Exhibit 10.49
                               SECURITY AGREEMENT

            SECURITY   AGREEMENT,   dated  as  of   September   30,  2008  (this
"Agreement"),  among Intraop  Medical  Corporation,  a Nevada  corporation  (the
"Company")  and the  holder or  holders  of the  Company's  10%  Senior  Secured
Debentures, due December 31, 2008, in the original aggregate principal amount of
up to  $2,000,000  (the  "Debentures")  and  issued  pursuant  to  that  certain
Debenture  Purchase  Agreement (the "Purchase  Agreement") of even date herewith
between the Company and each signatory hereto, their endorsees,  transferees and
assigns (collectively referred to as, the "Secured Parties").

                              W I T N E S S E T H:

            WHEREAS, pursuant to the Purchase Agreement and the Debentures,  the
Secured  Parties  have  severally  agreed  to extend  the  loans to the  Company
evidenced by the Debentures;

            WHEREAS,  in order to induce the Secured Parties to extend the loans
evidenced  by the  Debentures,  the Company has agreed to execute and deliver to
the Secured Parties this Agreement and to grant the Secured Parties,  pari passu
with each other Secured Party, a perfected security interest in certain property
of the Company to secure the prompt  payment,  performance and discharge in full
of all of the Company's obligations under the Debentures.

            NOW, THEREFORE,  in consideration of the agreements herein contained
and for other good and valuable  consideration,  the receipt and  sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:

            1. Certain  Definitions.  As used in this  Agreement,  the following
terms shall have the  meanings  set forth in this  Section 1. Terms used but not
otherwise  defined in this  Agreement  that are  defined in Article 9 of the UCC
(such as "account", "chattel paper", "commercial tort claim", "deposit account",
"document",    "equipment",    "fixtures",   "general   intangibles",   "goods",
"instruments",  "inventory",  "investment property",  "letter-of-credit rights",
"proceeds" and  "supporting  obligations")  shall have the  respective  meanings
given such terms in Article 9 of the UCC.

                  (a)  "Collateral"  means the  collateral  in which the Secured
         Parties are granted a security  interest  by this  Agreement  and which
         shall include the following  personal property of the Company,  whether
         presently  owned or  existing  or  hereafter  acquired  or coming  into
         existence,  wherever situated, and all additions and accessions thereto
         and all  substitutions  and  replacements  thereof,  and all  proceeds,
         products and  accounts  thereof,  including,  without  limitation,  all
         proceeds from the sale or transfer of the  Collateral  and of insurance
         covering the same and of any tort claims in connection  therewith,  and
         all dividends,  interest, cash, notes,  securities,  equity interest or
         other property at any time and from time to time  acquired,  receivable
         or otherwise  distributed in respect of, or in exchange for, any or all
         of the Pledged Securities (as defined below):


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                           (i) All goods, including, without limitation, (A) all
                  machinery,   equipment,  computers,  motor  vehicles,  trucks,
                  tanks,  boats,  ships,  appliances,   furniture,  special  and
                  general tools, fixtures,  test and quality control devices and
                  other   equipment  of  every  kind  and  nature  and  wherever
                  situated,  together  with all documents of title and documents
                  representing  the same, all additions and accessions  thereto,
                  replacements therefor, all parts therefor, and all substitutes
                  for any of the  foregoing  and all other items used and useful
                  in   connection   with  any  Company's   businesses   and  all
                  improvements thereto; and (B) all inventory;

                           (ii) All Inventory and  Intellectual  Property of the
                  Company;

                           (iii)  All   contract   rights   and  other   general
                  intangibles,  including,  without limitation,  all partnership
                  interests,  membership  interests,  stock or other securities,
                  rights under any of the Organizational  Documents,  agreements
                  related to the Pledged Securities,  licenses, distribution and
                  other agreements,  computer software (whether "off-the-shelf",
                  licensed  from any third party or developed  by the  Company),
                  computer  software  development  rights,  leases,  franchises,
                  customer lists, quality control procedures, grants and rights,
                  goodwill,  trademarks,  service  marks,  trade  styles,  trade
                  names, patents,  patent applications,  copyrights,  and income
                  tax refunds (collectively, the "General Intangibles");

                           (iii)  All  accounts  of the  Company  including  all
                  insurance  proceeds,  and rights to refunds or indemnification
                  whatsoever owing, together with all instruments, all documents
                  of title representing any of the foregoing,  all rights in any
                  merchandising,  goods,  equipment,  motor  vehicles and trucks
                  which any of the same may  represent,  and all  right,  title,
                  security  and   guaranties   with  respect  to  each  account,
                  including any right of stoppage in transit;

                           (iv)   All   documents,    letter-of-credit   rights,
                  instruments and chattel paper;

                           (v) All commercial tort claims;

                           (vi) All deposit  accounts  and all cash  (whether or
                  not deposited in such deposit accounts);

                           (vii) All investment property;

                           (viii) All supporting obligations;

                           (ix) All files, records,  books of account,  business
                  papers, and computer programs; and

                           (x) the products and proceeds of all of the foregoing
                  Collateral set forth in clauses (i)-(ix) above.


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                           Without limiting the generality of the foregoing, the
                  "Collateral" shall include the shares of capital stock and the
                  other  equity  interests  listed on  Schedule H hereto (as the
                  same may be modified  from time to time  pursuant to the terms
                  hereof),  and any other  shares of capital  stock and/or other
                  equity interests of any other direct or indirect subsidiary of
                  the Company  obtained in the  future,  and, in each case,  all
                  certificates  representing such shares and/or equity interests
                  and, in each case, all rights, options, warrants, stock, other
                  securities  and/or  equity  interests  that may  hereafter  be
                  received,   receivable  or   distributed  in  respect  of,  or
                  exchanged  for,  any of the  foregoing  (all of the  foregoing
                  being referred to herein as the "Pledged  Securities") and all
                  rights  arising  under  or  in  connection  with  the  Pledged
                  Securities,  including,  but not  limited  to, all  dividends,
                  interest and cash.

                           Notwithstanding  the foregoing,  nothing herein shall
                  be deemed to constitute  an assignment of any asset which,  in
                  the  event of an  assignment,  becomes  void by  operation  of
                  applicable  law  or  the  assignment  of  which  is  otherwise
                  prohibited by applicable  law (in each case to the extent that
                  such applicable law is not overridden by Sections 9-406, 9-407
                  and/or  9-408 of the UCC or  other  similar  applicable  law);
                  provided,  however, that to the extent permitted by applicable
                  law, this Agreement shall create a valid security  interest in
                  such asset and, to the extent  permitted  by  applicable  law,
                  this Agreement  shall create a valid security  interest in the
                  proceeds of such asset.

                  (b) "Intellectual  Property" means the collective reference to
         all  rights,   priorities  and  privileges   relating  to  intellectual
         property, whether arising under United States, multinational or foreign
         laws or otherwise,  including,  without limitation,  (i) all copyrights
         arising under the laws of the United  States,  any other country or any
         political  subdivision thereof,  whether registered or unregistered and
         whether  published or  unpublished,  all  registrations  and recordings
         thereof,  and all  applications  in  connection  therewith,  including,
         without limitation,  all registrations,  recordings and applications in
         the United  States  Copyright  Office,  (ii) all letters  patent of the
         United States, any other country or any political  subdivision thereof,
         all reissues and extensions  thereof,  and all applications for letters
         patent of the United  States or any other  country  and all  divisions,
         continuations and continuations-in-part  thereof, (iii) all trademarks,
         trade names, corporate names, company names, business names, fictitious
         business names,  trade dress,  service marks,  logos,  domain names and
         other  source or  business  identifiers,  and all  goodwill  associated
         therewith,   now  existing  or  hereafter  adopted  or  acquired,   all
         registrations   and  recordings   thereof,   and  all  applications  in
         connection therewith, whether in the United States Patent and Trademark
         Office or in any  similar  office or agency of the United  States,  any
         State  thereof  or  any  other  country  or any  political  subdivision
         thereof, or otherwise,  and all common law rights related thereto, (iv)
         all trade  secrets  arising  under the laws of the United  States,  any
         other country or any political  subdivision  thereof, (v) all rights to
         obtain any reissues,  renewals or extensions of the foregoing, (vi) all
         licenses for any of the  foregoing,  and (vii) all causes of action for
         infringement of the foregoing.


