Document:

Exhibit 10.13

                              EMPLOYMENT AGREEMENT

This  Employment  Agreement (the  "Agreement") is made and entered into this 1st
day of  January,  2004,  by and  between  LEVEL  8  SYSTEMS,  INC.,  a  Delaware
corporation (the "Company"), and John P. Broderick, a resident of the New Jersey
(the "Employee").

In consideration of the mutual  covenants,  promises and conditions set forth in
this Agreement,  and for other good and valuable consideration,  the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

1.    Employment.  The Company  hereby  employs  Employee  and  Employee  hereby
      accepts such  employment  upon the terms and  conditions set forth in this
      Agreement.

2.    Duties of  Employee.  Employee's  title will be Chief  Financial  Officer,
      Chief Operating  Officer and Corporate  Secretary and Employee will report
      directly to the  President of the Company.  Employee  will be based in New
      Jersey, but will travel to the Cary, North Carolina office as often as the
      job  requirements  dictate.  Employee agrees to perform and discharge such
      other  duties  as may be  assigned  to  Employee  from time to time by the
      Company to the  reasonable  satisfaction  of the Company,  and such duties
      will be consistent with those duties regularly and customarily assigned by
      the Company to the  position  of Chief  Financial  Officer and  Secretary.
      Employee  agrees to comply with all of the Company's  policies,  standards
      and  regulations  and  to  follow  the   instructions  and  directives  as
      promulgated  by  the  President  of  the  Company.  Employee  will  devote
      Employee's full  professional and  business-related  time, skills and best
      efforts to such duties and will not, during the term of this Agreement, be
      engaged  (whether  or not  during  normal  business  hours)  in any  other
      business or professional activity, whether or not such activity is pursued
      for gain, profit or other pecuniary  advantage,  without the prior written
      consent  of the  President  of  the  Company.  This  Section  will  not be
      construed  to  prevent  Employee  from (a)  investing  personal  assets in
      businesses  which do not  compete  with the Company in such form or manner
      that  will  not  require  any  services  on the  part of  Employee  in the
      operation or the affairs of the  companies in which such  investments  are
      made and in which Employee's  participation is solely that of an investor;
      (b) purchasing  securities in any corporation  whose securities are listed
      on  a  national   securities   exchange   or   regularly   traded  in  the
      over-the-counter  market, provided that Employee at no time owns, directly
      or indirectly,  in excess of one percent (1%) of the outstanding  stock of
      any class of any such corporation  engaged in a business  competitive with
      that of the Company;  or (c)  participating in conferences,  preparing and
      publishing  papers or books,  teaching or joining or  participating in any
      professional  associations or trade group, so long as the President of the
      Company  approves  such  participation,  preparation  and  publication  or
      teaching prior to Employee's engaging therein.

3.    Term. The term of this Agreement will be at-will, and can be terminated by
      either party at any time, with or without cause, subject to the provisions
      of Section 4 of this Agreement.

4.    Termination.

      (a)   Termination  by Company for Cause.  The Company may  terminate  this
            Agreement  and  all  of  its  obligations   hereunder   immediately,
            including the obligation to pay Employee severance,  vacation pay or
            any further benefits or remuneration, if any of the following events
            occur:

            (i)   Employee  materially  breaches any of the terms or  conditions
                  set forth in this  Agreement  and  fails to cure  such  breach
                  within ten (10) days after Employee's receipt from the Company
                  of  written  notice  of  such  breach   (notwithstanding   the
                  foregoing,  no cure period shall be  applicable to breaches by
                  Employee of Sections 6, 7 or 8 of this Agreement);

            (ii)  Employee  commits any other act materially  detrimental to the
                  business or reputation of the Company;

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            (iii) Employee engages in dishonest or illegal activities or commits
                  or is convicted of any crime involving fraud,  deceit or moral
                  turpitude; or

            (iv)  Employee dies or becomes mentally or physically  incapacitated
                  or  disabled so as to be unable to perform  Employee's  duties
                  under this  Agreement  even with a  reasonable  accommodation.
                  Without  limiting the generality of the foregoing,  Employee's
                  inability  adequately to perform services under this Agreement
                  for a period of sixty (60) consecutive days will be conclusive
                  evidence of such mental or physical  incapacity or disability,
                  unless such  inability  adequately to perform  services  under
                  this Agreement is pursuant to a mental or physical  incapacity
                  or  disability  covered by the Family  Medical  Leave Act,  in
                  which case such sixty (60) day period  shall be  extended to a
                  one hundred and twenty (120) day period.

      (b)   Termination  by Company  Without  Cause.  The Company may  terminate
            Employee's  employment  pursuant to this Agreement for reasons other
            than those  stated in Section  4(a) upon at least  thirty (30) days'
            prior written notice to Employee. In the event Employee's employment
            with the Company is terminated  by the Company  without  cause,  the
            Company  shall be  obligated  to pay  Employee a lump sum  severance
            payment  equal to six (6)  months of  Employee's  then  base  salary
            payable  within thirty (30) days of the date of  termination.  Other
            than the severance payment set forth in this Section 4(b),  Employee
            will be entitled to receive no further  remuneration and will not be
            entitled to participate in any Company  benefit  programs  following
            his termination by the Company,  whether such termination is with or
            without cause.

      (c)   Termination  by  Employee  for Cause.  In the event  there  occurs a
            Change in Control (as defined below) of the Company,  Employee shall
            have the right to resign his  employment  and will be  entitled to a
            lump sum severance payment equal to twelve (12) months of Employee's
            then base  salary  payable  within  thirty  (30) days of the date of
            termination and an additional severance payment of 250,000 shares of
            the  Company's  common  stock.  In  addition,  all  Employee's  then
            outstanding  but  unvested  stock  options  shall  vest one  hundred
            percent  (100%).  Employee shall have thirty (30) days from the date
            written  notice  is given to  Employee  about the  announcement  and
            closing  of a  transaction  resulting  in a Change in Control of the
            Company to resign or this Section 4(c) shall not apply. In the event
            Employee  resigns  from the Company for any other  reason,  Employee
            will not be  entitled  to  receive  or accrue  any  further  Company
            benefits or other  remuneration  under this Agreement,  and Employee
            specifically  agrees  that he will not be  entitled  to receive  any
            severance pay.

