CYBERLUX CORP
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>4
<FILENAME>v01197_ex10-1.txt
<TEXT>

                                                                    EXHIBIT 10.1

                  SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE

                                    AGREEMENT

                          Dated as of December 31, 2003

                                      among

                              CYBERLUX CORPORATION

                                       and

                       THE PURCHASERS LISTED ON EXHIBIT A

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                                TABLE OF CONTENTS

                                                                            PAGE

ARTICLE I Purchase and Sale of Preferred Stock................................2

   Section 1.1    Purchase and Sale of Stock..................................2
   Section 1.2    The Conversion Shares.......................................2
   Section 1.3    Purchase Price and Closing..................................2

ARTICLE II Representations and Warranties.....................................2

   Section 2.1    Representations and Warranties of the Company...............2
   Section 2.2    Representations and Warranties of the Purchasers............2

ARTICLE III Covenants ........................................................2

   Section 3.1    Securities Compliance.......................................2
   Section 3.2    Registration and Listing....................................2
   Section 3.3    Inspection Rights...........................................2
   Section 3.4    Compliance with Laws........................................2
   Section 3.5    Keeping of Records and Books of Account.....................2
   Section 3.6    Reporting Requirements......................................2
   Section 3.7    Status of Dividends.........................................2
   Section 3.7    Amendments..................................................2
   Section 3.8    Other Agreements............................................2
   Section 3.9    Distributions...............................................2
   Section 3.10   Status of Dividends.........................................2
   Section 3.11   Intentionally Omitted.......................................2
   Section 3.12   Future Financings; Right of First Offer and Refusal.........0
   Section 3.13   Reservation of Shares.......................................0
   Section 3.14   Transfer Agent Instructions.................................
   Section 3.15   Disposition of Assets.......................................

ARTICLE IV Conditions ........................................................2

   Section 4.1    Conditions Precedent to the Obligation of the Company to
                    Sell the Shares ..........................................2
   Section 4.2    Conditions Precedent to the Obligation of the Purchasers
                    to Purchase the Shares....................................2

ARTICLE V Intentionally Omitted...............................................2

ARTICLE VI Stock Certificate Legend...........................................2

   Section 6.1    Legend......................................................2

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ARTICLE VII Intentionally Omitted.............................................2

ARTICLE VIII Indemnification..................................................2

   Section 8.1    General Indemnity...........................................2
   Section 8.2    Indemnification Procedure...................................2

ARTICLE IX Miscellaneous .....................................................2

   Section 9.1    Fees and Expenses...........................................2
   Section 9.2    Specific Enforcement, Consent to Jurisdiction...............2
   Section 9.3    Entire Agreement; Amendment.................................2
   Section 9.4    Notices.....................................................2
   Section 9.5    Waivers.....................................................2
   Section 9.6    Headings....................................................2
   Section 9.7    Successors and Assigns......................................2
   Section 9.8    No Third Party Beneficiaries................................2
   Section 9.9    Governing Law...............................................2
   Section 9.10   Survival....................................................2
   Section 9.11   Counterparts................................................2
   Section 9.12   Publicity...................................................2
   Section 9.13   Severability................................................2
   Section 9.14   Further Assurances..........................................2


                                       ii
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         SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

            This SERIES A CONVERTIBLE  PREFERRED  STOCK PURCHASE  AGREEMENT (the
"Agreement") is dated as of December 31, 2003 by and among Cyberlux Corporation,
a Nevada  corporation (the  "Company"),  and each of the Purchasers of shares of
Series A Convertible Preferred Stock of the Company whose names are set forth on
Exhibit  A  hereto   (individually,   a  "Purchaser"   and   collectively,   the
"Purchasers").

         The parties hereto agree as follows:

                                   ARTICLE I

                      Purchase and Sale of Preferred Stock

            Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions,  the Company shall issue and sell to the  Purchasers and each of the
Purchasers  shall  purchase  from the  Company,  the  number  of  shares  of the
Company's  Series A Convertible  Preferred Stock, par value $.001 per share (the
"Preferred Shares"), at a purchase price of $5,000 per share, set forth opposite
such  Purchaser's  name on  Exhibit  A  hereto.  Upon the  following  terms  and
conditions,  each of the  Purchasers  shall  be  issued  Series A  Warrants,  in
substantially  the form attached  hereto as Exhibit B (the "Series A Warrants"),
and Series B Warrants,  in  substantially  the form attached hereto as Exhibit C
(the  "Series  B  Warrants"  and,  together  with  the  Series A  Warrants,  the
"Warrants"), to purchase the number of shares of the Company's Common Stock, par
value $.001 per share (the "Common  Stock") set forth opposite such  Purchaser's
name on Exhibit A hereto.  The aggregate purchase price for the Preferred Shares
and the Warrants shall be up to $1,000,000. The designation, rights, preferences
and other terms and provisions of the Series A Convertible  Preferred  Stock are
set  forth  in the  Certificate  of  Designation  of  the  Relative  Rights  and
Preferences  of the Series A  Convertible  Preferred  Stock  attached  hereto as
Exhibit D (the "Certificate of Designation"). The Company and the Purchasers are
executing and delivering  this Agreement in accordance with and in reliance upon
the exemption from securities  registration afforded by Rule 506 of Regulation D
("Regulation  D") as  promulgated  by the United States  Securities and Exchange
Commission (the "Commission")  under the Securities Act of 1933, as amended (the
"Securities Act") or Section 4(2) of the Securities Act.

            Section 1.2 The  Conversion  Shares.  The Company has authorized and
has reserved and covenants to continue to reserve, free of preemptive rights and
other  similar  contractual  rights of  stockholders,  such  number of shares of
Common Stock as shall from time to time be sufficient  to effect the  conversion
of all of the Preferred  Shares and exercise of the Warrants  then  outstanding;
provided that the number of shares of Common Stock so reserved  shall at no time
be less than 120% of its authorized but unissued  shares of its Common Stock, to
effect the conversion of the Preferred Shares and exercise of the Warrants.  Any
shares of Common Stock  issuable upon  conversion  of the  Preferred  Shares and
exercise of the Warrants (and such shares when issued) are herein referred to as
the "Conversion  Shares" and the

<PAGE>

"Warrant Shares",  respectively. The Preferred Shares, the Conversion Shares and
the Warrant Shares are sometimes collectively referred to as the "Shares".

            Section 1.3 Purchase Price and Closing.  The Company agrees to issue
and sell to the Purchasers and, in consideration of and in express reliance upon
the  representations,  warranties,  covenants,  terms  and  conditions  of  this
Agreement,  the  Purchasers,  severally but not jointly,  agree to purchase that
number of the Preferred  Shares and Warrants set forth opposite their respective
names on Exhibit A. The aggregate  purchase  price of the  Preferred  Shares and
Warrants being acquired by each Purchaser is set forth opposite such Purchaser's
name  on  Exhibit  A  (for  each  such  purchaser,   the  "Purchase  Price"  and
collectively referred to as the "Purchase Prices").  The closing of the purchase
and sale of the Preferred Shares and Warrants shall take place at the offices of
Jenkens & Gilchrist  Parker  Chapin LLP, The Chrysler  Building,  405  Lexington
Avenue,  New York,  New York 10174 (the  "Closing") at 1:00 p.m.  (eastern time)
upon the  satisfaction  of each of the conditions set forth in Article IV hereof
(the  "Closing  Date").  Funding with respect to the Closing shall take place by
wire transfer of immediately available funds on or prior to the Closing Date.

            Section 1.4  Warrants.  The  Company  agrees to issue to each of the
Purchasers  Series A Warrants  and Series B Warrants to  purchase  the number of
shares of Common Stock set forth  opposite  such  Purchaser's  name on Exhibit A
hereto.  The  Purchasers  shall be issued Series A Warrants to purchase  500,000
shares of Common Stock for each Preferred  Share  purchased at the Closing.  The
Series A Warrants shall have an exercise price per share equal to $.25 and shall
expire three (3) years from the Closing  Date.  The  Purchasers  shall be issued
Series B Warrants and may exercise the Series B Warrants  only up to such number
of shares of Common  Stock that such  Purchaser  has  received  pursuant  to the
exercise of such Purchaser's Series A Warrant.  The Series B Warrants shall have
an exercise  price per share equal to $1.05 and shall expire five (5) years from
the Closing Date.

                                   ARTICLE II

                         Representations and Warranties

            Section 2.1  Representations  and  Warranties  of the  Company.  The
Company  hereby  makes  the  following  representations  and  warranties  to the
Purchasers,  except as set forth in the Company's  disclosure schedule delivered
with this Agreement as follows:

            (a)  Organization,  Good  Standing  and  Power.  The  Company  is  a
corporation duly  incorporated,  validly existing and in good standing under the
laws of the State of Nevada and has the requisite  corporate power to own, lease
and operate its  properties  and assets and to conduct its business as it is now
being conducted.  The Company does not have any subsidiaries except as set forth
in the Company's Form 10-KSB for the year ended December 31, 2002, including the
accompanying  financial statements (the "Form 10-KSB"), or in the Company's Form
10-QSB for the fiscal  quarters ended September 30, 2003, June 30, 2003 or March
31, 2003  (collectively,  the "Form 10-QSB"),  or on Schedule 2.1(a) hereto. The
Company and each such  subsidiary is duly qualified as a foreign  corporation to
do business and is in good standing in every jurisdiction in which the nature of
the  business  conducted  or  property  owned  by it  makes  such  qualification
necessary  except for any  jurisdiction(s)  (alone or in the aggregate) in


                                       2
<PAGE>

which the failure to be so qualified will not have a Material Adverse Effect (as
defined in Section 2.1(c) hereof) on the Company's financial condition.

