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                                  EXHIBIT 10.8

                               SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (the "Agreement") dated as of December 31, 1997 is
entered into by and between INTERCELL CORPORATION, a Colorado corporation
("Intercell"), and AUGUSTINE FUND, L.P. (the "Secured Party").

                              W I T N E S S E T H:

     WHEREAS, Intercell and Secured Party are parties to that certain Securities
Purchase Agreement dated as of December 3, 1997, which agreement is proposed to
be amended contemporaneously with the date of this Agreement (as so amended, the
"Purchase Agreement"); and

     WHEREAS, it is a condition precedent to Secured Party's willingness to make
the additional investments in Intercell contemplated by the Purchase Agreement
that the obligations of Intercell thereunder and under all agreements and
instruments heretofore or hereafter executed and delivered in connection
therewith (the "Obligations") be secured by certain assets;

     NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     Section 1.  Grant of Security Interest.  Intercell hereby conveys,
                 --------------------------                            
transfers, grants, assigns and pledges to the Secured Party a security interest
in and security title to (together with a right of setoff) the following assets
of Intercell (collectively, the "Collateral"):

          (a) all interests (the "Sigma/BMI Interests") of Intercell as creditor
     of Sigma 7 Corporation and BMI Acquisition Group pursuant to the following
     documents: (i) Secured Promissory Note dated December 31, 1997 in the
     original principal amount of $3,057,774.13, and (ii) Security Agreement
     dated April 30, 1997.

          (b) all interests (the "ITC Interests") of Intercell as creditor of
     Intercell Technologies Corporation pursuant to the following documents: (i)
     Promissory Note dated July 18, 1997 in the original principal amount of
     $2,200,000 and (ii) Stock Pledge and Security Agreement dated July 18, 1997
     (the "ITC Pledge Agreement"); and

          (c) all proceeds of any and all of the Collateral (including, without
     limitation, cash proceeds) and, to the extent not otherwise included, all
     payments under insurance (whether or not the Secured Party is the loss
     payee thereof) or under any indemnity, warranty or guaranty, payable by
     reason of loss or damage to or otherwise with respect to any of the
     Collateral.

(The documents evidencing the Sigma/BMI Interests and the ITC Interests are
sometimes referred to hereafter as the "Underlying Documents.")

     Section 2.  Security for Obligations.  This Agreement secures the
                 ------------------------                             
performance of the Obligations, whether now or hereafter existing.

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     Section 3.  Intercell Remains Liable.  Anything herein to the contrary
                 ------------------------                                  
notwithstanding, (a) Intercell shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of the duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Secured Party of any of
the rights hereunder shall not release Intercell from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) the Secured Party shall not have any obligation or liability under the
contracts and agreements included in the Collateral by reason of this Agreement,
nor shall the Secured Party be obligated to perform any of the obligations or
duties of Intercell thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.

     Section 4.  Closing Deliveries.  Contemporaneously with the execution of
                 ------------------                                          
this Agreement, Intercell will deliver to the Secured Party the following
documents and instruments:

          (a) The original note underlying the Sigma/BMI Interests, together
     with a fully executed Allonge to such note in the form attached hereto as
     Exhibit A.

          (b) The original note underlying the ITC Interests, together with a
     fully executed Allonge to such note in the form attached hereto as Exhibit
     B.

          (c) The stock certificate representing the shares of Cellular
     Magnetics, Inc. pledged to Intercell pursuant to the ITC Pledge Agreement,
     together with an accompanying blank stock power.

          (d) A notice of assignment showing the Secured Party, as assignee, to
     be filed with the California Secretary of State as to filings 9725260687
     and 9725260676, which are filings representing Intercell's perfected
     security interest in the Sigma/BMI Interests.

          (e) A UCC-1 financing statement listing Intercell, as debtor, and the
     Secured Party, as secured party, to be filed with the Colorado Secretary of
     State, covering the Collateral.

