  REASONABLY  SATISFACTORY  TO  ADVANCED
          OPTICS ELECTRONICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

     6.  COVENANTS OF THE  COMPANY.  The Company  covenants  and agrees with the
Purchaser as follows:

                                      -10-
<PAGE>

          6.1 Stop-Orders. The Company will advise the Purchaser, promptly after
it receives  notice of issuance by the Securities and Exchange  Commission  (the
"SEC"), any state securities commission or any other regulatory authority of any
stop  order  or of any  order  preventing  or  suspending  any  offering  of any
securities  of the Company,  or of the  suspension of the  qualification  of the
Common  Stock of the Company for  offering or sale in any  jurisdiction,  or the
initiation of any proceeding for any such purpose.

          6.2  Listing.  The Company  shall  promptly  secure the listing of the
shares  of  Common  Stock  issuable  upon  conversion  of the Notes and upon the
exercise of the Warrants upon the  Principal  Market upon which shares of Common
Stock  are then  listed  (subject  to  official  notice of  issuance)  and shall
maintain  such  listing so long as any other  shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on a Principal
Market, and will comply in all respects with the Company's reporting, filing and
other  obligations  under the  bylaws or rules of the  National  Association  of
Securities Dealers ("NASD") and such exchanges, as applicable.  The Company will
provide the Purchaser copies of all notices it receives notifying the Company of
the  threatened  and actual  delisting  of the Common  Stock from any  Principal
Market.

          6.3 Market  Regulations.  The Company  shall notify the SEC,  NASD and
applicable  state  authorities,  in accordance with their  requirements,  of the
transactions  contemplated by this Agreement, 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 Securities to Purchaser
and promptly provide copies thereof to Purchaser.

          6.4  Reporting  Requirements.  (a) Until at least four (4) years after
the  effectiveness  of the  Registration  Statement  on Form SB-2 or such  other
Registration  Statement described in Section 9.1(d) hereof, the Company will (i)
cause its Common  Stock to continue to be  registered  under  Sections  12(b) or
12(g) of the Exchange  Act,  (ii) comply in all respects  with its reporting and
filing  obligations  under the Exchange  Act,  (iii)  comply with all  reporting
requirements  that is applicable to an issuer with a class of shares  registered
pursuant  to  Section  12(g)  of the  Exchange  Act,  and (iv)  comply  with all
requirements  related  to any  registration  statement  filed  pursuant  to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Securities Act or the Exchange Act or the rules thereunder)
to  terminate  or suspend  such  registration  or to  terminate  or suspend  its
reporting and filing obligations under said Acts until the later of (y) four (4)
years after the  effective  date of the  Registration  Statement on Form SB-2 or
such other Registration Statement described in Section 9.1(d) hereof, or (z) the
sale by the Purchaser of all the Securities  issuable by the Company pursuant to
this  Agreement.  Until at least  four (4) years  after the  Warrants  have been
exercised,  the Company  will use its  commercial  best  efforts to continue the
listing of the Common  Stock on the NASD OTC  Bulletin  Board and will comply in
all respects with the Company's  reporting,  filing and other  obligations under
the bylaws or rules of the NASD and NASDAQ.

          6.5 Use of Funds.  The Company  undertakes  to use the proceeds of the
Purchaser's  funds for the purposes set forth on Schedule 6.5 attached hereto. A
deviation  form the use of proceeds  set forth on Schedule  6.5 of more than 10%
per item or more than 20% in the aggregate  shall be deemed a material breach of
the Company's obligations hereunder.

          6.6 Access to Facilities.  The Company will permit any representatives
designated  by the Purchaser (or any  transferee of the  Purchaser),  so long as
such  person  holds any  Securities  upon  reasonable  notice and during  normal
business hours, at such person's expense and accompanied by a representative  of
the Company, to (a) visit and inspect any of the properties of the Company,  (b)
examine  the  corporate  and  financial  records  of the  Company  (unless  such
examination is not permitted by federal,  state or local law or by contract) and
make copies thereof or extracts therefrom and (c) discuss the affairs,  finances
and  accounts  of  any  such  corporations  with  the  directors,  officers  and
independent accountants of the Company.

          6.7 Taxes. The Company will promptly pay and discharge, or cause to be
paid and  discharged,  when due and payable,  all lawful taxes,  assessments and
governmental charges or levies

                                      -11-
<PAGE>

imposed upon the income, profits, property or business of the Company; provided,
however,  that any such tax, assessment,  charge or levy need not be paid if the
validity  thereof  shall  currently be  contested  in good faith by  appropriate
proceedings  and if the  Company  shall  have set  aside on its  books  adequate
reserves with respect thereto, and provided,  further, that the Company will pay
all such taxes,  assessments,  charges or levies forthwith upon the commencement
of  proceedings  to  foreclose  any lien  which may have  attached  as  security
therefor.

          6.8  Insurance.  The  Company  will  keep its  assets  which are of an
insurable  character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company's  line of business,  in amounts  sufficient to prevent
the Company from  becoming a  co-insurer  and not in any event less than 100% of
the insurable value of the property insured; and the Company will maintain, with
financially  sound and reputable  insurers,  insurance against other hazards and
risks and  liability  to persons  and  property  to the extent and in the manner
customary  for  companies in similar  businesses  similarly  situated and to the
extent available on commercially reasonable terms.

          6.9 Books and Records. The Company will keep true records and books of
account in which full,  true and correct entries will be made of all dealings or
transactions  in  relation  to its  business  and  affairs  in  accordance  with
generally accepted accounting principles applied on a consistent basis.

          6.10 Intellectual  Property.  The Company shall maintain in full force
and effect its corporate  existence,  rights and franchises and all licenses and
other  rights  to  use  Intellectual  Property  owned  or  possessed  by it  and
reasonably deemed to be necessary to the conduct of its business.

          6.11 Properties.  The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements,  additions and
improvements  thereto;  and the  Company  will at all  times  comply  with  each
provision  of all  leases  to which it is a party  or  under  which it  occupies
property if the breach of such provision could  reasonably be expected to have a
material adverse effect.

          6.12  Confidentiality.  The Company  agrees that it will not disclose,
and will not  include in any  public  announcement,  the name of the  Purchaser,
unless  expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement.

