Document:

Exhibit  10.1

                               SECURITY AGREEMENT

     This  Security  Agreement  is made as of June 3, 2003 by and between LAURUS
MASTER  FUND, LTD., a Cayman Islands corporation ("Laurus") and SpaceDev, Inc. a
Colorado  corporation  (the  "Company").

                                   BACKGROUND
                                   ----------
     The  Company  has  requested  that  Laurus  make  advances available to the
Company; and

     Laurus  has  agreed  to  make such advances to the Company on the terms and
conditions  set  forth  in  this  Agreement.

                                    AGREEMENT
                                    ---------
     NOW,  THEREFORE,  in consideration of the mutual covenants and undertakings
and  the  terms  and  conditions  contained  herein, the parties hereto agree as
follows:

     1.      (a)      General   Definitions.  Capitalized  terms  used  in  this
Agreement  shall  have  the  meanings  assigned  to  them  in  Annex  A.

Accounting Terms.  Any  accounting  terms  used   in  this
Agreement which are not specifically defined shall have the meanings customarily
Given  them  in  accordance  with  GAAP  and all financial computations shall be
computed,  unless  specifically  provided  herein,  in  accordance  with  GAAP
consistently  applied.

(c)     Other Terms. All  other  terms  used in this Agreement and
defined  in  the  UCC,  shall  have  the  meaning given therein unless otherwise
defined  herein.

(d)     Rules  of  Construction.  All  Schedules,  Addenda, Annexes
and  Exhibits  hereto or expressly identified to this Agreement are incorporated
herein  by  reference  and  taken  together with this Agreement constitute but a
single  agreement. The words "herein", hereof" and "hereunder" or other words of
similar  import  refer  to  this  Agreement  as a whole, including the Exhibits,
Addenda,  Annexes  and  Schedules  thereto, as the same may be from time to time
amended,  modified, restated or supplemented, and not to any particular section,
subsection  or  clause contained in this Agreement. Wherever from the context it
appears  appropriate,  each  term  stated in either the singular or plural shall
include  the  singular  and  the  plural,  and pronouns stated in the masculine,
feminine  or  neuter  gender  shall  include the masculine, the feminine and the
neuter.  The  term  "or"  is  not  exclusive.  The term "including" (or any form
thereof)  shall  not  be  limiting  or exclusive. All references to statutes and
related  regulations  shall  include  any  amendments  of same and any successor
statutes  and regulations. All references in this Agreement or in the Schedules,
Addenda,  Annexes  and  Exhibits  to  this  Agreement  to  sections,  schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections,  schedules,  disclosure  schedules, exhibits, and attachments of or to
this  Agreement.  All  references  to  any  instruments or agreements, including
references  to  any  of this Agreement or the Ancillary Agreements shall include
any  and  all  modifications or amendments thereto and any and all extensions or
renewals  thereof.

     2.     Credit  Advances.

     (a)
(i)  Subject  to  the terms and conditions set forth herein and in the Ancillary
Agreements,  Laurus  may  make  revolving credit advances (the "Revolving Credit
Advances")  to  the  Company  from  time  to  time during the Term which, in the
aggregate  at  any  time  outstanding, will not exceed the lesser of (x) (I) the
Capital Availability Amount minus (II) such reserves as Laurus may reasonably in
its  good  faith  judgment  deem  proper  and  necessary  from time to time (the
"Reserves")  or  (y) an amount equal to (I) the Accounts Availability minus (II)
the  Reserves.  The  amount derived at any time from Section 2(a)(i)(y)(I) minus
2(a)(i)(y)(II)  shall  be  referred  to  as  the  "Formula  Amount".

(ii)  Notwithstanding  the limitations set forth above, Laurus retains the right
to  lend  to  the  Company  from  time  to  time  such amounts in excess of such
limitations  as  Laurus  may  determine  in  its  sole  discretion.

(iii)  Company  acknowledges  that  the exercise of Laurus' discretionary rights
hereunder  may  result  during the Term in one or more increases or decreases in
the  advance  percentages  used in determining Accounts Availability and Company
hereby  consents  to any such increases or decreases which may limit or restrict
advances  requested  by  Company.

(iv)  If the Company does not pay any interest, fees, costs or charges to Laurus
when  due,  the Company shall thereby be deemed to have requested, and Laurus is
hereby authorized at its discretion to make and charge to the Company's account,
a  Revolving Credit Advance to the Company as of such date in an amount equal to
such  unpaid  interest,  fees,  costs  or  charges.

(v)  If the Company at any time fails to perform or observe any of the covenants
contained  in  this  Agreement or any Ancillary Agreement and such failure shall
mature  into  an  Event  of  Default  under  this  Agreement  or  the  Ancillary
Agreements, Laurus may, but need not, perform or observe such covenant on behalf
and  in  the  name,  place  and  stead of the Company (or, at Laurus' option, in
Laurus' name) and may, but need not, take any and all other actions which Laurus
may  deem  necessary  to  cure or correct such failure (including the payment of
taxes, the satisfaction of Liens, the performance of obligations owed to Account
Debtors,  lessors  or  other  obligors,  the  procurement  and  maintenance  of
insurance,  the  execution  of  assignments,  security  agreements and financing
statements,  and  the  endorsement  of  instruments).  The  amount of all monies
expended  and  all  costs  and  expenses  (including  attorneys'  fees and legal
expenses)  incurred  by  Laurus  in  connection  with  or  as  a  result  of the
performance  or  observance  of  such agreements or the taking of such action by
Laurus  shall  be charged to the Company's account as a Revolving Credit Advance
and added to the Obligations. To facilitate Laurus' performance or observance of
such  covenants  of  the Company, the Company hereby irrevocably appoints Laurus
(which  appointment  shall  automatically  terminate upon the Company's full and
irrevocable  performance of all of the Obligations), or Laurus' delegate, acting
alone,  as  the Company's attorney in fact (which appointment is coupled with an
interest)  with  the  right  (but  not  the  duty)  from time to time to create,
prepare,  complete,  execute, deliver, endorse or file in the name and on behalf
of  the  Company  any  and  all  instruments,  documents,  assignments, security
agreements,  financing  statements,  applications  for  insurance  and  other
agreements  and writings required to be obtained, executed delivered or endorsed
by  the  Company.

(vi)  Laurus  will  account to the Company monthly with a statement of all Loans
and  other  advances,  charges and payments made pursuant to this Agreement, and
such  account  rendered  by Laurus shall be deemed final, binding and conclusive
unless  Laurus  is  notified  by  the  Company in writing to the contrary within
fifteen  (15)  days of the date each account was rendered specifying the item or
items  to  which  objection  is  made.

(vii)  During  the  Term,  the Company may borrow, prepay and reborrow Revolving
Credit  Advances,  all  in  accordance  with  the  terms  and conditions hereof.

(viii)  (a)  If  any  Eligible  Account is not paid by the Account Debtor within
ninety  (90)  days  after the date that such Eligible Account was invoiced or if
any  Account  Debtor  asserts  a  deduction,  dispute,  contingency, set-off, or
counterclaim  with respect to any Eligible Account (a "Delinquent Account"), the
Company  shall  (i)  reimburse  Laurus  for  the  amount of the Revolving Credit
Advance  made  with respect to such Delinquent Account plus an adjustment fee in
an  amount  equal to one-half of one percent (0.50%) of the gross face amount of
such Delinquent Account or (ii) immediately replace such Delinquent Account with
an  otherwise  Eligible  Account.

     (b)
Following  the  occurrence  of  an  Event of Default, Laurus may, at its option,
elect  to  convert  the  credit  facility  contemplated  hereby  to  an accounts
receivable purchase facility. Upon such election by Laurus (subsequent notice of
which  Laurus  shall  provide  to  the  Company), the Company shall be deemed to
hereby  have  sold, assigned, transferred, conveyed and delivered to Laurus, and
Laurus  shall  be  deemed  to  have purchased and received from the Company, all
right,  title  and interest of the Company in and to all Accounts which shall at
any   time  constitute  Eligible  Accounts  (the  "Receivables  Purchase").  All
outstanding  Loans  hereunder  shall  be  deemed obligations under such accounts
receivable  purchase facility. The conversion to an accounts receivable purchase
facility  in accordance with the terms hereof shall not be deemed an exercise by
Laurus  of  its  secured creditor rights under Article 9 of the UCC. Immediately
following  Laurus'  request,    the  Company  shall  execute  all  such  further
documentation  as may be required by Laurus to more fully set forth the accounts
receivable purchase facility herein contemplated, including, without limitation,
Laurus'  standard  form  of  accounts  receivable purchase agreement and account
debtor  notification  letters,  but the Company's failure to enter into any such
documentation  shall not impair or affect the Receivables Purchase in any manner
whatsoever.  The  accounts  receivable  purchase facility shall terminate on the
full  and  irrevocable  performance  by  the  Company  of all of the Obligations
hereunder.

     3.     Repayment of the Loans.       The  Company  shall  be  required  to
(a) make a mandatory payment hereunder within five (5) days of the date on which
the  aggregate  outstanding  principal  balance of the Revolving Credit Advances
made  by  Laurus to the Company hereunder is in excess of the Formula Amount, in
an  amount equal to such excess; and (b) repay on the expiration of the Term (i)
the  then aggregate outstanding principal balance of the Loans made by Laurus to
the  Company  hereunder  together  with  accrued  and  unpaid interest, fees and
charges  and  (ii)  all  other  amounts owed Laurus under this Agreement and the
Ancillary  Agreements.  Any  payments  of principal, interest, fees or any other
amounts  payable  hereunder or under any Ancillary Agreement shall be made prior
to  12:00  noon (New York time) on the due date thereof in immediately available
funds.

4.     Procedure  for  Revolving  Credit  Advances.  On  any  Business  Day, the
Company  may,  by  written  notice delivered to Laurus prior to 12:00 noon  (New
York  time)  on  such  Business  Day,  request  a  borrowing of Revolving Credit
Advances.  Each  request  for  a  Revolving  Credit  Advance  (or  at such other
intervals  as Laurus may request), delivered to Laurus shall be accompanied by a
Borrowing Base Certificate in the form of Exhibit A, which shall be certified as
true  and  correct  by the Chief Executive Officer or Chief Financial Officer of
the Company together with all supporting documentation relating thereto.  If the
properly documented request for a Revolving Credit Advance is received by Laurus
prior  to  12:00 noon on such Business Day and the Company is otherwise eligible
to  receive  a  Revolving  Credit  Advance,  such request will be honored on the
Business Day such request is made, otherwise such request will be honored on the
following  Business  Day,  provided,  however,  that  Laurus shall have five (5)
Business Days in which to cure any failure to honor such request for a Revolving
Credit  Advance. All Revolving Credit Advances shall be disbursed from whichever
office  or  other  place  Laurus  may  designate  from time to time and shall be
charged  to  the  Company's  account  on  Laurus'  books.  The  proceeds of each
Revolving  Credit  Advance made by Laurus shall be made available to the Company
on  the  Business Day following the Business Day so requested in accordance with
the  terms of this Section 4 by way of credit to the Company's operating account
by  wire transfer maintained with such bank as the Company designated to Laurus.
Any  and all Obligations due and owing hereunder may be charged to the Company's
account  and  shall  constitute  Revolving  Credit  Advances.

     5.     Interest  and  Payments.
            -----------------------
     (a)     Interest.
             --------
(i)     Except  as  modified  by Section 5(a)(iii) below, the Company shall
pay  interest  at the Contract Rate on the unpaid principal balance of each Loan
and any fees due and owing in relation to such Loan until such time as such Loan
is  collected  in full in good funds in dollars of the United States of America.
Provided,  however, that if Laurus shall fail to perform it's obligations to the
Company  as  set  forth in Sections 4, 9(b) and 9(c) hereof, and such failure to
perform  is  not cured within any applicable cure period, then the Company shall
not  be  required to pay interest on such pending Revolving Credit Advance, such
credit  of  proceeds  to  the  Company's  Account or as required by Section 9(c)
hereof,  as  applicable,  until  such time as such failure to perform shall have
been  waived  or  cured.

(ii)     Interest,  fees  and  other payments hereunder shall be computed on the
basis  of actual days elapsed in a year of 360 days and shall be due and payable
on  the  last Business Day of each calendar month. At Laurus' option, Laurus may
charge  the  Company's  account  for  said  interest.

(iii)     Effective  upon the occurrence of any Event of Default and for so long
as  any  Event  of  Default  shall  be  continuing,  the  Contract  Rate  shall
automatically  be  increased  to one and one-half percent (1.5%) per month (such
increased  rate, the "Default Rate"), and all outstanding Obligations, including
unpaid  interest,  shall continue to accrue interest from the date of such Event
of  Default  at the Default Rate applicable to such Obligations until such Event
of Default shall have been cured or the Company has irrevocably performed all of
its  Obligations  hereunder.

(iv)     In  no  event shall the aggregate interest payable hereunder exceed the
maximum rate permitted under any applicable law or regulation, as in effect from
time  to  time (the "Maximum Legal Rate") and if any provision of this Agreement
or  Ancillary  Agreement  is  in  contravention  of  any such law or regulation,
interest  payable  under  this  Agreement  and each Ancillary Agreement shall be
computed  on the basis of the Maximum Legal Rate (so that such interest will not
exceed  the  Maximum  Legal  Rate).

(v)     The  Company shall pay principal, interest and all other amounts payable
hereunder,  or  under any Ancillary Agreement, without any deduction whatsoever,
including  any  deduction  for  any  set-off  or  counterclaim.

     (b)     Payments.
             --------
(i) Closing/Annual Payments. Upon execution of this Agreement by the Company and
Laurus,  the  Company  shall  pay  to  Laurus  Capital Management, LLC a closing
payment  in  an  amount  equal  to  two percent (2%) of the Capital Availability
Amount.  On each anniversary of the Closing Date (or earlier upon termination of
this  Agreement),  the  Company  shall  pay to Laurus Capital Management, LLC an
annual payment equal to one percent (1%) of the Capital Availability Amount (the
"Annual  Payment").  The  payments  set  forth  in this Section 5(b)(i) shall be
deemed  fully  earned  on the Closing Date and shall not be subject to rebate or
proration  for  any  reason. Notwithstanding the immediately and each successive
anniversary  date  foregoing  sentence, Laurus will refund the Annual Payment to
the  Company  if  the Initial Term is not extended as contemplated in Section 17
hereof.

(ii) Collateral Management Payment. For underwriting, processing and supervising
the  Company's  Accounts,  the  Company  shall  pay  Laurus a monthly collateral
management  payment equal to fifty-five one hundredths of one percent (0.55%) of
the  average  of the aggregate outstanding Revolving Credit Advances during such
month,  such  fee  being  determined  on  the  last  Business  Day  of each such
40862587calendar  month40862587rsslansky40862587  Pat  -  On  what  balance? The
balance  on  the last day of the month? The average balance for the month?. This
payment shall be payable monthly by a charge by Laurus to the Company's account.

(iii)  Unused Line Payment. If, for any month, the average outstanding Revolving
Advances  (the "Average Revolving Amount") do not equal the Capital Availability
Amount,  the  Company  shall  pay  to  Laurus at the end of such month a payment
(calculated  on  a per annum basis) in an amount equal to 0.20% of the amount by
which  the  Capital  Availability  Amount  exceeds the Average Revolving Amount.

(iv)  Overadvance  Payment.  Without  affecting  the  Company's  obligation  to
immediately  repay  any  Loans  which  exceed the amounts permitted by Section 2
("Overadvances"),  in  the event an Overadvance occurs or is made by Laurus, all
such  Overadvances  shall  bear  interest  at  a monthly rate equal to 2% of the
amount  of  such  Overadvances for each month or portion thereof as such amounts
shall  be  outstanding.

(v)  Financial  Information  Default. Without affecting Laurus' other rights and
remedies,  in  the  event the Company fails to deliver the financial information
required  by  Section  11  on or before the date required by this Agreement, the
Company  shall  pay  Laurus  a fee in the amount of $750.00 per week (or portion
thereof)  for  each  such  failure  until  such  failure  is  cured  to  Laurus'
satisfaction  or  waived  in writing by Laurus. Such fee shall be charged to the
Company's  account  upon the occurrence of each such failure. Such fee shall not
apply  in  the  case where such failure of timely delivery was due to reasonable
cause.