<PAGE>

                  (c)  "Majority  in  Interest"  shall  mean,  at  any  time  of
         determination,  the  majority  in interest  (based on  then-outstanding
         principal  amounts of Debentures at the time of such  determination) of
         the Secured Parties.

                  (d)  "Necessary  Endorsement"  shall mean undated stock powers
         endorsed  in blank or  other  proper  instruments  of  assignment  duly
         executed and such other  instruments or documents as the Agent (as that
         term is defined below) may reasonably request.

                  (e)  "Obligations"  means  all of the  Company's'  obligations
         under this Agreement, the Purchase Agreement,  the Debentures,  and any
         other  instruments,  agreements  or  other  documents  executed  and/or
         delivered in connection  herewith or therewith,  in each case,  whether
         now  or  hereafter  existing,  voluntary  or  involuntary,   direct  or
         indirect, absolute or contingent,  liquidated or unliquidated,  whether
         or not jointly owed with  others,  and whether or not from time to time
         decreased or extinguished and later increased, created or incurred, and
         all or any portion of such obligations or liabilities that are paid, to
         the  extent all or any part of such  payment  is  avoided or  recovered
         directly or indirectly from any of the Secured Parties as a preference,
         fraudulent  transfer or otherwise as such  obligations  may be amended,
         supplemented,  converted,  extended  or  modified  from  time to  time.
         Without   limiting  the   generality   of  the   foregoing,   the  term
         "Obligations" shall include, without limitation:  (i) principal of, and
         interest on the  Debentures and the loans  extended  pursuant  thereto;
         (ii)  any and all  other  fees,  indemnities,  costs,  obligations  and
         liabilities  of the  Company  from time to time under or in  connection
         with  this  Agreement,   the  Debentures  and  any  other  instruments,
         agreements or other documents  executed and/or  delivered in connection
         herewith or therewith; and (iii) all amounts (including but not limited
         to  post-petition  interest) in respect of the foregoing  that would be
         payable but for the fact that the  obligations  to pay such amounts are
         unenforceable  or not  allowable  due to the existence of a bankruptcy,
         reorganization or similar proceeding involving the Company.

                  (f)  "Organizational  Documents"  means  with  respect  to the
         Company,  the documents by which the Company was  organized  (such as a
         certificate of  incorporation,  certificate  of limited  partnership or
         articles  of  organization,  and  including,  without  limitation,  any
         certificates  of  designation  for  preferred  stock or other  forms of
         preferred  equity) and which relate to the internal  governance  of the
         Company  (such as bylaws,  a  partnership  agreement  or an  operating,
         limited liability or members agreement).

                  (g) "UCC"  means the Uniform  Commercial  Code of the State of
         Nevada and or any other applicable law of any state or states which has
         jurisdiction  with respect to all, or any portion of, the Collateral or
         this Agreement, from time to time. It is the intent of the parties that
         defined terms in the UCC should be construed in their broadest sense so
         that the term  "Collateral"  will be construed  in its broadest  sense.
         Accordingly  if there are, from time to time,  changes to defined terms
         in the UCC that broaden the definitions,  they are incorporated  herein
         and if existing  definitions  in the UCC are  broader  than the amended
         definitions, the existing ones shall be controlling.


<PAGE>

         2. Grant of  Perfected  Security  Interest.  As an  inducement  for the
Secured Parties to extend the loans as evidenced by the Debentures and to secure
the complete and timely payment,  performance and discharge in full, as the case
may be,  of all of the  Obligations,  the  Company  hereby  unconditionally  and
irrevocably pledges, grants and hypothecates to the Secured Parties a continuing
and  perfected  security  interest in and to, a lien upon and a right of set-off
against all of their respective right, title and interest of whatsoever kind and
nature in and to, the Collateral (the "Security Interest").

         3. Delivery of Certain  Collateral.  Contemporaneously  or prior to the
execution of this Agreement,  the Company shall deliver or cause to be delivered
to the Agent (a) any and all certificates and other instruments  representing or
evidencing the Pledged  Securities,  and (b) any and all  certificates and other
instruments or documents representing any of the other Collateral, in each case,
together with all Necessary Endorsements. The Company is, contemporaneously with
the execution hereof, delivering to Agent, or has previously delivered to Agent,
a true and correct copy of each  Organizational  Document  governing  any of the
Pledged Securities.

         4.  Representations,   Warranties,  Covenants  and  Agreements  of  the
Company.  The Company represents and warrants to, and covenants and agrees with,
the Secured Parties as follows:

                  (a)  The  Company  has  the  requisite   corporate  power  and
         authority to enter into this  Agreement  and otherwise to carry out its
         obligations hereunder.  The execution,  delivery and performance by the
         Company of this  Agreement  and the filings  contemplated  therein have
         been duly authorized by all necessary action on the part of the Company
         and no further  action is required by the Company.  This  Agreement has
         been duly  executed by the  Company.  This  Agreement  constitutes  the
         legal, 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 and
         similar laws of general application relating to or affecting the rights
         and remedies of creditors and by general principles of equity.

                  (b) The Company has no place of business or offices  where its
         books of account and records  are kept (other than  temporarily  at the
         offices of its attorneys or accountants) or places where  Collateral is
         stored or located,  except as set forth on Schedule A attached  hereto.
         Except as  disclosed on Schedule A, none of such  Collateral  is in the
         possession of any consignee, bailee, warehouseman, agent or processor.

                  (c)  Except  set forth on  Schedule  B  attached  hereto,  the
         Company is the sole owner of the Collateral  (except for  non-exclusive
         licenses  granted by the Company in the ordinary  course of  business),
         free and clear of any liens, security interests,  encumbrances,  rights
         or claims,  and are fully  authorized  to grant the Security  Interest.
         There  is not on  file in any  governmental  or  regulatory  authority,
         agency or recording office an effective financing  statement,  security
         agreement,  license or transfer  or any notice of any of the  foregoing
         (other  than those that will be filed in favor of the  Secured  Parties
         pursuant  to  this   Agreement)   covering  or  affecting  any  of  the
         Collateral.  So long as this Agreement shall be in effect,  the Company
         shall not execute and shall not  knowingly  permit to be on file in any
         such office or agency any such financing statement or other document or
         instrument  (except to the  extent  filed or  recorded  in favor of the
         Secured Parties pursuant to the terms of this Agreement).


<PAGE>

                  (d) No written claim has been received that any  Collateral or
         the  Company's use of any  Collateral  violates the rights of any third
         party.  There has been no adverse  decision to the  Company's  claim of
         ownership  rights in or exclusive  rights to use the  Collateral in any
         jurisdiction  or to the  Company's  right  to keep  and  maintain  such
         Collateral  in full  force  and  effect,  and  there  is no  proceeding
         involving said rights pending or, to the best knowledge of the Company,
         threatened   before  any  court,   judicial  body,   administrative  or
         regulatory agency, arbitrator or other governmental authority.

                  (e) The  Company  shall at all  times  maintain  its  books of
         account and records  relating to the Collateral at its principal  place
         of business and its Collateral at the locations set forth on Schedule A
         attached  hereto and may not relocate such books of account and records
         or tangible  Collateral  unless it  delivers to the Secured  Parties at
         least 30 days  prior to such  relocation  (i)  written  notice  of such
         relocation  and the new  location  thereof  (which  must be within  the
         United States) and (ii) evidence that appropriate  financing statements
         under  the UCC and  other  necessary  documents  have  been  filed  and
         recorded  and other  steps  have been  taken to  perfect  the  Security
         Interest to create in favor of the Secured  Parties a valid,  perfected
         and continuing perfected lien in the Collateral.