            (b)  Authorization;  Enforcement.  The  Company  has  the  requisite
corporate  power and  authority  to enter into and perform this  Agreement,  the
Registration  Rights Agreement  attached hereto as Exhibit E (the  "Registration
Rights Agreement"),  the Irrevocable  Transfer Agent Instructions (as defined in
Section 3.14), the Lock-Up Agreement  attached hereto as Exhibit F (the "Lock-Up
Agreement"), the Certificate of Designation, and the Warrants (collectively, the
"Transaction  Documents")  and to issue and sell the Shares and the  Warrants in
accordance with the terms hereof. The execution, delivery and performance of the
Transaction  Documents  by  the  Company  and  the  consummation  by it  of  the
transactions  contemplated  hereby  and  thereby  have  been  duly  and  validly
authorized  by all  necessary  corporate  action,  and  no  further  consent  or
authorization  of the  Company  or its Board of  Directors  or  stockholders  is
required.  This  Agreement  has been duly executed and delivered by the Company.
The other  Transaction  Documents  will have been duly executed and delivered by
the Company at the Closing.  Each of the Transaction Documents  constitutes,  or
shall constitute when executed and delivered,  a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such  enforceability  may be limited by  applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  liquidation,  conservatorship,   receivership  or
similar laws relating to, or affecting  generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.

            (c) Capitalization.  The authorized capital stock of the Company and
the shares thereof  currently  issued and outstanding as of December 5, 2003 are
set  forth on  Schedule  2.1(c)  hereto.  All of the  outstanding  shares of the
Company's  Common Stock and Series A Convertible  Preferred Stock have been duly
and  validly  authorized.  Except  as  set  forth  in  this  Agreement  and  the
Registration  Rights  Agreement and as set forth on Schedule  2.1(c) hereto,  no
shares of Common Stock are entitled to preemptive rights or registration  rights
and there are no outstanding options,  warrants,  scrip, rights to subscribe to,
call or  commitments of any character  whatsoever  relating to, or securities or
rights   convertible   into,  any  shares  of  capital  stock  of  the  Company.
Furthermore,  except as set forth in this Agreement and the Registration  Rights
Agreement  or  on  Schedule  2.1(c),   there  are  no  contracts,   commitments,
understandings,  or  arrangements by which the Company is or may become bound to
issue  additional  shares  of the  capital  stock  of the  Company  or  options,
securities  or rights  convertible  into shares of capital stock of the Company.
Except for customary transfer restrictions  contained in agreements entered into
by the  Company  in  order  to sell  restricted  securities  or as set  forth on
Schedule  2.1(c)  hereto,  the Company is not a party to any agreement  granting
registration  or  anti-dilution  rights to any person with respect to any of its
equity  or  debt  securities.  The  Company  is not a  party  to,  and it has no
knowledge of, any agreement  restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
the  offer  and  sale of all  capital  stock,  convertible  securities,  rights,
warrants,  or options of the Company  issued prior to the Closing  complied with
all applicable Federal and state securities laws, and no stockholder has a right
of  rescission  or claim for damages  with  respect  thereto  which would have a
Material Adverse Effect (as defined below) on the Company's  financial condition
or  operating  results.  The  Company has  furnished  or made  available  to the
Purchasers true and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof


                                       3
<PAGE>

(the "Articles"),  and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").  For the purposes of this Agreement,  "Material Adverse Effect" means
any material adverse effect on the business, operations,  properties, prospects,
or financial condition of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the  ability of the Company to perform  any of its  obligations  under this
Agreement in any material respect.

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

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


                                       4
<PAGE>

Company  is  assuming   and   relying   upon  the   accuracy  of  the   relevant
representations and agreements of the Purchasers herein.

            (f) Commission Documents,  Financial Statements. The Common Stock is
registered  pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, since December 31, 2002, the Company
has timely filed all reports,  schedules,  forms, statements and other documents
required  to be  filed  by it with  the  Commission  pursuant  to the  reporting
requirements of the Exchange Act,  including  material filed pursuant to Section
13(a) or 15(d) of the  Exchange  Act  (all of the  foregoing  including  filings
incorporated  by reference  therein being referred to herein as the  "Commission
Documents").  The  Company  has  delivered  or  made  available  to  each of the
Purchasers true and complete  copies of the Commission  Documents filed with the
Commission  since  December  31,  2002.  The  Company  has not  provided  to the
Purchasers  any material  non-public  information  or other  information  which,
according  to  applicable  law,  rule or  regulation,  was required to have been
disclosed  publicly by the Company  but which has not been so  disclosed,  other
than with respect to the  transactions  contemplated  by this  Agreement.  As of
their  respective  dates,  the Form 10-KSB and the Form  10-QSB  complied in all
material  respects with the  requirements  of the Exchange Act and the rules and
regulations of the Commission  promulgated  thereunder and other federal,  state
and local laws, rules and regulations  applicable to such documents,  and, as of
their  respective  dates,  none of the Form 10-KSB and the Form 10-QSB contained
any  untrue  statement  of a material  fact or omitted to state a material  fact
required  to be stated  therein  or  necessary  in order to make the  statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  The financial  statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable  accounting
requirements  and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have  been  prepared  in  accordance  with  United  States  generally   accepted
accounting  principles ("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial  statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent  they  may  not  include   footnotes  or  may  be  condensed  or  summary
statements),  and fairly present in all material respects the financial position
of the Company and its  subsidiaries  as of the dates thereof and the results of
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited statements, to normal year-end audit adjustments).

            (g) Subsidiaries.  Schedule 2.1(g) hereto sets forth each subsidiary
of the Company,  showing the  jurisdiction of its  incorporation or organization
and showing the percentage of each person's ownership.  For the purposes of this
Agreement,  "subsidiary"  shall mean any corporation or other entity of which at
least a majority of the securities or other  ownership  interest having ordinary
voting power (absolutely or contingently) for the election of directors or other
persons  performing  similar  functions  are  at  the  time  owned  directly  or
indirectly  by the  Company  and/or  any of its other  subsidiaries.  All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and  validly  issued,  and  are  fully  paid  and  nonassessable.  There  are no
outstanding  preemptive,  conversion  or  other  rights,  options,  warrants  or
agreements  granted or issued by or binding upon any subsidiary for the purchase
or  acquisition  of any shares of capital  stock of any  subsidiary or any other
securities  convertible  into,  exchangeable  for or  evidencing  the  rights to
subscribe  for any shares of such  capital  stock.


                                       5
<PAGE>

Neither the Company nor any subsidiary is subject to any obligation  (contingent
or otherwise)  to  repurchase  or otherwise  acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities,  rights, warrants
or options of the type described in the preceding sentence.  Neither the Company
nor any  subsidiary  is  party  to,  nor has any  knowledge  of,  any  agreement
restricting  the voting or transfer  of any shares of the  capital  stock of any
subsidiary.

            (h) No Material Adverse Change. Since December 31, 2002, the Company
has not experienced or suffered any Material Adverse Effect, except as disclosed
on Schedule 2.1(h) hereto.

            (i) No  Undisclosed  Liabilities.  Except as set  forth on  Schedule
2.1(i)  hereto,  neither  the  Company  nor  any of  its  subsidiaries  has  any
liabilities,  obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured,  absolute,  accrued,  contingent or otherwise)  other than
those  incurred in the  ordinary  course of the  Company's  or its  subsidiaries
respective businesses since December 31, 2002 and which,  individually or in the
aggregate,  do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.

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

            (k)  Indebtedness.  The Form 10-KSB,  Form 10-QSB or Schedule 2.1(k)
hereto sets forth as of a recent  date all  outstanding  secured  and  unsecured
Indebtedness of the Company or any  subsidiary,  or for which the Company or any
subsidiary has commitments.  For the purposes of this Agreement,  "Indebtedness"
shall mean (a) any  liabilities  for borrowed money or amounts owed in excess of
$100,000 (other than trade accounts  payable  incurred in the ordinary course of
business), (b) all guaranties,  endorsements and other contingent obligations in
respect  of  Indebtedness  of  others,  whether or not the same are or should be
reflected  in the  Company's  balance  sheet  (or  the  notes  thereto),  except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar  transactions  in the ordinary  course of business;  and (c) the present
value of any lease payments in excess of $25,000 due under leases required to be
capitalized  in accordance  with GAAP.  Except as set forth on Schedule  2.1(k),
neither  the  Company  nor any  subsidiary  is in  default  with  respect to any
Indebtedness.