            For purposes of this Section 4, a Change in Control  shall be deemed
            to have occurred if any of the following occur:

            (i)   the  merger  of  consolidation  of the  Company  with  or into
                  another   unaffiliated   entity,  or  the  merger  of  another
                  unaffiliated  entity  into the  Company or another  subsidiary
                  thereof   with  the  effect   that   immediately   after  such
                  transaction the stockholders of the Company  immediately prior
                  to such  transaction hold less than fifty percent (50%) of the
                  total voting  power of all  securities  generally  entitled to
                  vote in the election of directors, managers or trustees of the
                  entity surviving such merger or consolidation;

            (ii)  the sale or transfer of more than  fifty-one  percent (51%) of
                  the  Company's  then  outstanding  voting  stock (other than a
                  restructuring  event which results in the  continuation of the
                  Company's  business by an affiliated  entity) to  unaffiliated
                  person or group (as such term is used in Section  13(d)(3)  of
                  the Securities Exchange Act of 1934, as amended); or

            (iii) the  adoption  by the  stockholders  of the  Company of a plan
                  relating to the liquidation or dissolution of the Company.

                                       2
<PAGE>

5.    Compensation and Benefits.

      (a)   Annual  Salary.  During  the  term  of  this  Agreement  and for all
            services rendered by Employee under this Agreement, the Company will
            pay  Employee  a  base  salary  of  Two  Hundred   Thousand  Dollars
            ($200,000.00)  per  annum in  equal  bi-monthly  installments.  Such
            annual salary will be subject to adjustments by any increases  given
            in the normal course of business.

      (b)   Incentive  Compensation.  Employee  shall  be  eligible  to  receive
            incentive  compensation  in the form of a cash bonus,  the amount of
            such cash bonus is explained on Exhibit C, upon the Company reaching
            sales goals for the calendar year as set forth in the operating plan
            for the Company which was approved by the Board of  Directors.  Said
            bonus will be payable after the annual  accounts have been presented
            to the  Compensation  Committee.  Exhibit C attached hereto provides
            the benchmarks associated with achieving the Incentive Compensation.

6.    Vacation.  Employee  shall be eligible for four (4) weeks of paid vacation
      annually,  provided  that such vacation is scheduled at such times that do
      not interfere with the Company's legitimate business needs.

7.    Other  Benefits.  Employee will be entitled to such fringe benefits as may
      be provided from time-to-time by the Company to its employees,  including,
      but not limited to, group health insurance, life and disability insurance,
      and any other fringe benefits now or hereafter  provided by the Company to
      its employees, if and when Employee meets the eligibility requirements for
      any such benefit.  The Company reserves the right to change or discontinue
      any employee benefit plans or programs now being offered to its employees;
      provided,  however,  that all benefits  provided for employees of the same
      position  and status as Employee  will be provided to Employee on an equal
      basis.

8.    Business Expenses. Employee will be reimbursed for all reasonable expenses
      incurred  in the  discharge  of  Employee's  duties  under this  Agreement
      pursuant to the Company's standard reimbursement policies.

9.    Withholding.  The Company will deduct and withhold  from the payments made
      to Employee under this Agreement, state and federal income taxes, FICA and
      other amounts normally withheld from compensation due employees.

10.   Non-Disclosure  of  Proprietary   Information.   Employee  recognizes  and
      acknowledges  that the Trade Secrets (as defined  below) and  Confidential
      Information  (as defined  below) of the Company and its affiliates and all
      physical  embodiments  thereof  (as  they  may  exist  from  time-to-time,
      collectively,  the "Proprietary  Information")  are valuable,  special and
      unique assets of the Company's and its  affiliates'  businesses.  Employee
      further  acknowledges  that  access  to such  Proprietary  Information  is
      essential to the  performance of Employee's  duties under this  Agreement.
      Therefore,  in order to  obtain  access to such  Proprietary  Information,
      Employee agrees that,  except with respect to those duties assigned to him
      by  the  Company,  Employee  shall  hold  in  confidence  all  Proprietary
      Information and will not reproduce, use, distribute,  disclose, publish or
      otherwise  disseminate any Proprietary  Information,  in whole or in part,
      and will take no action causing,  or fail to take any action  necessary to
      prevent  causing,  any  Proprietary  Information  to lose its character as
      Proprietary   Information,   nor  will  Employee  make  use  of  any  such
      information  for Employee's own purposes or for the benefit of any person,
      firm, corporation,  association or other entity (except the Company) under
      any circumstances.

      For  purposes  of  this   Agreement,   the  term  "Trade   Secrets"  means
      information,  including, but not limited to, any technical or nontechnical
      data, formula, pattern,  compilation,  program, device, method, technique,
      drawing,  process,  financial data,  financial plan, product plan, list of
      actual or potential  customers or suppliers,  or other information similar
      to  any  of  the  foregoing,  which  derives  economic  value,  actual  or
      potential,  from not  being  generally  known to,  and not  being  readily
      ascertainable  by proper means by, other  persons who can derive  economic
      value from its disclosure or use. For purposes of this Agreement, the term
      "Trade  Secrets"  does not include  information  that Employee can show by
      competent  proof (i) was known to Employee and reduced to writing prior to
      disclosure  by the Company  (but only if Employee  promptly  notifies  the
      Company of Employee's  prior  knowledge);  (ii) was generally known to the
      public at the time the Company  disclosed  the  information  to  Employee;
      (iii) became generally known to the public after disclosure by the Company

                                       3
<PAGE>

      through no act or omission of Employee;  or (iv) was disclosed to Employee
      by a third party having a bona fide right both to possess the  information
      and to  disclose  the  information  to  Employee.  The term  "Confidential
      Information"  means any data or  information  of the  Company,  other than
      trade secrets, which is valuable to the Company and not generally known to
      competitors of the Company. The provisions of this Section 6 will apply to
      Trade Secrets for so long as such  information  remains a trade secret and
      to Confidential  Information during Employee's employment with the Company
      and for a period of two (2) years  following any termination of Employee's
      employment with the Company for whatever reason.

11.   Non-Solicitation   Covenants.   Employee  agrees  that  during  Employee's
      employment  by the Company and for a period of one (1) year  following the
      termination of Employee's  employment for whatever  reason,  Employee will
      not, directly or indirectly, on Employee's own behalf or in the service of
      or on behalf of any other individual or entity, divert, solicit or attempt
      to divert or solicit any  individual  or entity (i) who is a client of the
      Company at any time during the six  (6)-month  period prior to  Employee's
      termination  of employment  with the Company  ("Client"),  or was actively
      sought by the Company as a prospective client, and (ii) with whom Employee
      had  material  contact  while  employed by the Company to provide  similar
      services or products as such  provided by Employee for the Company to such
      Clients or prospects.  Employee  further agrees and represents that during
      Employee's  employment  by the  Company  and for a period  of one (1) year
      following any  termination of Employee's  employment for whatever  reason,
      Employee will not, directly or indirectly,  on Employee's own behalf or in
      the service of, or on behalf of any other  individual  or entity,  divert,
      solicit or hire away,  or attempt to divert,  solicit or hire away,  to or
      for any  individual  or  entity  which is  engaged  in  providing  similar
      services or products to that provided by the Company,  any person employed
      by the Company for whom Employee had  supervisory  responsibility  or with
      whom Employee had material contact while employed by the Company,  whether
      or not such employee is a full-time  employee or temporary employee of the
      Company,  whether or not such  employee  is  employed  pursuant to written
      agreement  and whether or not such  employee is employed  for a determined
      period or at-will.  For  purposes of this  Agreement,  "material  contact"
      exists between Employee and a Client or potential Client when (1) Employee
      established and/or nurtured the Client or potential Client; (2) the Client
      or  potential  Client  and  Employee  interacted  to  further  a  business
      relationship  or contract  with the  Company;  (3)  Employee had access to
      confidential information and/or marketing strategies or programs regarding
      the Client or potential Client;  and/or (4) Employee learned of the Client
      or potential Client through the efforts of the Company providing  Employee
      with  confidential  Client  information,  including but not limited to the
      Client's identify, for purposes of furthering a business relationship.