     6.     Security  Interest.
            ------------------
     (a)     To  secure  the  prompt  payment  to Laurus of the Obligations, the
Company  hereby  assigns,  pledges  and  grants  to Laurus a continuing security
interest in and Lien upon all of the Collateral.  All of the Company's Books and
Records  relating  to  the  Collateral  shall,  until delivered to or removal by
Laurus,  be  kept  by the Company in trust for Laurus until all Obligations have
been  paid  in  full.  Each  confirmatory  assignment  schedule or other form of
assignment  hereafter  executed  by  the  Company shall be deemed to include the
foregoing  grant,  whether  or  not  the  same  appears  therein.

     (b)  The  Company  hereby  (i)  authorizes  Laurus  to  file  any financing
statements,  continuation statements or amendments thereto that (x) indicate the
Collateral  (1)  as  all  assets of the Company (or any portion of the Company's
assets)  or  words of similar effect, regardless of whether any particular asset
comprised  in  the  Collateral falls within the scope of Article 9 of the UCC of
such  jurisdiction,  or (2) as being of an equal or lesser scope or with greater
detail, and (y) contain any other information required by Part 5 of Article 9 of
the  UCC  for  the  sufficiency  or  filing  office  acceptance of any financing
statement,   continuation   statement  or    amendment  and  (ii)  ratifies  its
authorization  for  Laurus  to  have  filed any initial financing statements, or
amendments  thereto  if filed prior to the date hereof. The Company acknowledges
that  it  is  not  authorized  to  file  any financing statement or amendment or
termination  statement with respect to any financing statement without the prior
written  consent  of  Laurus and agrees that it will not do so without the prior
written  consent  of  Laurus,  subject  to  the  Company's  rights under Section
9-509(d)(2)  of  the  UCC.

     (c)  Subject  to  compliance with the Sarbanes-Oxley Act of 2002 ("Sarbanes
-Oxley")  the  Company  hereby  grants  to  Laurus an irrevocable, non-exclusive
license (exercisable upon the termination of this Agreement due to an occurrence
and  during the continuance of an Event of Default without payment of royalty or
other  compensation  to the Company) to use, transfer, license or sublicense any
Intellectual  Property  now  owned,  licensed  to,  or hereafter acquired by the
Company,  and  wherever  the  same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and  to  all computer and automatic machinery software and programs used for the
compilation  or  printout  thereof, and represents, promises and agrees that any
such  license  or  sublicense  is  not  and  will  not  be  in conflict with the
contractual  or  commercial  rights  of  any  third  Person; provided, that such
license  will  terminate on the termination of this agreement and the payment in
full  of  all Obligations. The powers granted to Laurus pursuant to this Section
6(c) shall not be exercised by Laurus unless and until an Event of Default shall
have  occurred  and  be  continuing.

     7.     Representations, Warranties and Covenants Concerning the Collateral.
            -------------------------------------------------------------------
The  Company  represents,  warrants  (each  of  which  such  representations and
warranties  shall  be  deemed  repeated  upon  the  making of each request for a
Revolving  Credit  Advance  and  made as of the time of each and every Revolving
Credit  Advance  hereunder)  and  covenants  as  follows:

     (a) All of the Collateral (i) is owned by the Company free and clear of all
Liens  (including  any claims of infringement) except those in Laurus' favor and
Permitted  Liens  and  (ii)  is  not  subject  to  any agreement prohibiting the
granting  of a Lien or requiring notice of or consent to the granting of a Lien.

     (b)  The  Company shall not encumber, mortgage, pledge, assign or grant any
Lien  in  any  Collateral of the Company or any of the Company's other assets to
anyone  other  than  Laurus  and  except  for  Permitted  Liens.

     (c)  The  Liens  granted pursuant to this Agreement, upon completion of the
filings  and  other  actions  listed  on Exhibit 7(c) (which, in the case of all
filings  and other documents referred to in said Exhibit, have been delivered to
Laurus  in  duly executed form) constitute valid perfected security interests in
all of the Collateral in favor of Laurus as security for the prompt and complete
payment  and  performance of the Obligations, enforceable in accordance with the
terms  hereof  against  any  and  all  creditors  of and any purchasers from the
Company,  except  (a)    as  limited  by  applicable    bankruptcy,  insolvency,
reorganization,  moratorium  or  other  laws  of  general  application affecting
enforcement  of  creditors'  rights,  and  (b) general principles of equity that
restrict  the  availability  of  equitable  or legal remedies, and such security
interest  is  prior  to  all  other  Liens  in  existence  on  the  date hereof.
(d)     No  effective  security  agreement,  mortgage,  deed of trust, financing
statement,  equivalent  security  or  Lien  instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any  public  office,  except  those  relating  to  Permitted  Liens.

     (e) The Company shall not dispose of any of the Collateral whether by sale,
lease  or  otherwise  except for the sale of Inventory in the ordinary course of
business  and for the disposition or transfer in the ordinary course of business
during  any  fiscal  year of obsolete and worn-out Equipment having an aggregate
fair  market  value of not more than $25,000 and only to the extent that (i) the
proceeds of any such disposition are used to acquire replacement Equipment which
is  subject  to Laurus' first priority security interest or (ii) the proceeds of
which  are  remitted  to  Laurus  in  reduction  of  the  Obligations.

     (f) The Company shall defend the right, title and interest of Laurus in and
to  the Collateral against the claims and demands of all Persons whomsoever, and
take  such  actions,  including  (i),  all  actions  necessary  to  grant Laurus
"control"  of any Investment Property, Deposit Accounts, Letter-of-Credit Rights
or  electronic  Chattel  Paper  owned  by  the  Company,  with  any  agreements
establishing  control  to be in form and substance satisfactory to Laurus, (ii),
the  prompt  (but  in  no  event  later than two Business Days following Laurus'
request therefor) delivery to Laurus of all original Instruments, Chattel Paper,
negotiable  Documents  and  certificated Stock owned by a Company (in each case,
accompanied  by stock powers, allonges or other instruments of transfer executed
in  blank),  (iii)  notification  of  Laurus'  interest in Collateral at Laurus'
request,  and  (iv) the institution of litigation against third parties as shall
be prudent in order to protect and preserve the Company's and Laurus' respective
and  several  interests  in  the  Collateral.

     (g)  The Company shall promptly, and in any event within three (3) Business
Days  after  the  same  is  acquired by it, notify Laurus of any commercial tort
claim  (as  defined in the UCC) acquired by it and unless otherwise consented by
Laurus,  the Company shall enter into a supplement to this Agreement granting to
Laurus  a  Lien  in  such  commercial  tort  claim.

     (h)  The  Company  shall place notations upon its Books and Records and any
financial  statement  of  Company  to  disclose  Laurus' Lien in the Collateral.

     (i)  If  the  Company retains possession of any Chattel Paper or Instrument
with  Laurus'  consent,  such Chattel Paper and Instruments shall be marked with
the  following legend: "This writing and obligations evidenced or secured hereby
are  subject  to  the  security  interest  of  Laurus  Master  Fund,  Ltd."

     (j)  The  Company  shall  perform  in  a  reasonable  time  all other steps
requested  by  Laurus  to create and maintain in Laurus' favor a valid perfected
first  Lien  in  all  Collateral  subject  only  to  Permitted  Liens.

     (k)  The  Company  shall notify Laurus promptly and in any event within two
(2)  Business  Days  after  obtaining  knowledge  thereof  (i)  of  any event or
circumstance  that to the Company's knowledge would cause Laurus to consider any
then existing Account as no longer constituting an Eligible Account; (ii) of any
material  delay  in  the  Company's performance of any of its obligations to any
Account  Debtor;  (iii)  of  any assertion by any Account Debtor of any material
claims,  offsets or counterclaims; (iv) of any allowances, credits and/or monies
granted  by  the  Company  to  any  Account  Debtor; (v) of all material adverse
information  relating  to  the financial condition of an Account Debtor; (vi) of
any  material  return  of goods; and (vii) of any loss, damage or destruction of
any  of  the  Collateral.

     (l)  All  Eligible  Accounts  (i) represent complete bona fide transactions
which  require  no  further act under any circumstances on the Company's part to
make  such  Accounts payable by the Account Debtors, (ii) are not subject to any
present,  contingent  or,  to  the  Company's  knowledge,  future  offsets  or
counterclaims,  and  (iii)  do  not  represent  bill and hold sales, consignment
sales,  guaranteed  sales,  sale  or  return  or other similar understandings or
obligations  of  any Affiliate or Subsidiary of the Company. The Company has not
made,  and  will  not make, except in the ordinary course of business consistent
with  past  practice, any agreement with any Account Debtor for any extension of
time  for the payment of any Account, any compromise or settlement for less than
the  full  amount  thereof,  any  release  of  any Account Debtor from liability
therefor,  or  any deduction therefrom except a discount or allowance for prompt
or  early  payment allowed by the Company in the ordinary course of its business
consistent  with  historical  practice  and as previously disclosed to Laurus in
writing.

     (m)  The  Company  shall  keep and maintain its Equipment in good operating
condition,  except  for  ordinary  wear  and  tear, and shall make all necessary
repairs  and  replacements  thereof  so  that the value and operating efficiency
shall at all times be maintained and preserved. The Company shall not permit any
such  items  to  become a Fixture to real estate or accessions to other personal
property.

     (n)  The  Company  shall  maintain  and  keep  all of its Books and Records
concerning  the  Collateral at the Company's executive offices listed in Exhibit
12(d).

     (o)  The  Company  shall  maintain and keep the Collateral at the addresses
listed in Exhibit 12(d), provided, that the Company may change such locations or
open  a  new location, provided that the Company provides Laurus at least thirty
(30) days prior written notice of such changes or new location and (ii) prior to
such change or opening of a new location it executes and delivers to Laurus such
agreements  as  Laurus  may  request,  including  landlord agreements, mortgagee
agreements  and warehouse agreements, each in form and substance satisfactory to
Laurus.

     (p)  Exhibit 7(p) lists all banks and other financial institutions at which
the Company maintains deposits and/or other accounts, and such Exhibit correctly
identifies  the  name, address and telephone number of each such depository, the
name  in which the account is held, a description of the purpose of the account,
and  the complete account number. The Company shall not establish any depository
or  other  bank  account  of  any with any financial institution (other than the
accounts set forth on Exhibit 7(p)) without Laurus' prior written consent, which
consent  shall  not  be  unreasonably  withheld.

     8.     Payment  of  Accounts.
            ---------------------
     (a)  The  Company  will  direct  all present and future Account Debtors and
other  Persons  obligated  to make payments constituting Collateral to make such
payments  directly to the lockbox maintained by the Company (the "Lockbox") with
North  Fork  Bank  pursuant  to the terms of the Lockbox Agreement dated June 3,
2003 or such other financial institution accepted by Laurus in writing as may be
selected  by  the Company (the "Lockbox Bank"). On or prior to the Closing Date,
the  Company  shall  and  shall  cause  the  Lockbox Bank to enter into all such
documentation  acceptable  to  Laurus pursuant to which, among other things, the
Lockbox  Bank  agrees to: (a) sweep the Lockbox on a daily basis and deposit all
checks  received  therein  to an account designated by Laurus in writing and (b)
comply  with  the  instructions  or  other  directions  of Laurus concerning the
Lockbox,  as  long  as  any  of  the  Company's  Obligations  hereunder  remain
outstanding. All of the Company's invoices, account statements and other written
or  oral  communications directing, instructing, demanding or requesting payment
of  any Account of the Company or any other amount constituting Collateral shall
conspicuously  direct  that  all  payments  be made to the Lockbox or such other
Lockbox as Laurus may direct in writing. If, notwithstanding the instructions to
Account  Debtors,  the  Company  receives  any  payments,  the  Company  shall
immediately  remit  such  payments  to  Lockbox  in their original form with all
necessary  endorsements.  Until  so  remitted,  the  Company shall hold all such
payments in trust for and as the property of Laurus and shall not commingle such
payments  with  any of its other funds or property. The Company shall pay Laurus
the  greater  of  five  percent  (5%) of the amount of any payment, in excess of
$5,000,  so  received by the Company and not delivered in kind to Lockbox within
ten  (10)  Business  Days following the Company's receipt thereof and $500, such
amount  to  be paid in consideration of Laurus' administration expenses relating
thereto.

     (b)  At  Laurus'  election,  if  an  Event  of  Default has occurred and is
continuing,  Laurus may notify the Company's Account Debtors of Laurus' security
interest  in the Accounts, collect them directly and charge the collection costs
and  expenses  thereof  to  the  Company's  account.

     9.     Collection  and  Maintenance  of  Collateral.
            --------------------------------------------
     (a)     Laurus may verify the Company's Accounts utilizing an audit control
company or any other agent of Laurus.  So long as no Default or Event of Default
shall  have  occurred  and  be  continuing  and/or  Laurus does not believe such
verifications  are necessary to preserve or protect the Collateral or its rights
and  remedies  under  this Agreement and applicable law, Laurus shall not verify
the  Company's Accounts more than two (2) times during any calendar year and not
more  than one (1) time during any consecutive six (6) month period.  If, during
any  audit,  a  Material  Error  is  discovered, Laurus may double the number of
verifications  required  by  the  Company  for  the succeeding twelve (12) month
period.  A  Material Error shall be defined as actual auditable Collateral being
lower  than  reported  Collateral  by  five  percent  (5%)  or  more.

     (b)  Laurus will credit (conditional upon final collection) all proceeds of
Accounts  to the Company's account two (2) Business Days after receipt by Laurus
of  good  funds  in  dollars of the United States of America in Laurus' account,
provided,  however,  that  Laurus  shall have five (5) Business Days in which to
cure  any  failure  to credit such proceed of Accounts to the Company's account.
Any  amount  received by Laurus after 12:00 noon (New York time) on any Business
Day  shall  be  deemed  received  on  the  next  Business  Day.

     (c)  As  Laurus  receives  the  proceeds  of  Accounts, it shall apply such
proceeds to (A) Revolving Credit Advances including Overadvances made by Laurus,
if  any,  (B)  the  interest  and  fees  earned  by  Laurus with respect to such
Accounts,  and  (C)  any  amounts  otherwise  due  Laurus  including,  without
limitation,  and  pursuant  to  Sections  2,  5(b),  22 and 25 hereof which have
theretofore  not  been  paid,  and  if  no  Revolving  Credit  Advances are then
outstanding,  pay  to  the  Company  in  daily intervals the aggregate amount so
collected  when  such amount shall exceed $5,000, provided, however, that Laurus
shall  have  five  (5)  Business  Days  in which to cure any failure to pay such
aggregate amount to the Company's accountFollowing the occurrence and during the
continuance  of  an  Event  of Default, Laurus shall have the right to apply all
proceeds  of  Accounts  to  the Obligations in such order as Laurus shall elect.

     10.     Inspections  and  Appraisals.  At  all times during normal business
hours,  Laurus,  and/or  any  agent  of  Laurus shall have the right to (a) have
access  to,  visit, inspect, review, evaluate and make physical verification and
appraisals  of  the  Company's properties and the Collateral, (b) inspect, audit
and  copy  and  make  extracts  from  the Company's Books and Records, including
management letters prepared by independent accountants, and (c) discuss with the
Company's  principal  officers,  and   independent  accountants,  the  Company's
business,  assets,  liabilities,  financial condition, results of operations and
business  prospects. The Company will deliver to Laurus any instrument necessary
for Laurus to obtain records from any service bureau maintaining records for the
Company.  If  any  internally  prepared  financial  information,  including that
required  under  this  Section is unsatisfactory in any manner to Laurus, Laurus
may  request  that  the  Accountants  review  the  same.

