<PAGE>
                                                                 EXHIBIT 11.1(c)


                         COMMERCIAL SECURITY AGREEMENT

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<CAPTION>
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  PRINCIPAL     LOAN DATE    MATURITY      LOAN NO     CALL/COLL     ACCOUNT    OFFICER    INITIALS
<S>            <C>          <C>          <C>           <C>        <C>           <C>        <C>
$6,500,000.0   02-07-2002   06-30-2004   932900001-1              932900001-1     22163    [INITIALS ILLEGIBLE]
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References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations.
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</TABLE>

GRANTOR:  INTERNATIONAL REMOTE          LENDER: CALIFORNIA BANK & TRUST
             IMAGING SYSTEMS, INC.              COMMERCIAL LOAN CENTER
          9162 ETON AVENUE                      550 SOUTH HOPE STREET, SUITE 300
          CHATSWORTH, CA 91311                  LOS ANGELES, CA 90071
================================================================================

THIS COMMERCIAL SECURITY AGREEMENT dated February 7, 2002, is made and executed
between International Remote Imaging Systems, Inc. ("Grantor") and California
Bank & Trust ("Lender").

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means
the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which
Grantor is giving to Lender a security interest for the payment of the
Indebtedness and performance of all other obligations under the Note and this
Agreement:

        ALL INVENTORY, EQUIPMENT, ACCOUNTS (INCLUDING BUT NOT LIMITED TO ALL
        HEALTH-CARE-INSURANCE RECEIVABLES), CHATTEL PAPER, INSTRUMENTS
        (INCLUDING BUT NOT LIMITED TO ALL PROMISSORY NOTES), LETTER-OF-CREDIT
        RIGHTS, LETTERS OF CREDIT, DOCUMENTS, DEPOSIT ACCOUNTS, INVESTMENT
        PROPERTY, MONEY, OTHER RIGHTS TO PAYMENT AND PERFORMANCE, AND GENERAL
        INTANGIBLES (INCLUDING BUT NOT LIMITED TO ALL SOFTWARE AND ALL PAYMENT
        INTANGIBLES); ALL FIXTURES; ALL ATTACHMENTS, ACCESSIONS, ACCESSORIES,
        FITTINGS, INCREASES, TOOLS, PARTS, REPAIRS, SUPPLIES, AND COMMINGLED
        GOODS RELATING TO THE FOREGOING PROPERTY, AND ALL ADDITIONS,
        REPLACEMENTS OF AND SUBSTITUTIONS FOR ALL OR ANY PART OF THE FOREGOING
        PROPERTY; ALL INSURANCE REFUNDS RELATING TO THE FOREGOING PROPERTY; ALL
        GOOD WILL RELATING TO THE FOREGOING PROPERTY; ALL RECORDS AND DATA AND
        EMBEDDED SOFTWARE RELATING TO THE FOREGOING PROPERTY, AND ALL EQUIPMENT,
        INVENTORY AND SOFTWARE TO UTILIZE, CREATE, MAINTAIN AND PROCESS ANY SUCH
        RECORDS AND DATA ON ELECTRONIC MEDIA; AND ALL SUPPORTING OBLIGATIONS
        RELATING TO THE FOREGOING PROPERTY; ALL WHETHER NOW EXISTING OR
        HEREAFTER ARISING, WHETHER NOW OWNED OR HEREAFTER ACQUIRED OR WHETHER
        NOW OR HEREAFTER SUBJECT TO ANY RIGHTS IN THE FOREGOING PROPERTY; AND
        ALL PRODUCTS AND PROCEEDS (INCLUDING BUT NOT LIMITED TO ALL INSURANCE
        PAYMENTS) OF OR RELATING TO THE FOREGOING PROPERTY.

In addition, the word "Collateral" also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

      (A) All accessions, attachments, accessories, tools, parts, supplies,
      replacements of and additions to any of the collateral described herein,
      whether added now or later. (B) All products and produce of any of the
      property described in this Collateral section.

      (B) All products and produce of any of the property described in this
      Collateral Section.

      (C) All accounts, general intangibles, instruments, rents, monies,
      payments, and all other rights, arising out of a sale, lease, or other
      disposition of any of the property described in this Collateral section.

      (D) All proceeds (including insurance proceeds) from the sale,
      destruction, loss, or other disposition of any of the property described
      in this Collateral section, and sums due from a third party who has
      damaged or destroyed the Collateral or from that party's insurer, whether
      due to judgment, settlement or other process. (E) All records and data
      relating to any of the property described in this Collateral section,
      whether in the form of a writing, photograph, microfilm, microfiche, or
      electronic media, together with all of Grantor's right, title, and
      interest in and to all computer software required to utilize, create,
      maintain, and process any such records or data on electronic media.

      (E) All records and data relating to any of the property described in this
      Collateral Section, whether in the form of a writing, photograph,
      microfilm, microfiche, or electronic media, together with all of Grantors
      right, title, and interest in and to all computer software required to
      utilize, create, maintain, and process any such records or data on
      electronic media.


Despite any other provision of this Agreement, Lender is not granted, and will
not have, a nonpurchase money security interest in household goods, to the
extent such a security interest would be prohibited by applicable law. In
addition, if because of the type of any Property, Lender is required to give a
notice of the right to cancel under Truth in Lending for the Indebtedness, then
Lender will not have a security interest in such Collateral unless and until
such a notice is given.

CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all
obligations, debts and liabilities, plus interest thereon, of Grantor to Lender,
or any one or more of them, as well as all claims by Lender against Grantor or
any one or more of them, whether now existing or hereafter arising, whether
related or unrelated to the purpose of the Note, whether voluntary or otherwise,
whether due or not due, direct or indirect, determined or undetermined, absolute
or contingent, liquidated or unliquidated whether Grantor may be liable
individually or jointly with others, whether obligated as guarantor, surety,
accommodation party or otherwise, and whether recovery upon such amounts may be
or hereafter may become barred by any statute of limitations, and whether the
obligation to repay such amounts may be or hereafter may become otherwise
unenforceable.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and promises to Lender that:

        PERFECTION OF SECURITY INTEREST. Grantor agrees to execute financing
        statements and to take whatever other actions are requested by Lender to
        perfect and continue Lender's security interest in the Collateral. Upon
        request of Lender, Grantor will deliver to Lender any and all of the
        documents evidencing or constituting the Collateral, and Grantor will
        note Lender's interest upon any and all chattel paper if not delivered
        to Lender for possession by Lender. THIS IS A CONTINUING SECURITY
        AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY PART OF THE
        INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF TIME
        GRANTOR MAY NOT BE INDEBTED TO LENDER.

        NOTICES TO LENDER. Grantor will promptly notify Lender in writing at
        Lender's address shown above (or such other addresses as Lender may
        designate from time to time) prior to any (1) change in Grantor's name;
        (2) change in Grantor's assumed business name(s); (3) change in the
        management of the Corporation Grantor; (4) change in the authorized
        signer(s); (5) change in Grantor's principal office address; (6) change
        in Grantor's state of organization; (7) conversion of Grantor to a new
        or different type of business entity; or (8) change in any other aspect
        of Grantor that directly or indirectly relates to any agreements between
        Grantor and Lender. No change in Grantor's name or state of organization
        will take effect until after Lender has received notice

        NO VIOLATION. The execution and delivery of this Agreement will not
        violate any law or agreement governing Grantor or to which Grantor is a
        party, and its certificate or articles of incorporation and bylaws do
        not prohibit any term or condition of this Agreement.

        ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
        accounts, chattel paper, or general intangibles, as defined by the
        Uniform Commercial Code, the Collateral is enforceable in accordance
        with its terms, is genuine, and fully complies with all applicable laws
        and regulations


<PAGE>
                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 932900001-1                (CONTINUED)                           PAGE 2
================================================================================


        concerning form, content and manner of preparation and execution, and
        all persons appearing to be obligated on the Collateral have authority
        and capacity to contract and are in fact obligated as they appear to be
        on the Collateral. At the time any Account becomes subject to a security
        interest in favor of Lender, the Account shall be a good and valid
        account representing an undisputed, bona fide indebtedness incurred by
        the account debtor, for merchandise held subject to delivery
        instructions or previously shipped or delivered pursuant to a contract
        of sale, or for services previously performed by Grantor with or for the
        account debtor. So long as this Agreement remains in effect, Grantor
        shall not, without Lender's prior written consent, compromise, settle,
        adjust, or extend payment under or with regard to any such Accounts.
        There shall be no setoffs or counterclaims against any of the
        Collateral, and no agreement shall have been made under which any
        deductions or discounts may be claimed concerning the Collateral except
        those disclosed to Lender in writing.

        LOCATION OF THE COLLATERAL. Except in the ordinary course of Grantor's
        business, Grantor agrees to keep the Collateral (or to the extent the
        Collateral consists of intangible property such as accounts or general
        intangibles, the records concerning the Collateral) at Grantor's address
        shown above or at such other locations as are acceptable to Lender. Upon
        Lender's request. Grantor will deliver to Lender in form satisfactory to
        Lender a schedule of real properties and Collateral locations relating
        to Grantor's operations, including without limitation the following: (1)
        all real property Grantor owns or is purchasing; (2) all real property
        Grantor is renting or leasing; (3) all storage facilities Grantor owns,
        rents, leases, or uses; and (4) all other properties where Collateral is
        or may be located.

        REMOVAL OF THE COLLATERAL. Except in the ordinary course of Grantor's
        business, including the sales of inventory, Grantor shall not remove the
        Collateral from its existing location without Lender's prior written
        consent. To the extent that the Collateral consists of vehicles, or
        other titled property, Grantor shall not take or permit any action which
        would require application for certificates of title for the vehicles
        outside the State of Delaware, without Lender's prior written consent.
        Grantor shall, whenever requested, advise Lender of the exact location
        of the Collateral.

        TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
        collected in the ordinary course of Grantor's business, or as otherwise
        provided for in this Agreement, Grantor shall not sell, offer to sell,
        or otherwise transfer or dispose of the Collateral. While Grantor is not
        in default under this Agreement, Grantor may sell inventory, but only in
        the ordinary course of its business and only to buyers who qualify as a
        buyer in the ordinary course of business. A sale in the ordinary course
        of Grantor's business does not include a transfer in partial or total
        satisfaction of a debt or any bulk sale. Grantor shall not pledge,
        mortgage, encumber or otherwise permit the Collateral to be subject to
        any lien, security interest, encumbrance, or charge, other than the
        security interest provided for in this Agreement, without the prior
        written consent of Lender. This includes security interests even if
        junior in right to the security interests granted under this Agreement.
        Unless waived by Lender, all proceeds from any disposition of the
        Collateral (for whatever reason) shall be held in trust for Lender and
        shall not be commingled with any other funds; provided however, this
        requirement shall not constitute consent by Lender to any sale or other
        disposition. Upon receipt, Grantor shall immediately deliver any such
        proceeds to Lender.

        TITLE. Grantor represents and warrants to Lender that Grantor holds good
        and marketable title to the Collateral, free and clear of all liens and
        encumbrances except for the lien of this Agreement. No financing
        statement covering any of the Collateral is on file in any public office
        other than those which reflect the security interest created by this
        Agreement or to which Lender has specifically consented. Grantor shall
        defend Lender's rights in the Collateral against the claims and demands
        of all other persons.

        REPAIRS AND MAINTENANCE. Grantor agrees to keep and maintain, and to
        cause others to keep and maintain, the Collateral in good order, repair
        and condition at all times while this Agreement remains in effect.
        Grantor further agrees to pay when due all claims for work done on, or
        services rendered or material furnished in connection with the
        Collateral so that no lien or encumbrance may ever attach to or be filed
        against the Collateral.

        INSPECTION OF COLLATERAL. Lender and Lender's designated representatives
        and agents shall have the right at all reasonable times to examine and
        inspect the Collateral wherever located.

        TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
        assessments and liens upon the Collateral, its use or operation, upon
        this Agreement, upon any promissory note or notes evidencing the
        Indebtedness, or upon any of the other Related Documents. Grantor may
        withhold any such payment or may elect to contest any lien if Grantor is
        in good faith conducting an appropriate proceeding to contest the
        obligation to pay and so long as Lender's interest in the Collateral is
        not jeopardized in Lender's sole opinion. If the Collateral is subjected
        to a lien which is not discharged within fifteen (15) days, Grantor
        shall deposit with Lender cash, a sufficient corporate surety bond or
        other security satisfactory to Lender in an amount adequate to provide
        for the discharge of the lien plus any interest, costs, reasonable
        attorneys' fees or other charges that could accrue as a result of
        foreclosure or sale of the Collateral. In any contest Grantor shall
        defend itself and Lender and shall satisfy any final adverse judgment
        before enforcement against the Collateral. Grantor shall name Lender as
        an additional obligee under any surety bond furnished in the contest
        proceedings. Grantor further agrees to furnish Lender with evidence that
        such taxes, assessments, and governmental and other charges have been
        paid in full and in a timely manner. Grantor may withhold any such
        payment or may elect to contest any lien if Grantor is in good faith
        conducting an appropriate proceeding to contest the obligation to pay
        and so long as Lender's interest in the Collateral is not jeopardized.

        COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
        with all laws, ordinances, rules and regulations of all governmental
        authorities, now or hereafter in effect, applicable to the ownership,
        production, disposition, or use of the Collateral, including all laws or
        regulations relating to the undue erosion of highly-erodible land or
        relating to the conversion of wetlands for the production of an
        agricultural product or commodity. Grantor may contest in good faith any
        such law, ordinance or regulation and withhold compliance during any
        proceeding, including appropriate appeals, so long as Lender's interest
        in the Collateral, in Lender's opinion, is not jeopardized.

        HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
        Collateral never has been, and never will be so long as this Agreement
        remains a lien on the Collateral, used in violation of any Environmental
        Laws or for the generation, manufacture, storage, transportation,
        treatment, disposal, release or threatened release of any Hazardous
        Substance. The representations and warranties contained herein are based
        on Grantor's due diligence in investigating the Collateral for Hazardous
        Substances. Grantor hereby (1) releases and waives any future claims
        against Lender for indemnity or contribution in the event Grantor
        becomes liable for cleanup or other costs under any Environmental Laws,
        and (2) agrees to indemnify and hold harmless Lender against any and all
        claims and losses resulting from a breach of this provision of this
        Agreement. This obligation to indemnify shall survive the payment of the
        Indebtedness and the satisfaction of this Agreement.

        MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
        all risks insurance, including without limitation fire, theft and
        liability coverage together with such other insurance as Lender may
        require with respect to the Collateral, in form, amounts, coverages and
        basis reasonably acceptable to Lender and issued by a company or
        companies reasonably acceptable to Lender. Grantor, upon request of
        Lender, will deliver to Lender from time to time the policies or
        certificates of insurance in form satisfactory to Lender, including
        stipulations that coverages will not be cancelled or diminished without
        at least ten (10) days' prior written notice to Lender and not including
        any disclaimer of the insurer's liability for failure to give such a
        notice. Each insurance policy also shall include an endorsement
        providing that coverage in favor of Lender will not be impaired in any
        way by any act, omission or default of Grantor or any other person. In
        connection with all policies covering assets in which Lender holds or is
        offered a security interest, Grantor will provide Lender with such loss
        payable or other endorsements as Lender may require. If Grantor at any
        time fails to obtain or maintain any insurance as required under this
        Agreement, Lender may (but shall not be obligated to) obtain such
        insurance as Lender deems appropriate, including if Lender so chooses
        "single interest insurance;" which will cover only Lender's interest in
        the Collateral.


<PAGE>
                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 932900001-1                (CONTINUED)                           PAGE 3
================================================================================

        APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
        of any loss or damage to the Collateral. Lender may make proof of loss
        if Grantor fails to do so within fifteen (15) days of the casualty. All
        proceeds of any insurance on the Collateral, including accrued proceeds
        thereon, shall be held by Lender as part of the Collateral. If Lender
        consents to repair or replacement of the damaged or destroyed
        Collateral, Lender shall, upon satisfactory proof of expenditure, pay or
        reimburse Grantor from the proceeds for the reasonable cost of repair or
        restoration. If Lender does not consent to repair or replacement of the
        Collateral, Lender shall retain a sufficient amount of the proceeds to
        pay all of the Indebtedness, and shall pay the balance to Grantor. Any
        proceeds which have not been disbursed within six (6) months after their
        receipt and which Grantor has not committed to the repair or restoration
        of the Collateral shall be used to prepay the Indebtedness.

        INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
        reserves for payment of insurance premiums, which reserves shall be
        created by monthly payments from Grantor of a sum estimated by Lender to
        be sufficient to produce, at least fifteen (15) days before the premium
        due date, amounts at least equal to the insurance premiums to be paid.
        If fifteen (15) days before payment is due, the reserve funds are
        insufficient, Grantor shall upon demand pay any deficiency to Lender.
        The reserve funds shall be held by Lender as a general deposit and shall
        constitute a non-interest-bearing account which Lender may satisfy by
        payment of the insurance premiums required to be paid by Grantor as they
        become due. Lender does not hold the reserve funds in trust for Grantor,
        and Lender is not the agent of Grantor for payment of the insurance
        premiums required to be paid by Grantor. The responsibility for the
        payment of premiums shall remain Grantor's sole responsibility.

        INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
        Lender reports on each existing policy of insurance showing such
        information as Lender may reasonably request including the following:
        (1) the name of the insurer; (2) the risks insured; (3) the amount of
        the policy; (4) the property insured; (5) the then current value on the
        basis of which insurance has been obtained and the manner of determining
        that value; and (6) the expiration date of the policy. In addition,
        Grantor shall upon request by Lender (however not more often than
        annually) have an independent appraiser satisfactory to Lender
        determine, as applicable, the cash value or replacement cost of the
        Collateral.

        FINANCING STATEMENTS. Grantor authorizes Lender to file a UCC-1
        financing statement, or alternatively, a copy of this Agreement to
        perfect Lender's security interest. At Lender's request, Grantor
        additionally agrees to sign all other documents that are necessary to
        perfect, protect, and continue Lender's security interest in the
        Property. Grantor will pay all filing fees, title transfer fees, and
        other fees and costs involved unless prohibited by law or unless Lender
        is required by law to pay such fees and costs. Grantor irrevocably
        appoints Lender to execute financing statements and documents of title
        in Grantor's name and to execute all documents necessary to transfer
        title if there is a default. Lender may file a copy of this Agreement as
        a financing statement. If Grantor changes Grantor's name or address, or
        the name or address of any person granting a security interest under
        this Agreement changes, Grantor will promptly notify the Lender of such
        change.

GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all
costs for insuring, maintaining and preserving the Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity. The Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon Default.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

        PAYMENT DEFAULT. Grantor fails to make any payment when due under the
        Indebtedness.

        OTHER DEFAULTS. Grantor fails to comply with or to perform any other
        term, obligation, covenant or condition contained in this Agreement or
        in any of the Related Documents or to comply with or to perform any
        term, obligation, covenant or condition contained in any other agreement
        between Lender and Grantor.

        DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
        default under any loan, extension of credit, security agreement,
        purchase or sales agreement, or any other agreement, in favor of any
        other creditor or person that may materially affect any of Grantor's
        property or Grantor's or any Grantor's ability to repay the Indebtedness
        or perform their respective obligations under this Agreement or any of
        the Related Documents.

        FALSE STATEMENTS. Any warranty, representation or statement made or
        furnished to Lender by Grantor or on Grantor's behalf under this
        Agreement or the Related Documents is false or misleading in any
        material respect, either now or at the time made or furnished or becomes
        false or misleading at any time thereafter.

        DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
        Documents ceases to be in full force and effect (including failure of
        any collateral document to create a valid and perfected security
        interest or lien) at any time and for any reason.

        INSOLVENCY. The dissolution or termination of Grantor's existence as a
        going business, the insolvency of Grantor, the appointment of a receiver
        for any part of Grantor's property, any assignment for the benefit of
        creditors, any type of creditor workout, or the commencement of any
        proceeding under any bankruptcy or insolvency laws by or against
        Grantor.

        CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
        forfeiture proceedings, whether by judicial proceeding, self-help,
        repossession or any other method, by any creditor of Grantor or by any
        governmental agency against any collateral securing the Indebtedness.
        This includes a garnishment of any of Grantor's accounts, including
        deposit accounts, with Lender. However, this Event of Default shall not
        apply if there is a good faith dispute by Grantor as to the validity or
        reasonableness of the claim which is the basis of the creditor or
        forfeiture proceeding and if Grantor gives Lender written notice of the
        creditor or forfeiture proceeding and deposits with Lender monies or a
        surety bond for the creditor or forfeiture proceeding, in an amount
        determined by Lender, in its sole discretion, as being an adequate
        reserve or bond for the dispute.

        EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
        respect to Guarantor of any of the Indebtedness or Guarantor dies or



<PAGE>
                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 932900001-1                (CONTINUED)                           PAGE 4
================================================================================


        becomes incompetent or revokes or disputes the validity of, or liability
        under, any Guaranty of the Indebtedness.

        ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
        condition, or Lender believes the prospect of payment or performance of
        the Indebtedness is impaired.

        INSECURITY. Lender in good faith believes itself insecure.

        CURE PROVISIONS. If any default, other than a default in payment is
        curable and if Grantor has not been given a notice of a breach of the
        same provision of this Agreement within the preceding twelve (12)
        months, it may be cured (and no event of default will have occurred) if
        Grantor, after receiving written notice from Lender demanding cure of
        such default: (1) cures the default within fifteen (15) days; or (2) if
        the cure requires more than fifteen (15) days, immediately initiates
        steps which Lender deems in Lender's sole discretion to be sufficient to
        cure the default and thereafter continues and completes all reasonable
        and necessary steps sufficient to produce compliance as soon as
        reasonably practical.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Delaware Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:

        ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
        including any prepayment penalty which Grantor would be required to pay,
        immediately due and payable, without notice of any kind to Grantor.

        ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
        or any portion of the Collateral and any and all certificates of title
        and other documents relating to the Collateral. Lender may require
        Grantor to assemble the Collateral and make it available to Lender at a
        place to be designated by Lender. Lender also shall have full power to
        enter upon the property of Grantor to take possession of and remove the
        Collateral. If the Collateral contains other goods not covered by this
        Agreement at the time of repossession, Grantor agrees Lender may take
        such other goods, provided that Lender makes reasonable efforts to
        return them to Grantor after repossession.

        SELL THE COLLATERAL. Lender shall have full power to sell, lease,
        transfer, or otherwise deal with the Collateral or proceeds thereof in
        Lender's own name or that of Grantor. Lender may sell the Collateral at
        public auction or private sale. Unless the Collateral threatens to
        decline speedily in value or is of a type customarily sold on a
        recognized market, Lender will give Grantor, and other persons as
        required by law, reasonable notice of the time and place of any public
        sale, or the time after which any private sale or any other disposition
        of the Collateral is to be made. However, no notice need be provided to
        any person who, after Event of Default occurs, enters into and
        authenticates an agreement waiving that person's right to notification
        of sale. The requirements of reasonable notice shall be met if such
        notice is given at least ten (10) days before the time of the sale or
        disposition. All expenses relating to the disposition of the Collateral,
        including without limitation the expenses of retaking, holding,
        insuring, preparing for sale and selling the Collateral, shall become a
        part of the Indebtedness secured by this Agreement and shall be payable
        on demand, with interest at the Note rate from date of expenditure until
        repaid.

        APPOINT RECEIVER. Lender shall have the right to have a receiver
        appointed to take possession of all or any part of the Collateral, with
        the power to protect and preserve the Collateral, to operate the
        Collateral preceding foreclosure or sale, and to collect the Rents from
        the Collateral and apply the proceeds, over and above the cost of the
        receivership, against the Indebtedness. The receiver may serve without
        bond if permitted by law. Lender's right to the appointment of a
        receiver shall exist whether or not the apparent value of the Collateral
        exceeds the Indebtedness by a substantial amount. Employment by Lender
        shall not disqualify a person from serving as a receiver.

        COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
        receiver, may collect the payments, rents, income, and revenues from the
        Collateral. Lender may at any time in Lender's discretion transfer any
        Collateral into Lender's own name or that of Lender's nominee and
        receive the payments, rents, income, and revenues therefrom and hold the
        same as security for the Indebtedness or apply it to payment of the
        Indebtedness in such order of preference as Lender may determine.
        Insofar as the Collateral consists of accounts, general intangibles,
        insurance policies, instruments, chattel paper, choses in action, or
        similar property, Lender may demand, collect, receipt for, settle,
        compromise, adjust, sue for, foreclose, or realize on the Collateral as
        Lender may determine, whether or not Indebtedness or Collateral is then
        due. For these purposes, Lender may, on behalf of and in the name of
        Grantor, receive, open and dispose of mail addressed to Grantor; change
        any address to which mail and payments are to be sent; and endorse
        notes, checks, drafts, money orders, documents of title, instruments and
        items pertaining to payment, shipment, or storage of any Collateral. To
        facilitate collection, Lender may notify account debtors and obligors on
        any Collateral to make payments directly to Lender.

        OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
        Collateral, Lender may obtain a judgment against Grantor for any
        deficiency remaining on the Indebtedness due to Lender after application
        of all amounts received from the exercise of the rights provided in this
        Agreement. Grantor shall be liable for a deficiency even if the
        transaction described in this subsection is a sale of accounts or
        chattel paper.

        OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
        of a secured creditor under the provisions of the Uniform Commercial
        Code, as may be amended from time to time. In addition, Lender shall
        have and may exercise any or all other rights and remedies it may have
        available at law, in equity, or otherwise.

        ELECTION OF REMEDIES. Except as may be prohibited by applicable law, all
        of Lender's rights and remedies, whether evidenced by this Agreement,
        the Related Documents, or by any other writing, shall be cumulative and
        may be exercised singularly or concurrently. Election by Lender to
        pursue any remedy shall not exclude pursuit of any other remedy, and an
        election to make expenditures or to take action to perform an obligation
        of Grantor under this Agreement, after Grantor's failure to perform,
        shall not affect Lender's right to declare a default and exercise its
        remedies.

DEPOSIT AGREEMENT SECURITY. Grantor hereby grants a security interest to Lender
in any and all deposit accounts (checking, savings, money market or time) of
Grantor at Lender, now existing or hereinafter opened, to secure the
Indebtedness. This includes all deposit accounts Grantor holds jointly with
someone else.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

        AMENDMENTS. This Agreement, together with any Related Documents,
        constitutes the entire understanding and agreement of the parties as to
        the matters set forth in this Agreement. No alteration of or amendment
        to this Agreement shall be effective unless given in writing and signed
        by the party or parties sought to be charged or bound by the alteration
        or amendment.

        ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
        Lender's costs and expenses, including Lender's reasonable attorneys'
        fees and Lender's legal expenses, incurred in connection with the
        enforcement of this Agreement. Lender may hire or pay someone else to
        help enforce this Agreement, and Grantor shall pay the costs and
        expenses of such enforcement. Costs and expenses include Lender's
        reasonable attorneys' fees and legal expenses whether or not there is a
        lawsuit, including reasonable attorneys' fees and legal expenses for
        bankruptcy proceedings (including efforts to modify or vacate any
        automatic stay or injunction), appeals, and any anticipated
        post-judgment collection services. Lender may also recover from Grantor
        all court, alternative dispute resolution or other collection costs
        (including, without limitation, fees and charges of collection agencies)
        actually incurred by Lender.

        CAPTION HEADINGS. Caption headings in this Agreement are for convenience
        purposes only and are not to be used to interpret or define the
        provisions of this Agreement.



<PAGE>
                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 932900001-1                (CONTINUED)                           PAGE 5
================================================================================


        GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND
        ENFORCED IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF
        CALIFORNIA, EXCEPT AND ONLY TO THE EXTENT OF PROCEDURAL MATTERS RELATED
        TO THE PERFECTION AND ENFORCEMENT OF LENDER'S RIGHTS AND REMEDIES
        AGAINST THE COLLATERAL, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF
        THE STATE OF DELAWARE. HOWEVER, IN THE EVENT THAT THE ENFORCEABILITY OR
        VALIDITY OF ANY PROVISION OF THIS AGREEMENT IS CHALLENGED OR QUESTIONED,
        SUCH PROVISION SHALL BE GOVERNED BY WHICHEVER APPLICABLE STATE OR
        FEDERAL LAW WOULD UPHOLD OR WOULD ENFORCE SUCH CHALLENGED OR QUESTIONED
        PROVISION. THE LOAN TRANSACTION WHICH IS EVIDENCED BY THE NOTE AND THIS
        AGREEMENT HAS BEEN APPLIED FOR, CONSIDERED, APPROVED AND MADE, AND ALL
        NECESSARY LOAN DOCUMENTS HAVE BEEN ACCEPTED BY LENDER IN THE STATE OF
        CALIFORNIA.


