Document:

EXHIBIT 4.8

                        ADVANCED OPTICS ELECTRONICS, INC.

                          SECURITIES PURCHASE AGREEMENT

                                 August 30, 2001

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                                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..............................2

    4.1      Organization, Good Standing and Qualification.....................2

    4.2      Subsidiaries......................................................2

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

    4.4      Authorization; Binding Obligations................................3

    4.5      Liabilities.......................................................4

    4.6      Agreements; Action................................................4

    4.7      Obligations to Related Parties....................................4

    4.8      Changes...........................................................5

    4.9      Title to Properties and Assets; Liens, Etc........................5

    4.10     Intellectual Property.............................................6

    4.11     Compliance with Other Instruments.................................6

    4.12     Litigation........................................................6

    4.13     Tax Returns and Payments..........................................6

    4.14     Employees.........................................................7

    4.15     Registration Rights and Voting Rights.............................7

    4.16     Compliance with Laws; Permits.....................................7

    4.17     Environmental and Safety Laws.....................................7

    4.18     Valid Offering....................................................7

    4.19     Full Disclosure...................................................8

    4.20     Insurance.........................................................8

    4.21     SEC Reports.......................................................8

    4.22     No Market Manipulation............................................8

    4.23     Listing...........................................................8

    4.24     No Integrated Offering............................................8

    4.25     Stop Transfer.....................................................8

    4.26     Dilution..........................................................8

5.  REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...........................9

    5.1      Requisite Power and Authority.....................................9

    5.2      Investment Representations........................................9

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    5.3      Purchaser Bears Economic Risk.....................................9

    5.4      Acquisition for Own Account.......................................9

    5.5      Purchaser Can Protect Its Interest................................9

    5.6      Accredited Investor...............................................9

    5.7      Legends...........................................................9

6.  COVENANTS OF THE COMPANY..................................................10

    6.1      Stop-Orders......................................................10

    6.2      Listing..........................................................10

    6.3      Market Regulations...............................................11

    6.4       Reporting Requirements..........................................11

    6.5      Use of Funds.....................................................11

    6.6      Access to Facilities.............................................11

    6.7      Taxes............................................................11

    6.8      Insurance........................................................11

    6.9      Books and Records................................................11

    6.10     Intellectual Property............................................12

    6.11     Properties.......................................................12

    6.12     Confidentiality..................................................12

    6.13     Required Approvals...............................................12

    6.14     Reissuance of Securities.........................................13

    6.15     Opinion..........................................................13

7.  COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION.........13

    7.1      Company Indemnification..........................................13

    7.2      Purchaser's Indemnification......................................13

    7.3      Procedures.......................................................13

8.  CONVERSION OF CONVERTIBLE NOTES...........................................14

    8.1      Mechanics of Conversion..........................................14

    8.2      Mandatory Redemption.............................................14

    8.3      Maximum Conversion...............................................15

    8.4      Injunction - Posting of Bond.....................................15

    8.5      Buy-In...........................................................15

9.  REGISTRATION RIGHTS.......................................................15

    9.1      Registration Rights Granted......................................15

    9.2      Registration Procedures..........................................17

    9.3      Provision of Documents...........................................17

    9.4      Non-Registration Events..........................................18

    9.5      Expenses.........................................................18

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    9.6      Indemnification and Contribution.................................18

10. OFFERING RESTRICTIONS.....................................................20

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

12. MISCELLANEOUS.............................................................20

    12.1     Governing Law....................................................20

    12.2     Survival.........................................................21

    12.3     Successors and Assigns...........................................21

    12.4     Entire Agreement.................................................21

    12.5     Severability.....................................................21

    12.6     Amendment and Waiver.............................................21

    12.7     Delays or Omissions..............................................21

    12.8     Notices..........................................................21

    12.9     Attorneys' Fees..................................................22

    12.10    Titles and Subtitles.............................................22

    12.11    Counterparts.....................................................22

    12.12    Broker's Fees....................................................22

    12.13    Indemnification..................................................22

    12.14    Construction.....................................................22

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                        ADVANCED OPTICS ELECTRONICS, INC.
                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES  PURCHASE  AGREEMENT (the  "Agreement") is made and entered
into as of August 30, 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 $200,000 (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 $200,000. 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

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     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 $6,000 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 $200,000,
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.

     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

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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,  65,819,285  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  Series A  Preferred  Stock  and the  Common  Stock are as stated in the
     Amended Articles of Incorporation (the "Amended  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  Amended  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,  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

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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
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

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<PAGE>

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.

     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

                                      -5-
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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.

     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.

                                      -6-
<PAGE>

     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 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.