                  (f) This Agreement  creates in favor of the Secured  Parties a
         valid,  security  interest in the Collateral,  securing the payment and
         performance of the  Obligations.  Upon making the filings  described in
         the immediately  following  paragraph,  all security  interests created
         hereunder in any  Collateral  which may be perfected by filing  Uniform
         Commercial  Code financing  statements  shall have been duly perfected.
         Except  for  the  filing  of  the  Uniform  Commercial  Code  financing
         statements  referred to in the  immediately  following  paragraph,  the
         recordation of the Intellectual Property Security Agreement (as defined
         below) with respect to  copyrights  and copyright  applications  in the
         United  States  Copyright  Office  referred to in  paragraph  (m),  the
         execution and delivery of deposit account control agreements satisfying
         the requirements of Section 9-104(a)(2) of the UCC with respect to each
         deposit  account of the Company,  and the delivery of the  certificates
         and other instruments  provided in Section 3, no action is necessary to
         create,  perfect or protect the security  interests created  hereunder.
         Without limiting the generality of the foregoing, except for the filing
         of said financing  statements,  the  recordation  of said  Intellectual
         Property  Security  Agreement,  and the  execution and delivery of said
         deposit account control agreements, no consent of any third parties and
         no  authorization,  approval  or other  action  by, and no notice to or
         filing with, any governmental  authority or regulatory body is required
         for (i) the execution, delivery and performance of this Agreement, (ii)
         the creation or perfection of the Security  Interests created hereunder
         in the Collateral or (iii) the enforcement of the rights of the Secured
         Parties hereunder.


<PAGE>

                  (g) The Company hereby authorizes the Secured Parties,  or any
         of them, to file one or more financing  statements  under the UCC, with
         respect to the Security  Interest  with the proper filing and recording
         agencies in any jurisdiction deemed proper by them.

                  (h) The execution,  delivery and performance of this Agreement
         by the  Company  does  not (i)  violate  any of the  provisions  of any
         Organizational Documents of the Company or any judgment,  decree, order
         or  award  of  any  court,  governmental  body  or  arbitrator  or  any
         applicable  law, rule or  regulation  applicable to the Company or (ii)
         conflict with, or constitute a default (or an event that 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
         (with or  without  notice,  lapse of time or both) of,  any  agreement,
         credit facility,  debt or other instrument (evidencing any Company debt
         or otherwise) or other understanding to which the Company is a party or
         by which any property or asset of the Company is bound or affected.  No
         consent (including,  without limitation, from stockholders or creditors
         of the  Company) is required  for the Company to enter into and perform
         its obligations hereunder.

                  (i) The capital  stock and other  equity  interests  listed on
         Schedule H hereto  represent  all of the capital stock and other equity
         interests of the subsidiaries of the Company, and represent all capital
         stock and other equity interests owned, directly or indirectly,  by the
         Company.  All of the Pledged Securities are validly issued,  fully paid
         and nonassessable, and the Company is the legal and beneficial owner of
         the Pledged  Securities,  free and clear of any lien, security interest
         or other encumbrance  except for the security interests created by this
         Agreement.

                  (j) The ownership and other equity  interests in  partnerships
         and limited  liability  companies (if any)  included in the  Collateral
         (the  "Pledged  Interests")  by their express terms do not provide that
         they are  securities  governed by Article 8 of the UCC and are not held
         in a securities account or by any financial intermediary.

                  (k)  Unless the Agent (as  defined in Section  18) in its sole
         discretion,  consents in writing to a senior lien, the Company shall at
         all times  maintain  the  liens  and  Security  Interest  provided  for
         hereunder as valid and  perfected  liens and security  interests in the
         Collateral in favor of the Secured Parties until this Agreement and the
         Security Interest hereunder shall be terminated  pursuant to Section 11
         hereof; provided, however, the Agent (as defined in Section 18), in its
         sole  discretion,  consents  in writing to a senior  lien.  The Company
         hereby  agrees to defend  the same  against  the  claims of any and all
         persons and  entities.  The  Company  shall  safeguard  and protect all
         Collateral  for the account of the Secured  Parties.  At the request of
         the Secured  Parties,  the Company will sign and deliver to the Secured
         Parties  at any  time or  from  time  to  time  one or  more  financing
         statements  pursuant to the UCC in form reasonably  satisfactory to the
         Secured  Parties and will pay the cost of filing the same in all public
         offices  wherever filing is, or is deemed by the Secured Parties to be,
         necessary or desirable  to effect the rights and  obligations  provided
         for herein.  Without  limiting the  generality  of the  foregoing,  the
         Company  shall pay all  fees,  taxes and  other  amounts  necessary  to
         maintain the Collateral and the Security  Interest  hereunder,  and the
         Company  shall  obtain and furnish to the Secured  Parties from time to
         time, upon demand,  such releases and/or  subordinations  of claims and
         liens which may be required to maintain  the  priority of the  Security
         Interest hereunder.


<PAGE>

                  (l)  The  Company  will  not  transfer,  pledge,  hypothecate,
         encumber,  license,  sell or otherwise dispose of any of the Collateral
         (except  for  non-exclusive  licenses  granted  by the  Company  in its
         ordinary  course of business  and sales of  inventory by the Company in
         its ordinary course of business) without the prior written consent of a
         Majority in Interest.

                  (m)  The  Company  shall  keep  and  preserve  its  equipment,
         inventory and other tangible  Collateral in good condition,  repair and
         order and shall not operate or locate any such  Collateral (or cause to
         be operated or located) in any area excluded from insurance coverage.

                  (n) The Company  shall  maintain  with  financially  sound and
         reputable  insurers,  insurance with respect to the Collateral  against
         loss or  damage of the kinds  and in the  amounts  customarily  insured
         against by entities of established reputation having similar properties
         similarly situated and in such amounts as are customarily carried under
         similar  circumstances  by other  such  entities  and  otherwise  as is
         prudent for  entities  engaged in similar  businesses  but in any event
         sufficient  to cover the full  replacement  cost  thereof.  The Company
         shall cause each  insurance  policy  issued in  connection  herewith to
         provide,  and the insurer  issuing  such policy to certify to the Agent
         that (a) the Agent will be named as lender  loss  payee and  additional
         insured  under each such  insurance  policy;  (b) if such  insurance be
         proposed  to  be  cancelled  or  materially   changed  for  any  reason
         whatsoever,  such  insurer  will  promptly  notify  the  Agent and such
         cancellation  or change  shall not be  effective as to the Agent for at
         least  thirty  (30) days  after  receipt  by the Agent of such  notice,
         unless  the  effect of such  change is to extend or  increase  coverage
         under  the  policy;  and (c) the  Agent  will  have the  right  (but no
         obligation)  at its  election  to remedy any  default in the payment of
         premiums  within  thirty  (30) days of notice  from the insurer of such
         default.  If no Event of Default (as defined in the Debentures)  exists
         and if the  proceeds  arising  out of any claim or  series  of  related
         claims do not exceed  $100,000,  loss payments in each instance will be
         applied by the  Company to the repair  and/or  replacement  of property
         with  respect to which the loss was  incurred to the extent  reasonably
         feasible,  and any loss payments or the balance thereof  remaining,  to
         the extent not so applied,  shall be payable to the Company,  provided,
         however,  that  payments  received  by the  Company  after  an Event of
         Default  occurs  and is  continuing  or in excess of  $100,000  for any
         occurrence or series of related  occurrences shall be paid to the Agent
         and,  if  received  by the  Company,  shall  be held in  trust  for and
         immediately paid over to the Agent unless otherwise directed in writing
         by the Agent. Copies of such policies or the related  certificates,  in
         each case, naming the Agent as lender loss payee and additional insured
         shall be delivered  to the Agent at least  annually and at the time any
         new policy of insurance is issued.

                  (o) The  Company  shall,  within  ten (10)  days of  obtaining
         knowledge thereof,  advise the Secured Parties promptly,  in sufficient
         detail,  of  any  substantial  change  in  the  Collateral,  and of the
         occurrence of any event which would have a material  adverse  effect on
         the  value  of the  Collateral  or on  the  Secured  Parties'  security
         interest therein.


<PAGE>

                  (p) The  Company  shall  promptly  execute  and deliver to the
         Secured Parties such further deeds,  mortgages,  assignments,  security
         agreements,  financing  statements  or  other  instruments,  documents,
         certificates and assurances and take such further action as the Secured
         Parties may from time to time  request  and may in its sole  discretion
         deem necessary to perfect,  protect or enforce its security interest in
         the  Collateral  including,  without  limitation,  if  applicable,  the
         execution and delivery of a separate security agreement with respect to
         the Company's  Intellectual Property  ("Intellectual  Property Security
         Agreement")  in which the Secured  Parties have been granted a security
         interest  hereunder,  substantially in a form acceptable to the Secured
         Parties, which Intellectual Property Security Agreement,  other than as
         stated  therein,  shall be subject  to all of the terms and  conditions
         hereof.