        CHOICE OF VENUE. If there is a lawsuit, Grantor agrees upon Lender's
        request to submit to the jurisdiction of the courts of Los Angeles
        County, State of California.

        NO WAIVER BY LENDER. Lender shall not be deemed to have waived any
        rights under this Agreement unless such waiver is given in writing and
        signed by Lender. No delay or omission on the part of Lender in
        exercising any right shall operate as a waiver of such right or any
        other right. A waiver by Lender of a provision of this Agreement shall
        not prejudice or constitute a waiver of Lender's right otherwise to
        demand strict compliance with that provision or any other provision of
        this Agreement. No prior waiver by Lender, nor any course of dealing
        between Lender and Grantor, shall constitute a waiver of any of Lender's
        rights or of any of Grantor's obligations as to any future transactions.
        Whenever the consent of Lender is required under this Agreement, the
        granting of such consent by Lender in any instance shall not constitute
        continuing consent to subsequent instances where such consent is
        required and in all cases such consent may be granted or withheld in the
        sole discretion of Lender.

        NOTICES. Any notice required to be given under this Agreement shall be
        given in writing, and shall be effective when actually delivered, when
        actually received by telefacsimile (unless otherwise required by law),
        when deposited with a nationally recognized overnight courier, or, if
        mailed, when deposited in the United States mail, as first class,
        certified or registered mail postage prepaid, directed to the addresses
        shown near the beginning of this Agreement. Any party may change its
        address for notices under this Agreement by giving formal written notice
        to the other parties, specifying that the purpose of the notice is to
        change the party's address. For notice purposes, Grantor agrees to keep
        Lender informed at all times of Grantor's current address. Unless
        otherwise provided or required by law, if there is more than one
        Grantor, any notice given by Lender to any Grantor is deemed to be
        notice given to all Grantors.

        POWER OF ATTORNEY. Grantor hereby appoints Lender as Grantor's
        irrevocable attorney-in-fact for the purpose of executing any documents
        necessary to perfect, amend, or to continue the security interest
        granted in this Agreement or to demand termination of filings of other
        secured parties. Lender may at any time, and without further
        authorization from Grantor, file a carbon, photographic or other
        reproduction of any financing statement or of this Agreement for use as
        a financing statement. Grantor will reimburse Lender for all expenses
        for the perfection and the continuation of the perfection of Lender's
        security interest in the Collateral.

        SEVERABILITY. If a court of competent jurisdiction finds any provision
        of this Agreement to be illegal, invalid, or unenforceable as to any
        circumstance, that finding shall not make the offending provision
        illegal, invalid, or unenforceable as to any other circumstance. If
        feasible, the offending provision shall be considered modified so that
        it becomes legal, valid and enforceable. If the offending provision
        cannot be so modified, it shall be considered deleted from this
        Agreement. Unless otherwise required by law, the illegality, invalidity,
        or unenforceability of any provision of this Agreement shall not affect
        the legality, validity or enforceability of any other provision of this
        Agreement.

        SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this
        Agreement on transfer of Grantor's interest, this Agreement shall be
        binding upon and inure to the benefit of the parties, their successors
        and assigns. If ownership of the Collateral becomes vested in a person
        other than Grantor, Lender, without notice to Grantor, may deal with
        Grantor's successors with reference to this Agreement and the
        Indebtedness by way of forbearance or extension without releasing
        Grantor from the obligations of this Agreement or liability under the
        Indebtedness.

        SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
        warranties, and agreements made by Grantor in this Agreement shall
        survive the execution and delivery of this Agreement, shall be
        continuing in nature, and shall remain in full force and effect until
        such time as Grantor's Indebtedness shall be paid in full.

        TIME IS OF THE ESSENCE. Time is of the essence in the performance of
        this Agreement.

        WAIVE JURY. ALL PARTIES TO THIS AGREEMENT HEREBY WAIVE THE RIGHT TO ANY
        JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY ANY
        PARTY AGAINST ANY OTHER PARTY.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code:

        ACCOUNT. The word "Account" means a trade account, account receivable,
        other receivable, or other right to payment for goods sold or services
        rendered owing to Grantor (or to a third party grantor acceptable to
        Lender).

        AGREEMENT. The word "Agreement" means this Commercial Security
        Agreement, as this Commercial Security Agreement may be amended or
        modified from time to time, together with all exhibits and schedules
        attached to this Commercial Security Agreement from time to time.

        BORROWER. The word "Borrower" means International Remote Imaging
        Systems, Inc., and all other persons and entities signing the Note in
        whatever capacity.

        COLLATERAL. The word "Collateral" means all of Grantor's right, title
        and interest in and to all the Collateral as described in the Collateral
        Description section of this Agreement.

        DEFAULT. The word "Default" means the Default set forth in this
        Agreement in the section titled "Default".

        ENVIRONMENTAL LAWS. The words "Environmental Laws" mean any and all
        state, federal and local statutes, regulations and ordinances relating
        to the protection of human health or the environment, including without
        limitation the Comprehensive Environmental Response, Compensation, and
        Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
        ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
        Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act,
        49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
        Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of
        Division 20 of the California Health and Safety Code, Section 25100, et
        seq., or other applicable state or federal laws, rules, or regulations
        adopted pursuant thereto.

        EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
        default set forth in this Agreement in the default section of this
        Agreement.

        GRANTOR. The word "Grantor" means International Remote Imaging Systems,
        Inc.

        GUARANTOR. The word "Guarantor" means any guarantor, surety, or
        accommodation party of any or all of the Indebtedness.

        GUARANTY. The word "Guaranty" means the guaranty from Guarantor to
        Lender, including without limitation a guaranty of all or part of the
        Note.



<PAGE>
                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 932900001-1                (CONTINUED)                           PAGE 6
================================================================================


        HAZARDOUS SUBSTANCES. The words "Hazardous Substances" mean materials
        that, because of their quantity, concentration or physical, chemical or
        infectious characteristics, may cause or pose a present or potential
        hazard to human health or the environment when improperly used, treated,
        stored, disposed of, generated, manufactured, transported or otherwise
        handled. The words "Hazardous Substances" are used in their very
        broadest sense and include without limitation any and all hazardous or
        toxic substances, materials or waste as defined by or listed under the
        Environmental Laws. The term "Hazardous Substances" also includes,
        without limitation, petroleum and petroleum by-products or any fraction
        thereof and asbestos.

        INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
        by the Note or Related Documents, including all principal and interest
        together with all other indebtedness and costs and expenses for which
        Grantor is responsible under this Agreement or under any of the Related
        Documents.

        LENDER. The word "Lender" means California Bank & Trust, its successors
        and assigns.

        NOTE. The word "Note" means the Note executed by International Remote
        Imaging Systems, Inc. in the principal amount of $6,500,000.00 dated
        February 7, 2002, together with all renewals of, extensions of,
        modifications of, refinancings of, consolidations of, and substitutions
        for the note or credit agreement.

        PROPERTY. The word "Property" means all of Grantor's right, title and
        interest in and to all the Property as described in the "Collateral
        Description" section of this Agreement.

        RELATED DOCUMENTS. The words "Related Documents" mean all promissory
        notes, credit agreements, loan agreements, environmental agreements,
        guaranties, security agreements, mortgages, deeds of trust, security
        deeds, collateral mortgages, and all other instruments, agreements and
        documents, whether now or hereafter existing, executed in connection
        with the Indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED FEBRUARY 7, 2002.

THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

GRANTOR:


INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.


BY: /s/ JOHN A. O'MALLEY         (SEAL)   BY: /s/ JOHN CALOZ              (SEAL)
    -----------------------------            -----------------------------
    DR. JOHN A. O'MALLEY CEO/CHAIRMAN        JOHN CALOZ, CFO/SECRETARY OF
    OF INTERNATIONAL REMOTE IMAGING          INTERNATIONAL REMOTE IMAGING
    SYSTEMS, INC.                            SYSTEMS, INC.

<PAGE>
                         COMMERCIAL SECURITY AGREEMENT

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
 PRINCIPAL       LOAN DATE    MATURITY       LOAN NO      CALL/COLL      ACCOUNT    OFFICER    INITIALS
<S>             <C>          <C>            <C>          <C>          <C>          <C>        <C>
$6,500.000.00   02-07-2002   06-30-2004    932900001-1                 932900001-1   22163     [INITIALS ILLEGIBLE]
-------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item. Any item above containing "***" has been omitted due to text length limitations.
-------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<S>                                                     <C>
BORROWER: INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.    Lender: CALIFORNIA BANK & TRUST
          9162 ETON AVENUE                                      COMMERCIAL LOAN CENTER
          CHATSWORTH, CA 91311                                  550 SOUTH HOPE STREET, SUITE 300
                                                                LOS ANGELES, CA 90071

GRANTOR: ADVANCED DIGITAL IMAGING RESEARCH, LLC
          2525 SOUTH SHORE BOULEVARD, SUITE 100
          LEAGUE CITY, TX 77573
</TABLE>

===============================================================================

THIS COMMERCIAL SECURITY AGREEMENT DATED FEBRUARY 7, 2002, IS MADE AND EXECUTED
AMONG ADVANCED DIGITAL IMAGING RESEARCH, LLC ("GRANTOR"); INTERNATIONAL REMOTE
IMAGING SYSTEMS, INC. ("BORROWER"); AND CALIFORNIA BANK & TRUST ("LENDER").

GRANT OF SECURITY INTEREST. FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER
A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT
LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means
the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which
Grantor is giving to Lender a security interest for the payment of the
Indebtedness and performance of all other obligations under the Note and this
Agreement:

      ALL INVENTORY, EQUIPMENT, ACCOUNTS (INCLUDING BUT NOT LIMITED TO ALL
      HEALTH-CARE-INSURANCE RECEIVABLES), CHATTEL PAPER, INSTRUMENTS (INCLUDING
      BUT NOT LIMITED TO ALL PROMISSORY NOTES), LETTER-OF-CREDIT RIGHTS, LETTERS
      OF CREDIT, DOCUMENTS, DEPOSIT ACCOUNTS, INVESTMENT PROPERTY, MONEY, OTHER
      RIGHTS TO PAYMENT AND PERFORMANCE, AND GENERAL INTANGIBLES (INCLUDING BUT
      NOT LIMITED TO ALL SOFTWARE AND ALL PAYMENT INTANGIBLES); ALL FIXTURES;
      ALL ATTACHMENTS, ACCESSIONS, ACCESSORIES, FITTINGS, INCREASES, TOOLS,
      PARTS, REPAIRS, SUPPLIES, AND COMMINGLED GOODS RELATING TO THE FOREGOING
      PROPERTY, AND ALL ADDITIONS, REPLACEMENTS OF AND SUBSTITUTIONS FOR ALL OR
      ANY PART OF THE FOREGOING PROPERTY; ALL INSURANCE REFUNDS RELATING TO THE
      FOREGOING PROPERTY; ALL GOOD WILL RELATING TO THE FOREGOING PROPERTY; ALL
      RECORDS AND DATA AND EMBEDDED SOFTWARE RELATING TO THE FOREGOING PROPERTY,
      AND ALL EQUIPMENT, INVENTORY AND SOFTWARE TO UTILIZE, CREATE, MAINTAIN AND
      PROCESS ANY SUCH RECORDS AND DATA ON ELECTRONIC MEDIA; AND ALL SUPPORTING
      OBLIGATIONS RELATING TO THE FOREGOING PROPERTY; ALL WHETHER NOW EXISTING
      OR HEREAFTER ARISING, WHETHER NOW OWNED OR HEREAFTER ACQUIRED OR WHETHER
      NOW OR HEREAFTER SUBJECT TO ANY RIGHTS IN THE FOREGOING PROPERTY; AND ALL
      PRODUCTS AND PROCEEDS (INCLUDING BUT NOT LIMITED TO ALL INSURANCE
      PAYMENTS) OF OR RELATING TO THE FOREGOING PROPERTY.

In addition, the word "Collateral" also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

      (A) All accessions, attachments, accessories, tools, parts, supplies,
      replacements of and additions to any of the collateral described herein,
      whether added now or later.

      (B) All products and produce of any of the property described in this
      Collateral section.

      (C) All accounts, general intangibles, instruments, rents, monies,
      payments, and all other rights, arising out of a sale, lease, or other
      disposition of any of the property described in this Collateral section.

      (D) All proceeds (including insurance proceeds) from the sale,
      destruction, loss, or other disposition of any of the property described
      in this Collateral section, and sums due from a third party who has
      damaged or destroyed the Collateral or from that party's insurer, whether
      due to judgment, settlement or other process.

      (E) All records and data relating to any of the property described in this
      Collateral section, whether in the form of a writing, photograph,
      microfilm, microfiche, or electronic media, together with all of Grantor's
      right, title, and interest in and to all computer software required to
      utilize, create, maintain, and process any such records or data on
      electronic media.

Despite any other provision of this Agreement, Lender is not granted, and will
not have, a nonpurchase money security interest in household goods, to the
extent such a security interest would be prohibited by applicable law. In
addition, if because of the type of any Property, Lender is required to give a
notice of the right to cancel under Truth in Lending for the Indebtedness, then
Lender will not have a security interest in such Collateral unless and until
such a notice is given.

CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all
obligations, debts and liabilities, plus interest thereon, of Borrower to
Lender, or any one or more of them, as well as all claims by Lender against
Borrower or any one or more of them, whether now existing or hereafter arising,
whether related or unrelated to the purpose of the Note, whether voluntary or
otherwise, whether due or not due, direct or indirect, determined or
undetermined, absolute or contingent, liquidated or unliquidated whether
Borrower or Grantor may be liable individually or jointly with others, whether
obligated as guarantor, surety, accommodation party or otherwise, and whether
recovery upon such amounts may be or hereafter may become barred by any statute
of limitations, and whether the obligation to repay such amounts may be or
hereafter may become otherwise unenforceable.

BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (A) Borrower agrees that Lender need not tell
Borrower about any action or inaction Lender takes in connection with this
Agreement; (B) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (C) Borrower waives any defenses that may
arise because of any action or inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender in
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.

GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (A) this
Agreement is executed at Borrower's request and not at the request of Lender;
(B) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (C) Grantor has established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (D) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.

GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest,
demand, and notice of dishonor or non-payment to Borrower or Grantor, or any
other party to the Indebtedness or the Collateral. Lender may do any of the
following with respect to any obligation of any Borrower, without first
obtaining the consent of Grantor: (A) grant any extension of time for any
payment, (B) grant any renewal, (C) permit any modification of payment terms or
other terms, or (D) exchange or release any Collateral or other security. No
such act or failure to act shall affect Lender's rights


<PAGE>

                          COMMERCIAL SECURITY AGREEMENT
 LOAN NO: 932900001-1               (CONTINUED)                          PAGE 2
================================================================================

against Grantor or the Collateral.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and promises to Lender that:

PERFECTION OF SECURITY INTEREST. Grantor agrees to execute financing statements
and to take whatever other actions are requested by Lender to perfect and
continue Lender's security interest in the Collateral. Upon request of Lender,
Grantor will deliver to Lender any and all of the documents evidencing or
constituting the Collateral, and Grantor will note Lender's interest upon any
and all chattel paper if not delivered to Lender for possession by Lender. THIS
IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL
OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF
TIME BORROWER MAY NOT BE INDEBTED TO LENDER.


NOTICES TO LENDER. Grantor will promptly notify Lender in writing at Lender's
address shown above (or such other addresses as Lender may designate from time
to time) prior to any (1) change in Grantor's name; (2) change in Grantor's
assumed business name(s); (3) change in the management or in the members or
managers of the limited liability company Grantor; (4) change in the authorized
signer(s); (5) change in Grantor's principal office address; (6) change in
Grantor's state of organization; (7) conversion of Grantor to a new or different
type of business entity; or (8) change in any other aspect of Grantor that
directly or indirectly relates to any agreements between Grantor and Lender. No
change in Grantor's name or state of organization will take effect until after
Lender has received notice

NO VIOLATION. The execution and delivery of this Agreement will not violate any
law or agreement governing Grantor or to which Grantor is a party, and its
membership agreement does not prohibit any term or condition of this Agreement.

ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of accounts,
chattel paper, or general intangibles, as defined by the Uniform Commercial
Code, the Collateral is enforceable in accordance with its terms, is genuine,
and fully complies with all applicable laws and regulations concerning form,
content and manner of preparation and execution, and all persons appearing to be
obligated on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral. At the time any Account
becomes subject to a security interest in favor of Lender, the Account shall be
a good and valid account representing an undisputed, bona fide indebtedness
incurred by the account debtor, for merchandise held subject to delivery
instructions or previously shipped or delivered pursuant to a contract of sale,
or for services previously performed by Grantor with or for the account debtor.
So long as this Agreement remains in effect, Grantor shall not, without Lender's
prior written consent, compromise, settle, adjust, or extend payment under or
with regard to any such Accounts. There shall be no setoffs or counterclaims
against any of the Collateral, and no agreement shall have been made under which
any deductions or discounts may be claimed concerning the Collateral except
those disclosed to Lender in writing.

LOCATION OF THE COLLATERAL. Except in the ordinary course of Grantor's business,
Grantor agrees to keep the Collateral (or to the extent the Collateral consists
of intangible property such as accounts or general intangibles, the records
concerning the Collateral) at Grantor's address shown above or at such other
locations as are acceptable to Lender. Upon Lender's request, Grantor will
deliver to Lender in form satisfactory to Lender a schedule of real properties
and Collateral locations relating to Grantor's operations, including without
limitation the following: (1) all real property Grantor owns or is purchasing;
(2) all real property Grantor is renting or leasing; (3) all storage facilities
Grantor owns, rents, leases, or uses; and (4) all other properties where
Collateral is or may be located.


REMOVAL OF THE COLLATERAL. Except in the ordinary course of Grantor's business,
including the sales of inventory, Grantor shall not remove the Collateral from
its existing location without Lender's prior written consent. To the extent that
the Collateral consists of vehicles, or other titled property, Grantor shall not
take or permit any action which would require application for certificates of
title for the vehicles outside the State of Delaware, without Lender's prior
written consent. Grantor shall, whenever requested, advise Lender of the exact
location of the Collateral.

TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, or as otherwise provided
for in this Agreement, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. While Grantor is not in default under
this Agreement, Grantor may sell inventory, but only in the ordinary course of
its business and only to buyers who qualify as a buyer in the ordinary course of
business. A sale in the ordinary course of Grantor's business does not include a
transfer in partial or total satisfaction of a debt or any bulk sale. Grantor
shall not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right to
the security interests granted under this Agreement. Unless waived by Lender,
all proceeds from any disposition of the Collateral (for whatever reason) shall
be held in trust for Lender and shall not be commingled with any other funds;
provided however, this requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall immediately deliver any
such proceeds to Lender.

TITLE. Grantor represents and warrants to Lender that Grantor holds good and
marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement. No financing statement covering any of
the Collateral is on file in any public office other than those which reflect
the security interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender's rights in the Collateral
against the claims and demands of all other persons.

REPAIRS AND MAINTENANCE. Grantor agrees to keep and maintain, and to cause
others to keep and maintain, the Collateral in good order, repair and condition
at all times while this Agreement remains in effect. Grantor further agrees to
pay when due all claims for work done on, or services rendered or material
furnished in connection with the Collateral so that no lien or encumbrance may
ever attach to or be filed against the Collateral.

INSPECTION OF COLLATERAL. Lender and Lender's designated representatives and
agents shall have the right at all reasonable times to examine and inspect the
Collateral wherever located.

TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes, assessments
and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the Indebtedness, or upon any of the
other Related Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's interest in
the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or other
security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, reasonable attorneys' fees or
other charges that could accrue as a result of foreclosure or sale of the
Collateral. In any contest Grantor shall defend itself and Lender and shall
satisfy any final adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings. Grantor further agrees to furnish Lender
with evidence that such taxes, assessments, and governmental and other charges
have been paid in full and in a timely manner. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith conducting
an appropriate proceeding to contest the obligation to pay and so long as
Lender's interest in the Collateral is not jeopardized.

COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly with
all laws, ordinances, rules and regulations of all governmental authorities, now
or hereafter in effect, applicable to the ownership, production, disposition, or
use of the Collateral, including all laws or regulations relating to the undue
erosion of highly-erodible land or relating to the conversion of wetlands for
the production of an agricultural product or commodity. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance during
any proceeding,


<PAGE>


                          COMMERCIAL SECURITY AGREEMENT
 LOAN NO: 932900001-1               (CONTINUED)                          PAGE 3
================================================================================

      including appropriate appeals, so long as Lender's interest in the
      Collateral, in Lender's opinion, is not jeopardized.

      HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
      never has been, and never will be so long as this Agreement remains a lien
      on the Collateral, used in violation of any Environmental Laws or for the
      generation, manufacture, storage, transportation, treatment, disposal,
      release or threatened release of any Hazardous Substance. The
      representations and warranties contained herein are based on Grantor's due
      diligence in investigating the Collateral for Hazardous Substances.
      Grantor hereby (1) releases and waives any future claims against Lender
      for indemnity or contribution in the event Grantor becomes liable for
      cleanup or other costs under any Environmental Laws, and (2) agrees to
      indemnify and hold harmless Lender against any and all claims and losses
      resulting from a breach of this provision of this Agreement. This
      obligation to indemnify shall survive the payment of the Indebtedness and
      the satisfaction of this Agreement.

      MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
      risks insurance, including without limitation fire, theft and liability
      coverage together with such other insurance as Lender may require with
      respect to the Collateral, in form, amounts, coverages and basis
      reasonably acceptable to Lender and issued by a company or companies
      reasonably acceptable to Lender. Grantor, upon request of Lender, will
      deliver to Lender from time to time the policies or certificates of
      insurance in form satisfactory to Lender, including stipulations that
      coverages will not be cancelled or diminished without at least ten (10)
      days' prior written notice to Lender and not including any disclaimer of
      the insurer's liability for failure to give such a notice. Each insurance
      policy also shall include an endorsement providing that coverage in favor
      of Lender will not be impaired in any way by any act, omission or default
      of Grantor or any other person. In connection with all policies covering
      assets in which Lender holds or is offered a security interest, Grantor
      will provide Lender with such loss payable or other endorsements as Lender
      may require. If Grantor at any time fails to obtain or maintain any
      insurance as required under this Agreement, Lender may (but shall not be
      obligated to) obtain such insurance as Lender deems appropriate, including
      if Lender so chooses "single interest insurance," which will cover only
      Lender's interest in the Collateral.

      APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
      any loss or damage to the Collateral. Lender may make proof of loss if
      Grantor fails to do so within fifteen (15) days of the casualty. All
      proceeds of any insurance on the Collateral, including accrued proceeds
      thereon, shall be held by Lender as part of the Collateral. If Lender
      consents to repair or replacement of the damaged or destroyed Collateral,
      Lender shall, upon satisfactory proof of expenditure, pay or reimburse
      Grantor from the proceeds for the reasonable cost of repair or
      restoration. If Lender does not consent to repair or replacement of the
      Collateral, Lender shall retain a sufficient amount of the proceeds to pay
      all of the Indebtedness, and shall pay the balance to Grantor. Any
      proceeds which have not been disbursed within six (6) months after their
      receipt and which Grantor has not committed to the repair or restoration
      of the Collateral shall be used to prepay the Indebtedness.

      INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
      reserves for payment of insurance premiums, which reserves shall be
      created by monthly payments from Grantor of a sum estimated by Lender to
      be sufficient to produce, at least fifteen (15) days before the premium
      due date, amounts at least equal to the insurance premiums to be paid. If
      fifteen (15) days before payment is due, the reserve funds are
      insufficient, Grantor shall upon demand pay any deficiency to Lender. The
      reserve funds shall be held by Lender as a general deposit and shall
      constitute a non-interest-bearing account which Lender may satisfy by
      payment of the insurance premiums required to be paid by Grantor as they
      become due. Lender does not hold the reserve funds in trust for Grantor,
      and Lender is not the agent of Grantor for payment of the insurance
      premiums required to be paid by Grantor. The responsibility for the
      payment of premiums shall remain Grantor's sole responsibility.

      INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
      Lender reports on each existing policy of insurance showing such
      information as Lender may reasonably request including the following: (1)
      the name of the insurer; (2) the risks insured; (3) the amount of the
      policy; (4) the property insured; (5) the then current value on the basis
      of which insurance has been obtained and the manner of determining that
      value; and (6) the expiration date of the policy. In addition, Grantor
      shall upon request by Lender (however not more often than annually) have
      an independent appraiser satisfactory to Lender determine, as applicable,
      the cash value or replacement cost of the Collateral.

      FINANCING STATEMENTS. Grantor authorizes Lender to file a UCC-1 financing
      statement, or alternatively, a copy of this Agreement to perfect Lender's
      security interest. At Lender's request, Grantor additionally agrees to
      sign all other documents that are necessary to perfect, protect, and
      continue Lender's security interest in the Property. Grantor will pay all
      filing fees, title transfer fees, and other fees and costs involved unless
      prohibited by law or unless Lender is required by law to pay such fees and
      costs. Grantor irrevocably appoints Lender to execute financing statements
      and documents of title in Grantor's name and to execute all documents
      necessary to transfer title if there is a default. Lender may file a copy
      of this Agreement as a financing statement. If Grantor changes Grantor's
      name or address, or the name or address of any person granting a security
      interest under this Agreement changes, Grantor will promptly notify the
      Lender of such change.

GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all
costs for insuring, maintaining and preserving the Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity. The Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon Default.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

      PAYMENT DEFAULT. Borrower fails to make any payment when due under the
      Indebtedness.

      OTHER DEFAULTS. Borrower or Grantor fails to comply with or to perform any
      other term, obligation, covenant or condition contained in this Agreement
      or in any of the Related Documents or to comply with or to perform any
      term, obligation, covenant or condition contained in any other agreement
      between Lender and Borrower or Grantor.

<PAGE>


                          COMMERCIAL SECURITY AGREEMENT
LOAN NO: 932900001-1               (Continued)                           PAGE 4
================================================================================


      DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
      under any loan, extension of credit, security agreement, purchase or sales
      agreement, or any other agreement, in favor of any other creditor or
      person that may materially affect any of Grantor's property or Borrower's
      or any Grantor's ability to repay the Indebtedness or perform their
      respective obligations under this Agreement or any of the Related
      Documents.

      FALSE STATEMENTS. Any warranty, representation or statement made or
      furnished to Lender by Borrower or Grantor or on Borrower's or Grantor's
      behalf under this Agreement or the Related Documents is false or
      misleading in any material respect, either now or at the time made or
      furnished or becomes false or misleading at any time thereafter.

      DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
      Documents ceases to be in full force and effect (including failure of any
      collateral document to create a valid and perfected security interest or
      lien) at any time and for any reason.

      INSOLVENCY. The dissolution or termination of Borrower's or Grantor's
      existence as a going business, the insolvency of Borrower or Grantor, the
      appointment of a receiver for any part of Borrower's or Grantor's
      property, any assignment for the benefit of creditors, any type of
      creditor workout, or the commencement of any proceeding under any
      bankruptcy or insolvency laws by or against Borrower or Grantor.

      CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
      forfeiture proceedings, whether by judicial proceeding, self-help,
      repossession or any other method, by any creditor of Borrower or Grantor
      or by any governmental agency against any collateral securing the
      Indebtedness. This includes a garnishment of any of Borrower's or
      Grantor's accounts, including deposit accounts, with Lender. However, this
      Event of Default shall not apply if there is a good faith dispute by
      Borrower or Grantor as to the validity or reasonableness of the claim
      which is the basis of the creditor or forfeiture proceeding and if
      Borrower or Grantor gives Lender written notice of the creditor or
      forfeiture proceeding and deposits with Lender monies or a surety bond for
      the creditor or forfeiture proceeding, in an amount determined by Lender,
      in its sole discretion, as being an adequate reserve or bond for the
      dispute.

      EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
      respect to Guarantor of any of the Indebtedness or Guarantor dies or
      becomes incompetent or revokes or disputes the validity of, or liability
      under, any Guaranty of the Indebtedness.

      ADVERSE CHANGE. A material adverse change occurs in Borrower's or
      Grantor's financial condition, or Lender believes the prospect of payment
      or performance of the Indebtedness is impaired.

      INSECURITY. Lender in good faith believes itself insecure.

      CURE PROVISIONS. If any default, other than a default in payment is
      curable and if Grantor has not been given a notice of a breach of the same
      provision of this Agreement within the preceding twelve (12) months, it
      may be cured (and no event of default will have occurred) if Grantor,
      after receiving written notice from Lender demanding cure of such default:
      (1) cures the default within fifteen (15) days; or (2) if the cure
      requires more than fifteen (15) days, immediately initiates steps which
      Lender deems in Lender's sole discretion to be sufficient to cure the
      default and thereafter continues and completes all reasonable and
      necessary steps sufficient to produce compliance as soon as reasonably
      practical.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Delaware Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:

      ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
      including any prepayment penalty which Borrower would be required to pay,
      immediately due and payable, without notice of any kind to Borrower or
      Grantor.

      ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
      or any portion of the Collateral and any and all certificates of title and
      other documents relating to the Collateral. Lender may require Grantor to
      assemble the Collateral and make it available to Lender at a place to be
      designated by Lender. Lender also shall have full power to enter upon the
      property of Grantor to take possession of and remove the Collateral. If
      the Collateral contains other goods not covered by this Agreement at the
      time of repossession, Grantor agrees Lender may take such other goods,
      provided that Lender makes reasonable efforts to return them to Grantor
      after repossession.

      SELL THE COLLATERAL. Lender shall have full power to sell, lease,
      transfer, or otherwise deal with the Collateral or proceeds thereof in
      Lender's own name or that of Grantor. Lender may sell the Collateral at
      public auction or private sale. Unless the Collateral threatens to decline
      speedily in value or is of a type customarily sold on a recognized market,
      Lender will give Grantor, and other persons as required by law, reasonable
      notice of the time and place of any public sale, or the time after which
      any private sale or any other disposition of the Collateral is to be made.
      However, no notice need be provided to any person who, after Event of
      Default occurs, enters into and authenticates an agreement waiving that
      person's right to notification of sale. The requirements of reasonable
      notice shall be met if such notice is given at least ten (10) days before
      the time of the sale or disposition. All expenses relating to the
      disposition of the Collateral, including without limitation the expenses
      of retaking, holding, insuring, preparing for sale and selling the
      Collateral, shall become a part of the Indebtedness secured by this
      Agreement and shall be payable on demand, with interest at the Note rate
      from date of expenditure until repaid.

      APPOINT RECEIVER. Lender shall have the right to have a receiver appointed
      to take possession of all or any part of the Collateral, with the power to
      protect and preserve the Collateral, to operate the Collateral preceding
      foreclosure or sale, and to collect the Rents from the Collateral and
      apply the proceeds, over and above the cost of the receivership, against
      the Indebtedness. The receiver may serve without bond if permitted by law.
      Lender's right to the appointment of a receiver shall exist whether or not
      the apparent value of the Collateral exceeds the Indebtedness by a
      substantial amount. Employment by Lender shall not disqualify a person
      from serving as a receiver.

      COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
      receiver, may collect the payments, rents, income, and revenues from the
      Collateral. Lender may at any time in Lender's discretion transfer any
      Collateral into Lender's own name or that of Lender's nominee and receive
      the payments, rents, income, and revenues therefrom and hold the same as
      security for the Indebtedness or apply it to payment of the Indebtedness
      in such order of preference as Lender may determine. Insofar as the
      Collateral consists of accounts, general intangibles, insurance policies,
      instruments, chattel paper, choses in action, or similar property, Lender
      may demand, collect, receipt for, settle, compromise, adjust, sue for,
      foreclose, or realize on the Collateral as Lender may determine, whether
      or not Indebtedness or Collateral is then due. For these purposes, Lender
      may, on behalf of and in the name of Grantor, receive, open and dispose of
      mail addressed to Grantor; change any address to which mail and payments
      are to be sent; and endorse notes, checks, drafts, money orders, documents
      of title, instruments and items pertaining to payment, shipment, or
      storage of any Collateral. To facilitate collection, Lender may notify
      account debtors and obligors on any Collateral to make payments directly
      to Lender.

      OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
      Lender may obtain a judgment against Borrower for any deficiency
      remaining on the Indebtedness due to Lender after application of all
      amounts received from the exercise of the rights provided in this
      Agreement. Borrower shall be liable for a deficiency even if the
      transaction described in this subsection is a sale of accounts or chattel
      paper.

      OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
      of a secured creditor under the provisions of the Uniform Commercial
      Code, as may be amended from time to time. In addition, Lender shall have
      and may exercise any or all other rights and remedies it may have
      available at law, in equity, or otherwise.

      ELECTION OF REMEDIES. Except as may be prohibited by applicable law, all
      of Lender's rights and remedies, whether evidenced by this Agreement, the
      Related Documents, or by any other writing, shall be cumulative and may be
      exercised singularly or concurrently. Election by

<PAGE>


                          COMMERCIAL SECURITY AGREEMENT
 LOAN NO: 932900001-1               (Continued)                          PAGE 5
================================================================================

      Lender to pursue any remedy shall not exclude pursuit of any other remedy,
      and an election to make expenditures or to take action to perform an
      obligation of Grantor under this Agreement, after Grantor's failure to
      perform, shall not affect Lender's right to declare a default and exercise
      its remedies.

DEPOSIT AGREEMENT SECURITY. Grantor hereby grants a security interest to Lender
in any and all deposit accounts (checking, savings, money market or time) of
Grantor at Lender, now existing or hereinafter opened, to secure the
Indebtedness. This includes all deposit accounts Grantor holds jointly with
someone else.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

      AMENDMENTS. This Agreement, together with any Related Documents,
      constitutes the entire understanding and agreement of the parties as to
      the matters set forth in this Agreement. No alteration of or amendment to
      this Agreement shall be effective unless given in writing and signed by
      the party or parties sought to be charged or bound by the alteration or
      amendment.

      ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
      Lender's costs and expenses, including Lender's reasonable attorneys' fees
      and Lender's legal expenses, incurred in connection with the enforcement
      of this Agreement. Lender may hire or pay someone else to help enforce
      this Agreement, and Grantor shall pay the costs and expenses of such
      enforcement. Costs and expenses include Lender's reasonable attorneys'
      fees and legal expenses whether or not there is a lawsuit, including
      reasonable attorneys' fees and legal expenses for bankruptcy proceedings
      (including efforts to modify or vacate any automatic stay or injunction),
      appeals, and any anticipated post-judgment collection services. Lender may
      also recover from Grantor all court, alternative dispute resolution or
      other collection costs (including, without limitation, fees and charges of
      collection agencies) actually incurred by Lender.

      CAPTION HEADINGS. Caption headings in this Agreement are for convenience
      purposes only and are not to be used to interpret or define the provisions
      of this Agreement.

      GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND ENFORCED
      IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF CALIFORNIA,
      EXCEPT AND ONLY TO THE EXTENT OF PROCEDURAL MATTERS RELATED TO THE
      PERFECTION AND ENFORCEMENT OF LENDER'S RIGHTS AND REMEDIES AGAINST THE
      COLLATERAL, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
      DELAWARE. HOWEVER, IN THE EVENT THAT THE ENFORCEABILITY OR VALIDITY OF ANY
      PROVISION OF THIS AGREEMENT IS CHALLENGED OR QUESTIONED, SUCH PROVISION
      SHALL BE GOVERNED BY WHICHEVER APPLICABLE STATE OR FEDERAL LAW WOULD
      UPHOLD OR WOULD ENFORCE SUCH CHALLENGED OR QUESTIONED PROVISION. THE LOAN
      TRANSACTION WHICH IS EVIDENCED BY THE NOTE AND THIS AGREEMENT HAS BEEN
      APPLIED FOR, CONSIDERED, APPROVED AND MADE, AND ALL NECESSARY LOAN
      DOCUMENTS HAVE BEEN ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA.

      CHOICE OF VENUE. If there is a lawsuit, Grantor agrees upon Lender's
      request to submit to the jurisdiction of the courts of Los Angeles County,
      State of California.

      JOINT AND SEVERAL LIABILITY. All obligations of Borrower and Grantor under
      this Agreement shall be joint and several, and all references to Grantor
      shall mean each and every Grantor, and all references to Borrower shall
      mean each and every Borrower. This means that each Borrower and Grantor
      signing below is responsible for all obligations in this Agreement. Where
      any one or more of the parties is a corporation, partnership, limited
      liability company or similar entity, it is not necessary for Lender to
      inquire into the powers of any of the officers, directors, partners,
      members, or other agents acting or purporting to act on the entity's
      behalf, and any obligations made or created in reliance upon the professed
      exercise of such powers shall be guaranteed under this Agreement.


      NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights
      under this Agreement unless such waiver is given in writing and signed by
      Lender. No delay or omission on the part of Lender in exercising any right
      shall operate as a waiver of such right or any other right. A waiver by
      Lender of a provision of this Agreement shall not prejudice or constitute
      a waiver of Lender's right otherwise to demand strict compliance with that
      provision or any other provision of this Agreement. No prior waiver by
      Lender, nor any course of dealing between Lender and Grantor, shall
      constitute a waiver of any of Lender's rights or of any of Grantor's
      obligations as to any future transactions. Whenever the consent of Lender
      is required under this Agreement, the granting of such consent by Lender
      in any instance shall not constitute continuing consent to subsequent
      instances where such consent is required and in all cases such consent may
      be granted or withheld in the sole discretion of Lender.

      NOTICES. Any notice required to be given under this Agreement shall be
      given in writing, and shall be effective when actually delivered, when
      actually received by telefacsimile (unless otherwise required by law),
      when deposited with a nationally recognized overnight courier, or, if
      mailed, when deposited in the United States mail, as first class,
      certified or registered mail postage prepaid, directed to the addresses
      shown near the beginning of this Agreement. Any party may change its
      address for notices under this Agreement by giving formal written notice
      to the other parties, specifying that the purpose of the notice is to
      change the party's address. For notice purposes, Grantor agrees to keep
      Lender informed at all times of Grantor's current address. Unless
      otherwise provided or required by law, if there is more than one Grantor,
      any notice given by Lender to any Grantor is deemed to be notice given to
      all Grantors.

      POWER OF ATTORNEY. Grantor hereby appoints Lender as Grantor's irrevocable
      attorney-in-fact for the purpose of executing any documents necessary to
      perfect, amend, or to continue the security interest granted in this
      Agreement or to demand termination of filings of other secured parties.
      Lender may at any time, and without further authorization from Grantor,
      file a carbon, photographic or other reproduction of any financing
      statement or of this Agreement for use as a financing statement. Grantor
      will reimburse Lender for all expenses for the perfection and the
      continuation of the perfection of Lender's security interest in the
      Collateral.

      SEVERABILITY. If a court of competent jurisdiction finds any provision of
      this Agreement to be illegal, invalid, or unenforceable as to any
      circumstance, that finding shall not make the offending provision illegal,
      invalid, or unenforceable as to any other circumstance. If feasible, the
      offending provision shall be considered modified so that it becomes legal,
      valid and enforceable. If the offending provision cannot be so modified,
      it shall be considered deleted from this Agreement. Unless otherwise
      required by law, the illegality, invalidity, or unenforceability of any
      provision of this Agreement shall not affect the legality, validity or
      enforceability of any other provision of this Agreement.

      SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this
      Agreement on transfer of Grantor's interest, this Agreement shall be
      binding upon and inure to the benefit of the parties, their successors and
      assigns. If ownership of the Collateral becomes vested in a person other
      than Grantor, Lender, without notice to Grantor, may deal with Grantor's
      successors with reference to this Agreement and the Indebtedness by way of
      forbearance or extension without releasing Grantor from the obligations of
      this Agreement or liability under the Indebtedness.

      SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
      warranties, and agreements made by Grantor in this Agreement shall survive
      the execution and delivery of this Agreement, shall be continuing in
      nature, and shall remain in full force and effect until such time as
      Borrower's Indebtedness shall be paid in full.

      TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
      Agreement.

      WAIVE JURY. ALL PARTIES TO THIS AGREEMENT HEREBY WAIVE THE RIGHT TO ANY
      JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY ANY PARTY
      AGAINST ANY OTHER PARTY.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated

<PAGE>

                          COMMERCIAL SECURITY AGREEMENT
 LOAN NO: 932900001-1               (Continued)                          PAGE 6
================================================================================

to the contrary, all references to dollar amounts shall mean amounts in lawful
money of the United States of America. Words and terms used in the singular
shall include the plural, and the plural shall include the singular, as the
context may require. Words and terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial Code:

      ACCOUNT. The word "Account" means a trade account, account receivable,
      other receivable, or other right to payment for goods sold or services
      rendered owing to Grantor (or to a third party grantor acceptable to
      Lender).

      AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
      as this Commercial Security Agreement may be amended or modified from time
      to time, together with all exhibits and schedules attached to this
      Commercial Security Agreement from time to time.

      BORROWER. The word "Borrower" means International Remote Imaging Systems,
      Inc., and all other persons and entities signing the Note in whatever
      capacity.

      COLLATERAL. The word "Collateral" means all of Grantor's right, title and
      interest in and to all the Collateral as described in the Collateral
      Description section of this Agreement.

      DEFAULT. The word "Default" means the Default set forth in this Agreement
      in the section titled "Default".

      ENVIRONMENTAL LAWS. The words "Environmental Laws" mean any and all state,
      federal and local statutes, regulations and ordinances relating to the
      protection of human health or the environment, including without
      limitation the Comprehensive Environmental Response, Compensation, and
      Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
      ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub.
      L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49
      U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act,
      42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20
      of the California Health and Safety Code, Section 25100, et seq., or other
      applicable state or federal laws, rules, or regulations adopted pursuant
      thereto.

      EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
      default set forth in this Agreement in the default section of this
      Agreement.

      GRANTOR. The word "Grantor" means Advanced Digital Imaging Research, LLC.

      GUARANTOR. The word "Guarantor" means any guarantor, surety, or
      accommodation party of any or all of the Indebtedness.