          6.13 Required Approvals.  For so long as at least 20% of the principal
amount of the Notes are  outstanding,  the  Company,  without the prior  written
consent of the Purchaser, shall not:

               (a) enter into any transaction or series of transactions with any
stockholder  director,  officer  or  employee  which  would  require  disclosure
pursuant to Rule 404 of the Regulation S-K under the Securities Act;

               (b)  authorize,  create or issue any securities (or any rights or
securities   directly  or  indirectly   convertible   into  or   exercisable  or
exchangeable for securities) having rights,  preferences or privileges  superior
the Conversion Shares;

               (c) directly or  indirectly  declare or pay any dividends or make
any  distributions  upon any of its capital stock or other equity securities (or
any  securities  directly  or  indirectly  convertible  into or  exercisable  or
exchangeable for equity securities);

               (d) directly or indirectly redeem,  purchase or otherwise acquire
any of the Corporation's  capital stock or other equity  securities  (including,
without limitation,  the Securities or any warrants, options and other rights to
acquire such capital stock or other equity securities) or directly or indirectly
redeem,

                                      -12-
<PAGE>

purchase or make any payments  with  respect to any stock  appreciation
rights, phantom stock plans or similar rights or plans;

               (e)  merge or  consolidate  with  any  entity  or  enter  into an
agreement to do so;

               (f)  sell,  lease or  otherwise  dispose  of more than 10% of the
assets of the  Company  (computed  on the  basis of book  value,  determined  in
accordance with GAAP consistently  applied, or fair market value,  determined by
the Board of Directors in its reasonable good faith judgment) in any transaction
or series of related transactions (other than sales of inventory in the ordinary
course of business) or sell or  permanently  dispose of any of its  intellectual
property;

               (g)   liquidate,   dissolve   or   effect   a   recapitalization,
reclassification  or  reorganization  in any  form  of  transaction  (including,
without  limitation,  any  reorganization  into a limited liability  company,  a
partnership or any other non-corporate  entity which is treated as a partnership
for federal income tax purposes or a stock split or "reverse" stock split of the
Common Stock);

               (h) acquire any interest in any company or business (whether by a
purchase of assets,  purchase  of stock,  merger or  otherwise),  enter into any
joint venture or make any investments in any other entity;

               (i) become subject to (including,  without limitation,  by way of
amendment to or modification  of) any agreement or instrument which by its terms
would  (under any  circumstances)  restrict the  Company's  right to perform the
provisions of this Agreement or any of the agreements contemplated thereby;

               (j)  create,  incur,  assume  or  suffer  to  exist  indebtedness
exceeding an aggregate principal amount of $375,000 outstanding at any time;

               (k)  amend,  alter or repeal  the  Company's  Bylaws or  Restated
Certificate  as to increase the number of authorized  shares of the Common Stock
or any  series of  preferred  stock,  or  materially  affect the rights or other
powers of the Conversion  Shares, or otherwise take any action which is designed
to, or could have the effect of, adversely  affecting the rights or other powers
of the Conversion Shares; or

               (l) materially alter or change the business of the Company.

          6.14   Reissuance  of  Securities.   The  Company  agrees  to  reissue
certificates  representing  the  Securities  without  the  legends  set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such  Securities  pursuant to Rule  144(k)  under the Act, or (b) upon resale
subject  to an  effective  registration  statement  after  such  Securities  are
registered  under the Act. The Company agrees to cooperate with the Purchaser in
connection with all resales  pursuant to Rule 144(d) and Rule 144(k) and provide
legal  opinions  necessary  to allow such  resales  provided the Company and its
counsel receive reasonably requested  representations from the selling Purchaser
and broker, if any.

          6.15  Opinion.  On the Closing  Date,  the Company will deliver to the
Purchaser  an opinion  acceptable  to the  Purchaser  from the  Company's  legal
counsel in the form annexed  hereto as Exhibit D. The Company will  provide,  at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Notes and exercise of the Warrants.

     7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.

          7.1 Company  Indemnification.  The Company  agrees to indemnify,  hold
harmless,   reimburse  and  defend  Purchaser,  each  of  Purchaser's  officers,
directors,  agents,  affiliates,  control persons,  and principal  shareholders,
against any claim, cost, expense, liability,

                                      -13-
<PAGE>

obligation,  loss or damage  (including  reasonable  legal  fees) of any nature,
incurred by or imposed upon the  Purchaser  which  results,  arises out of or is
based upon (i) any  misrepresentation  by Company or breach of any  warranty  by
Company in this Agreement or in any exhibits or schedules attached hereto or any
Related  Agreement,  or (ii) any breach or default in  performance by Company of
any covenant or undertaking to be performed by Company  hereunder,  or any other
agreement entered into by the Company and Purchaser relating hereto.

          7.2 Purchaser's  Indemnification.  Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company at all times against any claim, cost,
expense, liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company which results, arises out
of or is based upon (a) any  misrepresentation by Purchaser in this Agreement or
in any exhibits or schedules  attached hereto or any Related  Agreement;  or (b)
any breach or default in performance by Purchaser of any covenant or undertaking
to be performed by Purchaser  hereunder,  or any other agreement entered into by
the Company and Purchaser relating hereto.

          7.3  Procedures.  The procedures and  limitations set forth in Section
9.6 shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above.

     8. CONVERSION OF CONVERTIBLE NOTES.

          8.1 Mechanics of Conversion.

               (a) Upon the conversion of the Notes or part thereof, the Company
shall,  at its own cost and expense,  take all necessary  action  (including the
issuance of an opinion of counsel) to assure that the Company's  transfer  agent
shall issue stock  certificates in the name of the Purchaser (or its nominee) or
such other persons as designated by the Purchaser and in such  denominations  to
be specified  representing  the number of Conversion  Shares  issuable upon such
conversion.   The  Company  warrants  that  no  instructions  other  than  these
instructions  have been or will be given to the transfer  agent of the Company's
Common  Stock  and  that  the  Conversion  Shares  issued  will  be  unlegended,
free-trading, and freely transferable, and will not contain a legend restricting
the resale or transferability  of the Conversion Shares,  provided the Purchaser
has notified  the Company of the  Purchaser's  intention to sell the  Conversion
Shares and the  Conversion  Shares are  included  in an  effective  registration
statement or are otherwise exempt from registration when sold.

               (b)  Purchaser  will give notice of its  decision to exercise its
right  to  convert  the  Notes  or part  thereof  by  telecopying  or  otherwise
delivering  an  executed  and  completed  notice  of the  number of shares to be
converted to the Company (the "Notice of Conversion"). The Purchaser will not be
required to surrender  the Notes until the Purchaser  receives a certificate  or
certificates,  as the case may be,  representing the Conversion  Shares or until
the Note has been fully satisfied.  Each date on which a Notice of Conversion is
telecopied or delivered to the Company in accordance with the provisions  hereof
shall be deemed a "Conversion Date." The Company will or will cause the transfer
agent to transmit the  Company's  Common  Stock  certificates  representing  the
shares issuable upon conversion of the Notes (and a certificate representing the
balance  of the  Notes not so  converted,  if  requested  by  Purchaser)  to the
Purchaser  via  express  courier  for  receipt by such  Purchaser  within  three
business  days after  receipt by the  Company of the Notice of  Conversion  (the
"Delivery Date").