                  (q) Upon the reasonable  request of a Secured Party and during
         normal business hours, the Company shall permit the Secured Parties and
         their representatives and agents to inspect the Collateral at any time,
         and to make copies of records  pertaining  to the  Collateral as may be
         requested by a Secured Party from time to time.

                  (r) The Company shall take all steps  reasonably  necessary to
         diligently pursue and seek to preserve, enforce and collect any rights,
         claims,  causes of action  and  accounts  receivable  in respect of the
         Collateral.

                  (s) The Company shall promptly  notify the Secured  Parties in
         sufficient  detail upon becoming aware of any attachment,  garnishment,
         execution or other legal process  levied  against any Collateral and of
         any other  information  received  by the  Company  that may  materially
         affect the value of the Collateral, the Security Interest or the rights
         and remedies of the Secured Parties hereunder.

                  (t) All information  heretofore,  herein or hereafter supplied
         to the Secured  Parties by or on behalf of the Company  with respect to
         the Collateral is accurate and complete in all material  respects as of
         the date furnished.

                  (u) The Company  shall at all times  preserve and keep in full
         force and effect their respective valid existence and good standing and
         any rights and franchises material to its business.

                  (v)  The   Company   will  not  change   its  name,   type  of
         organization,    jurisdiction    of    organization,     organizational
         identification number (if it has one), legal or corporate structure, or
         identity, or add any new fictitious name unless it provides at least 30
         days prior written notice to the Secured Parties of such change and, at
         the  time  of such  written  notification,  the  Company  provides  any
         financing  statements  or fixture  filings  necessary  to  perfect  and
         continue   perfected  the  perfected   security  Interest  granted  and
         evidenced by this Agreement.


<PAGE>

                  (w) The Company shall not consign any of its Inventory or sell
         any of its  Inventory  on  bill  and  hold,  sale  or  return,  sale on
         approval,  or other  conditional terms of sale without the consent of a
         Majority in Interest which shall not be unreasonably  withheld,  except
         to the extent such consignment or sale does not exceed 15% of the total
         value of all of the Company's finished goods in Inventory.

                  (x) The Company shall not relocate its chief executive  office
         to a new location without providing 30 days prior written  notification
         thereof  to the  Secured  Parties  and so long as,  at the time of such
         written notification,  the Company provides any financing statements or
         fixture  filings  necessary  to  perfect  and  continue  perfected  the
         perfected security Interest granted and evidenced by this Agreement.

                  (y) The Company was  organized  and remains  organized  solely
         under the laws of the State of Nevada.

                  (z) (i) The actual  name of the  Company is the name set forth
         in the preamble  above;  (ii) the Company does not have any trade names
         except as set forth on  Schedule E attached  hereto;  (iii) the Company
         has not used any name other than that stated in the preamble  hereto or
         as set forth on Schedule E for the  preceding  five years;  and (iv) no
         entity has merged  into the  Company or been  acquired  by the  Company
         within the past five years except as set forth on Schedule E.

                  (aa) At any  time and from  time to time  that any  Collateral
         consists of  instruments,  certificated  securities or other items that
         require  or permit  possession  by the  secured  party to  perfect  the
         security  interest  created  hereby,  the Company  shall  deliver  such
         Collateral to the Agent.

                  (bb) The  Company  hereby  agrees to  comply  with any and all
         orders  and  instructions  of Agent  regarding  the  Pledged  Interests
         consistent with the terms of this Agreement without the further consent
         of the  Company  as  contemplated  by Section  8-106 (or any  successor
         section)  of the UCC.  Further,  the  Company  agrees that it shall not
         enter  into a similar  agreement  (or one that would  confer  "control"
         within the  meaning  of Article 8 of the UCC) with any other  person or
         entity.

                  (cc) The  Company  shall  cause  all  tangible  chattel  paper
         constituting  Collateral  to be  delivered  to the  Agent,  or, if such
         delivery is not possible,  then to cause such tangible chattel paper to
         contain a legend  noting  that it is subject to the  security  interest
         created by this Agreement.  To the extent that any Collateral  consists
         of electronic  chattel  paper,  the Company shall cause the  underlying
         chattel paper to be "marked" within the meaning of Section 9-105 of the
         UCC (or successor section thereto).

                  (dd) If there is any  investment  property or deposit  account
         included as  Collateral  that can be perfected by "control"  through an
         account  control  agreement,  the  Company  shall cause such an account
         control  agreement,  in form and substance in each case satisfactory to
         the Secured  Parties,  to be entered into and  delivered to the Secured
         Parties.


<PAGE>

                  (ee)  To  the  extent   that  any   Collateral   consists   of
         letter-of-credit  rights,  the  Company  shall cause the issuer of each
         underlying letter of credit to consent to an assignment of the proceeds
         thereof to the Secured Parties.

                  (ff) To the extent that any Collateral is in the possession of
         any third  party,  the Company  shall join with the Secured  Parties in
         notifying such third party of the Secured Parties' security interest in
         such   Collateral   and  shall  use  its  best  efforts  to  obtain  an
         acknowledgement and agreement from such third party with respect to the
         Collateral, in form and substance satisfactory to the Secured Parties.

                  (gg) If the  Company  shall  at any  time  hold or  acquire  a
         commercial  tort claim,  the Company shall promptly  notify the Secured
         Parties in a writing signed by the Company of the  particulars  thereof
         and grant to the Secured  Parties in such  writing a security  interest
         therein  and in the  proceeds  thereof,  all  upon  the  terms  of this
         Agreement,  with such writing to be in form and substance  satisfactory
         to the Secured Parties.

                  (hh) The Company shall  immediately  provide written notice to
         the  Secured  Parties  of any  and  all  accounts  which  arise  out of
         contracts with any governmental  authority and, to the extent necessary
         to perfect or continue the perfected status of the Security Interest in
         such  accounts and proceeds  thereof,  shall execute and deliver to the
         Secured Parties an assignment of claims for such accounts and cooperate
         with the Secured Parties in taking any other steps  required,  in their
         judgment,  under the  Federal  Assignment  of Claims Act or any similar
         federal,  state or local  statute or rule to perfect  or  continue  the
         perfected status of the Security Interest in such accounts and proceeds
         thereof.

                  (ii) The Company  shall vote the Pledged  Securities to comply
         with  the  covenants  and  agreements  set  forth  herein  and  in  the
         Debentures.

                  (jj)  The  Company  shall  cause  the  issuer  of any  Pledged
         Securities to register the pledge of the applicable  Pledged Securities
         on the books of such  issuer.  The Company  shall notify each issuer of
         Pledged  Securities  to register the pledge of the  applicable  Pledged
         Securities  in the name of the  Secured  Parties  on the  books of such
         issuer.   Further,  except  with  respect  to  certificated  securities
         delivered  to  the  Agent,  the  Company  shall  deliver  to  Agent  an
         acknowledgement of pledge (which, where appropriate,  shall comply with
         the  requirements  of the relevant UCC with  respect to  perfection  by
         registration)   signed  by  the  issuer  of  the   applicable   Pledged
         Securities,  which  acknowledgement  shall  confirm  that:  (a)  it has
         registered  the  pledge on its books and  records;  and (b) at any time
         directed by Agent during the continuation of an Event of Default,  such
         issuer will  transfer the record  ownership of such Pledged  Securities
         into the name of any designee of Agent,  will take such steps as may be
         necessary  to  effect  the  transfer,  and will  comply  with all other
         instructions  of Agent  regarding such Pledged  Securities  without the
         further consent of the Company.