11.     Financial  Reporting.  The  Company  will   deliver,  or  cause  to   be
delivered,  to  Laurus  each of the following, which shall be in form and detail
acceptable  to  Laurus:

     (a)     As  soon  as  available,  and  in any event within ninety (90) days
after  the  end  of  each  fiscal  year  of  the  Company, the Company's audited
financial  statements  with a report of independent certified public accountants
of  recognized  standing  selected  by  Company  and  acceptable  to Laurus (the
"Accountants"),  which  annual  financial statements shall include the Company's
balance  sheet  as  at the end of such fiscal year and the related statements of
the  Company's income, retained earnings and cash flows for the fiscal year then
ended,  prepared,  if  Laurus  so  requests, on a consolidating and consolidated
basis,  all  in reasonable detail and prepared in accordance with GAAP, together
with (i) copies of any management letters prepared by such Accountants; and (ii)
a  certificate  of  the  Company's  President,  Chief Executive Officer or Chief
Financial  if  any  Officer  stating  that  such  financial statements have been
prepared  in  accordance with GAAP and whether or not such officer has knowledge
of  the  occurrence  of  any  Default  or Event of Default hereunder and, if so,
stating  in  reasonable  detail  the  facts  with  respect  thereto;

     (b) As soon as available and in any event within forty five (45) days after
the  end  of each quarter, an unaudited/internal balance sheet and statements of
income, retained earnings and cash flows of the Company as at the end of and for
such  quarter and for the year to date period then ended, prepared, if Laurus so
requests,  on  a consolidating and consolidated basis to include any Affiliates,
in  reasonable  detail  and  stating  in  comparative  form  the figures for the
corresponding  date and periods in the previous year, all prepared in accordance
with  GAAP,  subject to year-end adjustments and accompanied by a certificate of
the  Company's  President,  Chief  Executive Officer or Chief Financial Officer,
stating (i) that such financial statements have been prepared in accordance with
GAAP,  subject  to  year-end  audit  adjustments,  and  (ii) whether or not such
officer  has  knowledge  of  the  occurrence  of any Default or Event of Default
hereunder  not  theretofore  reported  and  remedied  and,  if  so,  stating  in
reasonable  detail  the  facts  with  respect  thereto;

     (c) Within twenty (20) days after the end of each month (or more frequently
if  Laurus  so  requests),  agings  of  the  Company's Accounts, unaudited trial
balances  and  its accounts payable and a calculation of the Company's Accounts,
Eligible  Accounts  and  Inventory  as  at the end of such month or shorter time
period;  and,

     (d)  Promptly  after  (i)  the filing thereof, copies of the Company's most
recent  registration  statements and annual, quarterly, monthly or other regular
reports which the Company files with the Securities and Exchange Commission, and
(ii)  the  issuance  thereof,  copies  of such financial statements, reports and
proxy  statements  as  the  Company  shall  send  to  its  stockholders.

     12.     Additional  Representations and Warranties.  The Company represents
and  warrants (each of which such representations and warranties shall be deemed
repeated upon the making of a request for a Revolving Credit Advance and made as
of  the  time  of  each  Revolving  Credit  Advance made hereunder), as follows:

     (a)     The Company is a corporation duly incorporated and validly existing
under  the  laws of the jurisdiction of its incorporation and duly qualified and
in good standing in every other state or jurisdiction in which the nature of the
Company's  business  requires  such  qualification.

     (b)  The  execution,  delivery  and  performance  of this Agreement and the
Ancillary  Agreements  (i)  have  been  duly  authorized,  (ii)  are  not  in
contravention  of  the Company's certificate of incorporation, by-laws or of any
indenture,  agreement or undertaking to which the Company is a party or by which
the  Company  is  bound  and  (iii)  are  within the Company's corporate powers.

     (c)  This  Agreement and the Ancillary Agreements executed and delivered by
the  Company are the Company's legal, valid and binding obligations, enforceable
in  accordance  with  their  terms.

     (d)  Exhibit  12(d) sets forth the Company's name as it appears in official
filing in the state of its incorporation, the type of entity of the Company, the
organizational  identification  number  issued  by  the  Company's  state  of
incorporation  or a statement that no such number has been issued, the Company's
state  of  incorporation,  and  the  location  of  the Company's chief executive
office,  corporate  offices,  warehouses,  other  locations  of  Collateral  and
locations  where  records with respect to Collateral are kept (including in each
case  the  county  of  such  locations) and, except as set forth in such Exhibit
12(d),  such locations have not changed during the preceding twelve (12) months.
As  of the Closing Date, during the prior five (5) years, except as set forth in
Exhibit  12(d),  the  Company has not been known as or conducted business in any
other  name  (including  trade  names).  The  Company  has  only  one  state  of
incorporation.

     (e)  Based  upon  the  Employee  Retirement  Income  Security  Act  of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i) the
Company has not engaged in any Prohibited Transactions as defined in Section 406
of  ERISA  and  Section  4975 of the Internal Revenue Code, as amended; (ii) the
Company has met all applicable minimum funding requirements under Section 302 of
ERISA  in  respect of its plans; (iii) the Company has no knowledge of any event
or  occurrence  which  would  cause  the Pension Benefit Guaranty Corporation to
institute  proceedings under Title IV of ERISA to terminate any employee benefit
plan(s);  (iv)  the Company has no fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than the Company's
employees;  and (v) the Company has not withdrawn, completely or partially, from
any multi-employer pension plan so as to incur liability under the Multiemployer
Pension  Plan  Amendments  Act  of  1980.

     (f)  Except as disclosed on Schedule 12(f) hereto, the Company is otherwise
solvent,  able  to pay its debts as they mature, has capital sufficient to carry
on  its  business and all businesses in which the Company is about to engage and
the  fair  saleable value of its assets (calculated on a going concern basis) is
in  excess  of  the  amount  of  its  liabilities.

     (g)  There  is  no  pending  or threatened litigation, action or proceeding
which  involves  the  possibility  of  having  a  Material  Adverse  Effect.

     (h)  All  balance sheets and income statements which have been delivered to
Laurus  fairly,  accurately and properly state the Company's financial condition
on  a  basis consistent with that of previous financial statements and there has
been  no  material  adverse  change  in  the  Company's  financial  condition as
reflected in such statements since the balance sheet date of the statements last
delivered  to  Laurus  and  such  statements do not fail to disclose any fact or
facts  which  might  have  a  Material Adverse Effect on the Company's financial
condition.

     (i)  The  Company  possesses  all of the Intellectual Property necessary to
conduct  its  business.  There  has  been  no assertion or claim of violation or
infringement  with respect to any Intellectual Property. Exhibit 12(i)sets forth
all  Intellectual  Property  of  the  Company.

     (j)  Neither  this  Agreement,  the  exhibits  and  schedules  hereto,  the
Ancillary  Agreements  nor any other document delivered by the Company to Laurus
or  its  attorneys  or  agents  in  connection herewith or therewith or with the
transactions  contemplated  hereby or thereby, contain any untrue statement of a
material  fact  nor omit to state a material fact necessary in order to make the
statements  contained  herein or therein, in light of the circumstances in which
they  are  made,  not  misleading. Any financial projections and other estimates
provided  to Laurus by the Company were based on the Company's experience in the
industry  and  on  assumptions of fact and opinion as to future events which the
Company,  at the date of the issuance of such projections or estimates, believed
to  be  reasonable. As of the date hereof no facts have come to the attention of
the Company that would, in its opinion, require the Company to revise or amplify
in  any  material  respect the assumptions underlying such projections and other
estimates  or  the  conclusions  derived  therefrom.

     (k)  The  offer,  sale  and  issuance  of  the Note will be exempt from the
registration  requirements  of  the  Securities  Act  of  1933,  as amended (the
"Securities  Act"),  and  will  have been registered or qualified (or are exempt
from  registration  and  qualification)  under  the  registration,  permit  or
qualification  requirements of all applicable state securities laws. Neither the
Company nor any of its Affiliates, nor any person acting on its or their behalf,
has  engaged  in any form of general solicitation or general advertising (within
the  meaning  of  Regulation  D under the Securities Act) in connection with the
offer  or  sale  of  the  Securities.

     (l) The common stock of the Company is registered pursuant to Section 12(b)
or  12(g)  of  the  Exchange  Act  and  the  Company  has timely filed all proxy
statements,  reports,  schedules, forms, statements and other documents required
to  be filed by it under the Exchange Act. The Company has furnished Laurus with
copies  of  (i)  its  Annual  Report  on  Form  10-KSB for the fiscal year ended
December  31,  2002 as amended and (ii) its Quarterly Reports on Form 10-QSB for
the fiscal quarters ended March 31, 2003 (collectively, the "SEC Reports"). Each
SEC  Report  was,  at the time of its filing, in substantial compliance with the
requirements  of  its  respective  form  and  none  of  the SEC Reports, nor the
financial  statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or  omitted  to state a material fact required to be stated therein or necessary
to  make  the statements therein, in light of the circumstances under which they
were  made,  not misleading. The financial statements of the Company included in
the  SEC  Reports  comply  as  to  form in all material respects with applicable
accounting  requirements  and  the  published  rules  and  regulations  of  the
Commission  or other applicable rules and regulations with respect thereto. Such
financial  statements  have  been  prepared in accordance with GAAP applied on a
consistent  basis  during  the  periods involved (except (i) as may be otherwise
indicated  in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may  be  condensed)  and  fairly  present in all material respects the financial
position  of  the  Company  and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case  of  unaudited  statements,  to  normal  year-end  audit  adjustments).

     (m)  The  Company's  common  stock  is  listed for trading on the OTCBB and
satisfies all requirements for the continuation of such listing. The Company has
not received any notice that its common stock will be delisted from the OTCBB or
that  its  common  stock  does not meet all requirements for the continuation of
such  listing.

     (n) Other than previously disclosed to Laurus, neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly  made  any offers or sales of any security or solicited any offers to
buy  any  security  under  circumstances  that  would  cause the offering of the
Securities  pursuant  to this Agreement to be integrated with prior offerings by
the  Company  for purposes of the Securities Act which would prevent the Company
from  selling  the  Securities pursuant to Rule 506 under the Securities Act, or
any  applicable  exchange-related  stockholder approval provisions. Nor will the
Company  or  any of its affiliates or subsidiaries take any action or steps that
would  cause  the  offering  of  the  Securities  to  be  integrated  with other
offerings.

     (o)  The  Securities  are  restricted  securities  as  of  the date of this
Agreement.  The  Company  will  not issue any stop transfer order or other order
impeding  the  sale  and  delivery  of any of the Securities at such time as the
Securities  are  registered for public sale or an exemption from registration is
available,  except  as  required  by  federal  securities  laws.

     (p)  The Company understands the nature of the Securities being sold hereby
and  recognizes  that  they  may  have  a potential dilutive effect. The Company
specifically  acknowledges  that  its  obligation  to issue the shares of Common
Stock  upon  conversion  of the Note is binding upon the Company and enforceable
regardless  of the dilution such issuance may have on the ownership interests of
other  shareholders  of  the  Company.

     (q)  There  is  no  agreement  that  has  not been filed with the SEC as an
exhibit to a registration statement or other applicable form the breach of which
could have a material and adverse effect as to the Company and its subsidiaries,
or  would  prohibit  or  otherwise  interfere with the ability of the Company to
enter  into  and  perform  any  of  its  obligations under this Agreement or the
Registration  Rights Agreement executed by the Company in favor of Laurus in any
material  respect.

     13.     Covenants.  The  Company  covenants  as  follows:

     (a)     The  Company will not, without the prior written consent of Laurus,
which  consent  shall  not  be  unreasonably withheld, change (i) its name as it
appears  in the official filings in the state of its incorporation or formation,
(ii)  the  type  of  legal  entity  it is, (iii) its organization identification
number,  if  any,  issued  by  its  state  of  incorporation,  (iv) its state of
incorporation  or  (v)  amend its certificate of incorporation, by-laws or other
organizational  document.

     (b)  The  operation of the Company's business is and will continue to be in
compliance in all material respects with all applicable federal, state and local
laws, rules and ordinances, including to all laws, rules, regulations and orders
relating  to  taxes,  payment  and  withholding  of  payroll taxes, employer and
employee  contributions  and  similar items, securities, employee retirement and
welfare  benefits,  employee  health  safety  and  environmental  matters.

     (c)  The  Company will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon the Company or any of the Collateral
unless  such amounts are being diligently contested in good faith by appropriate
proceedings  provided  that  (i)  adequate  reserves  with  respect  thereto are
maintained  on  the  books  of  the Company in conformity with GAAP and (ii) the
related  Lien  shall  have  no  effect  on the priority of the Liens in favor of
Laurus  or  the  value  of  the  assets  in  which  Laurus  has  a  Lien.

     (d)  The  Company  will  promptly  inform  Laurus  in  writing  of: (i) the
commencement  of  all  proceedings  and  investigations  by or before and/or the
receipt  of  any  notices from, any governmental or nongovernmental body and all
actions  and proceedings in any court or before any arbitrator against or in any
way concerning any event which might singly or in the aggregate, have a Material
Adverse   Effect;  (ii)   any  amendment  of   the  Company's   certificate   of
incorporation,  by-laws or other organizational document; (iii) any change which
has  had  or  might have a Material Adverse Effect; (iv) any Event of Default or
Default;  (v)  any default or any event which with the passage of time or giving
of notice or both would constitute a default under any agreement for the payment
of  money  to which the Company is a party or by which the Company or any of the
Company's properties may be bound which would have a Material Adverse Effect and
(vi)  any  change  in the Company's name or any other name used in its business.

     (e)  The  Company  will  not,  without the prior written consent of Laurus,
which  consent  shall  not be unreasonably withheld (i) create, incur, assume or
suffer  to  exist  any indebtedness (exclusive of trade debt) whether secured or
unsecured  other  than  the Company's indebtedness to Laurus and as set forth on
Exhibit  13(e)(i)attached  hereto  and  made a part hereof; (ii) cancel any debt
owing  to  it  in excess of $50,000 in the aggregate during any 12 month period;
(iii)  assume,  guarantee,  endorse or otherwise become directly or contingently
liable  in  connection  with  any  obligations  of  any other Person, except the
endorsement  of negotiable instruments by a Company for deposit or collection or
similar  transactions  in  the  ordinary  course  of  business; (iv) directly or
indirectly declare, pay or make any dividend or distribution on any class of its
Stock  or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any Stock of a Company; (v) purchase or hold beneficially
any Stock or other securities or evidences of indebtedness of, make or permit to
exist  any  loans or advances to, or make any investment or acquire any interest
whatsoever  in,  any  other  Person, including any partnership or joint venture,
except  (x)  travel  advances, (y) loans to the Company's officers and employees
not exceeding at any one time an aggregate of $10,000 or an aggregate of $50,000
and (z) the Existing Loans; (vi) create or permit to exist any Subsidiary, other
than  any  Subsidiary  in  existence  on  the  date hereof and listed in Exhibit
13(e)(ii)unless  such  new  Subsidiary  is  designated  by  Laurus  as  either a
co-borrower  or  guarantor  hereunder;  (vii) directly or indirectly, prepay any
indebtedness  (other than to Laurus), or repurchase, redeem, retire or otherwise
acquire  any  indebtedness;  (viii) without Laurus' prior written consent, which
shall  not  be  unreasonably  withheld,  enter into any merger, consolidation or
other  reorganization  with or into any other Person or acquire all or a portion
of  the  assets or Stock of any Person or permit any other Person to consolidate
with  or  merge  with  it;  (ix) materially change the nature of the business in
which it is presently engaged; (x) change its fiscal year or make any changes in
accounting  treatment  and  reporting  practices without prior written notice to
Laurus except as required by GAAP or in the tax reporting treatment or except as
required  by law; (xi) enter into any transaction with any employee, director or
Affiliate,  except  in  the  ordinary course on arms-length terms; or (xii) bill
Accounts  under  any  name  except  the  present  name  of  the  Company.

     (f)  None  of  the proceeds of the Loans hereunder will be used directly or
indirectly  to  "purchase"  or  "carry"  "margin stock" or to repay indebtedness
incurred  to "purchase" or "carry" "margin stock" within the respective meanings
of  each of the quoted terms under Regulation U of the Board of Governors of the
Federal  Reserve  System  as  now  and  from  time  to time hereafter in effect.

     (g) The Company will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. At the Company's own cost and expense
in  amounts  and  with carriers acceptable to Laurus, the Company shall (i) keep
all  its insurable properties and properties in which it has an interest insured
against  the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended  coverage insurance and such other hazards, and for such amounts, as is
customary  in  the  case  of  companies  engaged  in  businesses  similar to the
Company's  including  business  interruption  insurance; (ii) maintain a bond in
such  amounts  as  is  customary  in the case of companies engaged in businesses
similar  to  the  Company's  insuring  against  larceny,  embezzlement  or other
criminal  misappropriation  of  insured's  officers and employees who may either
singly  or jointly with others at any time have access to the assets or funds of
the  Company either directly or through Governmental Authority to draw upon such
funds  or  to  direct  generally  the disposition of such assets; (iii) maintain
public and product liability insurance against claims for personal injury, death
or  property  damage  suffered  by  others;  (iv)  maintain  all  such  worker's
compensation or similar insurance as may be required under the laws of any state
or  jurisdiction  in  which  the Company is engaged in business; and (v) furnish
Laurus  with  (x) copies of all policies and evidence of the maintenance of such
policies  at least thirty (30) days before any expiration date, (y) endorsements
to  such  policies  naming  Laurus  as  "co-insured" or "additional insured" and
appropriate  loss  payable  endorsements  in  form and substance satisfactory to
Laurus,  naming  Laurus  as  loss  payee, and (z) evidence that as to Laurus the
insurance coverage shall not be impaired or invalidated by any act or neglect of
the  Company  and the insurer will provide Laurus with at least thirty (30) days
notice  prior to cancellation. The Company shall instruct the insurance carriers
that  in  the  event of any loss thereunder, the carriers shall make payment for
such  loss to Laurus and not to the Company and Laurus jointly. If any insurance
losses  are  paid by check, draft or other instrument payable to the Company and
Laurus  jointly, Laurus may endorse the Company's name thereon and do such other
things as Laurus may deem advisable to reduce the same to cash. Laurus is hereby
authorized  to  adjust  and  compromise  claims. All loss recoveries received by
Laurus  upon any such insurance may be applied to the Obligations, in such order
as  Laurus  in its sole discretion shall determine. Any surplus shall be paid by
Laurus to the Company within seven (7) business days of receipt of such funds or
applied  as  may  be  otherwise required by law. Any deficiency thereon shall be
paid  by  the  Company  to  Laurus,  on  demand.