      GUARANTY. The word "Guaranty" means the guaranty from Guarantor to Lender,
      including without limitation a guaranty of all or part of the Note.

      HAZARDOUS SUBSTANCES. The words "Hazardous Substances" mean materials
      that, because of their quantity, concentration or physical, chemical or
      infectious characteristics, may cause or pose a present or potential
      hazard to human health or the environment when improperly used, treated,
      stored, disposed of, generated, manufactured, transported or otherwise
      handled. The words "Hazardous Substances" are used in their very broadest
      sense and include without limitation any and all hazardous or toxic
      substances, materials or waste as defined by or listed under the
      Environmental Laws. The term "Hazardous Substances" also includes, without
      limitation, petroleum and petroleum by-products or any fraction thereof
      and asbestos.

      INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
      the Note or Related Documents, including all principal and interest
      together with all other indebtedness and costs and expenses for which
      Borrower is responsible under this Agreement or under any of the Related
      Documents.

      LENDER. The word "Lender" means California Bank & Trust, its successors
      and assigns.

      NOTE. The word "Note" means the Note executed by International Remote
      Imaging Systems, Inc. in the principal amount of $6,500,000.00 dated
      February 7, 2002, together with all renewals of, extensions of,
      modifications of, refinancings of, consolidations of, and substitutions
      for the note or credit agreement.

      PROPERTY. The word "Property" means all of Grantor's right, title and
      interest in and to all the Property as described in the "Collateral
      Description" section of this Agreement.

      RELATED DOCUMENTS. The words "Related Documents" mean all promissory
      notes, credit agreements, loan agreements, environmental agreements,
      guaranties, security agreements, mortgages, deeds of trust, security
      deeds, collateral mortgages, and all other instruments, agreements and
      documents, whether now or hereafter existing, executed in connection with
      the Indebtedness.

BORROWER AND GRANTOR HAVE READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT AND AGREE TO ITS TERMS. THIS AGREEMENT IS DATED
FEBRUARY 7, 2002. THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT
THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED
INSTRUMENT ACCORDING TO LAW.

GRANTOR:

ADVANCED DIGITAL IMAGING RESEARCH, LLC

<TABLE>
<S>                                                          <C>
By: /s/ JOHN A. O'MALLEY                            (SEAL)    By: /s/ DONALD HORACEK                        (SEAL)
  -----------------------------------------------------         ------------------------------------------
   DR: JOHN A. O'MALLEY, MANAGER OF ADVANCED  DIGITAL           DONALD HORACEK, MANAGER OF ADVANCED DIGITAL
   IMAGING RESEARCH, LLC                                        IMAGING RESEARCH, LLC
</TABLE>


 BORROWWER


INTERNATIONAL REMOTE IMAGING SYSTEMS,  INC.

<TABLE>
<S>                                                          <C>
BY: /s/ JOHN A. O'MALLEY                            (Seal)    BY: /s/ JOHN CALOZ                        (SEAL)
  ---------------------------------------------------           ----------------------------------------
   DR: JOHN A. O'MALLEY, CEO/CHAIRMAN OF                        JOHN CALOZ, CFO/SECRETARY OF INTERNATIONAL REMOTE
   INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.                   IMAGING SYSTEMS, INC.
</TABLE>


<PAGE>
                          COMMERCIAL SECURITY AGREEMENT


<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL       LOAN DATE      MATURITY         LOAN NO       CALL/COLL        ACCOUNT       OFFICER       INITIALS
 <S>            <C>            <C>              <C>           <C>              <C>            <C>          <C>
$6,500,000.00    02-07-2002     06-30-2004      932900001-1                    932900001-1    22163        [INITIALS ILLEGIBLE]
-------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or Any item above containing "***" has been omitted due to text length limitations.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


BORROWER:   INTERNATIONAL REMOTE              LENDER:    CALIFORNIA BANK & TRUST
            IMAGING SYSTEMS, INC.                        COMMERCIAL LOAN CENTER
            9162 ETON AVENUE                             550 SOUTH HOPE STREET,
            CHATSWORTH, CA 91311                         SUITE 300
                                                         LOS ANGELES, CA 90071

GRANTOR:    STATSPIN, INC.
            85 MORSE STREET
            NORWOOD, MA 02062


THIS COMMERCIAL SECURITY AGREEMENT dated February 7, 2002, is made and executed
among Statspin, Inc. ("Grantor"); International Remote Imaging Systems, Inc.
("Borrower"); and California Bank & Trust ("Lender").

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means
the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which
Grantor is giving to Lender a security interest for the payment of the
Indebtedness and performance of all other obligations under the Note and this
Agreement:

        ALL INVENTORY, EQUIPMENT, ACCOUNTS (INCLUDING BUT NOT LIMITED TO ALL
        HEALTH-CARE-INSURANCE RECEIVABLES), CHATTEL PAPER, INSTRUMENTS
        (INCLUDING BUT NOT LIMITED TO ALL PROMISSORY NOTES), LETTER-OF-CREDIT
        RIGHTS, LETTERS OF CREDIT, DOCUMENTS, DEPOSIT ACCOUNTS, INVESTMENT
        PROPERTY, MONEY, OTHER RIGHTS TO PAYMENT AND PERFORMANCE, AND GENERAL
        INTANGIBLES (INCLUDING BUT NOT LIMITED TO ALL SOFTWARE AND ALL PAYMENT
        INTANGIBLES); ALL FIXTURES; ALL ATTACHMENTS, ACCESSIONS, ACCESSORIES,
        FITTINGS, INCREASES, TOOLS, PARTS, REPAIRS, SUPPLIES, AND COMMINGLED
        GOODS RELATING TO THE FOREGOING PROPERTY, AND ALL ADDITIONS,
        REPLACEMENTS OF AND SUBSTITUTIONS FOR ALL OR ANY PART OF THE FOREGOING
        PROPERTY; ALL INSURANCE REFUNDS RELATING TO THE FOREGOING PROPERTY; ALL
        GOOD WILL RELATING TO THE FOREGOING PROPERTY; ALL RECORDS AND DATA AND
        EMBEDDED SOFTWARE RELATING TO THE FOREGOING PROPERTY, AND ALL EQUIPMENT,
        INVENTORY AND SOFTWARE TO UTILIZE, CREATE, MAINTAIN AND PROCESS ANY SUCH
        RECORDS AND DATA ON ELECTRONIC MEDIA; AND ALL SUPPORTING OBLIGATIONS
        RELATING TO THE FOREGOING PROPERTY; ALL WHETHER NOW EXISTING OR
        HEREAFTER ARISING, WHETHER NOW OWNED OR HEREAFTER ACQUIRED OR WHETHER
        NOW OR HEREAFTER SUBJECT TO ANY RIGHTS IN THE FOREGOING PROPERTY; AND
        ALL PRODUCTS AND PROCEEDS (INCLUDING BUT NOT LIMITED TO ALL INSURANCE
        PAYMENTS) OF OR RELATING TO THE FOREGOING PROPERTY.

In addition, the word "Collateral" also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

        (A) All accessions, attachments, accessories, tools, parts, supplies,
        replacements of and additions to any of the collateral described herein,
        whether added now or later.

        (B) All products and produce of any of the property described in this
        Collateral section.

        (C) All accounts, general intangibles, instruments, rents, monies,
        payments, and all other rights, arising out of a sale, lease, or other
        disposition of any of the property described in this Collateral section.

        (D) All proceeds (including insurance proceeds) from the sale,
        destruction, loss, or other disposition of any of the property described
        in this Collateral section, and sums due from a third party who has
        damaged or destroyed the Collateral or from that party's insurer,
        whether due to judgment, settlement or other process.

        (E) All records and data relating to any of the property described in
        this Collateral section, whether in the form of a writing, photograph,
        microfilm, microfiche, or electronic media, together with all of
        Grantor's right, title, and interest in and to all computer software
        required to utilize, create, maintain, and process any such records or
        data on electronic media.

Despite any other provision of this Agreement, Lender is not granted, and will
not have, a nonpurchase money security interest in household goods, to the
extent such a security interest would be prohibited by applicable law. In
addition, if because of the type of any Property, Lender is required to give a
notice of the right to cancel under Truth in Lending for the Indebtedness, then
Lender will not have a security interest in such Collateral unless and until
such a notice is given.

CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all
obligations, debts and liabilities, plus interest thereon, of Borrower to
Lender, or any one or more of them, as well as all claims by Lender against
Borrower or any one or more of them, whether now existing or hereafter arising,
whether related or unrelated to the purpose of the Note, whether voluntary or
otherwise, whether due or not due, direct or indirect, determined or
undetermined, absolute or contingent, liquidated or unliquidated whether
Borrower or Grantor may be liable individually or jointly with others, whether
obligated as guarantor, surety, accommodation party or otherwise, and whether
recovery upon such amounts may be or hereafter may become barred by any statute
of limitations, and whether the obligation to repay such amounts may be or
hereafter may become otherwise unenforceable.

BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this
Agreement or by applicable law, (A) Borrower agrees that Lender need not tell
Borrower about any action or inaction Lender takes in connection with this
Agreement; (B) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (C) Borrower waives any defenses that may
arise because of any action or inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender in
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.

GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (A) this
Agreement is executed at Borrower's request and not at the request of Lender;
(B) Grantor has the full right, power and authority to enter into this Agreement
and to pledge the Collateral to Lender; (C) Grantor has established adequate
means of obtaining from Borrower on a continuing basis information about
Borrower's financial condition; and (D) Lender has made no representation to
Grantor about Borrower or Borrower's creditworthiness.

GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest,
demand, and notice of dishonor or non-payment to Borrower or Grantor, or any
other party to the Indebtedness or the Collateral. Lender may do any of the
following with respect to any obligation of any Borrower, without first
obtaining the consent of Grantor: (A) grant any extension of time for any
payment, (B) grant any renewal, (C) permit any modification of payment terms or
other terms, or (D) exchange or release any Collateral or other security. No
such act or failure to act shall affect Lender's rights


<PAGE>

                          COMMERCIAL SECURITY AGREEMENT

LOAN NO: 932900001-1                 (CONTINUED)                          PAGE 2

================================================================================

against Grantor or the Collateral.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and promises to Lender that:

        PERFECTION OF SECURITY INTEREST. Grantor agrees to execute financing
        statements and to take whatever other actions are requested by Lender to
        perfect and continue Lender's security interest in the Collateral. Upon
        request of Lender, Grantor will deliver to Lender any and all of the
        documents evidencing or constituting the Collateral, and Grantor will
        note Lender's interest upon any and all chattel paper if not delivered
        to Lender for possession by Lender. THIS IS A CONTINUING SECURITY
        AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY PART OF THE
        INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF TIME
        BORROWER MAY NOT BE INDEBTED TO LENDER.

        NOTICES TO LENDER. Grantor will promptly notify Lender in writing at
        Lender's address shown above (or such other addresses as Lender may
        designate from time to time) prior to any (1) change in Grantor's name;
        (2) change in Grantor's assumed business name(s); (3) change in the
        management of the Corporation Grantor; (4) change in the authorized
        signer(s); (5) change in Grantor's principal office address; (6) change
        in Grantor's state of organization; (7) conversion of Grantor to a new
        or different type of business entity; or (8) change in any other aspect
        of Grantor that directly or indirectly relates to any agreements between
        Grantor and Lender. No change in Grantor's name or state of organization
        will take effect until after Lender has received notice.

        NO VIOLATION. The execution and delivery of this Agreement will not
        violate any law or agreement governing Grantor or to which Grantor is a
        party, and its certificate or articles of incorporation and bylaws do
        not prohibit any term or condition of this Agreement.

        ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
        accounts, chattel paper, or general intangibles, as defined by the
        Uniform Commercial Code, the Collateral is enforceable in accordance
        with its terms, is genuine, and fully complies with all applicable laws
        and regulations concerning form, content and manner of preparation and
        execution, and all persons appearing to be obligated on the Collateral
        have authority and capacity to contract and are in fact obligated as
        they appear to be on the Collateral. At the time any Account becomes
        subject to a security interest in favor of Lender, the Account shall be
        a good and valid account representing an undisputed, bona fide
        indebtedness incurred by the account debtor, for merchandise held
        subject to delivery instructions or previously shipped or delivered
        pursuant to a contract of sale, or for services previously performed by
        Grantor with or for the account debtor. So long as this Agreement
        remains in effect, Grantor shall not, without Lender's prior written
        consent, compromise, settle, adjust, or extend payment under or with
        regard to any such Accounts. There shall be no setoffs or counterclaims
        against any of the Collateral, and no agreement shall have been made
        under which any deductions or discounts may be claimed concerning the
        Collateral except those disclosed to Lender in writing.

        LOCATION OF THE COLLATERAL. Except in the ordinary course of Grantor's
        business, Grantor agrees to keep the Collateral (or to the extent the
        Collateral consists of intangible property such as accounts or general
        intangibles, the records concerning the Collateral) at Grantor's address
        shown above or at such other locations as are acceptable to Lender. Upon
        Lender's request, Grantor will deliver to Lender in form satisfactory to
        Lender a schedule of real properties and Collateral locations relating
        to Grantor's operations, including without limitation the following: (1)
        all real property Grantor owns or is purchasing; (2) all real property
        Grantor is renting or leasing; (3) all storage facilities Grantor owns,
        rents, leases, or uses; and (4) all other properties where Collateral is
        or may be located.

        REMOVAL OF THE COLLATERAL. Except in the ordinary course of Grantor's
        business, including the sales of inventory, Grantor shall not remove the
        Collateral from its existing location without Lender's prior written
        consent. To the extent that the Collateral consists of vehicles, or
        other titled property, Grantor shall not take or permit any action which
        would require application for certificates of title for the vehicles
        outside the Commonwealth of Massachusetts, without Lender's prior
        written consent. Grantor shall, whenever requested, advise Lender of the
        exact location of the Collateral.

        TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
        collected in the ordinary course of Grantor's business, or as otherwise
        provided for in this Agreement, Grantor shall not sell, offer to sell,
        or otherwise transfer or dispose of the Collateral. While Grantor is not
        in default under this Agreement, Grantor may sell inventory, but only in
        the ordinary course of its business and only to buyers who qualify as a
        buyer in the ordinary course of business. A sale in the ordinary course
        of Grantor's business does not include a transfer in partial or total
        satisfaction of a debt or any bulk sale. Grantor shall not pledge,
        mortgage, encumber or otherwise permit the Collateral to be subject to
        any lien, security interest, encumbrance, or charge, other than the
        security interest provided for in this Agreement, without the prior
        written consent of Lender. This includes security interests even if
        junior in right to the security interests granted under this Agreement.
        Unless waived by Lender, all proceeds from any disposition of the
        Collateral (for whatever reason) shall be held in trust for Lender and
        shall not be commingled with any other funds; provided however, this
        requirement shall not constitute consent by Lender to any sale or other
        disposition. Upon receipt, Grantor shall immediately deliver any such
        proceeds to Lender.

        TITLE. Grantor represents and warrants to Lender that Grantor holds good
        and marketable title to the Collateral, free and clear of all liens and
        encumbrances except for the lien of this Agreement. No financing
        statement covering any of the Collateral is on file in any public office
        other than those which reflect the security interest created by this
        Agreement or to which Lender has specifically consented. Grantor shall
        defend Lender's rights in the Collateral against the claims and demands
        of all other persons.

        REPAIRS AND MAINTENANCE. Grantor agrees to keep and maintain, and to
        cause others to keep and maintain, the Collateral in good order, repair
        and condition at all times while this Agreement remains in effect.
        Grantor further agrees to pay when due all claims for work done on, or
        services rendered or material furnished in connection with the
        Collateral so that no lien or encumbrance may ever attach to or be filed
        against the Collateral.

        INSPECTION OF COLLATERAL. Lender and Lender's designated representatives
        and agents shall have the right at all reasonable times to examine and
        inspect the Collateral wherever located.

        TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
        assessments and liens upon the Collateral, its use or operation, upon
        this Agreement, upon any promissory note or notes evidencing the
        Indebtedness, or upon any of the other Related Documents. Grantor may
        withhold any such payment or may elect to contest any lien if Grantor is
        in good faith conducting an appropriate proceeding to contest the
        obligation to pay and so long as Lender's interest in the Collateral is
        not jeopardized in Lender's sole opinion. If the Collateral is subjected
        to a lien which is not discharged within fifteen (15) days, Grantor
        shall deposit with Lender cash, a sufficient corporate surety bond or
        other security satisfactory to Lender in an amount adequate to provide
        for the discharge of the lien plus any interest, costs, attorneys' fees
        or other charges that could accrue as a result of foreclosure or sale of
        the Collateral. In any contest Grantor shall defend itself and Lender
        and shall satisfy any final adverse judgment before enforcement against
        the Collateral. Grantor shall name Lender as an additional obligee under
        any surety bond furnished in the contest proceedings. Grantor further
        agrees to furnish Lender with evidence that such taxes, assessments, and
        governmental and other charges have been paid in full and in a timely
        manner. Grantor may withhold any such payment or may elect to contest
        any lien if Grantor is in good faith conducting an appropriate
        proceeding to contest the obligation to pay and so long as Lender's
        interest in the Collateral is not jeopardized.

        COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
        with all laws, ordinances, rules and regulations of all governmental
        authorities, now or hereafter in effect, applicable to the ownership,
        production, disposition, or use of the Collateral, including all laws or
        regulations relating to the undue erosion of highly-erodible land or
        relating to the conversion of wetlands for the production of an
        agricultural product or commodity. Grantor may contest in good faith any
        such law, ordinance or regulation and withhold compliance during any
        proceeding,



<PAGE>

                          COMMERCIAL SECURITY AGREEMENT

LOAN NO: 932900001-1                 (CONTINUED)                          PAGE 3

================================================================================

        including appropriate appeals, so long as Lender's interest in the
        Collateral, in Lender's opinion, is not jeopardized.

        HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
        Collateral never has been, and never will be so long as this Agreement
        remains a lien on the Collateral, used in violation of any Environmental
        Laws or for the generation, manufacture, storage, transportation,
        treatment, disposal, release or threatened release of any Hazardous
        Substance. In addition, Grantor represents and warrants that the
        Collateral does not contain urea formaldehyde foam insulation or urea
        formaldehyde resin in violation of any Massachusetts state laws. The
        representations and warranties contained herein are based on Grantor's
        due diligence in investigating the Collateral for Hazardous Substances.
        Grantor hereby (1) releases and waives any future claims against Lender
        for indemnity or contribution in the event Grantor becomes liable for
        cleanup or other costs under any Environmental Laws, and (2) agrees to
        indemnify and hold harmless Lender against any and all claims and losses
        resulting from a breach of this provision of this Agreement. This
        obligation to indemnify shall survive the payment of the Indebtedness
        and the satisfaction of this Agreement.

        MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
        all risks insurance, including without limitation fire, theft and
        liability coverage together with such other insurance as Lender may
        require with respect to the Collateral, in form, amounts, coverages and
        basis reasonably acceptable to Lender and issued by a company or
        companies reasonably acceptable to Lender. Grantor, upon request of
        Lender, will deliver to Lender from time to time the policies or
        certificates of insurance in form satisfactory to Lender, including
        stipulations that coverages will not be cancelled or diminished without
        at least ten (10) days' prior written notice to Lender and not including
        any disclaimer of the insurer's liability for failure to give such a
        notice. Each insurance policy also shall include an endorsement
        providing that coverage in favor of Lender will not be impaired in any
        way by any act, omission or default of Grantor or any other person. In
        connection with all policies covering assets in which Lender holds or is
        offered a security interest, Grantor will provide Lender with such loss
        payable or other endorsements as Lender may require. If Grantor at any
        time fails to obtain or maintain any insurance as required under this
        Agreement, Lender may (but shall not be obligated to) obtain such
        insurance as Lender deems appropriate, including if Lender so chooses
        "single interest insurance," which will cover only Lender's interest in
        the Collateral.

        APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
        of any loss or damage to the Collateral. Lender may make proof of loss
        if Grantor fails to do so within fifteen (15) days of the casualty. All
        proceeds of any insurance on the Collateral, including accrued proceeds
        thereon, shall be held by Lender as part of the Collateral. If Lender
        consents to repair or replacement of the damaged or destroyed
        Collateral, Lender shall, upon satisfactory proof of expenditure, pay or
        reimburse Grantor from the proceeds for the reasonable cost of repair or
        restoration. If Lender does not consent to repair or replacement of the
        Collateral, Lender shall retain a sufficient amount of the proceeds to
        pay all of the Indebtedness, and shall pay the balance to Grantor. Any
        proceeds which have not been disbursed within six (6) months after their
        receipt and which Grantor has not committed to the repair or restoration
        of the Collateral shall be used to prepay the Indebtedness.

        INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
        reserves for payment of insurance premiums, which reserves shall be
        created by monthly payments from Grantor of a sum estimated by Lender to
        be sufficient to produce, at least fifteen (15) days before the premium
        due date, amounts at least equal to the insurance premiums to be paid.
        If fifteen (15) days before payment is due, the reserve funds are
        insufficient, Grantor shall upon demand pay any deficiency to Lender.
        The reserve funds shall be held by Lender as a general deposit and shall
        constitute a non-interest-bearing account which Lender may satisfy by
        payment of the insurance premiums required to be paid by Grantor as they
        become due. Lender does not hold the reserve funds in trust for Grantor,
        and Lender is not the agent of Grantor for payment of the insurance
        premiums required to be paid by Grantor. The responsibility for the
        payment of premiums shall remain Grantor's sole responsibility.

        INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
        Lender reports on each existing policy of insurance showing such
        information as Lender may reasonably request including the following:
        (1) the name of the insurer; (2) the risks insured; (3) the amount of
        the policy; (4) the property insured; (5) the then current value on the
        basis of which insurance has been obtained and the manner of determining
        that value; and (6) the expiration date of the policy. In addition,
        Grantor shall upon request by Lender (however not more often than
        annually) have an independent appraiser satisfactory to Lender
        determine, as applicable, the cash value or replacement cost of the
        Collateral.

FINANCING STATEMENTS. Grantor authorizes Lender to file a UCC-1 financing
statement, or alternatively, a copy of this Agreement to perfect Lender's
security interest. At Lender's request, Grantor additionally agrees to sign all
other documents that are necessary to perfect, protect, and continue Lender's
security interest in the Property. Grantor will pay all filing fees, title
transfer fees, and other fees and costs involved unless prohibited by law or
unless Lender is required by law to pay such fees and costs. Grantor irrevocably
appoints Lender to execute financing statements and documents of title in
Grantor's name and to execute all documents necessary to transfer title if there
is a default. Lender may file a copy of this Agreement as a financing statement.
If Grantor changes Grantor's name or address, or the name or address of any
person granting a security interest under this Agreement changes, Grantor will
promptly notify the Lender of such change.

GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all
costs for insuring, maintaining and preserving the Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity. The Agreement also will secure payment of these amounts. Such right
shall be in, addition to all other rights and remedies to which Lender may be
entitled upon Default.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

        PAYMENT DEFAULT. Borrower fails to make any payment when due under the
        Indebtedness.

        OTHER DEFAULTS. Borrower or Grantor fails to comply with or to perform
        any other term, obligation, covenant or condition contained in this
        Agreement or in any of the Related Documents or to comply with or to
        perform any term, obligation, covenant or condition contained in any
        other


<PAGE>

                          COMMERCIAL SECURITY AGREEMENT

LOAN NO: 932900001-1                 (CONTINUED)                          PAGE 4

================================================================================

        agreement between Lender and Borrower or Grantor.

        Default in Favor of Third Parties. Should Borrower or any Grantor
        default under any loan, extension of credit, security agreement,
        purchase or sales agreement, or any other agreement, in favor of any
        other creditor or person that may materially affect any of Grantor's
        property or Borrower's or any Grantor's ability to repay the
        Indebtedness or perform their respective obligations under this
        Agreement or any of the Related Documents.

        FALSE STATEMENTS. Any warranty, representation or statement made or
        furnished to Lender by Borrower or Grantor or on Borrower's or Grantor's
        behalf under this Agreement or the Related Documents is false or
        misleading in any material respect, either now or at the time made or
        furnished or becomes false or misleading at any time thereafter.

        DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
        Documents ceases to be in full force and effect (including failure of
        any collateral document to create a valid and perfected security
        interest or lien) at any time and for any reason.

        INSOLVENCY. The dissolution or termination of Borrower's or Grantor's
        existence as a going business, the insolvency of Borrower or Grantor,
        the appointment of a receiver for any part of Borrower's or Grantor's
        property, any assignment for the benefit of creditors, any type of
        creditor workout, or the commencement of any proceeding under any
        bankruptcy or insolvency laws by or against Borrower or Grantor.

        CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
        forfeiture proceedings, whether by judicial proceeding, self-help,
        repossession or any other method, by any creditor of Borrower or Grantor
        or by any governmental agency against any collateral securing the
        Indebtedness. This includes a garnishment of any of Borrower's or
        Grantor's accounts, including deposit accounts, with Lender. However,
        this Event of Default shall not apply if there is a good faith dispute
        by Borrower or Grantor as to the validity or reasonableness of the claim
        which is the basis of the creditor or forfeiture proceeding and if
        Borrower or Grantor gives Lender written notice of the creditor or
        forfeiture proceeding and deposits with Lender monies or a surety bond
        for the creditor or forfeiture proceeding, in an amount determined by
        Lender, in its sole discretion, as being an adequate reserve or bond for
        the dispute.

        EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
        respect to Guarantor of any of the Indebtedness or Guarantor dies or
        becomes incompetent or revokes or disputes the validity of, or liability
        under, any Guaranty of the Indebtedness.

        Adverse Change. A material adverse change occurs in Borrower's or
        Grantor's financial condition, or Lender believes the prospect of
        payment or performance of the Indebtedness is impaired.

        INSECURITY. Lender in good faith believes itself insecure.

        CURE PROVISIONS. If any default, other than a default in payment is
        curable and if Grantor has not been given a notice of a breach of the
        same provision of this Agreement within the preceding twelve (12)
        months, it may be cured (and no event of default will have occurred) if
        Grantor, after receiving written notice from Lender demanding cure of
        such default: (1) cures the default within fifteen (15) days; or (2) if
        the cure requires more than fifteen (15) days, immediately initiates
        steps which Lender deems in Lender's sole discretion to be sufficient to
        cure the default and thereafter continues and completes all reasonable
        and necessary steps sufficient to produce compliance as soon as
        reasonably practical.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Massachusetts Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:

        ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
        including any prepayment penalty which Borrower would be required to
        pay, immediately due and payable, without notice of any kind to Borrower
        or Grantor.

        ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
        or any portion of the Collateral and any and all certificates of title
        and other documents relating to the Collateral. Lender may require
        Grantor to assemble the Collateral and make it available to Lender at a
        place to be designated by Lender. Lender also shall have full power to
        enter upon the property of Grantor to take possession of and remove the
        Collateral. If the Collateral contains other goods not covered by this
        Agreement at the time of repossession, Grantor agrees Lender may take
        such other goods, provided that Lender makes reasonable efforts to
        return them to Grantor after repossession.

        SELL THE COLLATERAL. Lender shall have full power to sell, lease,
        transfer, or otherwise deal with the Collateral or proceeds thereof in
        Lender's own name or that of Grantor. Lender may sell the Collateral at
        public auction or private sale. Unless the Collateral threatens to
        decline speedily in value or is of a type customarily sold on a
        recognized market, Lender will give Grantor, and other persons as
        required by law, reasonable notice of the time and place of any public
        sale, or the time after which any private sale or any other disposition
        of the Collateral is to be made. However, no notice need be provided to
        any person who, after Event of Default occurs, enters into and
        authenticates an agreement waiving that person's right to notification
        of sale. The requirements of reasonable notice shall be met if such
        notice is given at least ten (10) days before the time of the sale or
        disposition. All expenses relating to the disposition of the Collateral,
        including without limitation the expenses of retaking, holding,
        insuring, preparing for sale and selling the Collateral, shall become a
        part of the Indebtedness secured by this Agreement and shall be payable
        on demand, with interest at the Note rate from date of expenditure until
        repaid.