                  (kk) In the  event  that,  upon an  occurrence  of an Event of
         Default,  Agent  shall  sell all or any of the  Pledged  Securities  to
         another  party or parties  (herein  called the  "Transferee")  or shall
         purchase  or retain all or any of the Pledged  Securities,  the Company
         shall,  to  the  extent  applicable:   (i)  deliver  to  Agent  or  the
         Transferee, as the case may be, the articles of incorporation,  bylaws,
         minute books, stock certificate books,  corporate seals, deeds, leases,
         indentures,  agreements,  evidences of indebtedness,  books of account,
         financial records and all other Organizational Documents and records of
         the issuer(s) of the Pledged  Securities  and their direct and indirect
         subsidiaries;  (ii) use its best efforts to obtain  resignations of the
         persons then serving as officers and  directors of the issuer(s) of the
         Pledged  Securities and their direct and indirect  subsidiaries,  if so
         requested;  and (iii) use its best efforts to obtain any approvals that
         are required by any  governmental or regulatory body in order to permit
         the sale of the Pledged Securities to the Transferee or the purchase or
         retention of the Pledged  Securities by Agent and allow the  Transferee
         or Agent to  continue  the  business  of the  issuer(s)  of the Pledged
         Securities and their direct and indirect subsidiaries.


<PAGE>

                  (ll) Without limiting the generality of the other  obligations
         of the Company  hereunder,  the Company shall  promptly (i) cause to be
         registered  at the United States  Copyright  Office all of its material
         copyrights,  (ii) cause the security interest  contemplated hereby with
         respect to all  Intellectual  Property  registered at the United States
         Copyright  Office or United States  Patent and  Trademark  Office to be
         duly recorded at the applicable office, and (iii) give the Agent notice
         whenever it acquires (whether  absolutely or by license) or creates any
         additional material Intellectual Property.

                  (mm) The Company will from time to time, at the expense of the
         Company,  promptly execute and deliver all such further instruments and
         documents,  and take all such  further  action as may be  necessary  or
         desirable,  or as the Secured Parties may reasonably  request, in order
         to perfect and protect any security interest granted or purported to be
         granted hereby or to enable the Secured Parties to exercise and enforce
         their rights and remedies  hereunder and with respect to any Collateral
         or to otherwise carry out the purposes of this Agreement.

                  (nn)  Schedule F  attached  hereto  lists all of the  patents,
         patent applications,  trademarks,  trademark  applications,  registered
         copyrights,  and  domain  names  owned  by the  Company  as of the date
         hereof.  Schedule F lists all material licenses in favor of the Company
         for the use of any patents, trademarks,  copyrights and domain names as
         of the date hereof.  All material patents and trademarks of the Company
         have been duly  recorded  at the United  States  Patent  and  Trademark
         Office  and all  material  copyrights  of the  Company  have  been duly
         recorded at the United States Copyright Office.

                  (oo) Except as set forth on Schedule G attached  hereto,  none
         of the account debtors or other persons or entities obligated on any of
         the  Collateral  is a  governmental  authority  covered by the  Federal
         Assignment of Claims Act or any similar federal, state or local statute
         or rule in respect of such Collateral.

         5. Effect of Pledge on Certain Rights. If any of the Collateral subject
to  this  Agreement   consists  of  nonvoting  equity  or  ownership   interests
(regardless of class,  designation,  preference or rights) that may be converted
into voting equity or ownership  interests upon the occurrence of certain events
(including,  without  limitation,  upon the  transfer of all or any of the other
stock or assets of the  issuer),  it is agreed that the pledge of such equity or
ownership  interests  pursuant to this  Agreement or the  enforcement  of any of
Agent's rights hereunder shall not be deemed to be the type of event which would
trigger  such   conversion   rights   notwithstanding   any  provisions  in  the
Organizational  Documents  or  agreements  to which the Company is subject or to
which the Company is party.


<PAGE>

         6.  Defaults.  The following  events shall be "Events of Default" under
this Agreement:

                  (a) The  occurrence  of an Event of Default (as defined in the
Debentures) under the Debentures;

                  (b) Any  representation  or  warranty  of the  Company in this
         Agreement  shall prove to have been  incorrect in any material  respect
         when made;

                  (c) The  failure by the  Company to observe or perform  any of
         its  obligations  hereunder  for five (5) days  after  delivery  to the
         Company of notice of such  failure  by or on behalf of a Secured  Party
         unless such  default is capable of cure but cannot be cured within such
         time  frame and the  Company  is using  best  efforts to cure same in a
         timely fashion; or

                  (d) If any provision of this  Agreement  shall at any time for
         any  reason  be  declared  to be null  and  void,  or the  validity  or
         enforceability  thereof  shall  be  contested  by  the  Company,  or  a
         proceeding  shall be commenced by the Company,  or by any  governmental
         authority having  jurisdiction  over the Company,  seeking to establish
         the invalidity or  unenforceability  thereof, or the Company shall deny
         that it has any liability or  obligation  purported to be created under
         this Agreement.

         7. Duty To Hold In Trust.

                  (a) Upon the  occurrence  of any Event of  Default  and at any
         time  thereafter,  the  Company  shall,  upon  receipt of any  revenue,
         income,  dividend,  interest  or other  sums  subject  to the  Security
         Interest,  whether payable pursuant to the Debentures or otherwise,  or
         of any  check,  draft,  note,  trade  acceptance  or  other  instrument
         evidencing  an  obligation  to pay any such sum, hold the same in trust
         for the Secured  Parties and shall  forthwith  endorse and transfer any
         such sums or instruments,  or both, to the Secured Parties, pro-rata in
         proportion to their initial  purchases of Debentures for application to
         the  satisfaction  of the  Obligations  (and  if any  Debenture  is not
         outstanding,  pro-rata in  proportion  to the initial  purchases of the
         remaining Debentures).

                  (b) If the Company  shall become  entitled to receive or shall
         receive  any   securities  or  other   property   (including,   without
         limitation,  shares of Pledged  Securities or instruments  representing
         Pledged  Securities  acquired  after the date  hereof,  or any options,
         warrants, rights or other similar property or certificates representing
         a   dividend,    or   any   distribution   in   connection   with   any
         recapitalization, reclassification or increase or reduction of capital,
         or issued in connection  with any  reorganization  of any issuer of the
         Pledged  Securities or any of its direct or indirect  subsidiaries)  in
         respect  of the  Pledged  Securities  (whether  as an  addition  to, in
         substitution  of,  or in  exchange  for,  such  Pledged  Securities  or
         otherwise),  the Company  agrees to (i) accept the same as the agent of
         the Secured  Parties;  (ii) hold the same in trust on behalf of and for
         the  benefit of the Secured  Parties;  and (iii) to deliver any and all
         certificates  or instruments  evidencing the same to Agent on or before
         the close of business on the fifth  business day  following the receipt
         thereof by the Company,  in the exact form  received  together with the
         Necessary  Endorsements,  to be held by Agent  subject  to the terms of
         this Agreement as Collateral.


<PAGE>

         8. Rights and Remedies Upon Default.

                  (a) Upon the  occurrence  of any Event of  Default  and at any
         time  thereafter,   the  Secured  Parties,  acting  through  any  agent
         appointed  by them for such  purpose,  shall have the right to exercise
         all of the remedies conferred  hereunder and under the Debentures,  and
         the Secured Parties shall have all the rights and remedies of a secured
         party under the UCC. Without limitation, the Secured Parties shall have
         the following rights and powers:

                           (i) The Secured  Parties shall have the right to take
                  possession of the  Collateral  and, for that  purpose,  enter,
                  with the aid and assistance of any person,  any premises where
                  the Collateral,  or any part thereof,  is or may be placed and
                  remove the same, and the Company shall assemble the Collateral
                  and make it available  to the Secured  Parties at places which
                  the Secured Parties shall  reasonably  select,  whether at the
                  Company's  premises or  elsewhere,  and make  available to the
                  Secured Parties,  without rent, all of the Company's  premises
                  and facilities  for the purpose of the Secured  Parties taking
                  possession of,  removing or putting the Collateral in saleable
                  or disposable form.

                           (ii) Upon notice to the Company by Agent,  all rights
                  of the  Company to  exercise  the voting and other  consensual
                  rights  which it would  otherwise  be entitled to exercise and
                  all  rights  of the  Company  to  receive  the  dividends  and
                  interest which it would otherwise be authorized to receive and
                  retain,  shall cease.  Upon such notice,  Agent shall have the
                  right  to  receive  any  interest,  cash  dividends  or  other
                  payments on the  Collateral  and,  at the option of Agent,  to
                  exercise  in  such  Agent's   discretion   all  voting  rights
                  pertaining  thereto.  Without  limiting the  generality of the
                  foregoing, Agent shall have the right (but not the obligation)
                  to exercise  all rights with respect to the  Collateral  as it
                  were the sole and absolute owner thereof,  including,  without
                  limitation,   to  vote  and/or  to   exchange,   at  its  sole
                  discretion,  any or all of the Collateral in connection with a
                  merger,  reorganization,  consolidation,  recapitalization  or
                  other  readjustment  concerning or involving the Collateral or
                  the Company or any of its direct or indirect subsidiaries.