     (h) The Company will at its Annual Meeting of Stockholders on July 18, 2003
obtain,  and  at  all  times  thereafter  maintain,  an authorized, reserved and
sufficient number of shares of Common Stock for the full conversion of the Notes
and  exercise  of  the  Warrant  and  the  Additional  Warrants.

     14.     Further  Assurances.  At  any  time and from time to time, upon the
written  request  of  Laurus and at the sole expense of the Company, the Company
shall promptly and duly execute and deliver any and all such further instruments
and  documents and take such further action as Laurus may reasonably request (a)
to  obtain the full benefits of this Agreement and the Ancillary Agreements, (b)
to  protect,  preserve  and  maintain Laurus' rights in the Collateral and under
this  Agreement  or any Ancillary Agreement, or (c) to enable Laurus to exercise
all  or  any of the rights and powers herein granted or any Ancillary Agreement.

     15.     Representations  and  Warranties  of  Laurus.
             ---------------------------------------------
     Laurus  hereby  represents  and  warrants  to  the  Company  as  follows:

     (a)     Requisite  Power and Authority.  Laurus has all necessary power and
authority  under  all  applicable  provisions of law to execute and deliver this
Agreement  and  the Ancillary Agreements and to carry out their provisions.  All
corporate  action on Laurus' part required for the lawful execution and delivery
of  this Agreement and the Ancillary Agreements have been or will be effectively
taken  prior  to  the  Closing  Date.  Upon  their  execution and delivery, this
Agreement  and the Ancillary Agreements will be valid and binding obligations of
Laurus,  enforceable  in  accordance  with their terms, except (a) as limited by
applicable  bankruptcy,  insolvency, reorganization, moratorium or other laws of
general  application  affecting  enforcement  of  creditors'  rights, and (b) as
limited  by  general  principles  of  equity  that  restrict the availability of
equitable  and  legal  remedies.

     (b)  Investment Representations. Laurus understands that the Securities are
being  offered  and sold pursuant to an exemption from registration contained in
the  Securities Act based in part upon Laurus' representations contained in this
Agreement,  including,  without  limitation,  that  Laurus  is  an   "accredited
investor"  within  the  meaning of Regulation D under the Securities Act. Laurus
has  received  or  has  had  full  access  to  all  the information it considers
necessary or appropriate to make an informed investment decision with respect to
the  Note to be purchased by it under this Agreement and the Securities acquired
by  it  upon  the  conversion  of  the  Note.

     (c)  Laurus  Bears  Economic  Risk.  Laurus  has  substantial experience in
evaluating  and  investing  in  private  placement transactions of securities in
companies  similar to the Company so that it is capable of evaluating the merits
and  risks  of its investment in the Company and has the capacity to protect its
own  interests.  Laurus must bear the economic risk of this investment until the
Securities  are  sold  pursuant to (i) an effective registration statement under
the  Securities  Act,  or  (ii)  an  exemption  from  registration is available.

     (d) Acquisition for Own Account. Laurus is acquiring the Securities for its
own  account  for  investment only, and not as a nominee or agent and not with a
view  towards  or  for  resale  in  connection  with  their  distribution.

     (e)  Laurus  Can  Protect Its Interest. Laurus represents that by reason of
its,  or  of its management's, business and financial experience, Laurus has the
capacity to evaluate the merits and risks of its investment in the Note, and the
Securities  and to protect its own interests in connection with the transactions
contemplated in this Agreement, and the Ancillary Agreements. Further, Laurus is
aware of no publication of any advertisement in connection with the transactions
contemplated  in  the  Agreement  or  the  Ancillary  Agreements.

     (f)  Accredited  Investor.  Laurus  represents  that  it  is  an accredited
investor  within  the  meaning  of  Regulation  D  under  the  Securities  Act.

     16.     Power  of Attorney.  Subject to compliance with Sarbanes-Oxley, the
Company hereby appoints Laurus, or any other Person whom Laurus may designate as
the  Company's  attorney,  with power to:  (i) endorse the Company's name on any
checks,  notes,  acceptances,  money orders, drafts or other forms of payment or
security  that may come into Laurus' possession; (ii) sign the Company's name on
any  invoice  or bill of lading relating to any Accounts, drafts against Account
Debtors, schedules and assignments of Accounts, notices of assignment, financing
statements  and other public records, verifications of Account and notices to or
from  Account  Debtors;  (iii)  verify  the validity, amount or any other matter
relating  to any Account by mail, telephone, telegraph or otherwise with Account
Debtors; (iv) do all things necessary to carry out this Agreement, any Ancillary
Agreement  and  all  related  documents;  and (v) on or after the occurrence and
continuation  of  an  Event  of  Default,  notify the post office authorities to
change  the  address for delivery of the Company's mail to an address designated
by  Laurus,  and  to  receive,  open  and  dispose  of all mail addressed to the
Company.  Neither  Laurus,  nor  the  attorney  will  be  liable for any acts or
omissions  or  for any error of judgment or mistake of fact or law.  This power,
which  may  not  be exercised unless an Event of Default under this Agreement or
the  Ancillary  Agreements has occurred and is continuing, is being coupled with
an interest,  is irrevocable so long as Laurus has a security interest and, will
automatically  terminate  upon  the  full  and  irrevocable  satisfaction of the
Obligations  hereunder  .

17.     Term of Agreement.  Laurus' agreement to make Loans and extend financial
accommodations  under  and in accordance with the terms of this Agreement or any
Ancillary Agreement shall continue in full force and effect until the expiration
of  the  Initial  Term.  At  the  expiration of the Initial Term, this Agreement
shall  be  deemed  to be automatically renewed for an additional period equal to
the  Initial Term and thereafter to be automatically renewed by succeeding terms
of  equal length at the end of the first and each succeeding renewal term (each,
a  "Renewal  Term"),  unless (i) the Company or Laurus shall (a) deliver written
notice  of cancellation to Laurus not earlier than 90 days and not later than 30
days  prior to the expiration date of the Initial Term or any succeeding Renewal
Term  and  (b)  has  paid  in  full  in  cash all Obligations on or prior to the
expiration  date  of  the Initial Term or any Renewal Term, as applicable,  (ii)
Laurus  shall  deliver written notice of cancellation to the Company not earlier
than  90  days  and  not  later than 30 days prior to the expiration date of the
Initial  Term  or  any  succeeding Renewal Term or (iii) if Laurus shall fail to
perform its obligations to the Company as set forth in Sections 4, 9(b) and 9(c)
hereof, and if such failure to perform is not cured on or before the last day of
such applicable cure period ("Laurus Performance Failure"), then the Company may
elect  to terminate this Agreement if any Laurus Performance Failure shall occur
more  than  two  (2)  times  in  any  three  month  period. If the Company shall
terminate  this  Agreement  due  to  the  occurrence of more than two (2) Laurus
Performance  Failures  in  any three month period, then the Company shall not be
required  to pay any Early Payment Fee (as defined below) but shall otherwise be
required  to  pay  any  and  all other Obligations due any owing at the time the
Agreement  is  so  terminated  by the Company. At Laurus' election following the
occurrence  of  an  Event  of Default, Laurus may terminate this Agreement.  The
termination of the Agreement shall not affect any of Laurus' rights hereunder or
any  Ancillary Agreement and the provisions hereof and thereof shall continue to
be  fully  operative  until  all  transactions entered into, rights or interests
created  and  the  Obligations  have  been disposed of, concluded or liquidated.
Upon  early termination by the Company and notwithstanding the foregoing, Laurus
shall  release  its security interests at any time after thirty (30) days notice
upon  payment to it of all Obligations if Company shall have (i) provided Laurus
with  an  executed  release  of  any  and  all  claims which Company may have or
thereafter  have under this Agreement and all Ancillary Agreements and (ii) paid
to  Laurus  an early payment fee (the "Early Payment Fee") in an amount equal to
(x) four  percent (4%) of the Capital Availability Amount if such payment occurs
prior  to  the  first  anniversary of the Initial Term or any applicable Renewal
Term  (y)  three percent (3%) of the Capital Availability Amount if such payment
occurs  after  the  first anniversary and prior to the second anniversary of the
Initial  Term  or  any  Renewal  Term  and  (z)  two percent (2%) of the Capital
Availability  Amount; such fee being intended to compensate Laurus for its costs
and  expenses  incurred in initially approving this Agreement or extending same.
Such  Early  Payment Fee shall also be due and payable by Company to Laurus upon
termination  of  this  Agreement  by  Laurus after the occurrence of an Event of
Default.

18.     Termination  of  Lien.  The Liens and rights granted to Laurus hereunder
and  any  Ancillary  Agreements and the financing statements filed in connection
herewith  or  therewith shall continue in full force and effect, notwithstanding
the  termination  of  this  Agreement or the fact that the Company's account may
from  time to time be temporarily in a zero or credit position, until (a) all of
the  Obligations  of  the  Company have been paid or performed in full after the
termination of this Agreement and (b) the Company has an executed release of any
and  all  claims  which  the  Company  may  have  or  thereafter have under this
Agreement and all Ancillary Agreements.  Accordingly, subject to compliance with
Sarabanes-Oxley,  the  Company waives any rights which it may have under the UCC
to  demand  the filing of termination statements with respect to the Collateral,
and  Laurus  shall  not  be  required to send such termination statements to the
Company, or to file them with any filing office, unless and until this Agreement
and the Ancillary Agreements shall have been terminated in accordance with their
terms  and  all  Obligations  paid  in  full  in  immediately  available  funds.

     19.     Events  of  Default.  The  occurrence of any of the following shall
constitute  an  Event  of  Default:

     (a)     failure  to  make  payment  of any of the Obligations when required
hereunder;  provided, however, that in the event such failure to pay arises from
the  occurrence of an Overadvance, then the Company shall have five (5) business
days  to  cure  such  failure;

     (b) failure to pay any taxes when due unless such taxes are being contested
in  good  faith  by  appropriate  proceedings and with respect to which adequate
reserves  have  been provided on the Company's books; provided, however, that in
the event that such failure is curable, the Company shall have ten (10) business
days  to  cure  such  failure;

     (c)  failure to perform under and/or committing any material breach of this
Agreement  or any Ancillary Agreement or any other agreement between the Company
and  Laurus;  provided,  however, in the event that such failure is curable, the
Company  shall  have seven (7) business days from the occurrence thereof to cure
such  failure;

     (d) the occurrence of a default under any agreement to which the Company is
a  party  with  third  parties  which  has  a Material Adverse Effect; provided,
however,  that in the event that such failure is curable, the Company shall have
ten  (10)  business  days  to  cure  such  failure;

     (e)  any  representation,  warranty  or  statement  made  by  the  Company
hereunder,  in  any  Ancillary Agreement, any certificate, statement or document
delivered  pursuant  to the terms hereof, or in connection with the transactions
contemplated  by this Agreement should at any time be false or misleading in any
material  respect;  provided,  however, in the event such breach is curable, the
Company  shall  have seven (7) business days from the occurrence thereof to cure
such  breach;

     (f)  an  attachment  or  levy  is  made upon the Company's assets having an
aggregate  value  in  excess  of  $100,000 or a judgment is rendered against the
Company  or  the  Company's property involving a liability of more than $100,000
which  shall  not have been vacated, discharged, stayed or bonded pending appeal
within  thirty  (30)  days  from  the  entry  thereof;

     (g)  any  change  in  the  Company's  condition  or  affairs  (financial or
otherwise)  which  in  Laurus'  reasonable,  good  faith  opinion,  impairs  the
Collateral  or  the ability of the Company to perform its Obligations; provided,
however,  that in the event that such failure is curable, the Company shall have
seven  (7)  business  days  to  cure  such  failure;

     (h)  any  Lien  created  hereunder or under any Ancillary Agreement for any
reason ceases to be or is not a valid and perfected Lien having a first priority
interest;

     (i)  if  the Company shall (i) apply for, consent to or suffer to exist the
appointment  of,  or the taking of possession by, a receiver, custodian, trustee
or  liquidator  of  itself or of all or a substantial part of its property, (ii)
make  a  general  assignment  for  the  benefit  of  creditors, (iii) commence a
voluntary  case  under  the  federal  bankruptcy  laws  (as  now or hereafter in
effect),  (iv)  be  adjudicated  a  bankrupt  or  insolvent, (v) file a petition
seeking  to take advantage of any other law providing for the relief of debtors,
(vi)  acquiesce  to,  or  fail  to  have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii)  take  any  action  for  the  purpose  of  effecting any of the foregoing;

     (j)  the  Company  shall  admit  in  writing its inability, or be generally
unable  to  pay  its debts as they become due or cease operations of its present
business;

     (k)  any Subsidiary, shall (i) apply for, consent to or suffer to exist the
appointment  of,  or the taking possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (ii) admit
in  writing  its  inability,  or  be  generally unable, to pay its debts as they
become  due  or  cease  operations of its present business, (iii) make a general
assignment  for  the  benefit of creditors, (iv) commence a voluntary case under
the  federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated
a  bankrupt  or insolvent, (vi) file a petition seeking to take advantage of any
other  law  providing  for the relief of debtors, (vii) acquiesce to, or fail to
have  dismissed,  within  thirty (30) days, any petition filed against it in any
involuntary  case  under  such bankruptcy laws or (viii) take any action for the
purpose  of  effecting  any  of  the  foregoing;

     (l)  the Company directly or indirectly sells, assigns, transfers, conveys,
or  suffers  or permits to occur any sale, assignment, transfer or conveyance of
any  assets  of the Company or any interest therein, except as permitted herein;

     (m)  a default by the Company in the payment, when due, of any principal of
or  interest  on  any other indebtedness for money borrowed in an amount greater
than  $25,000,  which  is  not cured within any applicable cure or grace period;

     (n)  the  occurrence  of  a change in controlling ownership of the Company,
provided,  however,  solely for the purposes of this Section 19(n) any reduction
in  the  beneficial  ownership of the Company's Common Stock by Mr. James Benson
(other than by sale or transfer) which reduces Mr. Benson's beneficial ownership
to  less  than  50%  shall  not  be  deemed  a  change  of  control  ;

     (o)  the indictment or threatened indictment of the Company, any officer of
the  Company  under  any  criminal  statute,  or  commencement  or  threatened
commencement  of criminal or civil proceeding against the Company or any officer
of  the  Company  pursuant  to which statute or proceeding penalties or remedies
sought  or  available  include forfeiture of any of the property of the Company;

     (p) if an Event of Default shall occur under and as defined in the Note and
the  Default  Notice  Period  (as  defined  in  such  Note)  has  expired;  or