        APPOINT RECEIVER. Lender shall have the right to have a receiver
        appointed to take possession of all or any part of the Collateral, with
        the power to protect and preserve the Collateral, to operate the
        Collateral preceding foreclosure or sale, and to collect the Rents from
        the Collateral and apply the proceeds, over and above the cost of the
        receivership, against the Indebtedness. The receiver may serve without
        bond if permitted by law. Lender's right to the appointment of a
        receiver shall exist whether or not the apparent value of the Collateral
        exceeds the Indebtedness by a substantial amount. Employment by Lender
        shall not disqualify a person from serving as a receiver.

        COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
        receiver, may collect the payments, rents, income, and revenues from the
        Collateral. Lender may at any time in Lender's discretion transfer any
        Collateral into Lender's own name or that of Lender's nominee and
        receive the payments, rents, income, and revenues therefrom and hold the
        same as security for the Indebtedness or apply it to payment of the
        Indebtedness in such order of preference as Lender may determine.
        Insofar as the Collateral consists of accounts, general intangibles,
        insurance policies, instruments, chattel paper, chooses in action, or
        similar property, Lender may demand, collect, receipt for, settle,
        compromise, adjust, sue for, foreclose, or realize on the Collateral as
        Lender may determine, whether or not Indebtedness or Collateral is then
        due. For these purposes, Lender may, on behalf of and in the name of
        Grantor, receive, open and dispose of mail addressed to Grantor; change
        any address to which mail and payments are to be sent; and endorse
        notes, checks, drafts, money orders, documents of title, instruments and
        items pertaining to payment, shipment, or storage of any Collateral. To
        facilitate collection, Lender may notify account debtors and obligors on
        any Collateral to make payments directly to Lender.

        OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
        Collateral, Lender may obtain a judgment against Borrower for any
        deficiency co remaining on the Indebtedness due to Lender after
        application of all amounts received from the exercise of the rights
        provided in this Agreement. Borrower shall be liable for a deficiency
        even if the transaction described in this subsection is a sale of
        accounts or chattel paper.

        OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
        of a secured creditor under the provisions of the Uniform Commercial
        Code, as may be amended from time to time. In addition, Lender shall
        have and may exercise any or all other rights and remedies it may have
        available at law, in equity, or otherwise.



<PAGE>

                          COMMERCIAL SECURITY AGREEMENT

LOAN NO: 932900001-1                 (CONTINUED)                          PAGE 5
================================================================================


        ELECTION OF REMEDIES. Except as may be prohibited by applicable law, all
        of Lender's rights and remedies, whether evidenced by this Agreement,
        the Related Documents, or by any other writing, shall be cumulative and
        may be exercised singularly or concurrently. Election by Lender to
        pursue any remedy shall not exclude pursuit of any other remedy, and an
        election to make expenditures or to take action to perform an obligation
        of Grantor under this Agreement, after Grantor's failure to perform,
        shall not affect Lender's right to declare a default and exercise its
        remedies.

DEPOSIT AGREEMENT SECURITY. Grantor hereby grants a security interest to Lender
in any and all deposit accounts (checking, savings, money market or time) of
Grantor at Lender, now existing or hereinafter opened, to secure the
Indebtedness. This includes all deposit accounts Grantor holds jointly with
someone else.

WAIVERS AND MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are
a part of this Agreement:

        AMENDMENTS. This Agreement, together with any Related Documents,
        constitutes the entire understanding and agreement of the parties as to
        the matters set forth in this Agreement. No alteration of or amendment
        to this Agreement shall be effective unless given in writing and signed
        by the party or parties sought to be charged or bound by the alteration
        or amendment.

        ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
        Lender's costs and expenses, including Lender's attorneys' fees and
        Lender's legal expenses, incurred in connection with the enforcement of
        this Agreement. Lender may hire or pay someone else to help enforce this
        Agreement, and Grantor shall pay the costs and expenses of such
        enforcement. Costs and expenses include Lender's attorneys' fees and
        legal expenses whether or not there is a lawsuit, including attorneys'
        fees and legal expenses for bankruptcy proceedings (including efforts to
        modify or vacate any automatic stay or injunction), appeals, and any
        anticipated post-judgment collection services. Grantor also shall pay
        all court costs and such additional fees as may be directed by the
        court.

        CAPTION HEADINGS. Caption headings in this Agreement are for convenience
        purposes only and are not to be used to interpret or define the
        provisions of this Agreement.

        GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND
        ENFORCED IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF
        CALIFORNIA, EXCEPT AND ONLY TO THE EXTENT OF PROCEDURAL MATTERS RELATED
        TO THE PERFECTION AND ENFORCEMENT OF LENDER'S RIGHTS AND REMEDIES
        AGAINST THE COLLATERAL, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF
        THE COMMONWEALTH OF MASSACHUSETTS. HOWEVER, IN THE EVENT THAT THE
        ENFORCEABILITY OR VALIDITY OF ANY PROVISION OF THIS AGREEMENT IS
        CHALLENGED OR QUESTIONED, SUCH PROVISION SHALL BE GOVERNED BY WHICHEVER
        APPLICABLE STATE OR FEDERAL LAW WOULD UPHOLD OR WOULD ENFORCE SUCH
        CHALLENGED OR QUESTIONED PROVISION. THE LOAN TRANSACTION WHICH IS
        EVIDENCED BY THE NOTE AND THIS AGREEMENT HAS BEEN APPLIED FOR,
        CONSIDERED, APPROVED AND MADE, AND ALL NECESSARY LOAN DOCUMENTS HAVE
        BEEN ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA.

        CHOICE OF VENUE. If there is a lawsuit, Grantor agrees upon Lender's
        request to submit to the jurisdiction of the courts of Los Angeles
        County, State of California.

        JOINT AND SEVERAL LIABILITY. All obligations of Borrower and Grantor
        under this Agreement shall be joint and several, and all references to
        Grantor shall mean each and every Grantor, and all references to
        Borrower shall mean each and every Borrower. This means that each
        Borrower and Grantor signing below is responsible for all obligations in
        this Agreement. Where any one or more of the parties is a corporation,
        partnership, limited liability company or similar entity, it is not
        necessary for Lender to inquire into the powers of any of the officers,
        directors, partners, members, or other agents acting or purporting to
        act on the entity's behalf, and any obligations made or created in
        reliance upon the professed exercise of such powers shall be guaranteed
        under this Agreement.

        NO WAIVER BY LENDER. Lender shall not be deemed to have waived any
        rights under this Agreement unless such waiver is given in writing and
        signed by Lender. No delay or omission on the part of Lender in
        exercising any right shall operate as a waiver of such right or any
        other right. A waiver by Lender of a provision of this Agreement shall
        not prejudice or constitute a waiver of Lender's right otherwise to
        demand strict compliance with that provision or any other provision of
        this Agreement. No prior waiver by Lender, nor any course of dealing
        between Lender and Grantor, shall constitute a waiver of any of Lender's
        rights or of any of Grantor's obligations as to any future transactions.
        Whenever the consent of Lender is required under this Agreement, the
        granting of such consent by Lender in any instance shall not constitute
        continuing consent to subsequent instances where such consent is
        required and in all cases such consent may be granted or withheld in the
        sole discretion of Lender.

        NOTICES. Any notice required to be given under this Agreement shall be
        given in writing, and shall be effective when actually delivered, when
        actually received by telefacsimile (unless otherwise required by law),
        when deposited with a nationally recognized overnight courier, or, if
        mailed, when deposited in the United States mail, as first class,
        certified or registered mail postage prepaid, directed to the addresses
        shown near the beginning of this Agreement. Any party may change its
        address for notices under this Agreement by giving formal written notice
        to the other parties, specifying that the purpose of the notice is to
        change the party's address. For notice purposes, Grantor agrees to keep
        Lender informed at all times of Grantor's current address. Unless
        otherwise provided or required by law, if there is more than one
        Grantor, any notice given by Lender to any Grantor is deemed to be
        notice given to all Grantors.

        POWER OF ATTORNEY. Grantor hereby appoints Lender as Grantor's
        irrevocable attorney-in-fact for the purpose of executing any documents
        necessary to perfect, amend, or to continue the security interest
        granted in this Agreement or to demand termination of filings of other
        secured parties. Lender may at any time, and without further
        authorization from Grantor, file a carbon, photographic or other
        reproduction of any financing statement or of this Agreement for use as
        a financing statement. Grantor will reimburse Lender for all expenses
        for the perfection and the continuation of the perfection of Lender's
        security interest in the Collateral.

        SEVERABILITY. If a court of competent jurisdiction finds any provision
        of this Agreement to be illegal, invalid, or unenforceable as to any
        circumstance, that finding shall not make the offending provision
        illegal, invalid, or unenforceable as to any other circumstance. If
        feasible, the offending provision shall be considered modified so that
        it becomes legal, valid and enforceable. If the offending provision
        cannot be so modified, it shall be considered deleted from this
        Agreement. Unless otherwise required by law, the illegality, invalidity,
        or unenforceability of any provision of this Agreement shall not affect
        the legality, validity or enforceability of any other provision of this
        Agreement.

        SUCCESSORS AND ASSIGNS. Subject to any limitations stated in this
        Agreement on transfer of Grantor's interest, this Agreement shall be
        binding upon and inure to the benefit of the parties, their successors
        and assigns. If ownership of the Collateral becomes vested in a person
        other than Grantor, Lender, without notice to Grantor, may deal with
        Grantor's successors with reference to this Agreement and the
        Indebtedness by way of forbearance or extension without releasing
        Grantor from the obligations of this Agreement or liability under the
        Indebtedness.

        SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
        warranties, and agreements made by Grantor in this Agreement shall
        survive the execution and delivery of this Agreement, shall be
        continuing in nature, and shall remain in full force and effect until
        such time as Borrower's Indebtedness shall be paid in full.

        TIME IS OF THE ESSENCE. Time is of the essence in the performance of
        this Agreement.

        WAIVE JURY. ALL PARTIES TO THIS AGREEMENT HEREBY WAIVE THE RIGHT TO ANY
        JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY ANY
        PARTY AGAINST ANY OTHER PARTY.


<PAGE>

                          COMMERCIAL SECURITY AGREEMENT

LOAN NO: 932900001-1                 (CONTINUED)                          PAGE 6
================================================================================


DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code:

        ACCOUNT. The word "Account" means a trade account, account receivable,
        other receivable, or other right to payment for goods sold or services
        rendered owing to Grantor (or to a third party grantor acceptable to
        Lender).

        AGREEMENT. The word "Agreement" means this Commercial Security
        Agreement, as this Commercial Security Agreement may be amended or
        modified from time to time, together with all exhibits and schedules
        attached to this Commercial Security Agreement from time to time.

        BORROWER. The word "Borrower" means International Remote Imaging
        Systems, Inc., and all other persons and entities signing the Note in
        whatever capacity.

        COLLATERAL. The word "Collateral" means all of Grantor's right, title
        and interest in and to all the Collateral as described in the Collateral
        Description section of this Agreement.

        DEFAULT. The word "Default" means the Default set forth in this
        Agreement in the section titled "Default".

        ENVIRONMENTAL LAWS. The words "Environmental Laws" mean any and all
        state, federal and local statutes, regulations and ordinances relating
        to the protection of human health or the environment, including without
        limitation the Comprehensive Environmental Response, Compensation, and
        Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
        ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
        Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act,
        49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
        Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of
        Division 20 of the California Health and Safety Code, Section 25100, et
        sec., or other applicable state or federal laws, rules, or regulations
        adopted pursuant thereto.

        EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
        default set forth in this Agreement in the default section of this
        Agreement.

        GRANTOR. The word "Grantor" means Statspin, Inc..

        GUARANTOR. The word "Guarantor" means any guarantor, surety, or
        accommodation party of any or all of the Indebtedness.

        GUARANTY. The word "Guaranty" means the guaranty from Guarantor to
        Lender, including without limitation a guaranty of all or part of the
        Note.

        HAZARDOUS SUBSTANCES. The words "Hazardous Substances" mean materials
        that, because of their quantity, concentration or physical, chemical or
        infectious characteristics, may cause or pose a present or potential
        hazard to human health or the environment when improperly used, treated,
        stored, disposed of, generated, manufactured, transported or otherwise
        handled. The words "Hazardous Substances" are used in their very
        broadest sense and include without limitation any and all hazardous or
        toxic substances, materials or waste as defined by or listed under the
        Environmental Laws. The term "Hazardous Substances" also includes,
        without limitation, petroleum and petroleum by-products or any fraction
        thereof and asbestos.

        INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
        by the Note or Related Documents, including all principal and interest
        together with all other indebtedness and costs and expenses for which
        Borrower is responsible under this Agreement or under any of the Related
        Documents.

        LENDER. The word "Lender" means California Bank & Trust, its successors
        and assigns.

        NOTE. The word "Note" means the Note executed by International Remote
        Imaging Systems, Inc. in the principal amount of $6,500,000.00 dated
        February 7, 2002, together with all renewals of, extensions of,
        modifications of, refinancings of, consolidations of, and substitutions
        for the note or credit agreement.

        PROPERTY. The word "Property" means all of Grantor's right, title and
        interest in and to all the Property as described in the "Collateral
        Description" section of this Agreement.

        RELATED DOCUMENTS. The words "Related Documents" mean all promissory
        notes, credit agreements, loan agreements, environmental agreements,
        guaranties, security agreements, mortgages, deeds of trust, security
        deeds, collateral mortgages, and all other instruments, agreements and
        documents, whether now or hereafter existing, executed in connection
        with the Indebtedness.

BORROWER AND GRANTOR HAVE READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT AND AGREE TO ITS TERMS. THIS AGREEMENT IS DATED
FEBRUARY 7, 2002.

THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.


GRANTOR:



STATSPIN, INC.


BY: /S/ DR. JOHN A. O'MALLEY   (SEAL)     BY: /S/ DONALD HORACEK         (SEAL)
    ---------------------------               ---------------------------
    DR. JOHN A. O'MALLEY,                     DONALD HORACEK,
    CEO OF STATPIN, INC.                      SECRETARY OF STATSPIN, INC.




INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.;



BY: /S/ DR. JOHN A. O'MALLEY,  (SEAL)     BY: /S/ JOHN CALOZ             (SEAL)
    ---------------------------               ---------------------------
    DR. JOHN A. O'MALLEY,                     JOHN CALOZ,
    CEO/CHAIRMAN OF                           SECRETARY OF INTERNATIONAL REMOTE
    INTERNATIONAL REMOTE                      IMAGING SYSTEMS, INC.
    IMAGING SYSTEMS, INC.