                           (iii) The  Secured  Parties  shall  have the right to
                  operate the business of the Company using the  Collateral  and
                  shall  have the  right to  assign,  sell,  lease or  otherwise
                  dispose of and deliver all or any part of the  Collateral,  at
                  public or private  sale or  otherwise,  either with or without
                  special  conditions or stipulations,  for cash or on credit or
                  for future  delivery,  in such  parcel or parcels  and at such
                  time or times and at such place or places, and upon such terms
                  and  conditions as are  commercially  reasonable,  all without
                  (except as shall be required by applicable  statute and cannot
                  be  waived)  advertisement  or  demand  upon or  notice to the
                  Company  or right of  redemption  of the  Company,  which  are
                  hereby  expressly   waived.   Upon  each  such  sale,   lease,
                  assignment  or  other  transfer  of  Collateral,  the  Secured
                  Parties may, unless  prohibited by applicable law which cannot
                  be waived,  purchase all or any part of the  Collateral  being
                  sold, free from and discharged of all trusts, claims, right of
                  redemption  and  equities  of the  Company,  which are  hereby
                  waived and released.


<PAGE>

                           (iv) The  Secured  Parties  shall have the right (but
                  not the  obligation)  to notify any  account  debtors  and any
                  obligors  under  instruments  or  accounts  to  make  payments
                  directly to the Secured  Parties and to enforce the  Company's
                  rights against such account debtors and obligors.

                           (v) The Secured  Parties  may (but are not  obligated
                  to) direct any financial  intermediary  or any other person or
                  entity holding any investment property to transfer the same to
                  the Secured Parties or their designee.

                           (vi) The Secured  Parties may (but are not  obligated
                  to) transfer any or all  Intellectual  Property  registered in
                  the  name of the  Company  at the  United  States  Patent  and
                  Trademark  Office and/or Copyright Office into the name of the
                  Secured  Parties  or  any  designee  or any  purchaser  of any
                  Collateral.

                  (b) The Agent may comply with any applicable law in connection
         with a  disposition  of  Collateral  and  such  compliance  will not be
         considered  adversely to affect the  commercial  reasonableness  of any
         sale of the  Collateral.  The  Agent  may sell the  Collateral  without
         giving any warranties and may specifically disclaim such warranties. If
         the Agent sells any of the Collateral on credit,  the Company will only
         be credited with payments actually made by the purchaser.  In addition,
         the  Company  waives any and all rights  that it may have to a judicial
         hearing in advance of the  enforcement of any of the Agent's rights and
         remedies hereunder,  including, without limitation, its right following
         an Event of Default to take immediate  possession of the Collateral and
         to exercise its rights and remedies with respect thereto.

                  (c) For the purpose of enabling the Agent to further  exercise
         rights and  remedies  under this  Section 8 or  elsewhere  provided  by
         agreement or  applicable  law, the Company  hereby grants to the Agent,
         for the benefit of the Agent and the Secured  Parties,  an irrevocable,
         nonexclusive  license  (exercisable without payment of royalty or other
         compensation to the Company) to use, license or sublicense following an
         Event of Default,  any  Intellectual  Property  now owned or  hereafter
         acquired by the  Company,  and  wherever  the same may be located,  and
         including  in such  license  access  to all  media in which  any of the
         licensed  items may be recorded or stored and to all computer  software
         and programs used for the compilation or printout thereof.


<PAGE>

         9.  Applications of Proceeds.  The proceeds of any such sale,  lease or
other  disposition of the Collateral  hereunder  shall be applied first,  to the
expenses of retaking,  holding,  storing,  processing  and  preparing  for sale,
selling, and the like (including,  without limitation, any taxes, fees and other
costs  incurred in connection  therewith) of the  Collateral,  to the reasonable
attorneys' fees and expenses  incurred by the Secured Parties in enforcing their
rights hereunder and in connection with collecting, storing and disposing of the
Collateral,  and then to  satisfaction  of the  Obligations  pro rata  among the
Secured Parties (based on  then-outstanding  principal  amounts of Debentures at
the time of any such  determination),  and to the  payment of any other  amounts
required by  applicable  law,  after which the Secured  Parties shall pay to the
Company any surplus proceeds. If, upon the sale, license or other disposition of
the  Collateral,  the proceeds  thereof are  insufficient  to pay all amounts to
which the Secured Parties are legally  entitled,  the Company will be liable for
the deficiency,  together with interest thereon, at the rate of 10% per annum or
the lesser amount  permitted by applicable  law (the  "Default  Rate"),  and the
reasonable fees of any attorneys employed by the Secured Parties to collect such
deficiency.  To the extent  permitted by applicable  law, the Company waives all
claims,  damages and demands  against  the  Secured  Parties  arising out of the
repossession, removal, retention or sale of the Collateral, unless due solely to
the gross negligence or willful  misconduct of the Secured Parties as determined
by a final  judgment  (not  subject to further  appeal) of a court of  competent
jurisdiction.

         10. Securities Law Provision.  The Company recognizes that Agent may be
limited  in its  ability  to  effect a sale to the  public of all or part of the
Pledged  Securities by reason of certain  prohibitions  in the Securities Act of
1933, as amended, or other federal or state securities laws  (collectively,  the
"Securities  Laws"),  and may be  compelled  to resort to one or more sales to a
restricted  group of  purchasers  who may be  required  to agree to acquire  the
Pledged Securities for their own account,  for investment and not with a view to
the distribution or resale thereof. The Company agrees that sales so made may be
at prices and on terms less favorable than if the Pledged  Securities  were sold
to the public, and that Agent has no obligation to delay the sale of any Pledged
Securities for the period of time  necessary to register the Pledged  Securities
for sale to the public under the Securities  Laws.  The Company shall  cooperate
with Agent in its attempt to satisfy any requirements  under the Securities Laws
(including,  without limitation,  registration thereunder if requested by Agent)
applicable to the sale of the Pledged Securities by Agent.

         11.  Costs and  Expenses.  The  Company  agrees  to pay all  reasonable
out-of-pocket  fees,  costs and expenses  incurred in connection with any filing
required  hereunder,  including  without  limitation,  any financing  statements
pursuant  to  the  UCC,   continuation   statements,   partial  releases  and/or
termination   statements  related  thereto  or  any  expenses  of  any  searches
reasonably required by the Secured Parties. The Company shall also pay all other
claims and charges which in the reasonable  opinion of the Secured Parties might
prejudice,  imperil or otherwise affect the Collateral or the Security  Interest
therein.  The Company  will also,  upon demand,  pay to the Secured  Parties the
amount of any and all reasonable  expenses,  including the  reasonable  fees and
expenses of its counsel and of any experts and agents, which the Secured Parties
may incur in connection  with (i) the  enforcement of this  Agreement,  (ii) the
custody  or  preservation  of,  or  the  sale  of,  collection  from,  or  other
realization upon, any of the Collateral, or (iii) the exercise or enforcement of
any of the rights of the Secured  Parties under the  Debentures.  Until so paid,
any  fees  payable  hereunder  shall be added  to the  principal  amount  of the
Debentures and shall bear interest at the Default Rate.