     (q)  the  Company  shall  breach  any  term  or  provision of any Ancillary
Agreement  which  is  not  cured within any applicable cure or grace period. 20.
Remedies.  If  an  Event of Default has occurred and is continuing, Laurus shall
have  the  right  to demand repayment in full of all Obligations, whether or not
otherwise  due.  Until  all  Obligations have been fully satisfied, Laurus shall
retain  its  Lien in all Collateral. Laurus shall have, in addition to all other
rights  provided  herein,  the  rights and remedies of a secured party under the
UCC,  and  under  other  applicable law, all other legal and equitable rights to
which  Laurus  may be entitled, including the right to take immediate possession
of  the  Collateral,  to  require  a  Company to assemble the Collateral, at the
Company's  expense,  and to make it available to Laurus at a place designated by
Laurus  which  is  reasonably convenient to both parties and to enter any of the
premises  of  a  Company  or  wherever  the Collateral shall be located, with or
without force or process of law, and to keep and store the same on said premises
until  sold  (and  if  said premises be the property of the Company, the Company
agrees not to charge Laurus for storage thereof), and the right to apply for the
appointment  of  a  receiver for the Company's property. Further, Laurus may, at
any  time or times after the occurrence of an Event of Default, sell and deliver
all  Collateral  held  by or for Laurus at public or private sale for cash, upon
credit  or  otherwise,  at such prices and upon such terms as Laurus, in Laurus'
sole  discretion,  deems  advisable  or  Laurus  may  otherwise recover upon the
Collateral  in  any  commercially  reasonable  manner  as  Laurus,  in  its sole
discretion,  deems  advisable. The requirement of reasonable notice shall be met
if such notice is mailed postage prepaid to the Company at the Company's address
as shown in Laurus' records, at least ten (10) days before the time of the event
of  which  notice is being given. Laurus may be the purchaser at any sale, if it
is  public. In connection with the exercise of the foregoing remedies, Laurus is
granted  permission  to  use  all  of  the  Company's   trademarks,  tradenames,
tradestyles,  patents,  patent  applications,  licenses,  franchises  and  other
proprietary  rights.  The  proceeds  of  sale  shall  be  applied  first  to all
reasonable  costs and expenses of sale, including attorneys' fees, and second to
the  payment  (in  whatever  order  Laurus elects) of all Obligations. After the
indefeasible payment and satisfaction in full in cash of all of the Obligations,
and after the payment by Laurus of any other amount required by any provision of
law, including Section 608(a)(1) of the Code (but only after Laurus has received
what  Laurus  considers  reasonable  proof  of  a  subordinate  party's security
interest),  the  surplus,  if   any,  shall  be  paid  to  the  Company  or  its
representatives or to whosoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct. The Company shall remain liable
to  Laurus  for  any  deficiency.  In  addition,  Companies  shall  pay Laurus a
liquidation  fee  ("Liquidation  Fee") in the amount of five percent (5%) of the
face  amount  of  each  Account  outstanding  at  any time during a "liquidation
period". For purposes hereof, "liquidation period" means a period: (i) beginning
on  the  earliest date of (x) an event referred to in Section 19(i) or 19(j), or
(y)  the  cessation  of  any  Company's business; and (ii) ending on the date on
which  Laurus  has actually received all Obligations due and owing it under this
Agreement and the Ancillary Agreements. The Liquidation Fee shall be paid on the
earlier  to  occur  of:  (i)  the  date  on which Laurus collects the applicable
Account;  and  (ii)  the  90th day from the invoice of such Account by deduction
from any amount otherwise due from Laurus to the Company directly, at the option
of Laurus. The Company and Laurus acknowledge that the actual damages that would
be  incurred  by  Laurus  after  the  occurrence of an Event of Default would be
difficult  to quantity and that the Company and Laurus have agreed that the fees
and obligations set forth in this Section and in this Agreement would constitute
fair  and  appropriate  liquidated damages in the event of any such termination.

21.     Waivers.  To  the  full  extent  permitted  by  Sarbanes-Oxley and other
applicable  law,  the  Company  waives  (a) presentment, demand and protest, and
notice  of  presentment,  dishonor, intent to accelerate, acceleration, protest,
default,  nonpayment,  maturity,  release,  compromise, settlement, extension or
renewal  of  any  or  all  of this Agreement and the Ancillary Agreements or any
other  notes,  commercial  paper,  Accounts,  contracts, Documents, Instruments,
Chattel Paper and guaranties at any time held by Laurus on which the Company may
in any way be liable, and hereby ratifies and confirms whatever Laurus may do in
this  regard;  (b)  all  rights  to notice and a hearing prior to Laurus' taking
possession  or  control  of, or to Laurus' replevy, attachment or levy upon, any
Collateral  or any bond or security that might be required by any court prior to
allowing  Laurus  to  exercise  any  of its remedies; and (c) the benefit of all
valuation,  appraisal  and exemption laws.  The Company acknowledges that it has
been  advised  by  counsel  of  its  choices  and decisions with respect to this
Agreement,  the  Ancillary  Agreements and the transactions evidenced hereby and
thereby.

22.     Expenses.  The Company shall pay all of Laurus' reasonable out-of-pocket
costs  and  expenses,  including  fees  and disbursements of in-house or outside
counsel  and  appraisers,  in  connection  with  the  preparation, execution and
delivery  of this Agreement and the Ancillary Agreements, and in connection with
the  prosecution  or defense of any action, contest, dispute, suit or proceeding
concerning  any  matter  in any way arising out of, related to or connected with
this Agreement or any Ancillary Agreement provided that Laurus is the prevailing
party  in  the action , contest, dispute, suit or proceeding.  The Company shall
also  pay  all  of  Laurus'  reasonable  fees,  charges, out-of-pocket costs and
expenses,  including  fees  and  disbursements  of  counsel  and  appraisers, in
connection  with  (a) the preparation, execution and delivery of any waiver, any
amendment  thereto  or  consent  proposed  or  executed  in  connection with the
transactions  contemplated  by  this  Agreement or the Ancillary Agreements, (b)
Laurus'  obtaining  performance  of the Obligations under this Agreement and any
Ancillary  Agreements, including, but not limited to, the enforcement or defense
of  Laurus'  security  interests,  assignments  of rights and Liens hereunder as
valid perfected security interests, (c) any attempt to inspect, verify, protect,
collect,  sell,  liquidate  or  otherwise  dispose  of  any  Collateral, (d) any
appraisals or re-appraisals of any property (real or personal) pledged to Laurus
by  the  Company  as  Collateral  for,  or any other Person as security for, the
Company's Obligations hereunder and (e) any consultations in connection with any
of the foregoing.  The Company shall also pay Laurus' customary bank charges for
all bank services (including wire transfers) performed or caused to be performed
by  Laurus  for  the  Company at the Company's request or in connection with the
Company's  loan  account with Laurus.  All such costs and expenses together with
all filing, recording and search fees, taxes and interest payable by the Company
to Laurus shall be payable on demand and shall be secured by the Collateral.  If
any  tax by any Governmental Authority is or may be imposed on or as a result of
any  transaction  between  the  Company  and  Laurus  which  Laurus is or may be
required  to  withhold  or  pay, the Company agrees to indemnify and hold Laurus
harmless  in  respect  of  such  taxes, and the Company will repay to Laurus the
amount  of  any  such taxes which shall be charged to the Company's account; and
until the Company shall furnish Laurus with indemnity therefor (or supply Laurus
with  evidence satisfactory to it that due provision for the payment thereof has
been  made),  Laurus  may  hold  without  interest  any  balance standing to the
Company's  credit  and  Laurus shall retain its Liens in any and all Collateral.

23.     Assignment By Laurus.  Subject to applicable securities laws, Laurus may
assign  any  or  all of the Obligations together with any or all of the security
therefor  and any transferee shall succeed to all of Laurus' rights with respect
thereto;  provided,  however, that in the event that such assignee or transferee
is  not an affiliate of Laurus, Laurus shall request the approval of the Company
prior  to  any  such  assignment  or  transfer, which such approval shall not be
unreasonably  withheld.  Upon  such  transfer, Laurus shall be released from all
responsibility  for  the  Collateral  to  the  extent  same  is  assigned to any
transferee.  Laurus may from time to time sell or otherwise grant participations
in  any  of  the  Obligations  and  the  holder of any such participation shall,
subject  to  the  terms  of  any  agreement  between  Laurus and such holder, be
entitled  to  the  same  benefits as Laurus with respect to any security for the
Obligations in which such holder is a participant.  The Company agrees that each
such  holder  may  exercise  any  and  all  rights of banker's lien, set-off and
counterclaim  with  respect  to its participation in the Obligations as fully as
though  the  Company were directly indebted to such holder in the amount of such
participation.

24.     No  Waiver;  Cumulative  Remedies.  Failure  by  Laurus  to exercise any
right,  remedy  or  option  under this Agreement, any Ancillary Agreement or any
supplement  hereto  or  thereto  or  any other agreement between the Company and
Laurus  or delay by Laurus in exercising the same, will not operate as a waiver;
no  waiver  by Laurus will be effective unless it is in writing and then only to
the  extent  specifically  stated.  Laurus'  rights  and  remedies  under  this
Agreement  and  the Ancillary Agreements will be cumulative and not exclusive of
any  other  right  or  remedy  which  Laurus  may  have.

25.     Application  of  Payments.  The  Company  waives the right to direct the
application  of  any and all payments at any time or times hereafter received by
Laurus from or on the Company's behalf and the Company hereby agrees that Laurus
shall  have  the  continuing  exclusive  right  to apply and reapply any and all
payments  received  at  any  time  or  times  hereafter  against the Obligations
hereunder  in such manner as Laurus may deem advisable notwithstanding any entry
by  Laurus  upon  any  of  Laurus'  books  and  records.

     26.     Indemnity.  The  Company  agrees  to indemnify and hold Laurus, and
its  respective    affiliates,  employees,    attorneys  and  agents  (each,  an
"Indemnified  Person"),  harmless  from  and against any and all suits, actions,
proceedings,  claims,  damages,  losses, liabilities and expenses of any kind or
nature  whatsoever  (including attorneys' fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) which may
be  instituted or asserted against or incurred by any such Indemnified Person as
the  result  of  credit having been extended, suspended or terminated under this
Agreement  or  any of the Ancillary Agreements or with respect to the execution,
delivery,  enforcement,  performance  and administration of, or in any other way
arising  out  of or relating to, this Agreement, the Ancillary Agreements or any
other documents or transactions contemplated by or referred to herein or therein
and  any actions or failures to act with respect to any of the foregoing, except
to  the  extent  that  any such indemnified liability is finally determined by a
court  of  competent  jurisdiction to have resulted solely from such Indemnified
Person's  gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE  OR LIABLE TO THE COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE  OR  THIRD  PARTY  BENEFICIARY  OR  ANY  OTHER  PERSON ASSERTING CLAIMS
DERIVATIVELY   THROUGH  SUCH  PARTY,  FOR  INDIRECT,   PUNITIVE,  EXEMPLARY   OR
CONSEQUENTIAL  DAMAGES  WHICH  MAY  BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED,  SUSPENDED  OR  TERMINATED  UNDER  THIS  AGREEMENT  OR  ANY  ANCILLARY
AGREEMENT  OR  AS  A  RESULT  OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.

     27.  Revival.  The  Company  further  agrees that to the extent the Company
makes  a  payment  or  payments to Laurus, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under  any  bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as  if  said  payment  had  not  been  made.

     28. Notices. Any notice or request hereunder may be given to the Company or
Laurus  at  the  respective  addresses  set  forth  below or as may hereafter be
specified  in a notice designated as a change of address under this Section. Any
notice  or  request  hereunder  shall  be given by registered or certified mail,
return  receipt  requested, hand delivery, overnight mail or telecopy (confirmed
by  mail). Notices and requests shall be, in the case of those by hand delivery,
deemed  to have been given when delivered to any officer of the party to whom it
is  addressed,  in  the  case of those by mail or overnight mail, deemed to have
been  given  when deposited in the mail or with the overnight mail carrier, and,
in the case of a telecopy, when confirmed. Notices shall be provided as follows:
<TABLE>
<CAPTION>

Notices shall be provided as follows:

<S>                                    <C>
If to Laurus:                          Laurus Master Fund, Ltd.

                                       c/o Laurus Capital Management, LLC
                                       152 West 57th Street
                                       New York, New York 10019
                                       Attention:  David Grin
                                       Telephone:  (212) 541-4434
                                       Telecopier: (212) 541-5800

With a copy to:                        Loeb & Loeb LLP
                                       345 Park Avenue
                                       New York, New York  10154
                                       Attention:  Scott J. Giordano, Esq.
                                       Telephone:  (212) 407-4000
                                       Telecopier: (212) 407-4990

If to the Company:                     Attention:  Richard Slansky
                                       SpaceDev, Inc.
                                       13855 Stowe Drive
                                       Poway, CA 92064
                                       Telephone: (858) 375-2030
                                       Telecopier: (858) 375-1000

With a copy to:                        Attention: Gretchen Cowen, Esq.
                                       Weintraub Dillion
                                       12520 High Bluff Drive
                                       Ste. 260
                                       San Diego, CA 92130
                                       Telephone: (858) 259-2529
With a copy to:                        Telecopier: (858) 259-2868
</TABLE>

     29.     Governing  Law,  Jurisdiction  and  Waiver  of JuryTrial.

     (a)  THIS  AGREEMENT  AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND
CONSTRUED  AND  ENFORCED  IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE  TO  CONTRACTS  MADE  AND  PERFORMED  IN  SUCH  STATE.

     (b)  BOTH PARTIES HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS
LOCATED  IN  THE  COUNTY  OF  NEW  YORK,  STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION  TO  HEAR  AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY
AND LAURUS PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS OR TO
ANY  MATTER  ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS;  PROVIDED,  THAT LAURUS AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS
FROM  THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY
OF  NEW  YORK,  STATE  OF  NEW  YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS
AGREEMENT  SHALL  BE  DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT OR
TAKING  OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS,
TO  REALIZE  ON  THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE  A  JUDGMENT  OR  OTHER  COURT  ORDER  IN  FAVOR OF LAURUS. BOTH PARTIES
EXPRESSLY  SUBMIT  AND  CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT  COMMENCED  IN  ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION
WHICH  IT  MAY  HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. BOTH PARTIES HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT  AND  OTHER  PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE  OF  SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR  CERTIFIED  MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION
27  AND  THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH
PARTIES  ACTUAL  RECEIPT  THEREOF  OR  THREE  (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS,  PROPER  POSTAGE  PREPAID.

     (c)  THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF  THE  JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS
TO  TRIAL  BY  JURY  IN  ANY  ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE,  WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS AND THE
COMPANY  ARISING  OUT  OF,  CONNECTED  WITH,  RELATED  OR  INCIDENTAL  TO  THE
RELATIONSHIP  ESTABLISHED  BETWEEN  THEM  IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY  AGREEMENT  OR  THE  TRANSACTIONS  RELATED  THERETO.

     30.     Limitation  of Liability.  The Company acknowledges and understands
that  in  order  to  assure repayment of the Obligations hereunder Laurus may be
required  to  exercise  any and all of Laurus' rights and remedies hereunder and
agrees  that  neither  Laurus nor any of Laurus' agents shall be liable for acts
taken  or  omissions  made in connection herewith or therewith except for actual
bad  faith.

     31.  No  Shorting.  Neither Laurus nor any of its Affiliates nor investment
partners  shall  cause  any Person or entity to directly or indirectly engage in
"short  sales"  or  other  hedging  strategies  of  the  Company's Common Stock.

     32.  Entire  Understanding.  This  Agreement  and  the Ancillary Agreements
contain  the  entire  understanding  between  the  Company  and  Laurus  and any
promises,  representations,  warranties or guarantees not herein contained shall
have  no force and effect unless in writing, signed by the Company's and Laurus'
respective  officers.  Neither this Agreement, the Ancillary Agreements, nor any
portion  or  provisions  thereof  may  be  changed,  modified,  amended, waived,
supplemented,  discharged,  cancelled  or  terminated orally or by any course of
dealing,  or  in any manner other than by an agreement in writing, signed by the
party  to  be  charged.

     33. Severability. Wherever possible each provision of this Agreement or the
Ancillary  Agreements shall be interpreted in such manner as to be effective and
valid  under  applicable  law,  but  if  any  provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision  shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.

     34.  Captions. All captions are and shall be without substantive meaning or
content  of  any  kind  whatsoever.

     35.  Counterparts; Telecopier Signatures. This Agreement may be executed in
one  or more counterparts, each of which shall constitute an original and all of
which  taken together shall constitute one and the same agreement. Any signature
delivered  by  a  party  via  telecopier  transmission shall be deemed to be any
original  signature  hereto.

     36.  Construction.  The parties acknowledge that each party and its counsel
have  reviewed  this  Agreement  and that the normal rule of construction to the
effect  that any ambiguities are to be resolved against the drafting party shall
not  be  employed  in  the  interpretation  of this Agreement or any amendments,
schedules  or  exhibits  thereto.

     37.  Publicity.  The  Company  hereby  authorize Laurus to make appropriate
announcements  of  the  financial  arrangement  entered  into by and between the
Company  and  Laurus,  including,  without  limitation,  announcements which are
commonly  known as tombstones, in such publications and to such selected parties
as  Laurus  shall  in  its  sole  and  absolute  discretion  deem  appropriate.

<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
first  above  written.

                                 SPACEDEV, INC.
                            By: /s/ James W. Benson
                             ----------------------
                              Name: James W. Benson
                         Title: Chief Executive Officer
                            LAURUS MASTER FUND, LTD.
                               By: /s/ David Grin
                               ------------------
                                Name: David Grin
                                Title: President

<PAGE>
                                     ------
                              Annex A - Definitions
                              ---------------------
     "Account  Debtor"  means any Person who is or may be obligated with respect
to,  or  on  account  of,  an  Account.