12.   Existing Restrictive Covenants.  Except as provided in Exhibit B, Employee
      has not entered into any  agreement  with any employer or former  employer
      (a) to keep  in  confidence  any  confidential  information  or (b) to not
      compete with any former  employer.  Employee  represents and warrants that
      Employee's  employment  with the Company  does not and will not breach any
      agreement  which  Employee  has  with  any  former  employer  to  keep  in
      confidence confidential information or not to compete with any such former
      employer.  Employee  will not disclose to the Company or use on its behalf
      any  confidential  information  of any  other  party  required  to be kept
      confidential by Employee.

13.   Return of Proprietary Information.  Employee acknowledges that as a result
      of  Employee's  employment  with the  Company,  Employee may come into the
      possession  and control of  Proprietary  Information,  such as proprietary
      documents, drawings, specifications, manuals, notes, computer programs, or
      other proprietary  material.  Employee  acknowledges,  warrants and agrees
      that  Employee will return to the Company all such items and any copies or
      excerpts thereof, and any other properties, files or documents obtained as
      a result of Employee's  employment with the Company,  immediately upon the
      termination of Employee's employment with the Company.

14.   Proprietary  Rights.  During the course of Employee's  employment with the
      Company,  Employee  may make,  develop or  conceive  of useful  processes,
      machines,  compositions of matter, computer software, algorithms, works of
      authorship  expressing  such  algorithm,  or any  other  discovery,  idea,
      concept,  document  or  improvement  which  relates to or is useful to the
      Company's Business (the "Inventions"), whether or not subject to copyright
      or patent protection,  and which may or may not be considered  Proprietary

                                       4
<PAGE>

      Information. Employee acknowledges that all such Inventions will be "works
      made for hire" under United States  copyright law and will remain the sole
      and exclusive  property of the Company.  Employee also hereby  assigns and
      agrees to assign to the  Company,  in  perpetuity,  all  right,  title and
      interest  Employee may have in and to such Inventions,  including  without
      limitation, all copyrights, and the right to apply for any form of patent,
      utility model,  industrial design or similar  proprietary right recognized
      by any state,  country or jurisdiction.  Employee  further agrees,  at the
      Company's request and expense,  to do all things and sign all documents or
      instruments  necessary,  in the opinion of the Company,  to eliminate  any
      ambiguity  as to the  ownership  of, and rights of the  Company  to,  such
      Inventions,  including  filing  copyright  and  patent  registrations  and
      defending and enforcing in litigation or otherwise all such rights.

      Employee will not be obligated to assign to the Company any Invention made
      by Employee  while in the  Company's  employ  which does not relate to any
      business or activity in which the Company is or may reasonably be expected
      to become  engaged,  except  that  Employee  is so  obligated  if the same
      relates to or is based on  Proprietary  Information to which Employee will
      have had access  during and by virtue of  Employee's  employment  or which
      arises out of work assigned to Employee by the Company.  Employee will not
      be  obligated  to assign any  Invention  which may be wholly  conceived by
      Employee  after  Employee  leaves the employ of the  Company,  except that
      Employee is so obligated if such  Invention  involves the  utilization  of
      Proprietary  Information  obtained  while in the  employ  of the  Company.
      Employee is not obligated to assign any Invention that relates to or would
      be useful in any business or activities in which the Company is engaged if
      such  Invention was conceived and reduced to practice by Employee prior to
      Employee's  employment  with the  Company.  Employee  agrees that any such
      Invention is set forth on Exhibit "A" to this Agreement.

15.   Remedies.  Employee agrees and  acknowledges  that the violation of any of
      the  covenants or  agreements  contained in Sections 10, 11 and 14 of this
      Agreement would cause irreparable  injury to the Company,  that the remedy
      at law for any such  violation or  threatened  violation  thereof would be
      inadequate,  and that the  Company  will be  entitled,  in addition to any
      other remedy,  to temporary and  permanent  injunctive or other  equitable
      relief without the necessity of proving actual damages or posting a bond.

16.   Severability.  In case  one or more of the  provisions  contained  in this
      Agreement is for any reason held to be invalid,  illegal or  unenforceable
      in any  respect,  the parties  agree that it is their intent that the same
      will not affect any other provision in this Agreement,  and this Agreement
      will be construed as if such invalid or illegal or unenforceable provision
      had never been contained herein. It is the intent of the parties that this
      Agreement be enforced to the maximum extent permitted by law.

17.   Entire  Agreement.  This  Agreement  embodies the entire  agreement of the
      parties  relating to the subject  matter of this  Agreement and supersedes
      all prior  agreements,  oral or  written,  regarding  the  subject  matter
      hereof.  No amendment or  modification  of this Agreement will be valid or
      binding upon the parties unless made in writing and signed by the parties.

18.   Governing Law. This Agreement is entered into and will be interpreted  and
      enforced  pursuant  to the laws of the State of New  Jersey.  The  parties
      hereto hereby agree that the appropriate  forum and venue for any disputes
      between any of the parties hereto  arising out of this Agreement  shall be
      any federal court in the state where the Employee has his principal  place
      of residence and each of the parties hereto hereby submits to the personal
      jurisdiction  of any such court.  The foregoing shall not limit the rights
      of any party to obtain  execution  of judgment in any other  jurisdiction.
      The parties  further agree,  to the extent  permitted by law, that a final
      and  unappealable  judgment  against  either  of  them  in any  action  or
      proceeding  contemplated  above shall be conclusive and may be enforced in
      any other jurisdiction  within or outside the United States by suit on the
      judgment,  a  certified  exemplified  copy of which  shall  be  conclusive
      evidence of the fact and amount of such judgment.

19.   Surviving Terms. Sections 4, 10, 11, 14, 15 and 18 of this Agreement shall
      survive termination of this Agreement.

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<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

COMPANY:                                             EMPLOYEE:

LEVEL 8 SYSTEMS, INC.