               (c) The Company  understands  that a delay in the delivery of the
Conversion  Shares in the form  required  pursuant  to Section 8 hereof,  or the
Mandatory  Redemption  Payment  described  in  Section  8.2  hereof,  beyond the
Delivery Date or Mandatory  Redemption  Payment Date (as defined in Section 8.2)
could result in economic loss to the Purchaser. As compensation to the Purchaser
for such loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the  Conversion  Shares in the form  required  pursuant to Section 8
hereof upon conversion of the Notes or late payment of the Mandatory  Redemption
Payment,  in the  amount of $100 per  business  day after the  Delivery  Date or
Mandatory  Redemption  Payment  Date,  as the case may be, for each $10,000 Note
principal  being  converted  or  redeemed.  The Company  shall pay any  payments
incurred  under  this  Section  in  immediately  available  funds  upon  demand.
Furthermore,  in addition to any other  remedies  which may be  available to the
Purchaser, in the event that the Company fails for any reason to effect delivery
of the  Conversion

                                      -14-
<PAGE>

Shares by the Delivery Date or make payment by the Mandatory  Redemption Payment
Date,  the  Purchaser  will be  entitled  to revoke all or part of the  relevant
Notice  of  Conversion  or  rescind  all or  part  of the  notice  of  Mandatory
Redemption  by delivery of a notice to such effect to the Company  whereupon the
Company and the Purchaser shall each be restored to their  respective  positions
immediately  prior to the  delivery of such  notice,  except  that late  payment
charges  described  above shall be payable through the date notice of revocation
or rescission is given to the Company.

               (d)  Nothing  contained  herein or in any  document  referred  to
herein or  delivered  in  connection  herewith  shall be deemed to  establish or
require  the  payment of a rate of  interest  or other  charges in excess of the
maximum  permitted by applicable  law. In the event that the rate of interest or
dividends  required  to be paid or other  charges  hereunder  exceed the maximum
amount  permitted by such law,  any payments in excess of such maximum  shall be
credited against amounts owed by the Company to a Purchaser and thus refunded to
the Company.

          8.2 Mandatory Redemption.  In the event the Company is unable to issue
Conversion  Shares on a Delivery Date or at any time when a Note is convertible,
for any reason,  then at the Purchaser's  election,  the Company must pay to the
Purchaser  five (5)  business  days  after  request by the  Purchaser  or on the
Delivery  Date (if  requested  by the  Purchaser) a sum of money  determined  by
multiplying  the  principal  of the Note  required  to be  converted  and not so
converted (or otherwise not convertible,  as applicable) by 130%,  together with
accrued  but unpaid  interest  thereon  ("Mandatory  Redemption  Payment").  The
Mandatory  Redemption Payment must be received by the Purchaser on the same date
as the Conversion  Shares are otherwise  deliverable or within five (5) business
days after request,  whichever is sooner ("Mandatory  Redemption Payment Date").
Upon  receipt  of the  Mandatory  Redemption  Payment,  the  corresponding  Note
principal and interest will be deemed paid and no longer outstanding.

          8.3 Maximum Conversion. The Purchaser shall not be entitled to convert
on a  Conversion  Date that  amount of a Note or Notes in  connection  with that
number of shares of Common  Stock which would be in excess of the sum of (i) the
number of  shares  of Common  Stock  beneficially  owned by the  Purchaser  on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Notes with respect to which the  determination of this proviso
is being made on a Conversion Date,  which would result in beneficial  ownership
by the Purchaser of more than 4.99% of the outstanding shares of Common Stock of
the  Company on such  Conversion  Date.  For the  purposes of the proviso to the
immediately  preceding  sentence,  beneficial  ownership  shall be determined in
accordance  with  Section  13(d)  of  the  Exchange  Act  and  Regulation  13d-3
thereunder.  Subject  to the  foregoing,  a  Purchaser  shall not be  limited to
aggregate  conversions  of only  4.99%.  A  Purchaser  may void  the  conversion
limitation  described  in this  Section  8.3 upon 75 days  prior  notice  to the
Company or upon an Event of Default  under the Note.  A Purchaser  may  allocate
which of the equity of the Company deemed  beneficially  owned by such Purchaser
shall be  included  in the 4.99%  amount  described  above  and  which  shall be
allocated to the excess above 4.99%.

          8.4 Injunction - Posting of Bond. In the event a Purchaser shall elect
to convert a Note or part thereof, the Company may not refuse conversion for any
reason,  unless  an  injunction  from a court,  on  notice,  restraining  and or
enjoining  conversion  of all or part of said Note  shall  have been  sought and
obtained and the Company  posts a surety bond for the benefit of such  Purchaser
in the  amount  of 130% of the  amount  of the  Note,  which is  subject  to the
injunction,   which  bond  shall  remain  in  effect  until  the  completion  of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Purchaser to the extent it obtains judgment.

          8.5  Buy-In.  In  addition  to  any  other  rights  available  to  the
Purchaser, if the Company fails to deliver to the Purchaser Conversion Shares by
the Delivery Date and if after the Delivery Date the Purchaser  purchases (in an
open  market  transaction  or  otherwise)  shares of Common  Stock to deliver in
satisfaction of a sale by such Purchaser of the Common Stock which the Purchaser
anticipated receiving upon such conversion (a "Buy-In"),  then the Company shall
pay in cash to the  Purchaser  (in  addition  to any  remedies  available  to or
elected  by such  Purchaser)  the  amount  by which  (A) the  Purchaser's  total
purchase  price  (including  brokerage  commissions,  if any) for the  shares of
Common Stock so purchased  exceeds (B) the aggregate  principal  and/or interest
amount of the Note, for which such conversion was not timely  honored,  together
with

                                      -15-
<PAGE>

interest thereon at a rate of 15% per annum,  accruing until such amount and any
accrued  interest  thereon  is paid  in  full  (which  amount  shall  be paid as
liquidated  damages  and  not as a  penalty).  For  example,  if  the  Purchaser
purchases  shares of Common  Stock having a total  purchase  price of $11,000 to
cover a Buy-In  with  respect  to an  attempted  conversion  of  $10,000 of Note
principal  and/or  interest,  the Company shall be required to pay the Purchaser
$1,000,  plus interest.  The Purchaser  shall provide the Company written notice
indicating the amounts payable to the Purchaser in respect of the Buy-In.

     9. REGISTRATION RIGHTS.

          9.1  Registration  Rights  Granted.  The  Company  hereby  grants  the
following registration rights to holders of the securities purchased hereby.