     "Accountants"  has  the  meaning  given  to  such  term  in  Section 11(a).

     "Accounts"  means  all  "accounts", as such term is defined in the UCC, now
owned  or  hereafter  acquired  by  any  Person,  including:  (a)  all  accounts
receivable,  other receivables, book debts and other forms of obligations (other
than  forms of obligations evidenced by Chattel Paper or Instruments) (including
any  such  obligations that may be characterized as an account or contract right
under  the  UCC);  (b) all of such Person's rights in, to and under all purchase
orders or receipts for goods or services; (c) all of such Person's rights to any
goods  represented  by any of the foregoing (including unpaid sellers' rights of
rescission,  replevin,  reclamation  and  stoppage  in  transit  and  rights  to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed  of,  for a policy of insurance issued or to be issued, for a secondary
obligation  incurred  or  to be incurred, for energy provided or to be provided,
for  the  use or hire of a vessel under a charter or other contract, arising out
of  the  use  of a credit card or charge card, or for services rendered or to be
rendered  by such Person or in connection with any other transaction (whether or
not  yet  earned  by  performance  on  the  part  of  such  Person); and (e) all
collateral  security of any kind given by any Account Debtor or any other Person
with  respect  to  any  of  the  foregoing.

     "Accounts  Availability"  means  the  amount  of  Revolving Credit Advances
against  Eligible  Accounts  Laurus  may from time to time make available to the
Company  up to eighty five percent (85%) of the net face amount of the Company's
Eligible  Accounts.

     "Affiliate"  of  any  Person means (a) any Person (other than a Subsidiary)
which,  directly  or indirectly, is in control of, is controlled by, or is under
common  control with such Person, or (b) any Person who is a director or officer
(i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described  in  clause  (a)  above. For purposes of this definition, control of a
Person  shall  mean  the  power,  direct  or  indirect, (i) to vote five percent
(5.00%)  or more of the securities having ordinary voting power for the election
of  directors  of  such  Person, or (ii) to direct or cause the direction of the
management  and  policies  of  such  Person  whether  by  contract or otherwise.

     "Ancillary  Agreements" means, the Note, Registration Rights Agreement, all
documents,  instruments  and  agreements evidencing the Term Loan, and all other
agreements,  instruments,  documents,  mortgages,  pledges,  powers of attorney,
consents, assignments, contracts, notices, security agreements, trust agreements
and  guarantees whether heretofore, concurrently, or hereafter executed by or on
behalf  of  the  Company or any other Person or delivered to Laurus, relating to
this  Agreement  or  to  the  transactions  contemplated  by  this  Agreement or
otherwise  relating  to  the  relationship  between  the  Company  and  Laurus.

     "Books  and  Records"  means  all books, records, board minutes, contracts,
licenses,  insurance  policies,  environmental  audits,  business  plans, files,
computer  files,  computer  discs  and other data and software storage and media
devices,  accounting  books  and  records,  financial statements (actual and pro
forma),  filings  with  Governmental  Authorities  and  any  and all records and
instruments  relating to the Collateral or otherwise necessary or helpful in the
collection  thereof  or  the  realization  thereupon.

     "Business Day" means a day on which Laurus is open for business and that is
not  a  Saturday, a Sunday or other day on which banks are required or permitted
to  be  closed  in  the  State  of  New  York.

     "Capital Availability Amount" on any business day, shall mean the lesser of
(i)  $1,000,000 and (ii) an amount determined by multiplying eighty-five percent
(85%)  by  Eligible  Accounts  on  such  business  day.

     "Chattel  Paper"  means all "chattel paper," as such term is defined in the
UCC,  including electronic chattel paper, now owned or hereafter acquired by any
Person.

     "Closing  Date"  means  the  date  hereof.

     "Collateral"  means  all of the Company's property and assets, whether real
or  personal,  tangible  or  intangible,  and  whether  now  owned  or hereafter
acquired,  or  in  which it now has or at any time in the future may acquire any
right,  title  or  interests including all of the following property in which it
now  has  or at any time in the future may acquire any right, title or interest:

     (a)     all  Inventory;

     (b)  all  Equipment;

     (c)  all  Fixtures;

     (d)  all  General  Intangibles;

     (e)  all  Accounts;

     (f)  all  Deposit  Accounts,  other  bank accounts and all funds on deposit
therein;

     (g)  all  Investment  Property;

     (h)  all  Stock;

     (i)  all  Chattel  Paper;

     (j)  all  Letter-of-Credit  Rights;

     (k)  all  Instruments;

     (l)  all  commercial  tort  claims  set  forth  on  Exhibit  1(A);

     (m)  all  Books  and  Records;

     (n)  all  Supporting Obligations including letters of credit and guarantees
issued in support of Accounts, Chattel Paper, General Intangibles and Investment
Property;

     (o) (i) all money, cash and cash equivalents and (ii) all cash held as cash
collateral  to  the extent not otherwise constituting Collateral, all other cash
or  property  at  any  time on deposit with or held by Laurus for the account of
Company  (whether  for safekeeping, custody, pledge, transmission or otherwise);
and

     (p)  (i)  all  products  and  Proceeds of all or any of the foregoing, tort
claims  and  all  claims  and other rights to payment including insurance claims
against  third  parties  for  loss  of,  damage  to, or destruction of, and (ii)
payments  due  or to become due under leases, rentals and hires of any or all of
the  foregoing  and Proceeds payable under, or unearned premiums with respect to
policies  of  insurance  in  whatever  form.

     "Contract  Rate"  means  an interest rate per annum equal to the Prime Rate
plus  three  fourths  of  one  percent  (0.75%),  but in no event less than five
percent  (5%)  per  annum.

     "Default"  means  any  act  or  event  which,  with the giving of notice or
passage  of  time  or  both,  would  constitute  an  Event  of  Default.

     "Default  Rate"  has  the  meaning given to such term in Section 5(a)(iii).

     "Deposit  Accounts" means all "deposit accounts" as such term is defined in
the  UCC,  now  or  hereafter  held  in  the  name  of  any  Person.

     "Documents"  means all "documents", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including all bills
of lading, dock warrants, dock receipts, warehouse receipts, and other documents
of  title,  whether  negotiable  or  non-negotiable.

     "Eligible  Accounts"  means and includes each Account which conforms to the
following criteria: (a) shipment of the merchandise or the rendition of services
has  been completed; (b) no return, rejection or repossession of the merchandise
has  occurred;  (c)  merchandise  or  services  shall  not have been rejected or
disputed  by  the  Account  Debtor  and  there  shall not have been asserted any
offset, defense or counterclaim; (d) continues to be in full conformity with the
representations  and  warranties  made  by  the  Company  to Laurus with respect
thereto;  (e) Laurus is, and continues to be, satisfied with the credit standing
of  the  Account  Debtor in relation to the amount of credit extended; (f) there
are  no  facts  existing or threatened which are likely to result in any adverse
change  in  an  Account  Debtor's  financial  condition; (g) is documented by an
invoice  in  a  form approved by Laurus and shall not be unpaid more than ninety
(90)  days from invoice date; (h) not more than twenty-five percent (25%) of the
unpaid  amount of invoices due from such Account Debtor remains unpaid more than
ninety  (90) days from invoice date; (i) is not evidenced by chattel paper or an
instrument  of any kind with respect to or in payment of the Account unless such
instrument is duly endorsed to and in possession of Laurus or represents a check
in payment of a Account; (j) the Account Debtor is located in the United States;
(k)  Laurus has a first priority perfected Lien in such Account and such Account
is not subject to any Lien other than Permitted Liens; (l) does not arise out of
transactions  with  any  employee,  officer,  agent,  director,  stockholder  or
Affiliate  of the Company; (m) is payable to the Company; (n) does not arise out
of  a  bill  and hold sale prior to shipment and does not arise out of a sale to
any  Person  to  which  the  Company  is  indebted;  (o)  is net of any returns,
discounts,  claims,  credits  and  allowances;  (p) if the Account arises out of
contracts  between  the  Company  and  the  United  States,  any  state,  or any
department,  agency  or  instrumentality  of  any  of  them,  the Company has so
notified  Laurus,  in  writing, prior to the creation of such Account, and there
has  been  compliance  with  any  governmental  notice or approval requirements,
including  compliance  with  the Federal Assignment of Claims Act; (q) is a good
and  valid account representing an undisputed bona fide indebtedness incurred by
the  Account  Debtor  therein named, for a fixed sum as set forth in the invoice
relating  thereto  with  respect  to an unconditional sale and delivery upon the
stated  terms  of  goods  sold  by  the  Company, or work, labor and/or services
rendered  by  the  Company;  (r) excluding any Accounts arising out of contracts
between  the  Company  and  The  United  States,  any state or any department or
instrumentality  of  any  of them, the total unpaid Accounts from Account Debtor
does  not  exceed  twenty-five  percent  (25%) of all Eligible Accounts; (s) the
Company's  right  to payment is absolute and not contingent upon the fulfillment
of  any condition whatsoever; (t) such Company is able to bring suit and enforce
its  remedies  against the Account Debtor through judicial process; (u) does not
represent interest payments, late or finance charges or service charges owing to
the  Company and (v) is otherwise satisfactory to Laurus as determined by Laurus
in  the  exercise  of  its  reasonable  discretion.

     "Equipment"  means  all "equipment" as such term is defined in the UCC, now
owned  or  hereafter acquired by any Person, wherever located, including any and
all  machinery,  apparatus,  equipment,  fittings,  furniture,  fixtures,  motor
vehicles  and  other  tangible personal property (other than Inventory) of every
kind  and  description  that  may  be  now  or  hereafter  used in such Person's
operations  or that are owned by such Person or in which such Person may have an
interest,  and  all  parts, accessories and accessions thereto and substitutions
and  replacements  therefor.

     "ERISA"  shall  have  the  meaning  given  to  such  term in Section 12(g).

     "Event  of  Default" means the occurrence of any of the events set forth in
Section  19.

     "Existing  Loans"  means  the  loans  set  forth  on  Schedule 12(f) hereto

     "Fixtures"  means  all  "fixtures"  as such term is defined in the UCC, now
owned  or  hereafter  acquired  by  any  Person.

     "Formula  Amount"  has  the  meaning  set  forth  in  Section  2(a).

     "GAAP"  means  generally  accepted  accounting  principles,  practices  and
procedures  in  effect  from  time  to  time  in  the  United States of America.

     "General  Intangibles"  means  all  "general  intangibles"  as such term is
defined  in the UCC, now owned or hereafter acquired by any Person including all
right, title and interest that such Person may now or hereafter have in or under
any  contract,  all  Payment Intangibles, customer lists, Licenses, Intellectual
Property,  interests  in   partnerships,  joint   ventures  and  other  business
associations,  permits,  proprietary  or  confidential  information,  inventions
(whether  or  not  patented  or  patentable), technical information, procedures,
designs,  knowledge,  know-how,  Software,  data  bases, data, skill, expertise,
experience,  processes, models, drawings, materials, Books and Records, Goodwill
(including  the  Goodwill associated with any Intellectual Property), all rights
and claims in or under insurance policies (including insurance for fire, damage,
loss,  and casualty, whether covering personal property, real property, tangible
rights  or  intangible  rights,  all  liability,  life, key-person, and business
interruption  insurance,  and all unearned premiums), uncertificated securities,
choses  in  action,  deposit  accounts,  rights to receive tax refunds and other
payments,  rights  to  received  dividends, distributions, cash, Instruments and
other  property  in  respect  of or in exchange for pledged Stock and Investment
Property,  and  rights  of  indemnification.

     "Goods" means all "goods", as such term is defined in the UCC, now owned or
hereafter  acquired by any Person, wherever located, including embedded software
to  the  extent  included  in "goods" as defined in the UCC, manufactured homes,
standing  timber  that  is cut and removed for sale and unborn young of animals.

     "Goodwill"  means  all goodwill, trade secrets, proprietary or confidential
information,  technical  information,  procedures,   formulae,  quality  control
standards,  designs,  operating  and   training  manuals,  customer  lists,  and
distribution  agreements  now  owned   or  hereafter  acquired  by  any  Person.

     "Governmental Authority" means any nation or government, any state or other
political  subdivision  thereof,  and  any  agency,  department  or other entity
exercising  executive,  legislative,  judicial,  regulatory  or   administrative
functions  of  or  pertaining  to  government.

     "Indemnified  Person"  shall have the meaning given to such term in Section
26.

     "Initial  Term" means the Closing Date through the close of business on the
third  anniversary of the Closing Date, subject to acceleration at the option of
Laurus upon the occurrence of an Event of Default hereunder or other termination
hereunder.

     "Instruments"  means all "instruments", as such term is defined in the UCC,
now  owned  or hereafter acquired by any Person, wherever located, including all
certificated  securities  and  all  promissory  notes  and  other  evidences  of
indebtedness,  other  than instruments that constitute, or are a part of a group
of  writings  that  constitute,  Chattel  Paper.

     "Intellectual  Property"  means  any  and  all  Licenses,  patents,  patent
registrations,   copyrights,  copyright  registrations,  trademarks,   trademark
registrations,  trade  secrets  and  customer  lists.

     "Inventory"  means all "inventory", as such term is defined in the UCC, now
owned  or  hereafter  acquired  by  any  Person, wherever located, including all
inventory, merchandise, goods and other personal property that are held by or on
behalf  of such Person for sale or lease or are furnished or are to be furnished
under  a  contract of service or that constitute raw materials, work in process,
finished  goods, returned goods, or materials or supplies of any kind, nature or
description used or consumed or to be used or consumed in such Person's business
or  in the processing, production, packaging, promotion, delivery or shipping of
the  same,  including  all  supplies  and  embedded  software.

     "Investment  Property"  means  all  "investment  property", as such term is
defined  in  the  UCC,  now  owned or hereafter acquired by any Person, wherever
located.

     "Letter-of-Credit  Rights"  means "letter-of-credit rights" as such term is
defined  in  the  UCC,  now owned or hereafter acquired by any Person, including
rights  to  payment or performance under a letter of credit, whether or not such
Person,  as  beneficiary,  has  demanded  or  is  entitled  to demand payment or
performance.

     "License"  means  any  rights  under any written agreement now or hereafter
acquired  by any Person to use any trademark, trademark registration, copyright,
copyright  registration or invention for which a patent is in existence or other
license  of  rights  or  interests now held or hereafter acquired by any Person.

     "Lien"  means  any  mortgage,  security  deed,  deed  of  trust,  pledge,
hypothecation,  assignment,  security  interest,  lien  (whether  statutory  or
otherwise),  charge,  claim  or  encumbrance,  or  preference, priority or other
security  agreement  or  preferential arrangement held or asserted in respect of
any  asset  of  any  kind or nature whatsoever including any conditional sale or
other  title  retention  agreement,  any  lease  having  substantially  the same
economic  effect  as  any  of  the foregoing, and the filing of, or agreement to
give,  any  financing  statement  under  the  UCC  or  comparable  law  of  any
jurisdiction.

     "Loans"  means  the  Revolving Credit Advances and all extensions of credit
hereunder  and  under  any  Ancillary  Agreement.

     "Material  Adverse  Effect"  means  a  material  adverse  effect on (a) the
condition,  operations,  assets,  business  or prospects of the Company, (b) the
Company's ability to pay or perform the Obligations in accordance with the terms
hereof or any Ancillary Agreement, (c) the value of the Collateral, the Liens on
the Collateral or the priority of any such Lien or (d) the practical realization
of  the  benefits  of  Laurus'  rights and remedies under this Agreement and the
Ancillary  Agreements.

     "Maximum  Legal  Rate" shall have the meaning given to such term in Section
5(a)(iv).

     "Note"  means the Secured Convertible Note in the original principal amount
of  $1,000,000  made  by  the Company in favor of Laurus dated as of the Closing
Date,  as  the same may be amended, modified and supplemented from time to time.