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

            (m) Actions Pending. There is no action, suit, claim, investigation,
arbitration,  alternate  dispute  resolution  proceeding or any other proceeding
pending or, to the knowledge of the Company,  threatened  against the Company or
any  subsidiary  which  questions  the validity of


                                       6
<PAGE>

this  Agreement or any of the other  Transaction  Documents or the  transactions
contemplated  hereby or  thereby  or any  action  taken or to be taken  pursuant
hereto or  thereto.  Except as set forth in the Form  10-KSB,  Form 10-QSB or on
Schedule  2.1(m)  hereto,  there  is  no  action,  suit,  claim,  investigation,
arbitration,  alternate  dispute  resolution  proceeding or any other proceeding
pending or, to the  knowledge of the Company,  threatened,  against or involving
the Company,  any  subsidiary or any of their  respective  properties or assets.
Except as set forth in the Form 10-KSB,  Form 10-QSB or Schedule  2.1(m) hereto,
there are no outstanding orders,  judgments,  injunctions,  awards or decrees of
any court,  arbitrator or governmental or regulatory body against the Company or
any  subsidiary  or any officers or directors  of the Company or  subsidiary  in
their capacities as such.

            (n)  Compliance  with  Law.  The  business  of the  Company  and the
subsidiaries  has been and is presently  being  conducted in accordance with all
applicable  federal,  state and local governmental laws, rules,  regulations and
ordinances,  except as set forth in the Form 10-KSB,  Form 10-QSB, or such that,
individually or in the aggregate,  do not cause a Material  Adverse Effect.  The
Company and each of its  subsidiaries  have all franchises,  permits,  licenses,
consents and other  governmental  or  regulatory  authorizations  and  approvals
necessary  for the conduct of its  business as now being  conducted by it unless
the failure to possess such franchises,  permits,  licenses,  consents and other
governmental or regulatory authorizations and approvals,  individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.

            (o)  Taxes.  Except as set  forth in the Form  10-KSB or in the Form
10-QSB,  the Company and each of the  subsidiaries  has accurately  prepared and
filed all  federal,  state and other tax returns  required by law to be filed by
it, has paid or made provisions for the payment of all taxes shown to be due and
all additional assessments,  and adequate provisions have been and are reflected
in the financial  statements of the Company and the subsidiaries for all current
taxes and other  charges to which the Company or any  subsidiary  is subject and
which are not currently due and payable.  None of the federal income tax returns
of the  Company or any  subsidiary  have been  audited by the  Internal  Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) of any nature whatsoever,
whether  pending or  threatened  against the Company or any  subsidiary  for any
period, nor of any basis for any such assessment, adjustment or contingency.

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

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


                                       7
<PAGE>

            (r) Operation of Business.  The Company and each of the subsidiaries
owns  or  possesses  all  patents,  trademarks,  domain  names  (whether  or not
registered) and any patentable  improvements or  copyrightable  derivative works
thereof,  websites and intellectual  property rights relating  thereto,  service
marks, trade names, copyrights,  licenses and authorizations as set forth in the
Form  10-KSB,  Form 10-QSB and on Schedule  2.1(r)  hereto,  and all rights with
respect to the foregoing, which are necessary for the conduct of its business as
now conducted without any conflict with the rights of others.

            (s)   Environmental   Compliance.   The  Company  and  each  of  its
subsidiaries have obtained all material approvals, authorization,  certificates,
consents,  licenses,  orders and permits or other similar  authorizations of all
governmental authorities,  or from any other person, that are required under any
Environmental  Laws.  The Form  10-KSB or Form  10-QSB  describes  all  material
permits,  licenses and other authorizations  issued under any Environmental Laws
to  the  Company  or its  subsidiaries.  "Environmental  Laws"  shall  mean  all
applicable laws relating to the protection of the environment including, without
limitation,  all requirements  pertaining to reporting,  licensing,  permitting,
controlling,  investigating or remediating  emissions,  discharges,  releases or
threatened releases of hazardous  substances,  chemical substances,  pollutants,
contaminants or toxic substances,  materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances,  pollutants,
contaminants or toxic substances,  material or wastes,  whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental  Laws and used in its business or in the business of any
of its  subsidiaries.  The  Company  and  each of its  subsidiaries  are also in
compliance  with all other  limitations,  restrictions,  conditions,  standards,
requirements,   schedules   and   timetables   required  or  imposed  under  all
Environmental  Laws.  Except for such instances as would not  individually or in
the  aggregate  have a  Material  Adverse  Effect,  there are no past or present
events, conditions,  circumstances,  incidents, actions or omissions relating to
or in any way  affecting  the Company or its  subsidiaries  that  violate or may
violate any  Environmental  Law after the Closing  Date or that may give rise to
any environmental  liability,  or otherwise form the basis of any claim, action,
demand,  suit,  proceeding,  hearing,  study  or  investigation  (i)  under  any
Environmental  Law, or (ii) based on or related to the manufacture,  processing,
distribution,  use, treatment, storage (including without limitation underground
storage tanks),  disposal,  transport or handling,  or the emission,  discharge,
release or threatened release of any hazardous substance.

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


                                       8
<PAGE>

appropriate actions is taken with respect to any differences.

            (u)  Material  Agreements.  Except as set forth in the Form  10-KSB,
Form 10-QSB or on Schedule 2.1(u) hereto, neither the Company nor any subsidiary
is a party to any written or oral contract, instrument,  agreement,  commitment,
obligation,  plan or arrangement,  a copy of which would be required to be filed
with the  Commission as an exhibit to a  registration  statement on Form SB-2 or
applicable  form  (collectively,  "Material  Agreements")  if the Company or any
subsidiary were  registering  securities under the Securities Act. Except as set
forth on Schedule 2.1(u) or in the Commission Documents, the Company and each of
its  subsidiaries  has in all material  respects  performed all the  obligations
required to be performed by them to date under the  foregoing  agreements,  have
received no notice of default and, to the best of the  Company's  knowledge  are
not in default under any Material  Agreement now in effect,  the result of which
could cause a Material Adverse Effect. Except as set forth on Schedule 2.1(u) or
in the Commission Documents, no written or oral contract, instrument, agreement,
commitment,  obligation, plan or arrangement of the Company or of any subsidiary
limits or shall  limit the  payment  of  dividends  on the  Company's  Preferred
Shares, other Preferred Stock, if any, or its Common Stock.

            (v) Transactions  with  Affiliates.  Except as set forth in the Form
10-KSB,  Form 10-QSB or on Schedule 2.1(v) hereto,  there are no loans,  leases,
agreements,  contracts, royalty agreements, management contracts or arrangements
or other continuing  transactions between (a) the Company, any subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer,  employee,  consultant or director of the Company,  or any of
its  subsidiaries,  or any person owning any capital stock of the Company or any
subsidiary  or any member of the  immediate  family of such  officer,  employee,
consultant,   director  or  stockholder  or  any  corporation  or  other  entity
controlled by such officer, employee, consultant,  director or stockholder, or a
member of the immediate family of such officer, employee,  consultant,  director
or stockholder.

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

            (x) Governmental  Approvals.  Except as set forth in the Form 10-KSB
or Form 10-QSB,  and except for the filing of any notice prior or  subsequent to
the Closing Date that may be required  under  applicable  state  and/or  Federal
securities laws (which if required, shall be filed on a timely basis), including
the filing of a Form D and a  registration  statement or statements  pursuant to
the  Registration  Rights  Agreement,  and  the  filing  of the  Certificate  of


                                       9
<PAGE>

Designation   with  the  Secretary  of  State  for  the  State  of  Nevada,   no
authorization,  consent, approval, license, exemption of, filing or registration
with any court or governmental department,  commission, board, bureau, agency or
instrumentality,  domestic  or  foreign,  is or will  be  necessary  for,  or in
connection  with,  the  execution  or delivery of the  Preferred  Shares and the
Warrants,  or for the  performance by the Company of its  obligations  under the
Transaction Documents.

            (y)  Employees.  Neither  the  Company  nor any  subsidiary  has any
collective bargaining  arrangements or agreements covering any of its employees,
except as set  forth in the Form  10-KSB,  Form  10-QSB  or on  Schedule  2.1(y)
hereto.  Except  as set forth in the Form  10-KSB,  Form  10-QSB or on  Schedule
2.1(y)  hereto,  neither  the  Company  nor any  subsidiary  has any  employment
contract,   agreement   regarding   proprietary   information,   non-competition
agreement,  non-solicitation agreement,  confidentiality agreement, or any other
similar contract or restrictive covenant,  relating to the right of any officer,
employee  or  consultant  to be  employed  or  engaged  by the  Company  or such
subsidiary.  Since September 30, 2002, no officer, consultant or key employee of
the Company or any subsidiary whose termination,  either  individually or in the
aggregate,  could have a Material  Adverse  Effect,  has  terminated  or, to the
knowledge of the Company,  has any present  intention of terminating  his or her
employment or engagement with the Company or any subsidiary.