<PAGE>

         12. Responsibility for Collateral.  The Company assumes all liabilities
and responsibility in connection with all Collateral,  and the Obligations shall
in no way be affected or diminished by reason of the loss,  destruction,  damage
or theft of any of the Collateral or its unavailability for any reason.  Without
limiting the generality of the foregoing,  (a) neither the Agent nor any Secured
Party (i) has any duty  (either  before or after an Event of Default) to collect
any amounts in respect of the  Collateral or to preserve any rights  relating to
the Collateral,  or (ii) has any obligation to clean-up or otherwise prepare the
Collateral for sale, and (b) the Company shall remain obligated and liable under
each  contract  or  agreement  included  in the  Collateral  to be  observed  or
performed  by the Company  thereunder.  Neither the Agent nor any Secured  Party
shall have any  obligation or liability  under any such contract or agreement by
reason of or arising  out of this  Agreement  or the receipt by the Agent or any
Secured Party of any payment  relating to any of the  Collateral,  nor shall the
Agent or any  Secured  Party be  obligated  in any manner to perform  any of the
obligations  of the Company under or pursuant to any such contract or agreement,
to make inquiry as to the nature or sufficiency  of any payment  received by the
Agent or any Secured Party in respect of the Collateral or as to the sufficiency
of any performance by any party under any such contract or agreement, to present
or file any claim,  to take any action to enforce any  performance or to collect
the payment of any amounts which may have been assigned to the Agent or to which
the Agent or any Secured Party may be entitled at any time or times.

         13. Security Interest  Absolute.  All rights of the Secured Parties and
all obligations of the Company  hereunder,  shall be absolute and unconditional,
irrespective of: (a) any lack of validity or  enforceability  of this Agreement,
the Debentures or any agreement  entered into in connection  with the foregoing,
or any portion hereof or thereof; (b) any change in the time, manner or place of
payment  or  performance  of,  or in  any  other  term  of,  all  or  any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Debentures or any other  agreement  entered into in connection with the
foregoing; (c) any exchange,  release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure  from any other
collateral for, or any guaranty,  or any other  security,  for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection  with the  Collateral;  or (e) any  other  circumstance  which  might
otherwise constitute any legal or equitable defense available to the Company, or
a discharge of all or any part of the Security  Interest  granted hereby.  Until
the  Obligations  shall have been paid and performed in full,  the rights of the
Secured  Parties  shall  continue  even if the  Obligations  are  barred for any
reason, including, without limitation, the running of the statute of limitations
or bankruptcy.  The Company  expressly waives  presentment,  protest,  notice of
protest,  demand, notice of nonpayment and demand for performance.  In the event
that at any time any transfer of any  Collateral or any payment  received by the
Secured Parties hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable  preference or fraudulent  conveyance under
the bankruptcy or insolvency laws of the United States, or shall be deemed to be
otherwise  due to any party other than the Secured  Parties,  then,  in any such
event, the Company's  obligations  hereunder shall survive  cancellation of this
Agreement, and shall not be discharged or satisfied by any prior payment thereof
and/or  cancellation  of this  Agreement,  but shall  remain a valid and binding
obligation  enforceable in accordance with the terms and provisions  hereof. The
Company waives all right to require the Secured  Parties to proceed  against any
other person or entity or to apply any Collateral  which the Secured Parties may
hold at any time,  or to  marshal  assets,  or to pursue any other  remedy.  The
Company waives any defense  arising by reason of the  application of the statute
of limitations to any obligation secured hereby.


<PAGE>

         14. Term of Agreement.  This Agreement and the Security  Interest shall
terminate  on the date on which  all  payments  under the  Debentures  have been
indefeasibly  paid  in  full  and  all  other  Obligations  have  been  paid  or
discharged;  provided, however, that all indemnities of the Company contained in
this Agreement (including, without limitation, Annex A hereto) shall survive and
remain  operative and in full force and effect  regardless of the termination of
this Agreement.

         15. Power of Attorney; Further Assurances.

                  (a) The  Company  authorizes  the  Secured  Parties,  and does
         hereby  make,  constitute  and appoint  the  Secured  Parties and their
         respective officers,  agents,  successors or assigns with full power of
         substitution,  as the Company's true and lawful attorney-in-fact,  with
         power, in the name of the various  Secured Parties or the Company,  to,
         after the occurrence and during the continuance of an Event of Default,
         (i) endorse any note, checks, drafts, money orders or other instruments
         of  payment  (including  payments  payable  under or in  respect of any
         policy of  insurance) in respect of the  Collateral  that may come into
         possession  of the  Secured  Parties;  (ii) to  sign  and  endorse  any
         financing  statement  pursuant  to the UCC or any  invoice,  freight or
         express bill,  bill of lading,  storage or warehouse  receipts,  drafts
         against debtors,  assignments,  verifications and notices in connection
         with accounts, and other documents relating to the Collateral; (iii) to
         pay or discharge taxes, liens, security interests or other encumbrances
         at any time levied or placed on or threatened  against the  Collateral;
         (iv) to demand,  collect,  receipt for, compromise,  settle and sue for
         monies  due  in  respect  of  the  Collateral;   (v)  to  transfer  any
         Intellectual  Property or provide licenses  respecting any Intellectual
         Property; and (vi) generally, at the option of the Secured Parties, and
         at the expense of the Company,  at any time,  or from time to time,  to
         execute and deliver any and all documents and instruments and to do all
         acts and things which the Secured  Parties  deem  necessary to protect,
         preserve and realize  upon the  Collateral  and the  Security  Interest
         granted therein in order to effect the intent of this Agreement and the
         Debentures  all as fully and  effectually as the Company might or could
         do;  and the  Company  hereby  ratifies  all that said  attorney  shall
         lawfully  do or  cause  to be done by  virtue  hereof.  This  power  of
         attorney is coupled with an interest and shall be  irrevocable  for the
         term of this Agreement and thereafter as long as any of the Obligations
         shall be outstanding.  The designation set forth herein shall be deemed
         to amend and supersede any inconsistent provision in the Organizational
         Documents  or other  documents  or  agreements  to which the Company is
         subject  or to which  the  Company  is a party.  Without  limiting  the
         generality  of the  foregoing,  after the  occurrence  and  during  the
         continuance of an Event of Default,  each Secured Party is specifically
         authorized to execute and file any  applications  for or instruments of
         transfer and assignment of any patents, trademarks, copyrights or other
         Intellectual  Property  with the United  States  Patent  and  Trademark
         Office and the United States Copyright Office.


<PAGE>

                  (b) On a continuing  basis,  the Company  will make,  execute,
         acknowledge,  deliver,  file and  record,  as the case may be, with the
         proper filing and recording  agencies in any  jurisdiction,  including,
         without limitation,  the jurisdictions indicated on Schedule C attached
         hereto,  all  such  instruments,  and  take  all  such  action  as  may
         reasonably be deemed necessary or advisable, or as reasonably requested
         by the  Secured  Parties,  to perfect  the  Security  Interest  granted
         hereunder  and  otherwise  to carry out the intent and purposes of this
         Agreement,  or for assuring and  confirming to the Secured  Parties the
         grant  or  perfection  of a  perfected  security  interest  in all  the
         Collateral under the UCC.

                  (c)  The  Company  hereby  irrevocably  appoints  the  Secured
         Parties as the Company's  attorney-in-fact,  with full authority in the
         place and instead of the Company and in the name of the  Company,  from
         time to time in the Secured Parties' discretion, to take any action and
         to execute any instrument  which the Secured Parties may deem necessary
         or advisable to accomplish  the purposes of this  Agreement,  including
         the  filing,  in its  sole  discretion,  of one or  more  financing  or
         continuation statements and amendments thereto,  relative to any of the
         Collateral without the signature of the Company where permitted by law,
         which  financing  statements may (but need not) describe the Collateral
         as "all assets" or "all personal property" or words of like import, and
         ratifies all such actions taken by the Secured  Parties.  This power of
         attorney is coupled with an interest and shall be  irrevocable  for the
         term of this Agreement and thereafter as long as any of the Obligations
         shall be outstanding.

         16. Notices.  All notices,  requests,  demands and other communications
hereunder shall be subject to the notice provision of the Purchase Agreement (as
such term is defined in the Debentures).

         17.  Other  Security.  To the extent  that the  Obligations  are now or
hereafter  secured by property  other than the  Collateral or by the  guarantee,
endorsement or property of any other person, firm,  corporation or other entity,
then the  Secured  Parties  shall have the  right,  in its sole  discretion,  to
pursue,  relinquish,  subordinate,  modify or take any other action with respect
thereto,  without in any way modifying or affecting any of the Secured  Parties'
rights and remedies hereunder.