     "Obligations"  means  all  Loans,  all  advances,  debts,  liabilities,
obligations,  covenants  and  duties  owing  by  the  Company  to Laurus (or any
corporation that directly or indirectly controls or is controlled by or is under
common  control  with  Laurus)  of  every  kind  and description (whether or not
evidenced  by any note or other instrument and whether or not for the payment of
money  or  the  performance  or non-performance of any act), direct or indirect,
absolute  or  contingent,  due  or  to  become  due,  contractual  or  tortious,
liquidated  or  unliquidated,  whether existing by operation of law or otherwise
now  existing  or  hereafter arising including any debt, liability or obligation
owing from the Company to others which Laurus may have obtained by assignment or
otherwise and further including all interest (including interest accruing at the
then  applicable rate provided in this Agreement after the maturity of the Loans
and  interest  accruing  at  the then applicable rate provided in this Agreement
after  the  filing  of  any  petition  in bankruptcy, or the commencement of any
insolvency,  reorganization  or  like  proceeding,  whether  or  not a claim for
post-filing or post-petition interest is allowed in such proceeding), charges or
any  other  payments the Company is required to make by law or otherwise arising
under  or  as  a result of this Agreement and the Ancillary Agreements, together
with  all  reasonable  expenses and reasonable attorneys' fees chargeable to the
Company's account or incurred by Laurus in connection with the Company's account
whether  provided  for  herein  or  in  any  Ancillary  Agreement.

     "Payment  Intangibles"  means  all  "payment  intangibles"  as such term is
defined  in the UCC, now owned or hereafter acquired by any Person, including, a
General  Intangible  under  which the Account Debtor's principal obligation is a
monetary  obligation.

     "Permitted  Liens"  means  (a)  Liens  of carriers, warehousemen, artisans,
bailees,  mechanics  and materialmen incurred in the ordinary course of business
securing sums not overdue; (b) Liens incurred in the ordinary course of business
in connection with workmen's compensation, unemployment insurance or other forms
of  governmental insurance or benefits, relating to employees, securing sums (i)
not  overdue  or  (ii)  being  diligently  contested in good faith provided that
adequate  reserves  with  respect  thereto  are  maintained  on the books of the
applicable  Company  in  conformity with GAAP; (c) Liens in favor of Laurus; (d)
Liens for taxes (i) not yet due or (ii) being diligently contested in good faith
by appropriate proceedings, provided that adequate reserves with respect thereto
are  maintained  on  the books of the applicable Company in conformity with GAAP
provided,  that, the Lien shall have no effect on the priority of Liens in favor
of  Laurus  or  the value of the assets in which Laurus has a Lien; (e) Purchase
Money Liens securing Purchase Money Indebtedness to the extent permitted in this
Agreement  and  (f)  Liens  specified  on  Exhibit  2  hereto.

     "Person"  means  any  individual, sole proprietorship, partnership, limited
liability  partnership,  joint  venture,  trust,  unincorporated  organization,
association, corporation, limited liability company, institution, public benefit
corporation,  entity  or  government  (whether  federal,  state,  county,  city,
municipal or otherwise, including any instrumentality, division, agency, body or
department  thereof),  and  shall  include such Person's successors and assigns.

     "Prime  Rate"  means  the "base rate" or "prime rate" published in the Wall
Street Journal from time to time. The Prime Rate shall be increased or decreased
as  the case may be for each increase or decrease in the Prime Rate in an amount
equal  to  such  increase  or  decrease  in  the  Prime  Rate; each change to be
effective  as  of  the  day  of  the  change  in  such  rate.

     "Proceeds" means "proceeds", as such term is defined in the UCC and, in any
event,  shall  include:  (a)  any  and all proceeds of any insurance, indemnity,
warranty  or  guaranty  payable  to the Company or any other Person from time to
time  with  respect  to  any  Collateral;  (b) any and all payments (in any form
whatsoever)  made  or  due  and  payable  to  the  Company  from time to time in
connection  with  any  requisition,  confiscation,  condemnation,  seizure  or
forfeiture  of  any Collateral by any governmental body, governmental authority,
bureau  or  agency (or any person acting under color of governmental authority);
(c)  any  claim  of  the  Company against third parties (i) for past, present or
future  infringement  of  any Intellectual Property or (ii) for past, present or
future  infringement  or  dilution  of any trademark or trademark license or for
injury  to the goodwill associated with any trademark, trademark registration or
trademark  licensed  under  any  trademark  License;  (d)  any recoveries by the
Company  against  third  parties  with  respect  to  any  litigation  or dispute
concerning  any  Collateral,  including  claims  arising  out  of  the  loss  or
nonconformity  of,  interference with the use of, defects in, or infringement of
rights  in,  or  damage  to,  Collateral;  (e)  all  amounts  collected  on,  or
distributed  on  account  of,  other  Collateral, including dividends, interest,
distributions  and  Instruments  with respect to Investment Property and pledged
Stock;  and  (f) any and all other amounts , rights to payment or other property
acquired  upon  the  sale,  lease,  license,  exchange  or  other disposition of
Collateral  and  all  rights  arising  out  of  Collateral.

     "Purchase  Money  Indebtedness" means (a) any indebtedness incurred for the
payment  of  all or any part of the purchase price of any fixed asset, including
but  not  limited  to  equipment.,  (b)  any  indebtedness incurred for the sole
purpose of financing or refinancing all or any part of the purchase price of any
fixed  asset,  and (c) any renewals, extensions or refinancings thereof (but not
any  increases  in  the  principal  amounts  thereof  outstanding at that time).

     "Purchase Money Lien" means any Lien upon any fixed assets that secures the
Purchase  Money  Indebtedness related thereto but only if such Lien shall at all
times  be  confined solely to the asset the purchase price of which was financed
or  refinanced through the incurrence of the Purchase Money Indebtedness secured
by  such  Lien  and  only  if  such  Lien  secures  only  such  Purchase  Money
Indebtedness.

     "Renewal  Term"  has  the  meaning  set  forth  in  Section  17.

     "Revolving  Credit  Advances"  shall have the meaning given to such term in
Section  2(a)(i).

     "Securities"  means  the Note, and the shares of the Company's Common Stock
underlying  the  Note.

     "Software"  means  all  "software"  as such term is defined in the UCC, now
owned  or  hereafter acquired by any Person, including all computer programs and
all  supporting information provided in connection with a transaction related to
any  program.

     "Stock"  means  all  certificated  and  uncertificated  shares,  options,
warrants,  membership  interests,  general  or  limited  partnership  interests,
participation  or  other  equivalents  (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting  or  nonvoting,  including  common  stock,  preferred stock, or any other
"equity  security"  (as such term is defined in Rule 3a11-1 of the General Rules
and  Regulations promulgated by the Securities and Exchange Commission under the
Securities  Exchange  Act  of  1934).

     "Subsidiary" of any Person means a corporation or other entity whose shares
of  stock  or other ownership interests having ordinary voting power (other than
stock  or  other  ownership  interests  having  such power only by reason of the
happening  of  a  contingency)  to  elect  a  majority  of the directors of such
corporation,  or other Persons performing similar functions for such entity, are
owned,  directly  or  indirectly,  by  such  Person.

     "Supporting Obligations" means all "supporting obligations" as such term is
defined  in  the  UCC.

     "Term"  means,  as  applicable,  the  Initial  Term  and  any Renewal Term.

     "UCC"  means  the  Uniform Commercial Code as the same may, from time be in
effect  in the State of New York; provided, that in the event that, by reason of
mandatory  provisions  of  law,  any  or  all  of  the attachment, perfection or
priority  of,  or  remedies  with  respect to, Laurus' Lien on any Collateral is
governed  by  the  Uniform  Commercial Code as in effect in a jurisdiction other
than  the  State  of  New York, the term "UCC" shall mean the Uniform Commercial
Code  as  in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for  purposes  of definitions related to such provisions; provided further, that
to  the  extent  that  UCC is used to define any term herein or in any Ancillary
Agreement  and  such  term  is  defined  differently  in  different  Articles or
Divisions  of  the  UCC,  the  definition  of  such term contained in Article or
Division  9  shall  govern.

                                          46

                                    EXHIBITS
                                    --------
Exhibit  1(A)  -  Commercial  Tort  Claims
Exhibit  2  -  Permitted  Liens
Exhibit  7(c)  -  Actions  for  Perfection
Exhibit  7(p)  -  Bank  Accounts
Exhibit  12(d)  -  Corporate  Information  and  Locations  of  Collateral
Exhibit  12(i)  -  Licenses,  Patents,  Trademarks  and  Copyrights
Exhibit  13(e)(i)  -  Permitted  Indebtedness
Exhibit  13(e)(ii)  -  Existing  Subsidiaries
Exhibit  A  -  Form  of  Borrowing  Base  Certificate

<PAGE>
                                     ------
                                  Exhibit 1(A)
                                  ------------
                             Commercial Tort Claims
                             ----------------------

     None

<PAGE>
                                     ------
                                    Exhibit 2
                                    ---------
                                 Permitted Liens
                                 ---------------
The  Company's  assets  are  subject  to  the  following  security  interests:

     None

<PAGE>

                                  Exhibit 7(c)
                                  ------------
                             Actions for Perfection
                             ----------------------

     None

<PAGE>

                                   Exhibit 7(p)
                                  -------------
                                  Bank Accounts
                                  -------------

     First  National  Bank
     401  West  A  Street
     San  Diego,  92101

<PAGE>
                                     ------
                                 Exhibit 12 (d)
                                 --------------

Name:                                       SpaceDev, Inc.
Type:                                       Corporation
Organizational Identification Number:       19961166285
State of Incorporation                      Colorado
Location of Chief Executive Office:         13855 Stowe Drive, Poway, CA 92064
The  location  of  our principal  business  office has not changed in the past
twelve (12) months.

<PAGE>
                                     ------
                                  Exhibit 12(i)
                                  -------------
                  Licenses, Patents, Trademarks and Copyrights

Trademark:     ExploreSpace
Parents:       Various Patents Acquired from the former American Rocket Company

<PAGE>
                                     ------
                                Exhibit 13(e)(i)
                                ----------------
                             Permitted Indebtedness
                             ----------------------

$475,000 in Related Party Convertible Notes

<PAGE>
                                     ------
                                Exhibit 13(e)(ii)
                                -----------------
                              Existing Subsidiaries
                              ---------------------

Integrated Space Systems
SpaceDev Australia, Ltd.
SpaceDev, Inc., an Oklahoma Corporation

<PAGE>
                                     ------
                                    Exhibit A
                                   ----------
                           Borrowing Base Certificate
                           --------------------------

<TABLE>
<CAPTION>

SPACEDEV, INC.
BORROWING BASE
5/28/03
<S>                                     <C>            <C>
                                        EXAMINER       INELIGIBLE
(000)'S                                 CALCULATION    NOTES
--------------------------------------  -------------  -------------------------------------------------------------------
Accounts Receivable per 5/28/03 Aging   $    352,147   LENDING AGAINST EARNED BUT UNBILLED PORTION OF GOVERNMENT CONTRACTS
Ineligibles
Past Due accounts (> 90 days)                      0
Cross-age (>50% past due)                          0
Credit Balances > 90 days                          0
Foreign Receivables                                0
Government Receivables                             0   GOVERNMENT CONTRACTS HAVE BEEN APPROVED AS COLLATERAL
Affiliated Company Receivables                     0
Contra A/R                                     2,000   UC BERKLEY A/R OF $110M AND UCSD A/P BALANCE OF $2M
Total Ineligibles                       $      2,000
Eligible Accounts Receivable            $    350,147
Proposed Advance Rate                           85.0%
Available Accounts Receivable           $    297,625

Total Availability                      $    297,625
Add  Term Loan                          $          0
Less Outstanding Revolver               $          0
Less Term Loan                          $          0
Less Fees                               $          0
Excess (Deficit) Availability           $    297,625
                                        =============

</TABLE>

<PAGE>
                            LAURUS MASTER FUND, LTD.
                                       and
                                  SpaceDev,  Inc.

                              Dated:  May  30,  2003

<TABLE>
<CAPTION>

<C>   <S>                                                                  <C>
  1.  (a) General Definitions . . . . . . . . . . . . . . . . . . . . . .   1
 (b)  Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . .   1
 (c)  Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
 (d)  Rules of Construction . . . . . . . . . . . . . . . . . . . . . . .   1
  2.  Credit Advances.. . . . . . . . . . . . . . . . . . . . . . . . . .   2
  3.  Repayment of the Loans. . . . . . . . . . . . . . . . . . . . . . .   3
  4.  Procedure for Revolving Credit Advances . . . . . . . . . . . . . .   4
  5.  Interest and Payments.. . . . . . . . . . . . . . . . . . . . . . .   4
 (a)  Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
 (b)  Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
  6.  Security Interest.. . . . . . . . . . . . . . . . . . . . . . . . .   6
  7.  Representations, Warranties and Covenants Concerning the Collateral   7
  8.  Payment of Accounts.. . . . . . . . . . . . . . . . . . . . . . . .   9
  9.  Collection and Maintenance of Collateral. . . . . . . . . . . . . .  10
 10.  Inspections and Appraisals. . . . . . . . . . . . . . . . . . . . .  10
 11.  Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . .  11
 12.  Additional Representations and Warranties . . . . . . . . . . . . .  11
 13.  Covenants.  The Company covenants as follows: . . . . . . . . . . .  15
 14.  Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . .  17
 15.  Representations and Warranties of Laurus. . . . . . . . . . . . . .  17
 (a)  Requisite Power and Authority . . . . . . . . . . . . . . . . . . .  17
 (b)  Investment Representations. . . . . . . . . . . . . . . . . . . . .  17
 (c)  Laurus Bears Economic Risk. . . . . . . . . . . . . . . . . . . . .  17
 (d)  Acquisition for Own Account . . . . . . . . . . . . . . . . . . . .  18
 (e)  Laurus Can Protect Its Interest . . . . . . . . . . . . . . . . . .  18
 (f)  Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . .  18
 16.  Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . .  18
 17.  Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . .  18
 18.  Termination of Lien . . . . . . . . . . . . . . . . . . . . . . . .  19
 19.  Events of Default . . . . . . . . . . . . . . . . . . . . . . . . .  19
 20.  Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
 21.  Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
 22.  Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
 23.  Assignment By Laurus. . . . . . . . . . . . . . . . . . . . . . . .  23
 24.  No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . .  24
 25.  Application of Payments . . . . . . . . . . . . . . . . . . . . . .  24
 26.  Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
 27.  Revival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
 28.  Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
 29.  Governing Law, Jurisdiction and Waiver of Jury. . . . . . . . . . .  25
 30.  Limitation of Liability . . . . . . . . . . . . . . . . . . . . . .  26
 31.  Entire Understanding. . . . . . . . . . . . . . . . . . . . . . . .  27
 32.  Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
 33.  Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
 34.  Counterparts; Telecopier Signatures . . . . . . . . . . . . . . . .  27
 35.  Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
 36.  Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
</TABLE>Exhibit  10.2

THIS  NOTE  AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE,  PLEDGED  OR  HYPOTHECATED  IN  THE  ABSENCE  OF AN EFFECTIVE REGISTRATION
STATEMENT  AS  TO  THIS  NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY  TO  SPACEDEV,  INC.,  THAT  SUCH  REGISTRATION  IS  NOT  REQUIRED.

                            SECURED CONVERTIBLE NOTE
                            ------------------------

     FOR  VALUE  RECEIVED,  SpaceDev,  Inc., a Colorado corporation (hereinafter
called  the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore  Corporate  Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "HOLDER") or
its registered assigns, on order, without demand, the sum of ONE MILLION DOLLARS
($1,000,000),  or such other amount as may be due and owing from time to time by
Borrower to Holder pursuant to the terms of the Security Agreement (as hereafter
defined)  (the  "PRINCIPAL  AMOUNT"),  together  with  any  accrued  and  unpaid
interest,  on  June  3,  2005  (the  "MATURITY  DATE").

     Capitalized  terms  used  herein without definition shall have the meanings
ascribed  to  such  terms in the Security Agreement between the Borrower and the
Holder dated the date hereof (as amended, modified and supplemented from time to
time,  the  "SECURITY  AGREEMENT").

     The  following  terms  shall  apply  to  this  Note:
                                    ARTICLE I

                                    INTEREST
     1.1.       Interest  Rate.  Subject to Section 1.2 hereof, interest on this
Note  shall  be payable at the Contract Rate in accordance with the terms of the
Security  Agreement.

     1.2.  Default  Rate. Following the occurrence and during the continuance of
an Event of Default, interest on this Note shall be payable at the Default Rate.

                                   ARTICLE II

                               ADVANCES UNDER NOTE
     2.1.       Mechanics  of Advances.  All Revolving Credit Advances evidenced
by  this  note  shall be made in accordance with the terms and provisions of the
Security  Agreement.

                                   ARTICLE III

                                CONVERSION RIGHTS

     3.1.     Optional Conversion. Subject to the terms of this Article III, the
Holder  shall  have  the  right,  but  not the obligation, at any time until the
Maturity  Date  or  thereafter during an Event of Default (as defined in Article
V),  to  convert  all  or any portion of the outstanding Principal Amount and/or
accrued  interest  and  fees  due  and payable into fully paid and nonassessable
shares  of  Common  Stock  at the conversion price set forth in Section 3.2 (the
"CONVERSION  PRICE").  The  shares  of  Common  Stock  to  be  issued  upon such
conversion  are  herein  referred  to  as  the  "CONVERSION  SHARES."