By:
   -----------------------------------------       -----------------------------
Name:                                                   John P. Broderick
     ---------------------------------------
Title:
        ------------------------------------

                                    EXHIBIT A

                                   INVENTIONS

      Employee represents that there are no Inventions.

                                                   --------------------------
                                                       Employee Initials

                                    EXHIBIT B

                         EXISTING RESTRICTIVE COVENANTS

                                       6
<PAGE>

                                    EXHIBIT C

                              VARIABLE COMPENSATION

            REVENUE RANGE

            FROM                  TO                       VARIABLE COMPENSATION

TIER 1       $      6,000,000      $      8,499,999              $     50,000
TIER 2       $      8,500,000      $    12,499,999               $     75,000
TIER 3       $    12,500,000                                     $    100,000

            Performance  significantly  in  excess  of  Tier 3 will  achieve  an
            addition reward at the discretion of the Compensation Committee

                                       7Exhibit

                               SECURITY AGREEMENT

         THIS SECURITY  AGREEMENT  (the  "Agreement"),  is entered into and made
effective as of April __, 2004, by and between  CYCO.NET INC., (the  "Company"),
and the  BUYER(S)  listed on  Schedule I  attached  to the  Securities  Purchase
Agreement dated the date hereof (the "Secured Party").

         WHEREAS,  the Company  shall issue and sell to the  Secured  Party,  as
provided in the Securities  Purchase  Agreement  dated the date hereof,  and the
Secured Party shall purchase up to Five Hundred Thousand  Dollars  ($500,000) of
five percent (5%) secured convertible debentures (the "Convertible Debentures"),
which shall be convertible  into shares of the Company's common stock, par value
$0.001 (the "Common Stock") (as converted, the "Conversion Shares"), for a total
purchase  price  of up to  Five  Hundred  Thousand  Dollars  ($500,000),  in the
respective  amounts set forth opposite each Buyer(s) name on Schedule I attached
to the Securities Purchase Agreement;

         WHEREAS,  to induce the  Secured  Party to enter  into the  transaction
contemplated  by the  Securities  Purchase  Agreement,  the Secured  Convertible
Debenture,  the Investor Registration Rights Agreement, the Irrevocable Transfer
Agent Instructions,  and the Escrow Agreement  (collectively  referred to as the
"Transaction  Documents"),  the Company  hereby  grants to the  Secured  Party a
security  interest  in and to the  pledged  property  identified  on Exhibit "A"
hereto   (collectively   referred  to  as  the  "Pledged  Property")  until  the
satisfaction of the Obligations, as defined herein below.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants herein contained,  and for other good and valuable consideration,  the
adequacy and receipt of which are hereby acknowledged, the parties hereto hereby
agree as follows:

                                   ARTICLE 1.

                         DEFINITIONS AND INTERPRETATIONS

         Section 1.1.      Recitals.

         The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.

         Section 1.2.      Interpretations.

         Nothing  herein  expressed or implied is intended or shall be construed
to confer  upon any person  other than the  Secured  Party any right,  remedy or
claim under or by reason hereof.

         Section 1.3.      Obligations Secured.

         The  obligations  secured  hereby  are any and all  obligations  of the
Company now existing or hereinafter  incurred to the Secured Party, whether oral
or written and whether  arising before,  on or after the date hereof  including,

<PAGE>

without limitation,  those obligations of the Company to the Secured Party under
the  Securities  Purchase  Agreement,  the Secured  Convertible  Debenture,  the
Investor   Registration   Rights   Agreement  and  Irrevocable   Transfer  Agent
Instructions,  and any other amounts now or hereafter  owed to the Secured Party
by the Company thereunder or hereunder (collectively, the "Obligations").

                                   ARTICLE 2.

              PLEDGED COLLATERAL, ADMINISTRATION OF COLLATERAL AND
                        TERMINATION OF SECURITY INTEREST

         Section 2.1.      Pledged Property.

                  (a) Company hereby  pledges to the Secured Party,  and creates
in the Secured  Party for its benefit,  a security  interest for such time until
the  Obligations  are paid in full, in and to all of the property of the Company
as set  forth  in  Exhibit  "A"  attached  hereto  (collectively,  the  "Pledged
Property"):

         The Pledged Property,  as set forth in Exhibit "A" attached hereto, and
the  products  thereof  and the  proceeds  of all  such  items  are  hereinafter
collectively referred to as the "Pledged Collateral."

                  (b)  Simultaneously  with the  execution  and delivery of this
Agreement,  the  Company  shall make,  execute,  acknowledge,  file,  record and
deliver to the Secured Party any documents  reasonably  requested by the Secured
Party to perfect its security interest in the Pledged  Property.  Simultaneously
with the  execution  and  delivery of this  Agreement,  the Company  shall make,
execute,  acknowledge  and  deliver  to the  Secured  Party such  documents  and
instruments, including, without limitation, financing statements,  certificates,
affidavits  and forms as may, in the Secured  Party's  reasonable  judgment,  be
necessary to effectuate,  complete or perfect, or to continue and preserve,  the
security interest of the Secured Party in the Pledged Property,  and the Secured
Party shall hold such documents and instruments as secured party, subject to the
terms and conditions contained herein.

         Section 2.2.      Rights; Interests; Etc.

                  (a) So long as no Event of Default  (as  hereinafter  defined)
shall have occurred and be continuing:

                           (i) the Company shall be entitled to exercise any and
all rights  pertaining  to the  Pledged  Property  or any part  thereof  for any
purpose not inconsistent with the terms hereof; and

                           (ii) the  Company  shall be  entitled  to receive and
retain any and all payments paid or made in respect of the Pledged Property.

                  (b) Upon the occurrence and during the continuance of an Event
of Default:

                                       2
<PAGE>

                           (i) All rights of the Company to exercise  the rights
which it would otherwise be entitled to exercise  pursuant to Section  2.2(a)(i)
hereof and to receive payments which it would otherwise be authorized to receive
and retain  pursuant to Section  2.2(a)(ii)  hereof shall be suspended,  and all
such  rights  shall  thereupon  become  vested  in the  Secured  Party who shall
thereupon have the sole right to exercise such rights and to receive and hold as
Pledged Collateral such payments;  provided,  however, that if the Secured Party
shall  become  entitled  and shall elect to exercise its right to realize on the
Pledged Collateral  pursuant to Article 5 hereof, then all cash sums received by
the Secured  Party,  or held by Company for the benefit of the Secured Party and
paid over pursuant to Section  2.2(b)(ii)  hereof,  shall be applied against any
outstanding Obligations; and

                           (ii)  All  interest,   dividends,  income  and  other
payments and  distributions  which are  received by the Company  contrary to the
provisions  of  Section  2.2(b)(i)  hereof  shall be  received  in trust for the
benefit of the Secured  Party,  shall be segregated  from other  property of the
Company and shall be forthwith paid over to the Secured Party; or