            (z) Absence of Certain Developments.  Except as provided on Schedule
2.1(z) hereto,  since December 31, 2002,  neither the Company nor any subsidiary
has:

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

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

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

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

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

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


                                       10
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

            (cc) ERISA. No liability to the Pension Benefit Guaranty Corporation
has  been  incurred  with  respect  to any  Plan  by the  Company  or any of its
subsidiaries  which is or would be  materially  adverse to the  Company  and its
subsidiaries.  The execution and delivery of this Agreement and the issuance and
sale of the Preferred  Shares will not involve any transaction  which is subject
to the  prohibitions  of Section 406 of ERISA or in connection  with which a tax
could be imposed  pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended,  provided  that, if any of the  Purchasers,  or any person or entity
that  owns a  beneficial  interest  in any of the  Purchasers,  is an  "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the  Company is a "party in  interest"  (within  the meaning of


                                       11
<PAGE>

Section 3(14) of ERISA),  the  requirements of Sections  407(d)(5) and 408(e) of
ERISA, if applicable,  are met. As used in this Section 2.1(ac), the term "Plan"
shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA)
which is or has been established or maintained, or to which contributions are or
have been made,  by the Company or any  subsidiary  or by any trade or business,
whether or not incorporated, which, together with the Company or any subsidiary,
is under common control, as described in Section 414(b) or (c) of the Code.

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

            (ee) Independent Nature of Purchasers. The Company acknowledges that
the obligations of each Purchaser  under the  Transaction  Documents are several
and not joint with the  obligations  of any other  Purchaser,  and no  Purchaser
shall be  responsible in any way for the  performance of the  obligations of any
other Purchaser under the Transaction Documents.  The decision of each Purchaser
to purchase  Shares  pursuant to this  Agreement has been made by such Purchaser
independently  of any  other  purchase  and  independently  of any  information,
materials,  statements  or opinions  as to the  business,  affairs,  operations,
assets, properties,  liabilities, results of operations, condition (financial or
otherwise)  or  prospects of the Company or of its  subsidiaries  which may have
made or given by any other  Purchaser  or by any agent or  employee of any other
Purchaser,  and no Purchaser  or any of its agents or  employees  shall have any
liability to any Purchaser (or any other person) relating to or arising from any
such  information,  materials,  statements  or  opinions.  The  Company  further
acknowledges that nothing contained herein, or in any Transaction Document,  and
no action taken by any Purchaser pursuant hereto or thereto,  shall be deemed to
constitute the Purchasers as a partnership,  an association,  a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way  acting in concert or as a group  with  respect to such  obligations  or the
transactions  contemplated by the Transaction Documents. Each Purchaser shall be
entitled to  independently  protect and  enforce its rights,  including  without
limitation,  the  rights  arising  out of  this  Agreement  or out of the  other
Transaction Documents,  and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.

            (ff) No  Integrated  Offering.  Neither the Company,  nor any of its
affiliates,  nor any  person  acting on its or their  behalf,  has  directly  or
indirectly  made any offers or sales of any security or solicited  any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated  with prior offerings by the Company
for purposes of the  Securities Act which would prevent the Company from selling
the Shares  pursuant to Rule 506 under the  Securities  Act,  or any  applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its  affiliates  or  subsidiaries  take any action or steps that would cause the
offering of the Shares to be integrated with other


                                       12
<PAGE>

offerings.  The Company does not have any registration  statement pending before
the Commission or currently under the Commission's review.

            (gg)  Sarbanes-Oxley   Act(hh)  .  The  Company  is  in  substantial
compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley  Act"),  and the rules and regulations  promulgated  thereunder,
that are effective  and intends to comply  substantially  with other  applicable
provisions of the Sarbanes-Oxley Act, and the rules and regulations  promulgated
thereunder, upon the effectiveness of such provisions.

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

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

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

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


                                       13
<PAGE>

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

            (e) Status of Purchasers. Such Purchaser is an "accredited investor"
as defined in Regulation D promulgated  under the Securities Act. Such Purchaser
is not required to be  registered  as a  broker-dealer  under  Section 15 of the
Exchange Act and such Purchaser is not a broker-dealer.

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

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

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


                                       14
<PAGE>

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

            (j) Independent Investment.  No Purchaser has agreed to act with any
other  Purchaser for the purpose of acquiring,  holding,  voting or disposing of
the Shares purchased  hereunder for purposes of Section 13(d) under the Exchange
Act, and each Purchaser is acting  independently  with respect to its investment
in the Shares.

                                  ARTICLE III

                                    Covenants

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

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

            (b) Unless  waived by a Purchaser  by means of  providing  sixty-one
(61) days notice to the Company,  in connection with a Voluntary  Conversion (as
such term is defined in the  Certificate of  Designation) or the exercise of the
Warrants,  the Company  covenants  and agrees that upon  receipt of a Conversion
Notice  pursuant  to Section  5(b)(ii)  of the  Certificate  of  Designation  or
Exercise  Form pursuant to Section 2(b) of the Warrants that it will not convert
such number of shares  that,  when  aggregated  with all other  shares of Common
Stock then owned by a Purchaser  beneficially or deemed  beneficially owned by a
Purchaser,  would  result in a  Purchaser  owning more than 4.99% of all of such
Common Stock as would be  outstanding on such date of conversion or such date of
exercise of the Warrant,  as  determined  in  accordance  with Section 16 of the
Exchange Act and the regulations promulgated thereunder; provided, however, that
if pursuant to this  Section the Company does not convert or issue the number of
shares  requested under the applicable  Conversion  Notice or Exercise Form, the
Company will not be subject to Section 5(b)(v) of the Certificate of Designation
as a result of such failure to convert.

            Section 3.2  Registration  and  Listing.  The Company will cause its
Common Stock to continue to be registered  under  Sections 12(b) or 12(g) of the
Exchange  Act,  will  comply  in all  respects  with its  reporting  and  filing
obligations under the Exchange Act, will comply with all requirements related to
any registration  statement filed pursuant to this


                                       15
<PAGE>

Agreement or the Registration Rights Agreement,  and will not take any action or
file any document  (whether or not permitted by the  Securities Act or the rules
promulgated  thereunder)  to  terminate  or  suspend  such  registration  or  to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein.  The Company will take all action
necessary  to  continue  the  listing  or  trading  of its  Common  Stock on the
over-the-counter electronic bulletin board.

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

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

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

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

            (a) Quarterly  Reports  filed with the  Commission on Form 10-QSB as
soon as practical  after the document is filed with the  Commission,  and in any
event  within  fifty-five  (55) days  after  the end of each of the first  three
fiscal quarters of the Company;

            (b) Annual  Reports filed with the Commission on Form 10-KSB as soon
as practical after the document is filed with the  Commission,  and in any event
within one hundred  (100) days after the end of each fiscal year of the Company;
and

            (c)  Copies  of  all  notices  and  information,  including  without
limitation  notices


                                       16
<PAGE>

and proxy  statements  in  connection  with any  meetings,  that are provided to
holders of shares of Common Stock,  contemporaneously  with the delivery of such
notices or information to such holders of Common Stock.

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

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

            Section  3.9  Distributions.  So long  as any  Preferred  Shares  or
Warrants remain outstanding, the Company agrees that it shall not (i) declare or
pay any dividends or make any  distributions to any holder(s) of Common Stock or
(ii) purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.

            Section 3.10 Status of Dividends.  The Company  covenants and agrees
that (i) no Federal  income tax return or claim for refund of Federal income tax
or other  submission to the Internal  Revenue Service will adversely  affect the
Preferred Shares,  any other series of its Preferred Stock, or the Common Stock,
and any deduction shall not operate to jeopardize the availability to Purchasers
of the dividends received deduction provided by Section 243(a)(1) of the Code or
any  successor  provision,   (ii)  in  no  report  to  shareholders  or  to  any
governmental  body having  jurisdiction  over the Company or  otherwise  will it
treat the Preferred  Shares other than as equity  capital or the dividends  paid
thereon other than as dividends paid on equity capital unless  required to do so
by a governmental  body having  jurisdiction over the accounts of the Company or
by a change in generally accepted accounting  principles required as a result of
action by an authoritative  accounting  standards  setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation,  it will take
no  action  which  would  result in the  dividends  paid by the  Company  on the
Preferred  Shares out of the  Company's  current  or  accumulated  earnings  and
profits  being  ineligible  for the  dividends  received  deduction  provided by
Section  243(a)(1) of the Code.  The preceding  sentence  shall not be deemed to
prevent  the  Company  from  designating  the  Preferred  Stock as  "Convertible
Preferred Stock" in its annual and quarterly financial  statements in accordance
with its  prior  practice  concerning  other  series of  preferred  stock of the
Company.  Notwithstanding  the  foregoing,  the Company shall not be required to
restate or modify its tax returns for periods  prior to the Closing Date. In the
event that the Purchasers have  reasonable  cause to believe that dividends paid
by the  Company  on  the  Preferred  Shares  out of  the  Company's  current  or
accumulated  earnings  and  profits  will not be  treated  as  eligible  for the
dividends  received  deduction provided by Section 243(a)(1) of the Code, or any
successor  provision,  the  Company  will,  at  the  reasonable  request  of the
Purchasers of 51% of the outstanding  Preferred Shares, join with the Purchasers
in the  submission to the Service of a request for a ruling that  dividends paid
on the Shares  will be so  eligible  for  Federal  income tax  purposes,  at the
Purchasers expense. In addition,  the Company will reasonably