     3.2.  Conversion  Price.  Subject  to adjustment as provided in Section 3.7
hereof,  the  Conversion  Price  per share shall be $0.54 (the "FIXED CONVERSION
PRICE")  which  price  shall  be determined at closing by multiplying the volume
weighted  average  closing price of the Borrower's Common Stock for the ten (10)
trading  days  prior to closing by 103%. If an Event of Default has occurred and
shall  be  continuing hereunder, then the Conversion Price shall be equal to the
lower  of  (i) the Fixed Conversion Price; or (ii) eighty three percent (83%) of
the  average  of  the  three  lowest  closing prices for the Common Stock on the
principal  trading  exchange  or  market  for  the Common Stock, (the "PRINCIPAL
MARKET"),  or on any securities exchange or other securities market on which the
Common  Stock  is  then being listed or traded, for the thirty (30) trading days
prior  to  but  not  including  the  Conversion  Date.  For  every $1 million of
conversions  made  hereunder,  the  fixed  Conversion  Price shall thereafter be
adjusted  upward  to equal 103% of the volume weighted average closing price for
the  ten (10) trading days prior to the last day of the period during which such
$1  million  has  been  converted.

     3.3.  Conversion  Limitation.  Notwithstanding anything contained herein to
the  contrary,  the  Holder  shall  not  be  entitled  to convert, nor shall the
Borrower  be permitted to require the Holder to accept, pursuant to the terms of
this  Note  an  amount  that would be convertible into that number of Conversion
Shares  which would exceed the difference between the number of shares of Common
Stock  beneficially  owned  by such holder or issuable upon exercise of warrants
held  by  such holder and 4.99% of the outstanding shares of Common Stock of the
Borrower.  For  the  purposes  of the immediately preceding sentence, beneficial
ownership  shall  be determined in accordance with Section 13(d) of the Exchange
Act  and  Regulation  13d-3 thereunder. The Holder may void the Conversion Share
limitation  described  in  this  Section  3.3  upon  75 days prior notice to the
Borrower  or  without  any  notice  requirement  upon  an  Event  of  Default.

     3.4.       Mechanics  of Conversion. In the event that the Holder elects to
convert  this  Note  into  Common  Stock,  the  Holder shall give notice of such
election  by  delivering an executed and completed notice of conversion ("NOTICE
OF  CONVERSION")  to  the Borrower and such Notice of Conversion shall provide a
breakdown  in  reasonable  detail  of  the  amount  of Principal Amount, accrued
interest  and  fees  that  are  being  converted.  On  each  Conversion Date (as
hereinafter defined) and in accordance with its Notice of Conversion, the Holder
shall  make  the appropriate reduction to the Principal Amount, accrued interest
and  fees  as entered in its records and shall provide written notice thereof to
the  Borrower within two (2) business days after the Conversion Date.  Each date
on  which  a  Notice of Conversion is delivered or telecopied to the Borrower in
accordance  with  the  provisions  hereof shall be deemed a Conversion Date (the
"CONVERSION  DATE").  A form of Notice of Conversion that may be employed by the
Holder  is  annexed  hereto  as Exhibit A.  The Borrower will cause the transfer
agent  to  transmit  the  certificates representing the Conversion Shares to the
Holder  by  crediting  the  account  of  the Holder's designated broker with the
Depository  Trust  Corporation  ("DTC")  through  its  Deposit  Withdrawal Agent
Commission  ("DWAC")  system within three (3) business days after receipt by the
Borrower  of  the  Notice  of  Conversion  (the  "DELIVERY  DATE").

     In  the  case of the exercise of the conversion rights set forth herein the
conversion  privilege  shall be deemed to have been exercised and the Conversion
Shares  issuable  upon  such conversion shall be deemed to have been issued upon
the  date  of  receipt  by the Borrower of the Notice of Conversion.  The Holder
shall  be  treated  for  all purposes as the record holder of such Common Stock,
unless  the  Holder  provides the Borrower written instructions to the contrary.

     3.5.       Late  Payments.  The  Borrower  understands  that a delay in the
delivery  of  the  shares  of Common Stock in the form required pursuant to this
Article  beyond  the  Delivery Date could result in economic loss to the Holder.
As  compensation  to  the  Holder for such loss, the Borrower agrees to pay late
payments to the Holder for late issuance of the such shares in the form required
pursuant to this Article III upon conversion of the Note, in the amount equal to
the  greater  of  (i)  $500 per business day after the Delivery Date or (ii) the
Borrower's  actual  damages  from such delayed delivery.  The Borrower shall pay
any  payments  incurred  under  this Section in immediately available funds upon
demand  and,  in  the  case  of  actual  damages,  accompanied    by  reasonable
documentation  of  the  amount  of  such  damages.

     3.6.  Adjustment Provisions. The Fixed Conversion Price and number and kind
of  shares  or other securities to be issued upon conversion determined pursuant
to  Sections  3.1 and 3.2, shall be subject to adjustment from time to time upon
the happening of certain events while this conversion right remains outstanding,
as  follows:

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

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

     C.  Share  Issuances. Subject to the provisions of this Section 3.6, if the
Borrower  shall  at any time prior to the conversion or repayment in full of the
Principal  Amount  issue  any  shares of Common Stock to a person other than the
Holder  (otherwise  than (i) pursuant to Subsections A or B above; (ii) pursuant
to  options,  warrants,  or other obligations to issue shares outstanding on the
date hereof as disclosed to Holder in writing; or (iii) pursuant to options that
may  be  issued  under  any employee incentive stock option and/or any qualified
stock  option  plan  adopted  by the Borrower for a consideration per share (the
"Offer  Price"))  less  than the Fixed Conversion Price in effect at the time of
such  issuance,  then  the  Fixed Conversion Price shall be immediately reset to
such lower Offer Price. For purposes hereof, the issuance of any security of the
Borrower  convertible into or exercisable or exchangeable for Common Stock shall
result  in an adjustment to the Fixed Conversion Price only upon the conversion,
exercise  or  exchange  of  such  securities.

     D. Computation of Consideration. For purposes of any computation respecting
consideration  received  pursuant  to  Subsection  C  above, the following shall
apply:

          (a)  in  the  case of the issuance of shares of Common Stock for cash,
     the  consideration  shall  be  the amount of such cash, provided that in no
     case  shall  any  deduction be made for any commissions, discounts or other
     expenses  incurred  by  the  Borrower  for any underwriting of the issue or
     otherwise  in  connection  therewith;

          (b)  in  the  case  of  the  issuance  of shares of Common Stock for a
     consideration  in whole or in part other than cash, the consideration other
     than cash shall be deemed to be the fair market value thereof as determined
     in  good  faith  by the Board of Directors of the Borrower (irrespective of
     the  accounting  treatment  thereof);  and

          (c)  in  the  case  of  the issuance of securities convertible into or
     exchangeable  for  shares  of  Common  Stock,  the  aggregate consideration
     received  therefor  shall be deemed to be the consideration received by the
     Borrower  for  the  issuance of such securities plus the additional minimum
     consideration,  if  any, to be received by the Borrower upon the conversion
     or exchange thereof (the consideration in each case to be determined in the
     same  manner  as  provided  in clauses (a) and (b) of this Subsection (D)).

     3.7.       Reservation  of  Shares.  Except  as  otherwise  provided in the
Securities  Agreement,  during  the  period  the  conversion  right  exists, the
Borrower will reserve from its authorized and unissued Common Stock a sufficient
number  of  shares  to  provide  for  the issuance of Common Stock upon the full
conversion  of  this  Note.  The  Borrower  represents  that upon issuance, such
shares  will  be  duly  and  validly issued, fully paid and non-assessable.  The
Borrower  agrees  that its issuance of this Note shall constitute full authority
to  its  officers,  agents, and transfer agents who are charged with the duty of
executing  and  issuing  stock  certificates  to execute and issue the necessary
certificates  for  shares  of  Common  Stock  upon  the conversion of this Note.

     3.8.  Registration  Rights. The Holder has been granted registration rights
with respect to the shares of Common Stock issuable upon conversion of this Note
as  more  fully  set  forth  in  a  Registration Rights Agreement dated the date
hereof.

     3.9.  Required Conversion. In the event that the Common Stock trades on the
Principal  Market at a price greater than 118% of the Fixed Conversion Price for
a  period  of at least five (5) consecutive trading days, then the Borrower may,
at  its  sole  option,  provide  the  Holder  irrevocable  written notice ("CALL
NOTICE")  requiring  the  conversion  at  the Fixed Conversion Price of all or a
portion  of  the Note held by the Holder (subject to the limitation provided for
in  Section 3.3) as of the date set forth in such Call Notice (the "CALL DATE").
The  Call  Date shall be at least eleven (11) trading days following the date of
the  Call  Notice,  provided  a  registration statement covering resales of that
number  of  Conversion  Shares provided for in the Call Notice has been declared
effective and is available for use. The number of Conversion Shares to be issued
in  connection  with  any  such  conversion pursuant to a particular Call Notice
pursuant  to  this  Section  3.9  shall  not  exceed 25% of the aggregate dollar
trading  volume of the Common Stock for the eleven (11) trading days immediately
preceding  the  Call  Date. If the price of the Common Stock falls below 118% of
the  Conversion  Price  during  the eleven (11) trading day period preceding the
Call  Date,  then  the  Holder  will  no  longer be required to convert the Note
pursuant  to  such  Call  Notice. The Company shall not be permitted to give the
Investor  more  than  one  notice  during  any  twenty-two  (22)  day  period.

                                   ARTICLE IV

                                EVENT OF DEFAULT
     The  occurrence  of  any  of  the  following  events is an Event of Default
("EVENT  OF  DEFAULT"):

     4.1.       Failure  to Pay Principal, Interest or other Fees.  The Borrower
fails  to  pay any installment of principal, interest or other fees hereon or on
any  other  promissory note issued pursuant to the Security Agreement, when due;
or  fails  to  make  any  payment,  when  due, arising from the occurrence of an
Overadvance provided, however, the Borrower shall have five (5) business days to
cure  any  such  failure.

     4.2.  Breach  of Covenant. The Borrower breaches any covenant or other term
or condition of this Note in any material respect and such breach, if subject to
cure,  continues  for  a  period  of ten (10) days after the occurrence thereof.

     4.3.  Breach of Representations and Warranties. Any material representation
or  warranty  of  the  Borrower  made  herein, or in any agreement, statement or
certificate  given in writing pursuant hereto or in connection herewith shall be
false  or  misleading;  provided,  however,  the  Borrower  shall  have ten (10)
business  days  to  cure  such  failure.

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

     4.5.  Judgments. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its property or other assets for
more  than  $250,000,  and  shall  remain  unvacated, unbonded or unstayed for a
period  of  ninety  (90)  days.

     4.6.  Bankruptcy.  Bankruptcy,  insolvency,  reorganization  or liquidation
proceedings  or other proceedings for relief under any bankruptcy law or any law
for  the  relief  of  debtors  shall  be  instituted by or against the Borrower;
provided, however, that where such action is instituted against the Borrower but
is  dismissed  within  thirty  (30) days after the filing of such petition, this
provision  shall  not  apply  to  such  action.

     4.7.  Stop  Trade.  An  SEC  stop  trade  order or Principal Market trading
suspension of the Common Stock for five (5) consecutive trading days or five (5)
days  during  a  period of 10 consecutive trading days, excluding in all cases a
suspension  of  all  trading  on  a  Principal  Market.

     4.8. Default Under Related Agreement. The occurrence of an Event of Default
under  and  as  defined  in  the  Security  Agreement.

                                    ARTICLE V

                                 DEFAULT PAYMENT

     5.1.  Default  Payment.  If  an Event of Default occurs, the Holder, at its
option,  may  elect,  in addition to all rights and remedies of Holder under the
Security Agreement and all obligations of Borrower under the Security Agreement,
to  require  the  Borrower  to  make  a Default Payment ("DEFAULT PAYMENT"). The
Default  Payment  shall be 125% of the outstanding principal amount of the Note,
plus  accrued but unpaid interest, all other fees then remaining unpaid, and all
other  amounts  payable hereunder. The Default Payment shall be applied first to
any  fees due and payable to the Holder, then to accrued and unpaid interest due
on  the  Note  and  then  to  the  principal  balance  of  the  Note.

     5.2.  Default  Payment  Date and Default Notice Period. The Default Payment
shall  be  due  and  payable  on the eleventh (11th) business day after the date
written notice is sent from the Holder to the Borrower of an Event of Default as
defined  in  Article IV ("DEFAULT PAYMENT DATE"). The period between the date of
the  written  notice  from the Holder to the Borrower of an Event of Default and
the  Default  Payment  Date  shall be the "DEFAULT NOTICE PERIOD." If during the
Default  Notice  Period,  the  Borrower cures the Event of Default, the Event of
Default  will  no  longer  exist and any rights the Holder had pertaining to the
Event  of  Default  will  no  longer exist. If the Event of Default is not cured
during the Default Notice Period, all amounts payable hereunder shall be due and
payable  on the Default Payment Date, all without further demand, presentment or
notice,  or  grace  period,  all  of  which  hereby  are  expressly  waived.

     5.3. Cumulative Remedies. The remedies under this Note shall be cumulative.

                                   ARTICLE VI

                                  MISCELLANEOUS

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

     6.2.  Notices. Any notice herein required or permitted to be given shall be
in  writing and provided in accordance with the terms of the Security Agreement.

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

     6.4.  Assignability.  This  Note shall be binding upon the Borrower and its
successors  and  assigns,  and  shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder with the prior written
consent  of  the  Borrower,  which  consent  shall not be unreasonably withheld.

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

     6.6.  Governing  Law.  This  Note  shall  be  governed  by and construed in
accordance  with the laws of the State of New York, without regard to principles
of  conflicts  of  laws.  Any  action  brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New  York.  Both  parties  and the individual signing this Note on behalf of the
Borrower  agree  to  submit  to  the jurisdiction of such courts. The prevailing
party  shall  be  entitled  to  recover  from  the  other  party  its reasonable
attorney's  fees  and  costs.  In  the  event that any provision of this Note is
invalid  or unenforceable under any applicable statute or rule of law, then such
provision  shall  be  deemed  inoperative  to  the  extent  that it may conflict
therewith  and  shall be deemed modified to conform with such statute or rule of
law.  Any  such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from  bringing  suit  or  taking  other legal action against the Borrower in any
other  jurisdiction  to  collect  on  the  Borrower's  obligations to Holder, to
realize  on  any  collateral  or  any other security for such obligations, or to
enforce  a  judgment  or  other  court  order  in  favor  of  Holder.

     6.7.  Maximum  Payments.  Nothing  contained  herein  shall  be  deemed  to
establish  or  require  the  payment  of  a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest  required  to  be  paid  or  other charges hereunder exceed the maximum
permitted  by such law, any payments in excess of such maximum shall be credited
against  amounts  owed  by  the  Borrower to the Holder and thus refunded to the
Borrower.

     6.8. Security Interest. The holder of this Note has been granted a security
interest  in certain assets of the Borrower more fully described in the Security
Agreement.

     6.9.  Construction.  Each  party  acknowledges  that  its  legal  counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule  of  construction  that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against  the  other.

<PAGE>
IN  WITNESS  WHEREOF, the Borrower has caused this Note to be signed in its name
effective  as  of  this  3rd  day  of  June,  2003.
SPACEDEV,  INC.

                            By: /s/ James W. Benson
                             ----------------------
                            WITNESS: James W. Benson
                             /s/ Richard B. Slansky
                            -------------------------
                               Richard B. Slansky

<PAGE>
                                     ------
                              NOTICE OF CONVERSION
                              --------------------
(To  be  executed  by  the  Holder  in  order  to  convert  the  Note)
     The  undersigned  hereby  elects to convert $_________ of the principal and
$_________  of  the  interest  due  on  the  Note  issued  by  ____________ on [
]  ___,  2003  into  Shares  of  Common  Stock  of ____________ (the "Borrower")
according  to  the  conditions  set  forth  in such Note, as of the date written
below.

Date  of  Conversion:                             ------------------------------

Conversion  Price:                                ------------------------------

Shares  To  Be  Delivered:                        ------------------------------

Signature:                                        ------------------------------

Print  Name:                                      ------------------------------

Address:                                          ------------------------------

<PAGE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00053-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00053-of-00352.parquet"}]]