                                      -7-
<PAGE>

     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  and June 30,  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  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

                                      -8-
<PAGE>

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 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."

                                      -9-
<PAGE>

          (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:

     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.

                                      -10-
<PAGE>

     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  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.

                                      -11-
<PAGE>

     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,  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;

                                      -12-
<PAGE>

          (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,  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.

                                      -13-
<PAGE>

     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  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

                                      -14-
<PAGE>

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 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

                                      -15-
<PAGE>

     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.

          (d)  The  Company  shall  file  with  the  SEC  within  20 days of the
     effectiveness of the Company's registration  statement,  File No. 333-63672
     (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).

                                      -16-
<PAGE>

     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 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

                                      -17-
<PAGE>

     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.

     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

                                      -18-
<PAGE>

     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  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

                                      -19-
<PAGE>

     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.

     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. INTENTIONALLY OMITTED.

     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.

                                      -20-
<PAGE>

     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 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.

                                      -21-
<PAGE>

     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.

     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.

                                      -22-
<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.         THE KESHET FUND, L.P.

                                          By: _________________________________
By:     ______________________________    Name:
Name:                                     Address: ____________________________
Title:                                             ____________________________
Address:  8301 Washington NE, Suite 5              ____________________________
          Albuquerque, New Mexico 87113

                      [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

--------------------------------------------------------------------------------
                                                       Closing Date Notes
                 Purchaser
--------------------------------------------------------------------------------
The Keshet Fund, L.P.                        $200,000

TOTAL                                        $200,000
--------------------------------------------------------------------------------

                           SCHEDULE OF WARRANT HOLDERS

--------------------------------------------------------------------------------
Name of Warrant Holder                 Number of Warrant Shares
--------------------------------------------------------------------------------
The Keshet Fund, L.P.                  200,000
--------------------------------------------------------------------------------

                    SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS

--------------------------------------------------------------------------------
Fund Manager                           Closing Date Finder's Fees
--------------------------------------------------------------------------------
Keshet Management Limited              $20,000
--------------------------------------------------------------------------------
TOTAL                                  $      (10% of Closing)
--------------------------------------------------------------------------------

                          WARRANT EXERCISE COMPENSATION

--------------------------------------------------------------------------------
Warrant Holder                         PROPORTIONATE SHARE OF 10% CASH
                                       COMMISSIONS PAYABLE ON WARRANT EXERCISE
--------------------------------------------------------------------------------
The Keshet Fund, L.P.                  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.

     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

                                      D-1
<PAGE>

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-2Exhibit 4.9

          THIS NOTE AND THE COMMON SHARES  ISSUABLE UPON CONVERSION OF THIS NOTE
     HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
     NOTE AND THE COMMON SHARES 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  UNDER  SAID ACT OR AN
     OPINION OF COUNSEL REASONABLY  SATISFACTORY TO ADVANCED OPTICS ELECTRONICS,
     INC., THAT SUCH REGISTRATION IS NOT REQUIRED.

                                CONVERTIBLE NOTE

     FOR VALUE RECEIVED, ADVANCED OPTICS ELECTRONICS, INC., a Nevada corporation
(hereinafter  called the "Borrower"),  hereby promises to pay to THE KESHET FUND
L.P., a New York limited  partnership,  135 West 50th  Street,  Suite 1700,  New
York, NY 10020, Fax:  212-541-4434 (the "Holder") on order,  without demand, the
sum of Two Hundred Thousand Dollars ($200,000), with simple interest accruing at
the annual rate of 8%, on August 30, 2003 (the "Maturity Date").

     The following terms shall apply to this Note:

                                    ARTICLE I

                           DEFAULT RELATED PROVISIONS

     1.1 Payment  Grace  Period.  The Borrower  shall have a three (3) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default  interest rate of eighteen  percent (18%) per annum shall apply to the
amounts owed hereunder.

     1.2 Conversion  Privileges.  The Conversion Privileges set forth in Article
II shall  remain in full force and effect  immediately  from the date hereof and
until the Note is paid in full.

     1.3  Interest  Rate.  Subject to the  Holder's  right to convert,  interest
payable on this Note shall  accrue at the annual rate of eight  percent (8%) and
be payable in arrears  commencing  September 30, 2001 and quarterly  thereafter,
and on the Maturity  Date,  accelerated  or  otherwise,  when the  principal and
remaining  accrued but unpaid  interest  shall be due and payable,  or sooner as
described below.

                                        1
<PAGE>

                                   ARTICLE II

                                CONVERSION RIGHTS

     The  Holder  shall  have the right to  convert  the  principal  amount  and
interest due under this Note into Shares of the  Borrower's  Common Stock as set
forth below.