               (a) On two occasions,  for a period  commencing 60 days after the
Closing  Date,  but not later than four (4) years  after the  Closing  Date (the
"Request  Date"),  the Company,  upon a written request therefor from holders of
more than 50% of the aggregate of the Company's Securities then outstanding,  on
an as  converted  basis (the  Conversion  Shares and  Warrant  Shares  issued or
issuable with respect to all Notes or Warrants issued or to be issued hereunder,
being,  the  "Registrable  Securities"),  shall  prepare and file with the SEC a
registration  statement  under  the  Securities  Act  covering  the  Registrable
Securities  which are the  subject  of such  request,  unless  such  Registrable
Securities are the subject of an effective registration  statement. In addition,
upon the receipt of such request, the Company shall promptly give written notice
to all other record holders of the Registrable Securities that such registration
statement  is to be filed  and  shall  include  in such  registration  statement
Registrable Securities for which it has received written requests within 10 days
after the  Company  gives such  written  notice.  Such other  requesting  record
holders shall be deemed to have exercised their demand  registration right under
this Section  9.1. As a condition  precedent  to the  inclusion  of  Registrable
Securities,  the holder thereof shall provide the Company with such  information
as the Company  reasonably  requests.  The  obligation of the Company under this
Section 9.1 shall be limited to two registration statements.

               (b) If the Company at any time  proposes  to register  any of its
securities under the Act for sale to the public,  whether for its own account or
for the  account of other  security  holders  or both,  except  with  respect to
registration  statements  on Forms S-4,  S-8 or another form not  available  for
registering  the  Registrable  Securities  for sale to the public,  provided the
Registrable  Securities are not otherwise registered for resale by the Purchaser
or subsequent holder pursuant to an effective registration statement,  each such
time it will give at least 30 days' prior written notice to the record holder of
any  Securities  of its  intention  so to do.  Upon the  written  request of the
holder,  received  by the  Company  within 30 days  after the giving of any such
notice by the  Company,  to  register  any of the  Registrable  Securities,  the
Company will cause such Registrable  Securities as to which  registration  shall
have been so requested to be included  with the  securities to be covered by the
registration  statement  proposed to be filed by the Company,  all to the extent
required to permit the sale or other  disposition of the Registrable  Securities
so registered by the holder of such  Registrable  Securities (the "Seller").  In
the event that any  registration  pursuant to this  Section  9.1(b) shall be, in
whole or in  part,  an  underwritten  public  offering  of  Common  Stock of the
Company,  the number of shares of Registrable  Securities to be included in such
an underwriting may be reduced by the managing  underwriter if and to the extent
that the Company and the  underwriter  shall  reasonably  be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company  therein;  provided,  however,  that the Company shall notify the
Seller  in  writing  of  any  such  reduction.   Notwithstanding   the  forgoing
provisions,  or Section  9.1(a)  hereof,  the Company  may  withdraw or delay or
suffer a delay of any registration  statement referred to in this Section 9.1(b)
without thereby incurring any liability to the Seller.

               (c) If,  at the time any  written  request  for  registration  is
received by the Company  pursuant to Section 9.1(a),  the Company has determined
to proceed with the actual  preparation  and filing of a registration  statement
under the Securities Act in connection with the proposed offer and sale for cash
of any of its  securities  for the Company's own account,  such written  request
shall be deemed to have been  given  pursuant  to  Section  9.1(b)  rather  than
Section 9.1(a), and the rights of the holders of Registrable  Securities covered
by such  written  request  shall be governed by Section  9.1(b)  except that the
Company or underwriter,  if any, may not withdraw such registration or limit the
amount of Registrable Securities included in such registration.

                                      -16-
<PAGE>

               (d) The  Company  shall  file with the SEC  within 20 days of the
date hereof (the "Filing Date"),  and use its reasonable  commercial  efforts to
cause to be declared effective a Form SB-2 registration statement (or such other
form that it is  eligible  to use) within 45 days of the Filing Date in order to
register  the  Registrable  Securities  for  resale and  distribution  under the
Securities Act. The registration  statement  described in this paragraph must be
declared  effective  by the SEC  within 45 days of the Filing  Date (as  defined
herein)  ("Effective Date"). The Company will register not less than a number of
shares of Common  Stock in the  aforedescribed  registration  statement  that is
equal to 300% of the  Warrant  Shares  and  Conversion  Shares  issuable  at the
Conversion Prices set forth in the Warrants and Notes, respectively,  that would
be in effect  on the  Closing  Date or the date of  filing of such  registration
statement  (employing  the  conversion  price which would  result in the greater
number of Shares),  assuming the  conversion of 100% of the Notes which are then
outstanding  or issuable  hereunder,  and at least one share of common stock for
each  common  share  issuable  upon  exercise  of the  Warrants  which  are then
outstanding or issuable  hereunder  (employing  the Conversion  Price that would
result in the greater number of shares).  The  Registrable  Securities  shall be
reserved  and set aside  exclusively  for the benefit of the  Purchaser  and the
holders  of the  Warrants,  as the  case may be,  and not  issued,  employed  or
reserved for anyone other than the  Purchaser  and the holders of the  Warrants.
Such registration statement will be promptly amended or additional  registration
statements  will be  promptly  filed by the  Company as  necessary  to  register
additional  Company  Shares  to allow the  public  resale  of all  Common  Stock
included in and issuable by virtue of the Registrable Securities.  No securities
of the Company  other than the  Registrable  Securities  will be included in the
registration statement described in this Section 9.1(d).

          9.2 Registration  Procedures.  If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:

               (a) prepare and file with the SEC a  registration  statement with
respect to such  securities and use its best efforts to cause such  registration
statement  to become and  remain  effective  for the period of the  distribution
contemplated  thereby  (determined as herein provided),  and promptly provide to
the holders of Registrable  Securities  copies of all filings and SEC letters of
comment;

               (b) prepare and file with the SEC such amendments and supplements
to such registration  statement and the prospectus used in connection  therewith
as may be  necessary to keep such  registration  statement  effective  until the
later of: (i) six months after the latest exercise period of the Warrants;  (ii)
twelve months after the Maturity  Date of the last maturing  Notes or (iii) four
years after the Closing Date,  and comply with the  provisions of the Securities
Act with respect to the disposition of all of the Registrable Securities covered
by such  registration  statement in accordance with the Seller's intended method
of disposition set forth in such registration statement for such period;

               (c) furnish to the Seller,  and to each  underwriter if any, such
number of copies  of the  registration  statement  and the  prospectus  included
therein  (including each preliminary  prospectus) as such persons reasonably may
request to facilitate  the public sale or their  disposition  of the  securities
covered by such registration statement;