                           (iii) The Secured Party in its sole discretion  shall
be  authorized  to sell any or all of the Pledged  Property at public or private
sale in order to recoup all of the outstanding  principal plus accrued  interest
owed pursuant to the Convertible Debenture as described herein

                  (c) Each of the  following  events shall  constitute a default
under this Agreement (each an "Event of Default"):

                           (i) any default,  whether in whole or in part,  shall
occur in the payment to the Secured Party of  principal,  interest or other item
comprising the  Obligations as and when due or with respect to any other debt or
obligation of the Company to a party other than the Secured Party;

                           (ii) any default,  whether in whole or in part, shall
occur  in the  due  observance  or  performance  of  any  obligations  or  other
covenants,  terms or  provisions  to be  performed  under this  Agreement or the
Transaction Documents;

                           (iii)  the   Company   shall:   (1)  make  a  general
assignment  for the  benefit of its  creditors;  (2) apply for or consent to the
appointment  of  a  receiver,   trustee,  assignee,   custodian,   sequestrator,
liquidator or similar  official for itself or any of its assets and  properties;
(3)  commence a voluntary  case for relief as a debtor  under the United  States
Bankruptcy Code; (4) file with or otherwise submit to any governmental authority
any petition,  answer or other  document  seeking:  (A)  reorganization,  (B) an
arrangement  with  creditors or (C) to take  advantage  of any other  present or
future  applicable  law  respecting  bankruptcy,   reorganization,   insolvency,
readjustment of debts, relief of debtors,  dissolution or liquidation;  (5) file
or otherwise submit any answer or other document admitting or failing to contest
the  material  allegations  of a petition or other  document  filed or otherwise
submitted  against it in any proceeding under any such applicable law, or (6) be
adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or

                                       3
<PAGE>

                           (iv) any case,  proceeding  or other  action shall be
commenced  against  the  Company  for the  purpose  of  effecting,  or an order,
judgment  or decree  shall be  entered  by any court of  competent  jurisdiction
approving  (in  whole or in part)  anything  specified  in  Section  2.2(c)(iii)
hereof, or any receiver, trustee, assignee, custodian, sequestrator,  liquidator
or other official  shall be appointed  with respect to the Company,  or shall be
appointed to take or shall otherwise  acquire  possession or control of all or a
substantial  part of the assets and  properties  of the Company,  and any of the
foregoing  shall  continue  unstayed and in effect for any period of thirty (30)
days.

                                   ARTICLE 3.

                          ATTORNEY-IN-FACT; PERFORMANCE

         Section 3.1.      Secured Party Appointed Attorney-In-Fact.

         Upon the occurrence of an Event of Default, the Company hereby appoints
the Secured Party as its attorney-in-fact,  with full authority in the place and
stead of the Company and in the name of the Company or  otherwise,  from time to
time in the  Secured  Party's  discretion  to take any action and to execute any
instrument  which the Secured Party may reasonably  deem necessary to accomplish
the purposes of this Agreement,  including,  without limitation,  to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same.  The  Secured  Party may demand,  collect,  receipt  for,  settle,
compromise,  adjust, sue for,  foreclose,  or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection,  the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Collateral to make payments directly to the Secured Party.

         Section 3.2.      Secured Party May Perform.

         If the Company fails to perform any  agreement  contained  herein,  the
Secured Party, at its option, may itself perform,  or cause performance of, such
agreement,  and  the  expenses  of the  Secured  Party  incurred  in  connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.

                                   ARTICLE 4.

                         REPRESENTATIONS AND WARRANTIES

         Section 4.1.      Authorization; Enforceability.

         Each of the parties  hereto  represents  and warrants that it has taken
all action  necessary to authorize the  execution,  delivery and  performance of
this Agreement and the transactions  contemplated hereby; and upon execution and
delivery,  this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency,  reorganization,
moratorium  and similar laws  affecting  creditors'  rights or by the principles
governing the availability of equitable remedies.

                                       4
<PAGE>

         Section 4.2.      Ownership of Pledged Property.

         The Company warrants and represents that it is the legal and beneficial
owner of the Pledged  Property  free and clear of any lien,  security  interest,
option or other charge or encumbrance  except for the security  interest created
by this Agreement.

                                   ARTICLE 5.

                    DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

         Section 5.1.      Default and Remedies.

                  (a) If an Event of Default  described in Section 2.2(c)(i) and
(ii)  occurs,  then  in each  such  case  the  Secured  Party  may  declare  the
Obligations  to be due and  payable  immediately,  by a notice in writing to the
Company, and upon any such declaration, the Obligations shall become immediately
due and payable.  If an Event of Default  described in Sections  2.2(c)(iii)  or
(iv)  occurs  and is  continuing  for the  period  set forth  therein,  then the
Obligations  shall  automatically  become  immediately  due and payable  without
declaration or other act on the part of the Secured Party.

                  (b) Upon the  occurrence  of an Event of Default,  the Secured
Party shall,:  (i) be entitled to receive all distributions  with respect to the
Pledged  Collateral,  (ii) to cause the Pledged  Property to be transferred into
the name of the Secured  Party or its  nominee,  (iii) to dispose of the Pledged
Property,  and (iv) to realize  upon any and all rights in the Pledged  Property
then held by the Secured Party.

         Section 5.2.      Method of Realizing Upon the Pledged Property:  Other
Remedies.

         Upon the  occurrence of an Event of Default,  in addition to any rights
and  remedies  available at law or in equity,  the  following  provisions  shall
govern the Secured Party's right to realize upon the Pledged Property:

                  (a) Any item of the Pledged  Property  may be sold for cash or
other value in any number of lots at brokers  board,  public  auction or private
sale and may be sold without  demand,  advertisement  or notice (except that the
Secured Party shall give the Company ten (10) days' prior written  notice of the
time and place or of the time after which a private  sale may be made (the "Sale
Notice")),  which  notice  period  shall in any  event is  hereby  agreed  to be
commercially  reasonable.  At any  sale or sales of the  Pledged  Property,  the
Company may bid for and purchase  the whole or any part of the Pledged  Property
and, upon compliance with the terms of such sale, may hold,  exploit and dispose
of the same without  further  accountability  to the Secured Party.  The Company
will  execute  and  deliver,  or  cause  to  be  executed  and  delivered,  such
instruments,  documents,  assignments, waivers, certificates, and affidavits and
supply or cause to be supplied  such further  information  and take such further
action as the Secured Party reasonably shall require in connection with any such
sale.