                                       17
<PAGE>

cooperate with the Purchasers (at Purchasers' expense) in any litigation, appeal
or other  proceeding  challenging  or contesting any ruling,  technical  advice,
finding or  determination  that  earnings  and profits are not  eligible for the
dividends  received  deduction provided by Section 243(a)(1) of the Code, or any
successor  provision  to the extent  that the  position  to be taken in any such
litigation,  appeal, or other proceeding is not contrary to any provision of the
Code or incurred in connection with any such submission,  litigation,  appeal or
other proceeding.  Notwithstanding the foregoing, nothing herein contained shall
be deemed to preclude the Company from claiming a deduction with respect to such
dividends  if (i) the  Code  shall  hereafter  be  amended,  or  final  Treasury
regulations  thereunder are issued or modified, to provide that dividends on the
Preferred  Shares or  Conversion  Shares  should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes,  or
(ii) in the absence of such an amendment,  issuance or modification  and after a
submission of a request for ruling or technical  advice,  the service shall rule
or advise that  dividends on the shares  should not be treated as dividends  for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims for
refund.

            Section 3.11 Intentionally Omitted.

            Section  3.12 Future  Financings;  Right of First Offer and Refusal.
(a) For purposes of this Agreement, a "Subsequent Financing" shall be defined as
any subsequent offer or sale to, or exchange with (or other type of distribution
to), any third party of Common Stock or any securities convertible,  exercisable
or exchangeable into Common Stock, including debt securities so convertible,  in
a private transaction  (collectively,  the "Financing  Securities") other than a
Permitted  Financing (as defined  hereinafter).  For purposes of this Agreement,
"Permitted  Financing"  shall mean any  transaction  involving (i) the Company's
issuance of any Financing  Securities (other than for cash) in connection with a
merger  and/or  acquisition,  consolidation,  sale  or  disposition  of  all  or
substantially  all of the  Company's  assets,  (ii) the  Company's  issuance  of
Financing  Securities in connection with strategic license agreements so long as
such issuances are not for the purpose of raising  capital,  (iii) the Company's
issuance  of  Financing   Securities  in  connection  with  underwritten  public
offerings of its securities,  (iv) the Company's issuance of Common Stock or the
issuance or grants of options to purchase Common Stock pursuant to the Company's
stock option plans and employee  stock  purchase  plans  outstanding on the date
hereof,  or (v) as a result of the exercise of options or warrants or conversion
of  convertible  notes or preferred  stock which are granted or issued as of the
date of this Agreement.

(b) During the period commencing on the Closing Date and ending on the date that
is twelve (12) months following the Closing Date, the Company covenants and
agrees to promptly notify (in no event later than five (5) days after making or
receiving an applicable offer) in writing (a "Rights Notice") each Purchaser of
the terms and conditions of any proposed Subsequent Financing. The Rights Notice
shall describe, in reasonable detail, the proposed Subsequent Financing, the
proposed closing date of the Subsequent Financing, which shall be within thirty
(30) calendar days from the date of the Rights Notice, including, without
limitation, all of the terms and conditions thereof. The Rights Notice shall
provide each Purchaser an option (the "Rights Option") during the fifteen (15)
trading days following delivery of the Rights Notice (the "Option Period") to
inform the Company whether such Purchaser will purchase up to


                                       18
<PAGE>

its pro rata portion of the Purchase Price for the  securities  being offered in
such  Subsequent  Financing  on the  same,  absolute  terms  and  conditions  as
contemplated by such Subsequent Financing (the "First Refusal Rights"). Delivery
of any Rights Notice  constitutes a  representation  and warranty by the Company
that there are no other material terms and conditions, arrangements,  agreements
or  otherwise  except  for those  disclosed  in the  Rights  Notice,  to provide
additional  compensation to any party  participating in any proposed  Subsequent
Financing,  including,  but not limited  to,  additional  compensation  based on
changes in the Purchase  Price or any type of reset or  adjustment of a purchase
or  conversion  price or to issue  additional  securities  at any time after the
closing date of a Subsequent  Financing.  If the Company does not receive notice
of exercise of the Rights Option from the  Purchasers  within the Option Period,
the  Company  shall  have the right to close  the  Subsequent  Financing  on the
scheduled  closing  date with a third party;  provided  that all of the material
terms  and  conditions  of the  closing  are the same as those  provided  to the
Purchasers  in the Rights  Notice.  If the  closing of the  proposed  Subsequent
Financing  does  not  occur  on  that  date,  any  closing  of the  contemplated
Subsequent  Financing or any other Subsequent  Financing shall be subject to all
of the  provisions  of this Section 3.12,  including,  without  limitation,  the
delivery of a new Rights Notice.  The  provisions of this Section  3.12(b) shall
not apply to issuances of Financing Securities in a Permitted Financing.

            Section 3.13 Reservation of Shares.  So long as any of the Preferred
Shares or  Warrants  remain  outstanding,  the  Company  shall  take all  action
necessary  to at all times have  authorized,  and  reserved  for the  purpose of
issuance,  no less than 120% of the  aggregate  number of shares of Common Stock
needed to provide  for the  issuance  of the  Conversion  Shares and the Warrant
Shares.

            Section 3.14 Transfer  Agent  Instructions.  The Company shall issue
irrevocable  instructions  to its transfer  agent,  and any subsequent  transfer
agent,  to issue  certificates,  registered in the name of each Purchaser or its
respective nominee(s),  for the Conversion Shares and the Warrant Shares in such
amounts as  specified  from time to time by each  Purchaser  to the Company upon
conversion  of the  Preferred  Shares or exercise of the Warrants in the form of
Exhibit G attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior
to  registration  of the  Conversion  Shares and the  Warrant  Shares  under the
Securities  Act,  all  such  certificates  shall  bear  the  restrictive  legend
specified  in  Section  6.1 of this  Agreement.  The  Company  warrants  that no
instruction other than the Irrevocable  Transfer Agent Instructions  referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall  otherwise be freely  transferable  on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights  Agreement.  Nothing in this  Section  3.14 shall  affect in any way each
Purchaser's  obligations  and agreements set forth in Section 6.1 to comply with
all  applicable  prospectus  delivery  requirements,  if any, upon resale of the
Shares.  If a Purchaser  provides the Company  with an opinion of counsel,  in a
generally  acceptable  form,  to the effect that a public  sale,  assignment  or
transfer of the Shares may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable assurances that the Shares
can be sold  pursuant to Rule 144 without  any  restriction  as to the number of
securities  acquired as of a particular date that can then be immediately  sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant  Shares,  promptly  instruct its transfer  agent to issue one or
more  certificates in such name and in


                                       19
<PAGE>

such  denominations  as specified by such Purchaser and without any  restrictive
legend.  The Company  acknowledges  that a breach by it of its obligations under
this Section 3.14 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the  transaction  contemplated  hereby.  Accordingly,  the
Company  acknowledges  that the  remedy at law for a breach  of its  obligations
under this Section 3.14 will be inadequate and agrees,  in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.14, that
the Purchasers shall be entitled,  in addition to all other available  remedies,
to an order and/or  injunction  restraining  any breach and requiring  immediate
issuance  and  transfer,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.

            Section 3.15 Disposition of Assets.  So long as the Preferred Shares
remain outstanding,  neither the Company nor any Subsidiary shall sell, transfer
or  otherwise  dispose of any of its  properties,  assets and rights  including,
without limitation, its software and intellectual property, to any person except
for sales to  customers  in the  ordinary  course of  business or with the prior
written  consent of the  holders  of a majority  of the  Preferred  Shares  then
outstanding.

                                   ARTICLE IV

                                   CONDITIONS

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

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

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

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

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

            (e) Delivery of Transaction  Documents.  The  Transaction  Documents
have


                                       20
<PAGE>

been duly executed and delivered by the Purchasers to the Company.

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

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

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

            (c) No  Suspension,  Etc.  From the date hereof to the Closing Date,
trading in the  Company's  Common  Stock  shall not have been  suspended  by the
Commission  (except for any suspension of trading of limited  duration agreed to
by the Company,  which  suspension  shall be terminated  prior to the applicable
Closing), and, at any time prior to the Closing, trading in securities generally
as reported by Bloomberg  Financial  Markets  ("Bloomberg")  shall not have been
suspended  or limited,  or minimum  prices  shall not have been  established  on
securities  whose  trades are  reported by  Bloomberg,  or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any material
outbreak  or  escalation  of  hostilities  or other  national  or  international
calamity or crisis of such  magnitude in its effect on, or any material  adverse
change in any  financial  market  which,  in each case,  in the judgment of such
Purchaser,  makes it  impracticable  or  inadvisable  to purchase the  Preferred
Shares.