     Section 5.  Representations and Warranties.  Intercell represents and
                 ------------------------------                           
warrants that, and covenants with Secured Party as follows:

          (a) This Agreement creates a valid security interest in the
     Collateral, securing the performance of the Obligations, and, to the best
     of Intercell's knowledge, all filings and other actions necessary or
     desirable to perfect and protect such security interest will have been duly
     taken upon the filing of the notices described in Sections 4(d) and (e),
     above.

          (b) There currently exist no defaults under the Underlying Documents.

          (c) The Underlying Documents have not been and will not be amended
     without Secured Party's written consent thereto, and Intercell has not
     released any debtor or guarantor thereunder, either in whole or in part,
     from any obligations under the Underlying Documents.

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          (d) Intercell's security interests in the Sigma/BMI Interests and the
     ITC Interests have been properly perfected under applicable law and by
     virtue thereof Seller possesses a valid first security interest in the
     collateral referred to in the Underlying Documents.

          (e) Intercell has done and will do nothing to discharge the
     liabilities of any debtor or guarantor under the Underlying Documents or
     hinder collection, and the full amount of such liabilities is due without
     offset or defense.

          (f) Intercell will not create or permit to exist any lien, security
     interest, option or other charge or encumbrance upon or with respect to any
     of the Collateral.

     Section 6.  Further Assurances.
                 ------------------ 

            (a)     Intercell agrees that from time to time, at its expense,
     Intercell will promptly execute and deliver all further instruments and
     documents and take all further action that may be necessary or that the
     Secured Party may request in order to perfect and protect any security
     interest granted or purported to be granted hereby or to enable the Secured
     Party to exercise and enforce its rights and remedies hereunder with
     respect to any Collateral. Without limiting the generality of the
     foregoing: (i) if Intercell receives any additional or replacement note or
     other instrument relating to the Sigma/BMI Interests or the ITC Interests,
     Intercell will promptly deliver and pledge to the Secured Party such note
     or instrument duly endorsed and accompanied by duly executed instruments of
     transfer or assignment, all in form and substance satisfactory to the
     Secured Party; (ii) Intercell will execute and file such financing or
     continuation statements or amendments thereto and such other instruments or
     notices as may be necessary or as the Secured Party may reasonably request
     in order to perfect and preserve the security interest granted or purported
     to be granted hereby; and (iii) if Intercell receives additional stock
     certificates pursuant to Section 2 of the ITC Pledge Agreement, Intercell
     will promptly deliver and pledge to the Secured Party such certificate
     accompanied by duly executed instruments of transfer or assignment, all in
     form and substance satisfactory to the Secured Party.

            (b)     Intercell hereby authorizes the Secured Party and appoints
     the Secured Party its attorney-in-fact to file one or more financing or
     continuation statements and amendments thereto relating to all or any part
     of the Collateral without the signature of Intercell where permitted by
     law. A photocopy or other reproduction of this Agreement or any financing
     statement covering the Collateral or any part thereof shall be sufficient
     as a financing statement where permitted by law.

            (c)     Intercell covenants and agrees that it shall not change its
     chief place of business and chief executive office unless written notice
     thereof is given to the Secured Party at least thirty (30) calendar days
     prior to the creation of any new address.

     Section 7.  Secured Party Appointed Attorney-in-Fact.  Intercell hereby
                 ----------------------------------------                   
irrevocably appoints the Secured Party its attorney-in-fact, with full authority
in the place and stead of Intercell and in the name of Intercell or otherwise,
at such time as any default has occurred in Intercell's obligations hereunder or
under the Purchase Agreement (a "Default"), to take any action and to execute
any instrument which the Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:

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          (a) to ask, demand, collect, sue for, recover, compromise, receive and
     give acquittance and receipts for moneys due and to become due under or in
     connection with the Collateral;

          (b) to receive, endorse and collect any drafts or other instruments,
     documents and chattel paper in connection therewith; and

          (c) to file any claims or take any action or institute any proceedings
     which the Secured Party may deem necessary or desirable for the collection
     of any of the Collateral or otherwise to enforce the rights of the Secured
     Party with respect to any of the Collateral.