                  (b) Any  cash  being  held by the  Secured  Party  as  Pledged
Collateral  and all cash  proceeds  received by the Secured Party in respect of,
sale  of,  collection  from,  or other  realization  upon all or any part of the
Pledged Collateral shall be applied as follows:

                                       5
<PAGE>

                           (i) to the  payment of all  amounts  due the  Secured
Party for the  expenses  reimbursable  to it hereunder or owed to it pursuant to
Section 8.3 hereof;

                           (ii) to the payment of the  Obligations  then due and
unpaid.

                           (iii) the  balance,  if any, to the person or persons
entitled thereto, including, without limitation, the Company.

                  (c) In  addition to all of the rights and  remedies  which the
Secured Party may have pursuant to this Agreement,  the Secured Party shall have
all of the rights and remedies provided by law,  including,  without limitation,
those under the Uniform Commercial Code.

                           (i) If the Company fails to pay such amounts due upon
the  occurrence  of an Event of Default  which is  continuing,  then the Secured
Party may institute a judicial  proceeding for the collection of the sums so due
and unpaid,  may prosecute  such  proceeding to judgment or final decree and may
enforce the same against the Company and collect the monies  adjudged or decreed
to be payable in the manner  provided  by law out of the  property  of  Company,
wherever situated.

                           (ii) The  Company  agrees that it shall be liable for
any  reasonable  fees,  expenses  and costs  incurred  by the  Secured  Party in
connection  with  enforcement,  collection and  preservation  of the Transaction
Documents,  including,  without limitation,  reasonable legal fees and expenses,
and such amounts  shall be deemed  included as  Obligations  secured  hereby and
payable as set forth in Section 8.3 hereof.

         Section 5.3.      Proofs of Claim.

                  In  case  of the  pendency  of any  receivership,  insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relating to the Company or the property of the Company
or of such other obligor or its creditors,  the Secured Party  (irrespective  of
whether the Obligations shall then be due and payable as therein expressed or by
declaration  or otherwise  and  irrespective  of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), subject
to the rights of Previous Security Holders, shall be entitled and empowered,  by
intervention in such proceeding or otherwise:

                           (i) to file and prove a claim for the whole amount of
the  Obligations  and to file such other papers or documents as may be necessary
or advisable  in order to have the claims of the Secured  Party  (including  any
claim for the  reasonable  legal fees and  expenses and other  expenses  paid or
incurred by the  Secured  Party  permitted  hereunder  and of the Secured  Party
allowed in such judicial proceeding), and

                           (ii) to  collect  and  receive  any  monies  or other
property  payable or  deliverable on any such claims and to distribute the same;
and any custodian,  receiver,  assignee,  trustee,  liquidator,  sequestrator or
other similar official in any such judicial  proceeding is hereby  authorized by
the Secured  Party to make such  payments to the Secured Party and, in the event
that the Secured Party shall consent to the making of such payments  directed to
the Secured  Party,  to pay to the Secured Party any amounts for expenses due it
hereunder.

                                       6
<PAGE>

         Section 5.4.      Duties Regarding Pledged Collateral.

         The Secured Party shall have no duty as to the collection or protection
of the Pledged  Property or any income thereon or as to the  preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.

                                   ARTICLE 6.

                              AFFIRMATIVE COVENANTS

         The Company  covenants and agrees that,  from the date hereof and until
the  Obligations  have been fully paid and  satisfied,  unless the Secured Party
shall consent otherwise in writing (as provided in Section 8.4 hereof):

         Section 6.1.      Existence, Properties, Etc.

                  (a) The Company shall do, or cause to be done, all things,  or
proceed with due  diligence  with any actions or courses of action,  that may be
reasonably necessary (i) to maintain Company's due organization, valid existence
and good  standing  under  the laws of its state of  incorporation,  and (ii) to
preserve  and keep in full  force and effect all  qualifications,  licenses  and
registrations in those  jurisdictions in which the failure to do so could have a
Material Adverse Effect (as defined below); and (b) the Company shall not do, or
cause to be done, any act impairing the Company's  corporate  power or authority
(i) to carry on the Company's business as now conducted,  and (ii) to execute or
deliver this Agreement or any other document  delivered in connection  herewith,
including,  without limitation,  any UCC-1 Financing  Statements required by the
Secured  Party  to  which  it is or  will  be a  party,  or  perform  any of its
obligations  hereunder or thereunder.  For purpose of this  Agreement,  the term
"Material  Adverse  Effect"  shall  mean any  material  and  adverse  affect  as
determined by Secured Party in its sole discretion,  whether  individually or in
the aggregate, upon (a) the Company's assets, business,  operations,  properties
or condition,  financial or otherwise;  (b) the Company's to make payment as and
when due of all or any part of the Obligations; or (c) the Pledged Property.

         Section 6.2.      Financial Statements and Reports.

         The Company shall furnish to the Secured Party such  financial  data as
the Secured Party may reasonably  request.  Without limiting the foregoing,  the
Company  shall  furnish to the Secured  Party (or cause to be  furnished  to the
Secured Party) the following:

                  (a) as soon as practicable and in any event within ninety (90)
days after the end of each fiscal year of the Company,  the balance sheet of the
Company as of the close of such fiscal  year,  the  statement  of  earnings  and
retained  earnings  of the  Company  as of the close of such  fiscal  year,  and
statement of cash flows for the Company for such fiscal year,  all in reasonable
detail,  prepared in accordance with generally  accepted  accounting  principles
consistently  applied,  certified  by the chief  executive  and chief  financial
officers  of the  Company  as  being  true  and  correct  and  accompanied  by a
certificate of the chief executive and chief financial  officers of the Company,
stating  that the Company  has kept,  observed,  performed  and  fulfilled  each
covenant,  term and condition of this Agreement during such fiscal year and that

                                       7
<PAGE>

no Event of Default hereunder has occurred and is continuing,  or if an Event of
Default has  occurred  and is  continuing,  specifying  the nature of same,  the
period of  existence  of same and the action  the  Company  proposes  to take in
connection therewith;

                  (b) within thirty (30) days of the end of each calendar month,
a balance  sheet of the Company as of the close of such month,  and statement of
earnings and retained earnings of the Company as of the close of such month, all
in reasonable  detail,  and prepared  substantially in accordance with generally
accepted  accounting  principles  consistently  applied,  certified by the chief
executive and chief financial officers of the Company as being true and correct;
and

                  (c) promptly upon receipt thereof,  copies of all accountants'
reports  and  accompanying   financial  reports  submitted  to  the  Company  by
independent  accountants  in  connection  with each  annual  examination  of the
Company.

         Section 6.3.      Accounts and Reports.