               (d) use its best  efforts to  register  or qualify  the  Seller's
Registrable   Securities  covered  by  such  registration  statement  under  the
securities  or "blue  sky" laws of such  jurisdictions  as the Seller and in the
case  of  an  underwritten  public  offering,  the  managing  underwriter  shall
reasonably request,  provided,  however, that the Company shall not for any such
purpose be  required  to qualify  generally  to  transact  business as a foreign
corporation  in any  jurisdiction  where it is not so qualified or to consent to
general service of process in any such jurisdiction;

               (e) list the Registrable  Securities covered by such registration
statement with any securities  exchange on which the Common Stock of the Company
is then listed;

               (f) immediately notify the Seller and each underwriter under such
registration  statement  at any  time  when a  prospectus  relating  thereto  is
required to be delivered under the Securities Act, of the

                                      -17-
<PAGE>

happening  of any event of which the Company has  knowledge as a result of which
the  prospectus  contained in such  registration  statement,  as then in effect,
includes  an untrue  statement  of a material  fact or omits to state a material
fact required to be stated therein or necessary to make the  statements  therein
not misleading in light of the circumstances then existing; and

               (g) make available for inspection by the Seller,  any underwriter
participating in any distribution pursuant to such registration  statement,  and
any attorney,  accountant or other agent retained by the Seller or  underwriter,
all publicly available,  non-confidential financial and other records, pertinent
corporate  documents  and  properties  of the Company,  and cause the  Company's
officers,   directors   and   employees  to  supply  all   publicly   available,
non-confidential  information  reasonably requested by the seller,  underwriter,
attorney, accountant or agent in connection with such registration statement.

          9.3 Provision of Documents.

               (a)  At  the  request  of  the  Seller,  provided  a  demand  for
registration  has  been  made  pursuant  to  Section  9.1(a)  or a  request  for
registration  has  been  made  pursuant  to  Section  9.1(b),   the  Registrable
Securities  will be included in a registration  statement filed pursuant to this
Section 9.

               (b) In connection with each  registration  hereunder,  the Seller
will  furnish to the  Company in writing  such  information  and  representation
letters with respect to itself and the proposed distribution by it as reasonably
shall be necessary  in order to assure  compliance  with federal and  applicable
state securities laws. In connection with each registration  pursuant to Section
9 covering an underwritten public offering,  the Company and the Seller agree to
enter into a written  agreement  with the managing  underwriter in such form and
containing such provisions as are customary in the securities  business for such
an arrangement  between such underwriter and companies of the Company's size and
investment stature.

          9.4 Non-Registration  Events. The Company and the Purchaser agree that
the Seller will suffer  damages if any  registration  statement  required  under
Section  9.1(a) above is not filed within 30 days after  written  request by the
holder and not declared  effective by the SEC within 90 days after such request,
and maintained in the manner and within the time periods contemplated by Section
9 hereof,  and it would not be feasible to ascertain  the extent of such damages
with precision.  Accordingly,  if (i) the  Registration  Statement  described in
Section  9.1(a) is not filed within 30 days of such written  request,  or is not
declared effective by the SEC on or prior to the date that is 90 days after such
request,  or (ii) the registration  statement on Form SB-2 or such other form as
described  in Section  9.1(d) is not filed on or before  the Filing  Date or not
declared effective on or before the sooner of the Effective Date, or within five
days of  receipt  by the  Company  of a  communication  from  the SEC  that  the
registration  statement  described in Section  9.1(d) will not be  reviewed,  or
(iii) any registration statement described in Section 9.1(a) or (d) is filed and
declared  effective but shall  thereafter  cease to be effective  (without being
succeeded immediately by an additional registration statement filed and declared
effective)  for a period of time which shall exceed 30 days in the aggregate per
year but not more than 20 consecutive  calendar days (defined as a period of 365
days commencing on the date the  Registration  Statement is declared  effective)
(each such event  referred  to in this  Section  9.4 is  referred to herein as a
"Non-Registration  Event"),  then,  for so long as such  Non-Registration  Event
shall continue,  (i) the Company shall pay in cash as Liquidated Damages to each
holder of any  Registrable  Securities  an amount  equal to two percent (2%) per
month or part thereof during the pendency of such Non-Registration  Event of the
principal of the Notes issued in connection  with the  Offering,  whether or not
converted,  then owned of record by such holder or issuable as of or  subsequent
to the occurrence of such  Non-Registration  Event and (ii) the Conversion Price
as defined in Section  2.1 of the Notes  shall be reduced by 10% for each 30-day
period  following  the  Effective  Date that the  Registration  Statement is not
declared  effective  by the SEC.  Payments to be made  pursuant to this  Section
shall be due and payable immediately upon demand in immediately available funds.
In the event a Mandatory  Redemption Payment is demanded from the Company by the
holder  pursuant to Section 8.2 of this Agreement,  then the Liquidated  Damages
described  in this  Section  9.4 shall no longer  accrue on the  portion  of the
purchase price underlying the Mandatory  Redemption Payment,  from and after the
date the holder receives the Mandatory  Redemption Payment. It shall be deemed a
Non-Registration  Event to the extent that all the Common Stock  included in the
Registrable  Securities  and  underlying  the  Securities  is not included in an
effective  registration  statement  as of and  after the  Effective  Date at the
conversion prices in effect from and after the Effective Date.

                                      -18-
<PAGE>

          9.5 Expenses.  All expenses  incurred by the Company in complying with
Section 9, including,  without  limitation,  all  registration  and filing fees,
printing  expenses,  fees and  disbursements  of counsel and independent  public
accountants for the Company,  fees and expenses  (including  reasonable  counsel
fees) incurred in connection with complying with state  securities or "blue sky"
laws, fees of the NASD,  transfer taxes, fees of transfer agents and registrars,
fees of, and disbursements incurred by, one counsel for the Seller, and costs of
insurance are called  "Registration  Expenses".  All underwriting  discounts and
selling commissions applicable to the sale of Registrable Securities,  including
any fees and  disbursements  of any special  counsel to the Seller  beyond those
included in Registration Expenses, are called "Selling Expenses."