     Section 8.  Secured Party's Duties.  The powers conferred on the Secured
                 ----------------------                                      
Party hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers.  Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Secured Party shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.  The
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Secured Party accords
its own property.

     Section 9.  Remedies.  If any Default shall have occurred and until such
                 --------                                                    
Default is waived in writing in accordance with the Purchase Agreement:

          (a) The Secured Party may exercise in respect of the Collateral, in
     addition to other rights and remedies provided for herein or otherwise
     available to it, all the rights and remedies of a secured party under the
     Uniform Commercial Code in effect in the State of Illinois at that time or
     any other applicable jurisdiction.

          (b) The Secured Party may notify the obligors under the Underlying
     Documents and direct any or all of them to make payments directly to the
     Secured Party.

          (c) Any cash held by the Secured Party as Collateral and all cash
     proceeds received by the Secured Party in respect of any sale of,
     collection from or other realization upon all or any part of the Collateral
     may, in the discretion of the Secured Party, be held by the Secured Party
     as collateral for, and/or then or at any time thereafter be applied in
     whole or in part by the Secured Party against, all or any part of the
     Obligations.  Any surplus of such cash or cash proceeds held by the Secured
     Party and remaining after satisfaction in full of all the Obligations shall
     be paid over to Intercell or to whomsoever may be lawfully entitled to
     receive such surplus.

     Section 10.  Remedies Cumulative.  Each right, power and remedy of the
                  -------------------                                      
Secured Party as provided for in this Agreement or now or hereafter existing at
law or in equity or by statute or otherwise shall be cumulative and concurrent
and shall be in addition to every other right, power or remedy provided for in
this Agreement or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by the Secured Party of
any one or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by the Secured Party of any or all such other
rights, powers, or remedies.

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     Section 11.  Expenses.  Intercell will upon demand pay to the Secured Party
                  --------                                                      
the amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Secured Party
may incur in connection with the administration of this Agreement, the custody,
preservation, use, operation or sale of, collection from, or other realization
upon any of the Collateral, the exercise or enforcement of any of the rights of
the Secured Party hereunder or the failure by Intercell to perform or observe
any of the provisions hereof.

     Section 12.  Amendments; Etc.  No waiver of any provision of this Agreement
                  ---------------                                               
shall in any event be effective unless the same shall be in writing and signed
by the Secured Party, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.  No
amendment of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by the Secured Party and Intercell.

     Section 13.  Addresses for Notices.  All notices and other communications
                  ---------------------                                       
provided for hereunder shall be given in the form and manner and delivered (a)
to the Secured Party at 141 West Jackson Blvd., Suite 1792, Chicago, Illinois
60604, or (b) to Intercell at 370 17th Street, Suite 3290, Denver, Colorado or,
(c) as to either party, at such other address as shall be designated by such
party in a written notice to the other party.

     Section 14.  Continuing Security Interest: Assignments under Purchase
                  --------------------------------------------------------
Agreement.  This Agreement shall create a continuing security interest in the
---------                                                                    
Collateral and shall (a) remain in full force and effect until the performance
in full of the Obligations, (b) be binding upon Intercell and its successors and
assigns, and (c) inure to the benefit of and be enforceable by the Secured Party
and its successors, transferees and assigns.  Without limiting the generality of
the foregoing clause (c) and to the extent permitted under the Purchase
Agreement, upon any assignment by Secured Party to any other person of all or
any portion of its rights and obligations under the Purchase Agreement, such
other person shall thereupon become vested with all the benefits in respect
thereof granted to Secured Party herein or otherwise.  Upon the performance in
full of the Obligations and all other amounts payable under this Agreement, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Intercell.  No transfer or renewal, extension,
assignment or termination of this Agreement, the Purchase Agreement or any other
instrument or document executed and delivered by Intercell to the Secured Party,
nor any additional investments or loans made by the Secured Party, nor the
taking of further security, nor the retaking or redelivery of the Collateral to
Intercell by the Secured Party, nor any other act of the Secured Party, shall
release Intercell from any obligation hereunder, except upon a release or
discharge executed in writing by the Secured Party with respect to such
obligation or upon payment of such obligation or upon full satisfaction of all
the Obligations.  The Secured Party shall not, by any act, delay, omission or
otherwise, be deemed to have waived any of its rights or remedies hereunder
unless such waiver is in writing and signed by the Secured Party and then only
to the extent therein set forth.  A waiver by the Secured Party of any right or
remedy on any occasion shall not be construed as a bar to the exercise of any
such right or remedy which the Secured Party has or would otherwise have had on
any other occasion.