         18.  Appointment  of Agent.  The Secured  Parties hereby appoint Lacuna
Venture Fund LLLP  ("Lacuna")  to act as their agent  ("Agent")  for purposes of
exercising  any and all rights and  remedies of the Secured  Parties  hereunder.
Such  appointment  shall  continue  until  revoked in  writing by a Majority  in
Interest,  at which  time a  Majority  in  Interest  shall  appoint a new Agent;
provided,  that Lacuna may not be removed as Agent unless Lacuna shall then hold
less than $100,000  principal  amount of Debentures;  provided further that such
removal may occur only if each of the other Secured  Parties shall then hold not
less than  $100,000  principal  amount of  Debentures.  The Agent shall have the
rights, responsibilities and immunities set forth in Annex A hereto.


<PAGE>

         19. Miscellaneous.

                  (a) No course of dealing  between  the Company and the Secured
         Parties, nor any failure to exercise,  nor any delay in exercising,  on
         the  part  of the  Secured  Parties,  any  right,  power  or  privilege
         hereunder or under the  Debentures  shall operate as a waiver  thereof;
         nor shall  any  single  or  partial  exercise  of any  right,  power or
         privilege  hereunder  or  thereunder  preclude  any  other  or  further
         exercise  thereof  or  the  exercise  of  any  other  right,  power  or
         privilege.

                  (b) All of the rights and remedies of the Secured Parties with
         respect  to  the  Collateral,  whether  established  hereby  or by  the
         Debentures or by any other  agreements,  instruments or documents or by
         law shall be cumulative and may be exercised singly or concurrently.

                  (c) This  Agreement  constitutes  the entire  agreement of the
         parties  with respect to the subject  matter  hereof and is intended to
         supersede all prior  negotiations,  understandings  and agreements with
         respect thereto. Except as specifically set forth in this Agreement, no
         provision  of this  Agreement  may be modified  or amended  except by a
         written agreement  specifically  referring to this Agreement and signed
         by the Company, the Agent and a Majority in Interest.

                  (d) In the event any provision of this Agreement is held to be
         invalid,  prohibited  or  unenforceable  in any  jurisdiction  for  any
         reason,  unless such  provision  is narrowed by judicial  construction,
         this Agreement shall, as to such jurisdiction,  be construed as if such
         invalid,  prohibited or unenforceable  provision had been more narrowly
         drawn  so as  not  to be  invalid,  prohibited  or  unenforceable.  If,
         notwithstanding the foregoing,  any provision of this Agreement is held
         to be invalid,  prohibited or unenforceable in any  jurisdiction,  such
         provision, as to such jurisdiction,  shall be ineffective to the extent
         of   such   invalidity,   prohibition   or   unenforceability   without
         invalidating  the  remaining  portion  of such  provision  or the other
         provisions  of this  Agreement  and without  affecting  the validity or
         enforceability  of  such  provision  or the  other  provisions  of this
         Agreement in any other jurisdiction.

                  (e) No waiver of any breach or default or any right under this
         Agreement shall be considered valid unless in writing and signed by the
         party giving such  waiver,  and no such waiver shall be deemed a waiver
         of any  subsequent  breach or default or right,  whether of the same or
         similar nature or otherwise.

                  (f) This  Agreement  shall be  binding  upon and  inure to the
         benefit of each party hereto and its successors and assigns.

                  (g) Each party shall take such further  action and execute and
         deliver such further  documents as may be necessary or  appropriate  in
         order to carry out the provisions and purposes of this Agreement.


<PAGE>

                  (h)  All  questions  concerning  the  construction,  validity,
         enforcement and  interpretation  of this Agreement shall be governed by
         and construed and enforced in accordance  with the internal laws of the
         State of Delaware, without regard to the principles of conflicts of law
         thereof.  The  Company  agrees  that  all  proceedings  concerning  the
         interpretations,   enforcement   and   defense   of  the   transactions
         contemplated  by this  Agreement and the  Debentures  (whether  brought
         against  a  party  hereto  or  its  respective  affiliates,  directors,
         officers,  shareholders,  partners, members, employees or agents) shall
         be  commenced  exclusively  in the  courts of the  State of  California
         located in Santa Clara County and the United States  District Court for
         the Northern  District of California.  The Company  hereby  irrevocably
         submits  to the  exclusive  jurisdiction  of the courts of the State of
         California located in Santa Clara County and the United States District
         Court for the Northern  District of California for the  adjudication of
         any dispute hereunder or in connection herewith or with any transaction
         contemplated hereby or discussed herein, and hereby irrevocably waives,
         and  agrees not to assert in any  proceeding,  any claim that it is not
         personally  subject to the  jurisdiction  of any such court,  that such
         proceeding  is improper.  Each party hereto hereby  irrevocably  waives
         personal service of process and consents to process being served in any
         such  proceeding by mailing a copy thereof via  registered or certified
         mail or overnight delivery (with evidence of delivery) 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 contained herein shall be deemed to
         limit in any way any right to serve process in any manner  permitted by
         law. Each party hereto hereby irrevocably waives, to the fullest extent
         permitted by applicable  law, any and all right to trial by jury in any
         legal  proceeding  arising out of or relating to this  Agreement or the
         transactions  contemplated  hereby.  If  any  party  shall  commence  a
         proceeding  to  enforce  any  provisions  of this  Agreement,  then the
         prevailing  party in such  proceeding  shall be reimbursed by the other
         party for its reasonable  attorney's  fees and other costs and expenses
         incurred with the  investigation,  preparation  and prosecution of such
         proceeding.

                  (i)  This   Agreement   may  be  executed  in  any  number  of
         counterparts,  each of which when so executed  shall be deemed to be an
         original and, all of which taken together shall  constitute one and the
         same  Agreement.  In the  event  that any  signature  is  delivered  by
         facsimile  transmission,  such  signature  shall create a valid binding
         obligation of the party executing (or on whose behalf such signature is
         executed) the same with the same force and effect as if such  facsimile
         signature were the original thereof.

                  (j) The Company shall  indemnify,  reimburse and hold harmless
         the  Secured   Parties   and  their   respective   partners,   members,
         shareholders,  officers, directors, employees and agents (collectively,
         "Indemnitees")   from  and  against   any  and  all   losses,   claims,
         liabilities, damages, penalties, suits, costs and expenses, of any kind
         or nature,  (including fees relating to the cost of  investigating  and
         defending  any of the  foregoing)  imposed on,  incurred by or asserted
         against  such  Indemnitee  in any way  related  to or  arising  from or
         alleged to arise from this Agreement or the Collateral, except any such
         losses,  claims,  liabilities,  damages,  penalties,  suits,  costs and
         expenses which result from the gross  negligence or willful  misconduct
         of the Indemnitee as determined by a final, nonappealable decision of a
         court of competent jurisdiction.  This indemnification  provision is in
         addition  to,  and not in  limitation  of,  any  other  indemnification
         provision  in the  Debentures,  the  Purchase  Agreement  or any  other
         agreement,  instrument  or other  document  executed  or  delivered  in
         connection herewith or therewith.


<PAGE>

                  (k) Notwithstanding anything to the contrary contained herein,
         if the  Company  shall  issue  additional  Debentures  pursuant  to the
         Purchase Agreement, any purchaser of such Debentures may become a party
         to this Agreement by executing and delivering an additional counterpart
         signature page to this Agreement and shall be deemed a "Secured  Party"
         hereunder.


                            [SIGNATURE PAGES FOLLOW]

<PAGE>

            IN WITNESS  WHEREOF,  the parties  hereto have caused this  Security
Agreement to be duly executed on the day and year first above written.


                                          INTRAOP MEDICAL CORPORATION


                                          By: /s/ Howard Solovei
                                              --------------------
                                              Name: Howard Solovei
                                              Title: Chief Financial Officer




                                          HOLDERS:

                                          E.U. Capital Venture, Inc.



                                          By: /s/ Yvonne Morkner
                                              ------------------
                                              Name: Yvonne Morkner
                                              Title: Secretary - Treasurer

                                          Encyclopedia Equipment LLC



                                          By: /s/ Oliver Janssen
                                              ------------------
                                              Name: Oliver Janssen
                                              Title: Member

                                          Lacuna Venture Fund LLLP



                                          By: /s/ Wink Jones
                                              --------------
                                              Name: Wink Jones
                                              Title: Partner