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

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

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


                                       21
<PAGE>

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

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

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

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

            (k) Reservation of Shares. As of the Closing Date, the Company shall
have reserved out of its  authorized and unissued  Common Stock,  solely for the
purpose of effecting the conversion of the Preferred  Shares and the exercise of
the  Warrants,  a number of shares of Common Stock equal to at least 120% of the
aggregate number of Conversion  Shares issuable upon conversion of the Preferred
Shares outstanding on the Closing Date and the number of Warrant Shares issuable
upon  exercise of the number of Warrants  assuming such Warrants were granted on
the Closing Date (after giving  effect to the Preferred  Shares and the Warrants
to be issued on the Closing  Date and  assuming  all such  Preferred  Shares and
Warrants were fully  convertible or  exercisable on such date  regardless of any
limitation on the timing or amount of such conversions or exercises).

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

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

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

            (o)  Lock-Up  Agreement.  At the  Closing,  the  Company  shall have
executed and delivered the Lock-Up Agreement to each Purchaser.


                                       22
<PAGE>

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

                                   ARTICLE V

                              Intentionally Omitted

                                   ARTICLE VI

                            Stock Certificate Legend

            Section 6.1 Legend.  Each  certificate  representing  the  Preferred
Shares and the Warrants, and, if appropriate,  securities issued upon conversion
thereof,  shall be stamped or otherwise imprinted with a legend substantially in
the  following  form (in  addition to any legend  required by  applicable  state
securities or "blue sky" laws):

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

      The Company agrees to reissue certificates representing the Shares without
the legend set forth above if at such time,  prior to making any transfer of any
Shares or Shares,  such holder  thereof shall give written notice to the Company
describing  the manner and terms of such transfer and removal as the Company may
reasonably  request,  and (x) the Shares have been registered for sale under the
Securities  Act and the holder is selling such shares and is complying  with its
prospectus  delivery  requirement  under the  Securities  Act, (y) the holder is
selling such Shares in  compliance  with the  provisions  of Rule 144 or (z) the
provisions of paragraph (k) of Rule 144 apply to such Shares.

                                  ARTICLE VII

                             Intentionally Omitted.

                                  ARTICLE VIII

                                 Indemnification

            Section 8.1 General  Indemnity.  The Company agrees to indemnify and
hold harmless the  Purchasers  and any finder (and their  respective  directors,
officers,  affiliates,  agents,


                                       23
<PAGE>

successors  and  assigns)  from and  against  any and all  losses,  liabilities,
deficiencies,  costs,  damages  and  expenses  (including,  without  limitation,
reasonable   attorneys'  fees,  charges  and  disbursements)   incurred  by  the
Purchasers as a result of any  inaccuracy  in or breach of the  representations,
warranties or covenants made by the Company herein. Each Purchaser severally but
not jointly agrees to indemnify and hold harmless the Company and its directors,
officers,  affiliates,  agents,  successors and assigns from and against any and
all losses, liabilities,  deficiencies,  costs, damages and expenses (including,
without  limitation,  reasonable  attorneys'  fees,  charges and  disbursements)
incurred  by the  Company  as  result  of any  inaccuracy  in or  breach  of the
representations,  warranties or covenants  made by such  Purchaser  herein.  The
maximum aggregate  liability of each Purchaser  pursuant to its  indemnification
obligations  under this  Article 8 shall not exceed the portion of the  Purchase
Price paid by such Purchaser hereunder.

            Section  8.2  Indemnification   Procedure.  Any  party  entitled  to
indemnification  under this  Article  VIII (an  "indemnified  party")  will give
written notice to the  indemnifying  party of any matters giving rise to a claim
for  indemnification;  provided,  that the  failure  of any  party  entitled  to
indemnification  hereunder  to give notice as provided  herein shall not relieve
the indemnifying  party of its obligations under this Article VIII except to the
extent that the  indemnifying  party is actually  prejudiced  by such failure to
give  notice.  In case any  action,  proceeding  or claim is brought  against an
indemnified party in respect of which  indemnification is sought hereunder,  the
indemnifying  party  shall be  entitled  to  participate  in and,  unless in the
reasonable  judgment of the indemnified  party a conflict of interest between it
and the indemnifying party may exist with respect of such action,  proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified  party.  In  the  event  that  the  indemnifying  party  advises  an
indemnified  party  that  it  will  contest  such a  claim  for  indemnification
hereunder,  or fails,  within thirty (30) days of receipt of any indemnification
notice to notify, in writing,  such person of its election to defend,  settle or
compromise,  at its sole cost and expense,  any action,  proceeding or claim (or
discontinues its defense at any time after it commences such defense),  then the
indemnified party may, at its option,  defend, settle or otherwise compromise or
pay such action or claim. In any event,  unless and until the indemnifying party
elects in writing to assume  and does so assume the  defense of any such  claim,
proceeding or action, the indemnified  party's costs and expenses arising out of
the defense,  settlement or  compromise of any such action,  claim or proceeding
shall be losses subject to  indemnification  hereunder.  The  indemnified  party
shall  cooperate  fully  with  the  indemnifying  party in  connection  with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information  reasonably available to
the indemnified  party which relates to such action or claim.  The  indemnifying
party shall keep the  indemnified  party  fully  apprised at all times as to the
status of the defense or any settlement  negotiations  with respect thereto.  If
the  indemnifying  party  elects to defend  any such  action or claim,  then the
indemnified  party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense.  The indemnifying party shall not be
liable for any settlement of any action,  claim or proceeding  effected  without
its prior written consent.  Notwithstanding anything in this Article VIII to the
contrary,  the  indemnifying  party shall not,  without the indemnified  party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment  in  respect  thereof  which  imposes  any  future  obligation  on  the


                                       24
<PAGE>

indemnified party or which does not include,  as an unconditional  term thereof,
the  giving by the  claimant  or the  plaintiff  to the  indemnified  party of a
release  from all  liability  in  respect  of such  claim.  The  indemnification
required by this Article  VIII shall be made by periodic  payments of the amount
thereof  during the course of  investigation  or defense,  as and when bills are
received or expense,  loss,  damage or  liability  is  incurred,  so long as the
indemnified party  irrevocably  agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to  indemnification.  The  indemnity  agreements  contained  herein  shall be in
addition to (a) any cause of action or similar rights of the  indemnified  party
against  the  indemnifying   party  or  others,  and  (b)  any  liabilities  the
indemnifying party may be subject to pursuant to the law.

                                   ARTICLE IX

                                  Miscellaneous

            Section 9.1 Fees and Expenses. Except as otherwise set forth in this
Agreement,  the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other  experts,  if any,  and all other  expenses,  incurred  by such  party
incident to the negotiation, preparation, execution, delivery and performance of
this  Agreement,  provided  that the  Company  shall pay, at the Closing (i) all
actual   attorneys'   fees  and  expenses   (exclusive  of   disbursements   and
out-of-pocket  expenses)  incurred by the Purchasers up to $25,000 in connection
with the preparation, negotiation, execution and delivery of this Agreement, the
Registration Rights Agreement and the transactions contemplated thereunder,  and
(ii) in  connection  with the filing and  declaration  of  effectiveness  by the
Commission of the Registration  Statement (as defined in the Registration Rights
Agreement) and any amendments, modifications or waivers of this Agreement or any
of the other  Transaction  Documents.  In  addition,  the Company  shall pay all
reasonable  fees and expenses  incurred by the Purchasers in connection with the
enforcement  of  this  Agreement  or  any of the  other  Transaction  Documents,
including,  without limitation, all reasonable attorneys' fees and expenses. The
Company  shall  pay all  stamp or other  similar  taxes  and  duties  levied  in
connection with issuance of the Preferred Shares pursuant hereto.

            Section 9.2 Specific Enforcement, Consent to Jurisdiction.

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

            (b) Each of the Company and the  Purchasers  (i) hereby  irrevocably
submits to the  jurisdiction  of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit,  action or proceeding  arising out
of or relating to this  Agreement or any of the other


                                       25
<PAGE>

Transaction  Documents or the  transactions  contemplated  hereby or thereby and
(ii)  hereby  waives,  and  agrees  not to  assert in any such  suit,  action or
proceeding,  any claim that it is not personally  subject to the jurisdiction of
such court,  that the suit,  action or proceeding is brought in an  inconvenient
forum or that the venue of the suit,  action or proceeding is improper.  Each of
the Company and the  Purchasers  consents  to process  being  served in any such
suit,  action or  proceeding  by  mailing a copy  thereof  to such  party at the
address in effect for  notices to it under this  Agreement  and agrees that such
service  shall  constitute  good and  sufficient  service of process  and notice
thereof.  Nothing in this  Section 9.2 shall  affect or limit any right to serve
process in any other manner permitted by law.