               The Company will pay all Registration Expenses in connection with
the  registration  statement under Section 9. All Selling Expenses in connection
with each  registration  statement  under Section 9 shall be borne by the Seller
and may be  apportioned  among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

          9.6 Indemnification and Contribution.

               (a) In the event of a registration of any Registrable  Securities
under the  Securities  Act pursuant to Section 9, the Company will indemnify and
hold  harmless each Seller,  each officer of each Seller,  each director of each
Seller,  each  underwriter of such  Registrable  Securities  thereunder and each
other  person,  if any, who controls any such Seller or  underwriter  within the
meaning  of  the  Securities  Act,  against  any  losses,   claims,  damages  or
liabilities,  joint or several,  to which the  Seller,  or such  underwriter  or
controlling  person may become  subject under the  Securities  Act or otherwise,
insofar as such losses,  claims,  damages or liabilities  (or actions in respect
thereof)  arise out of or are based upon any untrue  statement or alleged untrue
statement of any material fact  contained in any  registration  statement  under
which such  Registrable  Securities  was  registered  under the Act  pursuant to
Section 9, any preliminary  prospectus or final prospectus contained therein, or
any  amendment  or  supplement  thereof,  or arise out of or are based  upon the
omission or alleged  omission to state  therein a material  fact  required to be
stated therein or necessary to make the statements  therein not misleading,  and
will  reimburse  the Seller,  each such  underwriter  and each such  controlling
person for any legal or other expenses reasonably incurred by them in connection
with  investigating  or defending  any such loss,  claim,  damage,  liability or
action; provided,  however, that the Company will not be liable in any such case
if and to the extent that any such loss,  claim,  damage or liability arises out
of or is based upon an untrue  statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any such
Seller, the underwriter or any such controlling  person in writing  specifically
for use in such registration statement or prospectus.

               (b) In the  event  of a  registration  of any of the  Registrable
Securities  under the Act pursuant to Section 9, the Seller will  indemnify  and
hold  harmless  the Company,  and each person,  if any, who controls the Company
within the meaning of the Securities  Act, each officer of the Company who signs
the registration statement and each director of the Company, against all losses,
claims,  damages or liabilities,  joint or several, to which the Company or such
officer or director may become  subject under the  Securities  Act or otherwise,
insofar as such losses,  claims,  damages or liabilities  (or actions in respect
thereof)  arise out of or are based upon any untrue  statement or alleged untrue
statement of any material fact  contained in the  registration  statement  under
which such  Registrable  Securities  were  registered  under the  Securities Act
pursuant to Section 9, any preliminary  prospectus or final prospectus contained
therein,  or any amendment or supplement  thereof,  or arise out of or are based
upon the omission or alleged  omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will  reimburse  the Company and each such officer or director for any legal
or other expenses  reasonably  incurred by them in connection with investigating
or  defending  any such loss,  claim,  damage,  liability  or action,  provided,
however,  that the Seller will be liable  hereunder in any such case if and only
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue  statement  or alleged  untrue  statement  or  omission  or
alleged  omission  made in  reliance  upon and in  conformity  with  information
pertaining to such Seller, as such,  furnished in writing to the Company by such
Seller  specifically for use in such registration  statement or prospectus,  and
provided,  further, however, that the liability of the Seller hereunder shall be
limited to the proportion of any such loss, claim, damage,  liability or expense
which  is  equal  to the  proportion  that  the  public  offering  price  of the
Registrable  Securities  sold by the Seller  under such  registration

                                      -19-
<PAGE>

statement  bears to the  total  public  offering  price of all  securities  sold
thereunder,  but not in any event to exceed  the net  proceeds  received  by the
Seller  from the sale of  Registrable  Securities  covered by such  registration
statement.

               (c) Promptly after receipt by an indemnified  party  hereunder of
notice of the  commencement of any action,  such  indemnified  party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof,  but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such  indemnified  party other than under this Section  9.6(c) and shall only
relieve it from any liability which it may have to such indemnified  party under
this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by
such omission.  In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying  party of the  commencement  thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall  wish,  to  assume  and   undertake  the  defense   thereof  with  counsel
satisfactory to such indemnified  party, and, after notice from the indemnifying
party to such  indemnified  party of its election so to assume and undertake the
defense thereof,  the indemnifying party shall not be liable to such indemnified
party under this Section 9.6(c) for any legal expenses  subsequently incurred by
such  indemnified  party in  connection  with the  defense  thereof  other  than
reasonable  costs of  investigation  and of liaison  with  counsel so  selected,
provided,  however,  that, if the defendants in any such action include both the
indemnified  party and the  indemnifying  party and the indemnified  party shall
have reasonably  concluded that there may be reasonable defenses available to it
which are different  from or additional to those  available to the  indemnifying
party or if the interests of the indemnified  party  reasonably may be deemed to
conflict with the interests of the indemnifying  party, the indemnified  parties
shall have the right to select one  separate  counsel  and to assume  such legal
defenses and otherwise to  participate  in the defense of such action,  with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.

               (d) In order to provide for just and  equitable  contribution  in
the event of joint  liability  under the Act in any case in which either (i) the
Seller,   or  any  controlling   person  of  the  Seller,   makes  a  claim  for
indemnification pursuant to this Section 9.6 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such  indemnification may not be enforced in such case  notwithstanding the fact
that this  Section  9.6  provides  for  indemnification  in such  case,  or (ii)
contribution  under the Securities Act may be required on the part of the Seller
or controlling  person of the Seller in circumstances for which  indemnification
is provided under this Section 9.6; then, and in each such case, the Company and
the  Seller  will  contribute  to  the  aggregate  losses,  claims,  damages  or
liabilities  to which they may be subject  (after  contribution  from others) in
such  proportion  so that  the  Seller  is  responsible  only  for  the  portion
represented by the percentage  that the public  offering price of its securities
offered by the registration  statement bears to the public offering price of all
securities offered by such registration statement,  provided,  however, that, in
any such case,  (A) the Seller will not be required to contribute  any amount in
excess  of the  public  offering  price of all  such  securities  offered  by it
pursuant to such registration  statement;  and (B) no person or entity guilty of
fraudulent  misrepresentation  (within the meaning of Section  10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.

                                      -20-
<PAGE>

     10.  OFFERING  RESTRICTIONS.  Except  as  previously  disclosed  in the SEC
Reports or stock or stock  options  granted to  employees  or  directors  of the
Company;  or  equity or debt  issued  in  connection  with an  acquisition  of a
business or assets by the  Company;  or the  issuance by the Company of stock in
connection with the  establishment  of a joint venture  partnership or licensing
arrangement  (these  exceptions   hereinafter   referred  to  as  the  "Excepted
Issuances"),  the Company will not issue any equity,  convertible  debt or other
securities  which are or could be (by conversion or  registration)  free-trading
securities  prior to the expiration of 12 months from the actual  effective date
of the registration  statement described in Section 9.1(d) above (the "Exclusion
Period").  This  restriction  shall not  prohibit  the Company  from issuing any
equity,  convertible  debt or other  securities  prior to the  expiration of the
Exclusion  Period,  provided  that  such  equity,   convertible  debt  or  other
securities are restricted securities when issued and remain restricted until the
expiration of the Exclusion Period.  Notwithstanding the above, if the Purchaser
elects not to further fund the Company  following the  transaction  contemplated
hereby, the Purchaser shall waive the provisions of this Section 10.