         The  Company  shall  maintain  a  standard   system  of  accounting  in
accordance with generally accepted accounting  principles  consistently  applied
and provide, at its sole expense, to the Secured Party the following:

                  (a) as  soon  as  available,  a copy of any  notice  or  other
communication  alleging any nonpayment or other material  breach or default,  or
any  foreclosure or other action  respecting any material  portion of its assets
and properties,  received  respecting any of the  indebtedness of the Company in
excess of $15,000 (other than the  Obligations),  or any demand or other request
for  payment  under any  guaranty,  assumption,  purchase  agreement  or similar
agreement or arrangement respecting the indebtedness or obligations of others in
excess of $15,000,  including  any received  from any person acting on behalf of
the Secured Party or beneficiary thereof; and

                  (b)  within  fifteen  (15)  days  after  the  making  of  each
submission or filing, a copy of any report, financial statement, notice or other
document,  whether  periodic or otherwise,  submitted to the shareholders of the
Company, or submitted to or filed by the Company with any governmental authority
involving  or  affecting  (i) the  Company  that could  have a Material  Adverse
Effect; (ii) the Obligations;  (iii) any part of the Pledged Collateral; or (iv)
any of the transactions contemplated in this Agreement.

         Section 6.4.      Maintenance of Books and Records; Inspection.

         The  Company  shall  maintain  its  books,   accounts  and  records  in
accordance with generally accepted accounting  principles  consistently applied,
and permit the Secured Party,  its officers and employees and any  professionals
designated by the Secured Party in writing, at any time to visit and inspect any
of  its  properties  (including  but  not  limited  to the  collateral  security
described in the Transaction Documents),  corporate books and financial records,
and to discuss its accounts,  affairs and finances with any employee, officer or
director thereof.

                                       8
<PAGE>

         Section 6.5.      Maintenance and Insurance.

                  (a) The Company shall maintain or cause to be  maintained,  at
its own expense,  all of its assets and  properties  in good  working  order and
condition,  making all necessary  repairs thereto and renewals and  replacements
thereof.

                  (b) The Company shall maintain or cause to be  maintained,  at
its  own  expense,   insurance  in  form,   substance  and  amounts   (including
deductibles),  which the Company  deems  reasonably  necessary to the  Company's
business, (i) adequate to insure all assets and properties of the Company, which
assets and properties are of a character  usually  insured by persons engaged in
the same or similar business against loss or damage resulting from fire or other
risks included in an extended coverage policy; (ii) against public liability and
other tort claims that may be incurred by the Company;  (iii) as may be required
by the  Transaction  Documents or  applicable  law and (iv) as may be reasonably
requested by Secured Party, all with adequate,  financially  sound and reputable
insurers.

         Section 6.6.      Contracts and Other Collateral.

         The Company shall perform all of its obligations  under or with respect
to each instrument,  receivable,  contract and other intangible  included in the
Pledged  Property  to which the Company is now or  hereafter  will be party on a
timely basis and in the manner therein required,  including, without limitation,
this Agreement.

         Section 6.7.      Defense of Collateral, Etc.

         The Company  shall defend and enforce its right,  title and interest in
and to any part of: (a) the Pledged Property; and (b) if not included within the
Pledged  Property , those assets and properties whose loss could have a Material
Adverse Effect,  the Company shall defend the Secured  Party's right,  title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely  basis to the full extent  permitted by
applicable law.

         Section 6.8.      Payment of Debts, Taxes, Etc.

         The Company shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed,  all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged,  all taxes, assessments and other governmental charges
and levies  imposed upon it, upon any of its assets and  properties on or before
the last day on which the same may be paid without  penalty,  as well as pay all
other  lawful  claims  (whether  for  services,  labor,  materials,  supplies or
otherwise) as and when due

         Section 6.9.      Taxes and Assessments; Tax Indemnity.

         The Company  shall (a) file all tax returns and  appropriate  schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency,  (b) pay and  discharge  all taxes,  assessments  and  governmental
charges or levies imposed upon the Company,  upon its income and profits or upon
any  properties  belonging  to it, prior to the date on which  penalties  attach

                                       9
<PAGE>

thereto,  and (c) pay all taxes,  assessments and governmental charges or levies
that,  if  unpaid,  might  become a lien or charge  upon any of its  properties;
provided,  however,  that the  Company in good faith may  contest  any such tax,
assessment,  governmental  charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.

         Section 6.10.     Compliance with Law and Other Agreements.

         The Company shall  maintain its business  operations and property owned
or used in connection  therewith in compliance with (a) all applicable  federal,
state and  local  laws,  regulations  and  ordinances  governing  such  business
operations and the use and ownership of such property,  and (b) all  agreements,
licenses,  franchises,  indentures and mortgages to which the Company is a party
or by which the Company or any of its properties is bound.  Without limiting the
foregoing,  the Company shall pay all of its indebtedness promptly in accordance
with the terms thereof.

         Section 6.11.     Notice of Default.

         The  Company  shall give  written  notice to the  Secured  Party of the
occurrence  of any  default  or Event  of  Default  under  this  Agreement,  the
Transaction  Documents or any other Loan  Instrument  or any other  agreement of
Company for the payment of money, promptly upon the occurrence thereof.

         Section 6.12.     Notice of Litigation.

         The Company shall give notice, in writing,  to the Secured Party of (a)
any actions,  suits or  proceedings  wherein the amount at issue is in excess of
$50,000,  instituted by any persons against the Company, or affecting any of the
assets of the Company,  and (b) any dispute,  not resolved  within  fifteen (15)
days of the  commencement  thereof,  between the Company on the one hand and any
governmental  or regulatory  body on the other hand,  which might  reasonably be
expected  to have a  Material  Adverse  Effect  on the  business  operations  or
financial condition of the Company.

                                   ARTICLE 7.

                               NEGATIVE COVENANTS

         The Company  covenants and agrees that,  from the date hereof until the
Obligations  have been fully paid and satisfied,  the Company shall not,  unless
the Secured Party shall consent otherwise in writing:

         Section 7.1.      Indebtedness.

         The Company shall not directly or  indirectly  permit,  create,  incur,
assume, permit to exist,  increase,  renew or extend on or after the date hereof
any indebtedness on its part,  including  commitments,  contingencies and credit
availabilities, or apply for or offer or agree to do any of the foregoing.

                                       10
<PAGE>

         Section 7.2.      Liens and Encumbrances.

         The Company  shall not  directly or  indirectly  make,  create,  incur,
assume or permit to exist any assignment,  transfer, pledge, mortgage,  security
interest or other lien or  encumbrance  of any nature in, to or against any part
of the Pledged Property or of the Company's  capital stock, or offer or agree to
do so,  or own or  acquire  or agree to  acquire  any asset or  property  of any
character  subject  to  any  of  the  foregoing   encumbrances   (including  any
conditional sale contract or other title retention agreement), or assign, pledge
or in any way  transfer  or  encumber  its right to receive  any income or other
distribution or proceeds from any part of the Pledged  Property or the Company's
capital stock; or enter into any sale-leaseback financing respecting any part of
the Pledged Property as lessee, or cause or assist the inception or continuation
of any of the foregoing.