            Section 9.3 Entire Agreement; Amendment. This Agreement contains the
entire  understanding  of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction  Documents or
the  Certificate of  Designation,  neither the Company nor any of the Purchasers
makes any  representations,  warranty,  covenant or undertaking  with respect to
such matters and they supersede all prior  understandings  and  agreements  with
respect to said subject matter,  all of which are merged herein. No provision of
this  Agreement  may be waived or  amended  other  than by a written  instrument
signed by the Company and the  holders of at least 75% of the  Preferred  Shares
then  outstanding,  and no  provision  hereof  may be waived  other than by an a
written  instrument  signed by the party  against whom  enforcement  of any such
amendment  or waiver is sought.  No such  amendment  shall be  effective  to the
extent that it applies to less than all of the holders of the  Preferred  Shares
then  outstanding.  No  consideration  shall be offered or paid to any person to
amend or  consent to a waiver or  modification  of any  provision  of any of the
Transaction  Documents  or  the  Certificate  of  Designation  unless  the  same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.

            Section 9.4 Notices. Any notice,  demand,  request,  waiver or other
communication  required or permitted to be given  hereunder  shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received),  telecopy or facsimile at the address or number  designated below (if
delivered on a business day during normal business hours where such notice is to
be received),  or the first  business day following  such delivery (if delivered
other than on a business day during normal  business  hours where such notice is
to be received) or (b) on the second  business day following the date of mailing
by express courier service,  fully prepaid,  addressed to such address,  or upon
actual receipt of such mailing,  whichever shall first occur.  The addresses for
such communications shall be:

            If to the Company:  Cyberlux Corporation
                                50 Orange Road
                                P.O. Box 2010
                                Pinehurst, N.C. 28370
                                Attention: Donald F. Evans
                                Tel. No.: (910) 235-0066
                                Fax No.:  (910) 235-0933

            with copies to:     John W. Ringo, Esq.
                                Attorney at Law
                                241 Lamplighter Lane
                                Marietta, GA 30067
                                Tel. No.: (770) 952-1904
                                Fax No.: (770) 952-0894


                                       26
<PAGE>

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

                                Jenkens & Gilchrist Parker Chapin LLP
                                The Chrysler Building
                                405 Lexington Avenue
                                New York, NY 10174
                                Attention: Christopher S. Auguste, Esq.
                                Tel No.: (212) 704-6000
                                Fax No.: (212) 704-6288

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

            Section 9.5  Waivers.  No waiver by either party of any default with
respect to any provision,  condition or  requirement of this Agreement  shall be
deemed  to be a  continuing  waiver  in the  future  or a  waiver  of any  other
provisions,  condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right  hereunder in any manner  impair the exercise of
any such right accruing to it thereafter.

            Section 9.6 Headings.  The article,  section and subsection headings
in this  Agreement are for  convenience  only and shall not constitute a part of
this  Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.

            Section 9.7 Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.

            Section 9.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective  permitted successors
and  assigns  and is not for the  benefit  of, nor may any  provision  hereof be
enforced by, any other person.

            Section 9.9 Governing Law. This  Agreement  shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving  effect  to the  choice  of law  provisions.  This  Agreement  shall  not
interpreted  or construed  with any  presumption  against the party causing this
Agreement to be drafted.

            Section 9.10  Survival.  The  representations  and warranties of the
Company and the Purchasers  contained in Sections  2.1(o) and (s) should survive
indefinitely  and those  contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution


                                       27
<PAGE>

and  delivery  hereof  and the  Closing  until the date three (3) years from the
Closing  Date,  and the  agreements  and covenants set forth in Articles I, III,
VIII and IX of this  Agreement  shall survive the execution and delivery  hereof
and the Closing hereunder until the Purchasers in the aggregate beneficially own
(determined in accordance  with Rule 13d-3 under the Exchange Act) less than 10%
of the total combined voting power of all voting  securities  then  outstanding,
provided,  that Sections 3.1, 3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10, 3.12, 3.13 and
3.14 shall not expire until the Registration  Statement required by Section 2 of
the  Registration  Rights  Agreement is no longer required to be effective under
the terms and conditions of Registration Rights Agreement.

            Section 9.11  Counterparts.  This  Agreement  may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto,  it being  understood that
all parties need not sign the same  counterpart.  In the event any  signature is
delivered  by  facsimile  transmission,  the party  using such means of delivery
shall cause four additional executed signature pages to be physically  delivered
to the other parties within five days of the execution and delivery hereof.

            Section  9.12  Publicity.  The  Company  agrees  that  it  will  not
disclose,  and will not  include  in any  public  announcement,  the name of the
Purchasers  without  the  consent  of  the  Purchasers  unless  and  until  such
disclosure  is required by law or  applicable  regulation,  and then only to the
extent of such requirement.

            Section 9.13  Severability.  The provisions of this  Agreement,  the
Certificate of Designation and the  Registration  Rights Agreement are severable
and, in the event that any court of competent  jurisdiction shall determine that
any one or more of the  provisions or part of the  provisions  contained in this
Agreement,  the Certificate of Designation or the Registration  Rights Agreement
shall,  for any reason,  be held to be invalid,  illegal or unenforceable in any
respect,  such invalidity,  illegality or unenforceability  shall not affect any
other  provision or part of a provision of this  Agreement,  the  Certificate of
Designation or the Registration Rights Agreement shall be reformed and construed
as if such  invalid  or  illegal  or  unenforceable  provision,  or part of such
provision,  had never been contained  herein,  so that such provisions  would be
valid, legal and enforceable to the maximum extent possible.

            Section  9.14  Further  Assurances.  From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the  Purchasers  shall  execute and deliver such  instrument,  documents and
other writings as may be reasonably  necessary or desirable to confirm and carry
out and to  effectuate  fully the intent and  purposes  of this  Agreement,  the
Preferred Shares, the Conversion  Shares, the Warrants,  the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       28
<PAGE>

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

                                       CYBERLUX CORPORATION

                                       By:______________________________________
                                          Name:
                                          Title:


                                       PURCHASER

                                       By:______________________________________
                                          Name:
                                          Title:


                                       PURCHASER


                                       By:______________________________________
                                          Name:
                                          Title:


                                       PURCHASER


                                       By:______________________________________
                                          Name:
                                          Title:

<PAGE>

                                EXHIBIT A to the
             SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
                            FOR CYBERLUX CORPORATION

Names and Addresses        Number of Preferred Shares          Dollar Amount of
of Purchasers              & Warrants Purchased                Investment

                           [SEE ATTACHED SPREADSHEET]

<PAGE>

                                EXHIBIT B to the
           SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
                              CYBERLUX CORPORATION

                            FORM OF SERIES A WARRANT

<PAGE>

                                EXHIBIT C to the
           SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
                              CYBERLUX CORPORATION

                            FORM OF SERIES B WARRANT

<PAGE>

                                EXHIBIT D to the
           SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
                              CYBERLUX CORPORATION

                       FORM OF CERTIFICATE OF DESIGNATION

<PAGE>

                                EXHIBIT E to the
           SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
                              CYBERLUX CORPORATION

                      FORM OF REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                EXHIBIT F to the
           SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
                              CYBERLUX CORPORATION

                            FORM OF LOCK-UP AGREEMENT

<PAGE>

                                EXHIBIT G to the
           SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
                              CYBERLUX CORPORATION

                 FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

                              CYBERLUX CORPORATION

                                                         as of December 31, 2003

[Name and address of Transfer Agent]

Attn:  ____________________________

Ladies and Gentlemen:

      Reference is made to that certain  Series A  Convertible  Preferred  Stock
Purchase Agreement (the "Purchase Agreement"), dated as of December 31, 2003, by
and among Cyberlux  Corporation,  a Nevada corporation (the "Company"),  and the
purchasers named therein (collectively,  the "Purchasers") pursuant to which the
Company  is  issuing  to the  Purchasers  shares  of its  Series  A  Convertible
Preferred  Stock,  par value  $.001 per  share,  (the  "Preferred  Shares")  and
warrants (the  "Warrants") to purchase shares of the Company's common stock, par
value  $.001 per share (the  "Common  Stock").  This  letter  shall serve as our
irrevocable authorization and direction to you (subject to Section 3.1(a) of the
Purchase  Agreement and provided that you are the transfer  agent of the Company
at such time) to issue shares of Common Stock upon  conversion  of the Preferred
Shares (the  "Conversion  Shares") and exercise of the  Warrants  (the  "Warrant
Shares")  to or upon  the  order  of a  Purchaser  from  time to time  upon  (i)
surrender to you of a properly completed and duly executed  Conversion Notice or
Exercise  Notice,  as the case may be, in the form attached  hereto as Exhibit I
and Exhibit II,  respectively,  (ii) in the case of the  conversion of Preferred
Shares, a copy of the certificates (with the original certificates  delivered to
the Company)  representing  Preferred  Shares being converted or, in the case of
Warrants being  exercised,  a copy of the Warrants  (with the original  Warrants
delivered to the Company) being exercised (or, in each case, an  indemnification
undertaking with respect to such share  certificates or the warrants in the case
of their loss, theft or destruction),  and (iii) delivery of a treasury order or
other  appropriate  order  duly  executed  by a duly  authorized  officer of the
Company. So long as you have previously  received (x) written  confirmation from
counsel to the Company that a  registration  statement  covering  resales of the
Conversion Shares or Warrant Shares, as applicable,  has been declared effective
by the Securities and Exchange  Commission  (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"), and no subsequent notice by the Company or
its counsel of the suspension or termination of its effectiveness and (y) a copy
of such registration statement,  and if the Purchaser represents in writing that
the  Conversion  Shares or the  Warrant  Shares,  as the case may be,  were sold
pursuant to the  Registration  Statement,  then  certificates  representing  the
Conversion Shares and the Warrant Shares, as the case may be, shall not bear any
legend restricting  transfer of the Conversion Shares and the Warrant Shares, as
the  case  may be,  thereby  and  should  not be  subject  to any  stop-transfer
restriction.  Provided,  however,  that if you have not previously  received (i)
written  confirmation from counsel to the Company that a registration  statement
covering resales of the Conversion Shares or Warrant Shares, as applicable,  has
been  declared  effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement,  then the certificates for the Conversion Shares and the
Warrant Shares shall bear the following legend:

<PAGE>

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

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

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

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

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

                                       Very truly yours,

                                       CYBERLUX CORPORATION


                                       By:______________________________________
                                          Name:
                                          Title:

ACKNOWLEDGED AND AGREED:

[TRANSFER AGENT]

By:
Name:
Title:
Date:

<PAGE>

                                    EXHIBIT I

                              CYBERLUX CORPORATION
                                CONVERSION NOTICE

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

      Date of Conversion:

      Number of Preferred Shares to be converted:

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

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

Please confirm the following information:

      Conversion Price:

      Number of shares of Common Stock

      to be issued:

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

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

      Issue to:

      Facsimile Number:

      Authorization:

                                       By:
                                       Title:

         Dated:

<PAGE>

                                   EXHIBIT II

                             FORM OF EXERCISE NOTICE

                                  EXERCISE FORM

                              CYBERLUX CORPORATION

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

Dated: _________________               Signature _______________________________

                                       Address _________________________________

                                       _________________________________________

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

                                   ASSIGNMENT

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

Dated: _________________               Signature _______________________________

                                       Address _________________________________

                                       _________________________________________

                               PARTIAL ASSIGNMENT

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

Dated: _________________               Signature _______________________________

                                       Address _________________________________

                                       _________________________________________

                           FOR USE BY THE ISSUER ONLY:

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

<PAGE>

                                   EXHIBIT III

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[Name and address of Transfer Agent]
Attn:  _____________

            Re:   Cyberlux Corporation

Ladies and Gentlemen:

      We  are  counsel  to  Cyberlux  Corporation,  a  Nevada  corporation  (the
"Company"),  and have  represented  the Company in connection  with that certain
Series  A  Convertible   Preferred  Stock  Purchase   Agreement  (the  "Purchase
Agreement"),  dated as of December  31,  2003,  by and among the Company and the
purchasers named therein (collectively,  the "Purchasers") pursuant to which the
Company  issued to the Purchasers  shares of its Series A Convertible  Preferred
Stock,  par value $.001 per share,  (the  "Preferred  Shares") and warrants (the
"Warrants") to purchase  shares of the Company's  common stock,  par value $.001
per share (the "Common Stock").  Pursuant to the Purchase Agreement, the Company
has also entered into a Registration  Rights  Agreement with the Purchasers (the
"Registration  Rights  Agreement"),  dated as of December 31, 2003,  pursuant to
which the Company  agreed,  among other  things,  to  register  the  Registrable
Securities  (as defined in the  Registration  Rights  Agreement),  including the
shares of Common Stock  issuable upon  conversion  of the  Preferred  Shares and
exercise of the  Warrants,  under the  Securities  Act of 1933,  as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement,  on  ________________,  2004, the Company filed a Registration
Statement on Form SB-2 (File No.  333-________) (the  "Registration  Statement")
with the Securities and Exchange  Commission  (the "SEC") relating to the resale
of the Registrable  Securities  which names each of the present  Purchasers as a
selling stockholder thereunder.

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

                                       Very truly yours,

                                       [COMPANY COUNSEL]

                                       By:

cc:   [LIST NAMES OF PURCHASERS]

<PAGE>

                                EXHIBIT H to the
           SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
                              CYBERLUX CORPORATION

                           FORM OF OPINION OF COUNSEL

            1. The Company is a corporation duly incorporated,  validly existing
and in good standing under the laws of the state of Nevada and has the requisite
corporate  power to own,  lease and operate its  properties  and assets,  and to
carry on its business as presently conducted. The company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary.

            2. The Company has the  requisite  corporate  power and authority to
enter into and perform its obligations  under the  Transaction  Documents and to
issue the  Preferred  Stock,  the Warrants and the Common  Stock  issuable  upon
conversion of the Preferred  Stock and exercise of the Warrants.  The execution,
delivery and performance of each of the Transaction Documents by the Company and
the consummation by it of the transactions  contemplated  thereby have been duly
and validly authorized by all necessary  corporate action and no further consent
or  authorization  of the Company or its Board of Directors or  stockholders  is
required.  Each  of the  Transaction  Documents  have  been  duly  executed  and
delivered,  and the Preferred  Stock and the Warrants  have been duly  executed,
issued  and  delivered  by the  Company  and each of the  Transaction  Documents
constitutes a legal,  valid and binding  obligation  of the Company  enforceable
against the Company in accordance  with its respective  terms.  The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants are
not subject to any preemptive  rights under the Articles of Incorporation or the
Bylaws.

            3. The Preferred  Stock and the Warrants  have been duly  authorized
and,  when  delivered  against  payment  in full  as  provided  in the  Purchase
Agreement,  will be validly issued, fully paid and nonassessable.  The shares of
Common Stock issuable upon conversion of the Preferred Stock and exercise of the
Warrants,  have been duly  authorized  and  reserved  for  issuance,  and,  when
delivered  upon  conversion  or  against  payment  in  full as  provided  in the
Certificate of  Designation  and the Warrants,  as  applicable,  will be validly
issued, fully paid and nonassessable.

            4. The execution,  delivery and  performance of and compliance  with
the terms of the Transaction  Documents and the issuance of the Preferred Stock,
the Warrants and the Common Stock  issuable  upon  conversion  of the  Preferred
Stock and  exercise of the  Warrants do not (i)  violate  any  provision  of the
Articles of Incorporation or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would  become a default)
under, or give to others any rights of termination,  amendment,  acceleration or
cancellation of, any material  agreement,  mortgage,  deed of trust,  indenture,
note,  bond,  license,  lease  agreement,  instrument or obligation to which the
Company is a party,  (iii) create or impose a lien, charge or encumbrance on any
property of the  Company  under any  agreement  or any  commitment  to which the
Company  is a party  or by which  the  Company  is bound or by which  any of its
respective  properties or assets are bound, or (iv) (a) result in a violation of
any federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction  or  decree   (including   Federal  and  state  securities  laws  and
regulations)  applicable to the Company or by which any property or asset of the
Company  is bound or  affected,  except,  in all  cases  other  than  violations
pursuant  to  clause  (i)  above,  for such  conflicts,  default,  terminations,
amendments,   acceleration,   cancellations   and   violations   as  would  not,
individually or in the aggregate, have a Material Adverse Effect.

            5.  No  consent,   approval  or  authorization  of  or  designation,
declaration or filing with any governmental authority on the part of the Company
is required under Federal,  state or local law, rule

<PAGE>

or  regulation  in  connection  with the valid  execution  and  delivery  of the
Transaction  Documents,  or the offer,  sale or issuance of the Preferred Stock,
the Warrants or the Common Stock issuable upon conversion of the Preferred Stock
and exercise of the Warrants other than the  Certificate of Designation  and the
Registration Statement.

            6. There is no action,  suit,  claim,  investigation  or  proceeding
pending or threatened  against the Company which  questions the validity of this
Agreement or the transactions  contemplated  hereby or any action taken or to be
taken pursuant hereto or thereto. There is no action, suit, claim, investigation
or proceeding pending, or to our knowledge, threatened, against or involving the
Company or any of its properties or assets and which,  if adversely  determined,
is  reasonably  likely to  result in a  Material  Adverse  Effect.  There are no
outstanding  orders,  judgments,  injunctions,  awards or  decrees of any court,
arbitrator  or  governmental  or  regulatory  body  against  the  Company or any
officers or directors of the Company in their capacities as such.

            7. The  offer,  issuance  and sale of the  Preferred  Stock  and the
Warrants and the offer, issuance and sale of the shares of Common Stock issuable
upon conversion of the Preferred Stock and exercise of the Warrants  pursuant to
the Purchase  Agreement,  the  Certificate of Designation  and the Warrants,  as
applicable, are exempt from the registration requirements of the Securities Act.

            8. The  Company  is not,  and as a result  of and  immediately  upon
Closing will not be, an  "investment  company" or a company  "controlled"  by an
"investment  company," within the meaning of the Investment Company Act of 1940,
as amended.

                                       Very truly yours,

</TEXT>
</DOCUMENT>