     2.1. Conversion into the Borrower's Common Stock.

          (a) The Holder  shall have the right  from and after the  issuance  of
     this Note and then at any time  until this Note is fully  paid,  to convert
     any  outstanding  and unpaid  principal  portion  of this Note,  and at the
     Holder's election, the interest accrued on the Note, (the date of giving of
     such notice of conversion  being a  "Conversion  Date") into fully paid and
     nonassessable  shares of common  stock of Borrower as such stock  exists on
     the date of  issuance  of this  Note,  or any  shares of  capital  stock of
     Borrower into which such stock shall  hereafter be changed or  reclassified
     (the "Common  Stock") at the conversion  price as defined in Section 2.1(b)
     hereof  (the  "Conversion  Price"),  determined  as provided  herein.  Upon
     delivery to the Company of a Notice of Conversion as described in Section 8
     of the Securities  Purchase  Agreement entered into between the Company and
     certain persons who are signatories thereto,  including Holder, relating to
     this Note (the "Purchase  Agreement") of the Holder's  written  request for
     conversion,  Borrower  shall issue and deliver to the Holder  within  three
     business  days from the  Conversion  Date  that  number of shares of Common
     Stock  for the  portion  of the  Note  converted  in  accordance  with  the
     foregoing.  At the election of the Holder, the Company will deliver accrued
     but unpaid interest on the Note through the Conversion Date directly to the
     Holder  on or  before  the  Delivery  Date  (as  defined  in  the  Purchase
     Agreement).  The  number of shares of Common  Stock to be issued  upon each
     conversion of this Note shall be determined by dividing that portion of the
     principal  of the  Note  to be  converted  and  interest,  if  any,  by the
     Conversion Price.

          (b) Subject to adjustment as provided in Section  2.1(c)  hereof,  the
     Conversion  Price per share shall be the lower of (i) seventy  five percent
     (75%) of the average of the three lowest  closing bid prices for the Common
     Stock  on the NASD OTC  Bulletin  Board,  NASDAQ  SmallCap  Market,  NASDAQ
     National Market System, American Stock Exchange, or New York Stock Exchange
     (whichever of the foregoing is at the time the principal  trading  exchange
     or market for the Common Stock,  the  "Principal  Market"),  or if not then
     trading on a  Principal  Market,  such other  principal  market or exchange
     where the Common  Stock is listed or traded,  for the thirty  (30)  trading
     days  prior  to but not  including  the  Closing  Date (as  defined  in the
     Purchase  Agreement) in connection with which this Note is issued ("Maximum
     Base  Price");  or (ii)  eighty  percent  (80%) of the average of the three
     lowest closing bid prices for the Common Stock on the Principal  Market, or
     on any securities  exchange or other securities  market on which the Common
     Stock is then being  listed or traded,  for the ninety  (90)  trading  days
     prior to but not including the Conversion Date.

          (c) The Maximum Base Price  described in Section  2.1(b)(i)  above and
     number and kind of shares or other  securities to be issued upon conversion
     determined  pursuant  to  Section  2.1(a) and  2.1(b),  shall be subject to
     adjustment  from time to time upon the  happening  of certain  events while
     this conversion right remains outstanding, as follows:

                                        2
<PAGE>

               A. Merger, Sale of Assets, etc. If the Borrower at any time shall
          consolidate  with or merge into or sell or convey all or substantially
          all its assets to any other  corporation,  this Note, as to the unpaid
          principal  portion  thereof  and  accrued  interest   thereon,   shall
          thereafter be deemed to evidence the right to purchase such number and
          kind of shares or other  securities  and  property  as would have been
          issuable or  distributable on account of such  consolidation,  merger,
          sale or conveyance,  upon or with respect to the securities subject to
          the   conversion  or  purchase   right   immediately   prior  to  such
          consolidation,  merger,  sale or conveyance.  The foregoing  provision
          shall similarly  apply to successive  transactions of a similar nature
          by any such successor or purchaser. Without limiting the generality of
          the  foregoing,  the  anti-dilution  provisions  of this Section shall
          apply to such securities of such successor or purchaser after any such
          consolidation, merger, sale or conveyance.

               B.  Reclassification,  etc. If the Borrower at any time shall, by
          reclassification  or otherwise,  change the Common Stock into the same
          or a different  number of  securities  of any class or  classes,  this
          Note, as to the unpaid principal  portion thereof and accrued interest
          thereon,  shall thereafter be deemed to evidence the right to purchase
          an adjusted  number of such securities and kind of securities as would
          have been  issuable as the result of such  change with  respect to the
          Common  Stock  immediately  prior  to such  reclassification  or other
          change.