     Section 15.  Governing Law; Terms.  This Agreement shall be governed by and
                  --------------------                                          
construed in accordance with the laws of the State of Illinois without reference
to the conflict or choice of law principles thereof, except to the extent that
the validity or perfection of the security interest hereunder, or the remedies
hereunder, in respect of any particular Collateral are governed by the

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laws of a jurisdiction other than the State of Illinois. Any terms used herein
which are used in the Uniform Commercial Code of the State of Illinois shall
have the same meanings herein as such terms have in said Uniform Commercial
Code.

     Section 16.  Miscellaneous.
                  ------------- 

          (a) This Agreement may be executed in any number of counterparts, each
     of which shall be deemed to be an original, but all such separate
     counterparts shall together constitute but one and the same instrument.

          (b) Any provision of this Agreement which is prohibited or
     unenforceable in any jurisdiction shall be ineffective to the extent of
     such prohibition or unenforceability in such jurisdiction without
     invalidating the remaining provisions hereof in such jurisdiction or
     affecting the validity or enforceability of such provision in any other
     jurisdiction.

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     IN WITNESS WHEREOF, Intercell and the Secured Party have caused this
Agreement to be duly executed and delivered as of the date first above written.

                              INTERCELL CORPORATION


                              By   /s/ Paul H. Metzinger
                                 ------------------------------------------
                                       Paul H. Metzinger, President and CEO


                              AUGUSTINE FUND, L.P.

                              By Augustine Capital Management, Inc., its 
                              General Partner

                              By   /s/ John Porter
                                 ------------------------------------------
                              Name:________________________________________
                              Title:_______________________________________

                                       7
<PAGE>
 
                                   EXHIBIT A
                            (TO SECURITY AGREEMENT)
                                        

           ALLONGE TO SECURED PROMISSORY NOTE DATED DECEMBER 31, 1997
                        MADE BY SIGMA 7 CORPORATION AND
              BMI ACQUISITION GROUP, INC. (JOINTLY AND SEVERALLY)
                        PAYABLE TO INTERCELL CORPORATION


     INTERCELL CORPORATION, the payee under the Secured Promissory Note dated
December 31, 1997 in the original principal amount of $3,057,774.13 (the "Note")
made by Sigma 7 Corporation and BMI Acquisition Group, Inc. (jointly and
severally) hereby indorses said Note to the order of AUGUSTINE FUND, L.P.


DATED: December 31, 1997           INTERCELL CORPORATION



                                   By /s/ Paul H. Metzinger
                                      ---------------------------------------
                                         Paul H. Metzinger, President and CEO

                                       8
<PAGE>
 
                                   EXHIBIT B
                            (TO SECURITY AGREEMENT)


        ALLONGE TO SECURED CORPORATE PROMISSORY NOTE DATED JULY 18, 1997
                   MADE BY INTERCELL TECHNOLOGIES CORPORATION
                        PAYABLE TO INTERCELL CORPORATION


     INTERCELL CORPORATION, the payee under the Secured Corporate Promissory
Note dated July 18, 1997 in the original principal amount of $2,200,000 (the
"Note") made by Intercell Technologies Corporation hereby indorses said Note to
the order of AUGUSTINE FUND, L.P.


DATED: December 31, 997           INTERCELL CORPORATION


                                  By /s/ Paul H. Metzinger
                                     ----------------------------------------
                                         Paul H. Metzinger, President and CEO

                                       9