     11. ACCOUNTS  RECEIVABLE.  All sums due or which shall become due and owing
to the Company with respect to the Company's  Accounts  Receivable  set forth on
Schedule A attached hereto ("Accounts  Receivable") shall be immediately paid to
the  Purchaser  by wire  transfer,  upon the  Company's  receipt of such sums in
immediately available funds. In consideration of an early redemption fee, ninety
percent  (90%) of the sums  received  pursuant to this section  shall be applied
against the principal amount of the Note, plus any accrued interest thereon. The
Company  hereby  agrees to provide the  Purchaser no later than the third day of
every month, a reconciliation  report of its Accounts  Receivable and an updated
Accounts  Receivable  Aging  schedule.  The Purchaser will be granted a security
interest in the Accounts Receivables to be memorialized in a Security Agreement.
The  Company  will also  execute  all such  documents  reasonably  necessary  to
memorialize and further protect the security interest described above.

     12. MISCELLANEOUS.

          12.1 Governing Law. This Agreement  shall be governed by and construed
in  accordance  with  the laws of the  State  of New  York,  without  regard  to
principles of conflicts of laws.  Any action brought by either party against the
other  concerning  the  transactions  contemplated  by this  Agreement  shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and  other  agreements  on  behalf  of  the  Company  agree  to  submit  to  the
jurisdiction of such courts and waive trial by jury. The prevailing  party shall
be entitled to recover from the other party its reasonable  attorney's  fees and
costs.  In the event that any provision of this Agreement or any other agreement
delivered  in  connection   herewith  is  invalid  or  unenforceable  under  any
applicable  statute  or  rule  of law,  then  such  provision  shall  be  deemed
inoperative  to the extent that it may  conflict  therewith  and shall be deemed
modified to conform with such statute or rule of law. Any such  provision  which
may prove invalid or  unenforceable  under any law shall not affect the validity
or enforceability of any other provision of any agreement.

          12.2  Survival.   The  representations,   warranties,   covenants  and
agreements made herein shall survive any investigation made by the Purchaser and
the  closing of the  transactions  contemplated  hereby.  All  statements  as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company  pursuant  hereto in connection  with the  transactions
contemplated  hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.

          12.3 Successors and Assigns.  Except as otherwise  expressly  provided
herein,  the  provisions  hereof  shall  inure to the benefit of, and be binding
upon,  the  successors,  assigns,  heirs,  executors and  administrators  of the
parties  hereto and shall  inure to the  benefit of and be  enforceable  by each
person who shall be a holder of the Securities from time to time.

          12.4 Entire  Agreement.  This  Agreement,  the exhibits and  schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute

                                      -21-
<PAGE>

the full and entire  understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any  representations,  warranties,  covenants and agreements except as
specifically set forth herein and therein.

          12.5  Severability.  In case any provision of the  Agreement  shall be
invalid, illegal or unenforceable,  the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

          12.6 Amendment and Waiver.

               (a) This  Agreement  may be  amended  or  modified  only upon the
written consent of the Company and the Purchaser.

               (b) The  obligations of the Company and the rights of the holders
of the  Securities  under  the  Agreement  may be waived  only with the  written
consent of such holders of Securities. The rights of the holder of a Note may be
waived only with the written consent of the holder of such Note.

          12.7  Delays or  Omissions.  It is agreed that no delay or omission to
exercise  any right,  power or remedy  accruing  to any party,  upon any breach,
default or  noncompliance  by another party under this  Agreement or the Related
Agreements,  shall  impair  any such  right,  power or  remedy,  nor shall it be
construed to be a waiver of any such breach,  default or  noncompliance,  or any
acquiescence  therein, or of or in any similar breach,  default or noncompliance
thereafter occurring.  It is further agreed that any waiver,  permit, consent or
approval of any kind or character on the Purchaser's part of any breach, default
or noncompliance  under this Agreement,  the Notes or the Related  Agreements or
any  waiver  on  such  party's  part  of any  provisions  or  conditions  of the
Agreement,  a Note or the  Related  Agreements  must be in writing  and shall be
effective  only to the  extent  specifically  set  forth  in such  writing.  All
remedies,  either under this Agreement, the Notes or the Related Agreements,  by
law or otherwise afforded to any party, shall be cumulative and not alternative.

          12.8 Notices.  All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be  notified,  (b) when sent by  confirmed  telex or  facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day,  (c) five days after  having been sent by  registered  or  certified  mail,
return receipt requested,  postage prepaid,  or (d) one day after deposit with a
nationally  recognized  overnight  courier,  specifying next day delivery,  with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to the Purchaser at
the address set forth on the signature  page hereto for such  Purchaser,  with a
copy in the case of the  Purchaser  to Daniel  M.  Laifer,  Esq.,  135 West 50th
Street, Suite 1700, New York, NY 10020,  facsimile number (212) 541-4434,  or at
such other  address as the Company or the  Purchaser  may  designate by ten days
advance written notice to the other parties hereto.

          12.9  Attorneys'  Fees.  In the  event  that  any  suit or  action  is
instituted to enforce any provision in this Agreement,  the prevailing  party in
such dispute shall be entitled to recover from the losing party all fees,  costs
and  expenses  of  enforcing  any right of such  prevailing  party under or with
respect to this Agreement,  including,  without limitation, such reasonable fees
and  expenses  of  attorneys  and  accountants,  which  shall  include,  without
limitation, all fees, costs and expenses of appeals.

          12.10 Titles and Subtitles. The titles of the sections and subsections
of the  Agreement  are  for  convenience  of  reference  only  and are not to be
considered in construing this Agreement.

          12.11  Counterparts.  This  Agreement may be executed in any number of
counterparts,  each of which  shall be an  original,  but all of which  together
shall constitute one instrument.

                                      -22-
<PAGE>

          12.12 Broker's Fees. Each party hereto represents and warrants that no
agent,  broker,  investment banker,  person or firm acting on behalf of or under
the  authority  of such party  hereto is or will be entitled to any  broker's or
finder's fee or any other  commission  directly or indirectly in connection with
the transactions contemplated herein, except as specified herein with respect to
the  Purchaser.  Each party hereto  further agrees to indemnify each other party
for any claims,  losses or expenses  incurred by such other party as a result of
the representation in this Section 12.12 being untrue.

          12.13  Indemnification.  The Company shall indemnify the Purchaser for
any losses or expenses  incurred by the Purchaser in connection  with any claims
brought  against  the  Purchaser  by  any  third  party   (including  any  other
stockholder of the Company) as a result of the transactions contemplated by this
Agreement,  other than for a breach of  representation  or warranty  made by the
Purchaser herein.