               C. Stock Splits,  Combinations  and  Dividends.  If the shares of
          Common  Stock are  subdivided  or  combined  into a greater or smaller
          number  of shares of Common  Stock,  or if a  dividend  is paid on the
          Common Stock in shares of Common Stock,  the Conversion Price shall be
          proportionately  reduced  in case of  subdivision  of  shares or stock
          dividend or  proportionately  increased in the case of  combination of
          shares,  in each  such case by the  ratio  which  the total  number of
          shares of Common Stock outstanding  immediately after such event bears
          to the total number of shares of Common Stock outstanding  immediately
          prior to such event.

               D. Share Issuance.  Subject to the provisions of this Section, if
          the  Borrower at any time shall issue any shares of Common Stock prior
          to  the  conversion  of  the  entire  principal  amount  of  the  Note
          (otherwise  than as: (i)  provided  in  Sections  2.1(c)A,  2.1(c)B or
          2.1(c)C or this subparagraph D; or (ii) pursuant to options, warrants,
          or other  obligations to issue shares,  outstanding on the date hereof
          as  set  forth  in the  Schedules  to the  Purchase  Agreement  (which
          agreement is  incorporated  herein by this  reference);  ((i) and (ii)
          above,   are   hereinafter   referred  to  as  the  "Existing   Option
          Obligations") for a consideration  less than the Conversion Price that
          would be in effect at the time of such  issue,  then,  and  thereafter
          successively  upon each such  issue,  the  Conversion  Price  shall be
          reduced  as  follows:  (i)  the  number  of  shares  of  Common  Stock
          outstanding immediately prior to such issue shall be multiplied by the
          Conversion  Price in effect at the time of such issue and the  product
          shall be added to the aggregate consideration, if any, received by the
          Borrower  upon such issue of additional  shares of Common  Stock;  and
          (ii) the sum so  obtained  shall be divided by the number of shares of
          Common Stock  outstanding  immediately after such issue. The resulting
          quotient  shall  be the  adjusted  conversion  price.  Except  for the
          Existing  Option  Obligations and options that may be issued under any
          employee incentive stock option and/or any qualified stock option plan
          adopted by the Borrower, for purposes of this adjustment, the issuance
          of any  security of the  Borrower  carrying  the right to convert such
          security  into  shares of  Common  Stock or of any  warrant,  right or
          option to purchase  Common Stock shall result in an  adjustment to the
          Conversion  Price  upon the  issuance  of shares of Common  Stock upon
          exercise of such conversion or purchase rights.

     (d) During the period the  conversion  right exists,  Borrower will reserve
from its authorized and unissued  Common Stock a sufficient  number of shares to
provide for the issuance of Common Stock upon the full  conversion of this Note.
Borrower  represents  that upon  issuance,  such shares will be duly and validly
issued,

                                        3
<PAGE>

fully paid and  non-assessable.  Borrower  agrees that its issuance of this Note
shall constitute full authority to its officers, agents, and transfer agents who
are charged with the duty of executing and issuing stock certificates to execute
and issue the  necessary  certificates  for  shares  of  Common  Stock  upon the
conversion of this Note.

     2.2 Method of Conversion. This Note may be converted by the Holder in whole
or in part as described  in Section  2.1(a)  hereof and the Purchase  Agreement.
Upon partial  conversion of this Note, a new Note  containing  the same date and
provisions  of this Note shall,  at the request of the Holder,  be issued by the
Borrower to the Holder for the principal balance of this Note and interest which
shall not have been converted or paid.

                                   ARTICLE III

                                EVENT OF DEFAULT

     The  occurrence  of any of the  following  events  of  default  ("Event  of
Default") shall, at the option of the Holder hereof,  make all sums of principal
and  interest  then  remaining  unpaid  hereon  and all  other  amounts  payable
hereunder  immediately  due and  payable,  all without  demand,  presentment  or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:

     3.1 Failure to Pay  Principal  or Interest.  The Borrower  fails to pay any
installment  of principal  or interest  hereon or on any other  promissory  note
issued pursuant to the Purchase  Agreement,  when due and such failure continues
for a period of five (5) days after the due date.

     3.2 Breach of  Covenant.  The Borrower  breaches  any material  covenant or
other term or condition of this Note in any material respect and such breach, if
subject to cure,  continues for a period of seven (7) days after written  notice
to the Borrower from the Holder.

     3.3 Breach of Representations and Warranties.  Any material  representation
or warranty of the Borrower made herein,  in the Purchase  Agreement,  or in any
agreement,  statement  or  certificate  given in writing  pursuant  hereto or in
connection therewith shall be false or misleading.