          12.14  Construction.  Each party  acknowledges  that its legal counsel
participated  in the  preparation of this Agreement and,  therefore,  stipulates
that the rule of construction  that  ambiguities are to be resolved  against the
drafting party shall not be applied in the  interpretation  of this Agreement to
favor any party against the other.

                                      -23-
<PAGE>

     IN WITNESS  WHEREOF,  the  parties  hereto  have  executed  the  SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.

COMPANY:                                      PURCHASER:

ADVANCED OPTICS ELECTRONICS, INC.             LAURUS MASTER FUND, LTD.

By:
   ___________________________________        By:_______________________________
Name:
Title:                                        Name:_____________________________
Address: 8301 Washington NE, Suite 5
         Albuquerque, New Mexico 87113            Address: c/o Onshore Corporate
                                                  Services Ltd.
                                                  P.O. Box 1234 G.T.,
                                                  Queensgate House,
                                                  South Church Street
                                                  Grand Cayman, Cayman Islands

                 [Securities Purchase Agreement Signature Page]

<PAGE>

                                LIST OF EXHIBITS

Schedule of Purchasers                                              Exhibit A

Form of Offering Convertible Note                                   Exhibit B

Form of Warrant                                                     Exhibit C

Form of Opinion                                                     Exhibit D

<PAGE>

                                    EXHIBIT A

                             SCHEDULE OF PURCHASERS

----------------------------------------      ----------------------------------
                 Purchaser                             Closing Date Notes
----------------------------------------      ----------------------------------
Laurus Master Fund, Ltd.                      $300,000

TOTAL                                         $300,000
----------------------------------------      ----------------------------------

                           SCHEDULE OF WARRANT HOLDERS

----------------------------------------      ----------------------------------
Name of Warrant Holder                        Number of Warrant Shares
----------------------------------------      ----------------------------------
Laurus Master Fund, Ltd.                      300,000
----------------------------------------      ----------------------------------

                    SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS

----------------------------------------      ----------------------------------
Fund Manager                                  Closing Date Finder's Fees
----------------------------------------      ----------------------------------
Laurus Capital Management, L.L.C.             $30,000
----------------------------------------      ----------------------------------
TOTAL                                         $ 30,000   (10% of Closing)
----------------------------------------      ----------------------------------

                          WARRANT EXERCISE COMPENSATION

----------------------------------------      ----------------------------------
Warrant Holder                                PROPORTIONATE SHARE OF 10% CASH
                                              COMMISSIONS PAYABLE ON WARRANT
                                              EXERCISE
----------------------------------------      ----------------------------------
Laurus Master Fund, Ltd.                      100%
----------------------------------------      ----------------------------------
TOTAL                                         100%
----------------------------------------      ----------------------------------

                                      A-1
<PAGE>

                                    EXHIBIT B

                            FORM OF CONVERTIBLE NOTE

                                      B-1

<PAGE>

                                    EXHIBIT C

                                 FORM OF WARRANT

                                       C-1
<PAGE>

                                    EXHIBIT D

                                 FORM OF OPINIoN

     1. The Company is a corporation validly existing and in good standing under
the laws of the  State of  Nevada  and has all  requisite  corporate  power  and
authority to own,  operate and lease its properties and to carry on its business
as it is now being conducted.

     2. The Company has the requisite  corporate power and authority to execute,
deliver and perform its obligations under the Agreement and Related  Agreements.
All corporate  action on the part of the Company,  its  officers,  directors and
stockholders  necessary for (i) the  authorization  of the Agreement and Related
Agreements,  and the performance of all obligations of the Company thereunder at
each Closing,  and (ii) the  authorization,  sale,  issuance and delivery of the
Securities  pursuant to the Agreement and the Related Agreements has been taken.
The Conversion  Shares and the Warrant  Shares,  when issued  pursuant to and in
accordance  with the terms of the Agreement and upon delivery,  shall be validly
issued and outstanding, fully paid and non assessable.

     3. The execution,  delivery and performance of the Agreement,  the Notes or
the Related  Agreements by the Company and the  consummation of the transactions
contemplated  by any thereof,  will not, with or without the giving of notice or
the passage of time or both:

          (a) Violate the  provisions of the Restated  Articles or bylaws of the
Company; or

          (b) To the best of such  counsel's  knowledge,  violate any  judgment,
decree, order or award of any court binding upon the Company.

     4. The  Agreement and Related  Agreements  constitute  and the Notes,  upon
their issuance will  constitute,  valid and legally  binding  obligations of the
Company,  and are  enforceable  against  the  Company in  accordance  with their
respective terms.

     5. The sale of the Notes and the  subsequent  conversion  of the Notes into
Conversion  Shares are not and will not be subject to any preemptive  rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with. The sale of the Warrants and the subsequent exercise of
the  Warrants  for  Warrant  Shares  are  not and  will  not be  subject  to any
preemptive rights or, to such counsel's knowledge,  rights of first refusal that
have not been properly waived or complied with.

     6.  Assuming  the accuracy of the  representations  and  warranties  of the
Purchasers  contained  in the  Agreement,  the offer,  sale and  issuance of the
Securities will be exempt from the  registration  requirements of the Securities
Act, and will have been registered or qualified (or are exempt from registration
and qualification) under the registration,  permit or qualification requirements
of  all  applicable  state  securities  laws.  To the  best  of  such  counsel's
knowledge, 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 and  security  under  circumstances
that would cause the offering of the Securities 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 Securities pursuant to Rule
506 under the  Securities  Act, or any applicable  exchange-related  stockholder
approval provisions.

                                       D-1

<PAGE>

     7. There is no action, suit, proceeding or investigation pending or, to the
best of such counsel's knowledge,  currently threatened against the Company that
questions the validity of the  Agreement or the Related  Agreements or the right
of the  Company  to enter  into any of such  agreements,  or to  consummate  the
transactions contemplated thereby, or which might result, either individually or
in the  aggregate,  in any  material  adverse  change in the assets,  condition,
affairs or prospects of the Company,  financially or otherwise, or any change in
the current  equity  ownership  of the  Company.  To the best of such  counsel's
knowledge, the Company is not a party or subject to the provisions of any order,
writ,  injunction,  judgment  or  decree of any  court or  government  agency or
instrumentality;  nor is there any action, suit,  proceeding or investigation by
the Company currently pending or which the Company intends to initiate.

     8. The holding period of the Company shares deposited as security  pursuant
to the Security  Agreement in the hands of the  Purchasers  for purposes of Rule
144 of the Act will combine with and date back to the  acquisition  date of such
security shares by the depositing Shareholders.

                                       D-2

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