     3.4 Receiver or Trustee.  The  Borrower  shall make an  assignment  for the
benefit of creditors,  or apply for or consent to the  appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.

     3.5 Judgments.  Any money judgment,  writ or similar final process shall be
entered or filed  against  Borrower or any of its  property or other  assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
of forty-five (45) days.

     3.6  Bankruptcy.  Bankruptcy,  insolvency,  reorganization  or  liquidation
proceedings  or other  proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.

     3.7 Delisting.  Delisting of the Common Stock from the Principal  Market or
such other  principal  exchange on which the Common Stock is listed for trading;
Borrower's  failure to comply with the

                                       4
<PAGE>

conditions for listing;  or notification  that the Borrower is not in compliance
with the conditions for such continued listing.

     3.8 Concession.  A concession by the Borrower,  after applicable notice and
cure periods,  under any one or more obligations in an aggregate monetary amount
in excess of $50,000.

     3.9  Stop  Trade.  An SEC stop  trade  order or  Principal  Market  trading
suspension.

     3.10  Failure to  Deliver  Common  Stock or  Replacement  Note.  Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 8 of the Purchase Agreement,  or if required a
replacement Note.

     3.11 Registration  Default.  The occurrence of a Non-Registration  Event as
described in Section 9.4 of the Purchase Agreement.

                                   ARTICLE IV

                                  MISCELLANEOUS

     4.1 Failure or  Indulgence  Not Waiver.  No failure or delay on the part of
Holder hereof in the exercise of any power,  right or privilege  hereunder shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.  All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.

     4.2 Notices.  Any notice herein  required or permitted to be given shall be
in writing and shall be deemed  effectively given: (a) upon personal delivery to
the party 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
Borrower  at the  address  as set forth on the  signature  page to the  Purchase
Agreement  executed in  connection  herewith  and to a Holder at the address set
forth on the signature  page to the Purchase  Agreement for such Holder,  with a
copy,  in the case of a Holder to Daniel M.  Laifer,  Esq. 135 West 50th Street,
Suite 1700, New York, New York 10020,  facsimile  number (212)  541-4434,  or at
such other address as the Borrower or a Holder may designate by ten days advance
written  notice to the other parties  hereto.  A Notice of  Conversion  shall be
deemed given when made to the Company pursuant to the Purchase Agreement.

     4.3 Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument,  shall mean this instrument as originally  executed,
or if later amended or supplemented, then as so amended or supplemented.

     4.4  Assignability.  This Note shall be binding  upon the  Borrower and its
successors  and  assigns,  and shall  inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.

                                       5
<PAGE>

     4.5 Cost of  Collection.  If default  is made in the  payment of this Note,
Borrower shall pay the Holder hereof  reasonable costs of collection,  including
reasonable attorneys' fees.

     4.6  Governing  Law.  This  Note  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  individual  signing this Note on behalf of the
Borrower  agree to submit to the  jurisdiction  of such courts.  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 Note 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 unenforceability of any other provision of this
Note.

     4.7 Maximum Payments. Nothing contained herein 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
required to be paid or other charges  hereunder exceed the maximum  permitted by
such law,  any  payments in excess of such  maximum  shall be  credited  against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

     4.8  Prepayment.  This Note may not be paid (in whole or in part)  prior to
the Maturity Date without the consent of the Holder.

     4.9 Security Interest.  The holder of this Note has been granted a security
interest  in common  stock of the  Company  more fully  described  in a Security
Agreement.

     4.10   Construction.   Each  party  acknowledges  that  its  legal  counsel
participated in the preparation of this Note 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 Note to favor any party
against the other.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       6
<PAGE>

     IN WITNESS WHEREOF,  Borrower has caused this Note to be signed in its name
by its Chief Executive Officer on this 30th day of August, 2001.

                                          ADVANCED OPTICS ELECTRONICS, INC.

                                          By:________________________________

WITNESS:

____________________________

                                       7
<PAGE>

                              NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)

     The  undersigned  hereby elects to convert  $_________ of the principal and
$_________  of  the  interest  due  on  the  Note  issued  by  ADVANCED   OPTICS
ELECTRONICS,  INC. on August 30,  2001 into  Shares of Common  Stock of ADVANCED
OPTICS ELECTRONICS,  INC. (the "Company")  according to the conditions set forth
in such Note, as of the date written below.

Date of Conversion:_____________________________________________________________

Conversion Price:_______________________________________________________________

Shares To Be Delivered:_________________________________________________________

Signature:______________________________________________________________________

Print Name:_____________________________________________________________________

Address:________________________________________________________________________

        ________________________________________________________________________

                                       8

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