         Section 7.3. Articles, By-Laws, Mergers,  Consolidations,  Acquisitions
and Sales.

         Without the prior express  written  consent of the Secured  Party,  the
Company shall not: (a) Amend its Articles of Incorporation or By-Laws; (b) issue
or sell its stock, stock options,  bonds, notes or other corporate securities or
obligations;   (c)  be  a  party  to  any  merger,  consolidation  or  corporate
reorganization,  (d) purchase or otherwise  acquire all or substantially  all of
the assets or stock of, or any  partnership  or joint  venture  interest in, any
other  person,  firm or entity,  (e) sell,  transfer,  convey,  grant a security
interest in or lease all or any substantial  part of its assets,  nor (f) create
any subsidiaries nor convey any of its assets to any subsidiary.

         Section 7.4.      Management, Ownership.

         The  Company  shall  not  change  its  ownership,  executive  staff  or
management  without  the  prior  written  consent  of  the  Secured  Party.  The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.

         Section 7.5.      Dividends, Etc.

         The Company  shall not declare or pay any dividend of any kind, in cash
or in property, on any class of its capital stock, nor purchase,  redeem, retire
or  otherwise  acquire  for  value  any  shares  of such  stock,  nor  make  any
distribution of any kind in respect  thereof,  nor make any return of capital to
shareholders,  nor make any payments in respect of any pension,  profit sharing,
retirement,  stock option, stock bonus,  incentive  compensation or similar plan
(except as required or permitted  hereunder),  without the prior written consent
of the Secured Party.

         Section 7.6.      Guaranties; Loans.

         The Company shall not  guarantee  nor be liable in any manner,  whether
directly or  indirectly,  or become  contingently  liable after the date of this
Agreement in connection  with the  obligations or  indebtedness of any person or
persons,  except  for  (i)  the  indebtedness  currently  secured  by the  liens
identified on the Pledged  Property  identified on Exhibit A hereto and (ii) the
endorsement  of  negotiable  instruments  payable to the  Company for deposit or
collection  in the ordinary  course of business.  The Company shall not make any

                                       11
<PAGE>

loan,  advance or  extension  of credit to any  person  other than in the normal
course of its business.

         Section 7.7.      Debt.

         The  Company  shall not  create,  incur,  assume or suffer to exist any
additional  indebtedness of any description whatsoever in an aggregate amount in
excess of $25,000  (excluding  any  indebtedness  of the  Company to the Secured
Party,  trade  accounts  payable and accrued  expenses  incurred in the ordinary
course of business and the endorsement of negotiable  instruments payable to the
Company,  respectively  for  deposit or  collection  in the  ordinary  course of
business).

         Section 7.8.      Conduct of Business.

         The Company will  continue to engage,  in an efficient  and  economical
manner, in a business of the same general type as conducted by it on the date of
this Agreement.

         Section 7.9.      Places of Business.

         The location of the Company's  chief place of business is 400 Gold SW -
Suite 1000  Albuquerque,  New Mexico  87102.  The  Company  shall not change the
location of its chief place of business,  chief executive office or any place of
business disclosed to the Secured Party or move any of the Pledged Property from
its current  location  without  thirty (30) days'  prior  written  notice to the
Secured Party in each instance.

                                   ARTICLE 8.

                                  MISCELLANEOUS

         Section 8.1.      Notices.

         All notices or other  communications  required or permitted to be given
pursuant to this  Agreement  shall be in writing and shall be considered as duly
given on:  (a) the date of  delivery,  if  delivered  in person,  by  nationally
recognized  overnight  delivery  service or (b) five (5) days  after  mailing if
mailed from within the  continental  United  States by  certified  mail,  return
receipt requested to the party entitled to receive the same:

               If to the Secured Party:   Cornell Capital Partners, LP
                                          101 Hudson Street-Suite 3700
                                          Jersey City, New Jersey 07302
                                          Attention:    Mark Angelo
                                                        Portfolio Manager
                                          Telephone:    (201) 986-8300
                                          Facsimile:    (201) 985-8266

                                       12
<PAGE>

               With a copy to:           Butler Gonzalez LLP
                                         1416 Morris Avenue - Suite 207
                                         Union, New Jersey  07083
                                         Attention:    David Gonzalez, Esq.
                                         Telephone:    (908) 810-8588
                                         Facsimile:    (908) 810-0973

               And if to the Company:    Cyco.Net Inc.
                                         400 Gold SW - Suite 1000
                                         Albuquerque, NM 87102
                                         Attention:    Rick Urrea, President
                                                       and Chief Executive
                                                       Officer
                                         Telephone:    (505) 710-2190
                                         Facsimile:

               With a copy to:           Kirkpatrick & Lockhart LLP
                                         201 South Biscayne Boulevard-Suite 2000
                                         Miami, Florida  33131-2399
                                         Attention:    Clayton E. Parker, Esq.
                                         Telephone:    (305) 539-3300
                                         Facsimile:    (305) 358-7095

         Any party may change its  address by giving  notice to the other  party
stating its new address.  Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.

         Section 8.2.      Severability.

         If  any  provision  of  this   Agreement   shall  be  held  invalid  or
unenforceable,  such  invalidity or  unenforceability  shall attach only to such
provision and shall not in any manner affect or render invalid or  unenforceable
any other  severable  provision of this  Agreement,  and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.

         Section 8.3.      Expenses.

         In the  event of an  Event  of  Default,  the  Company  will pay to the
Secured  Party the  amount of any and all  reasonable  expenses,  including  the
reasonable  fees and expenses of its counsel,  which the Secured Party may incur
in connection with: (i) the custody or preservation of, or the sale,  collection
from, or other realization upon, any of the Pledged Property;  (ii) the exercise
or enforcement of any of the rights of the Secured Party  hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.

                                       13
<PAGE>

         Section 8.4.      Waivers, Amendments, Etc.

         The Secured  Party's delay or failure at any time or times hereafter to
require  strict  performance  by  Company  of any  undertakings,  agreements  or
covenants shall not waiver,  affect,  or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance  herewith.  Any
waiver by the  Secured  Party of any Event of Default  shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type.  None of the  undertakings,
agreements  and  covenants of the Company  contained in this  Agreement,  and no
Event of Default,  shall be deemed to have been waived by the Secured Party, nor
may this  Agreement  be  amended,  changed  or  modified,  unless  such  waiver,
amendment,  change or  modification  is  evidenced by an  instrument  in writing
specifying  such waiver,  amendment,  change or  modification  and signed by the
Secured Party.

         Section 8.5.      Continuing Security Interest.

         This  Agreement  shall  create a  continuing  security  interest in the
Pledged Property and shall: (i) remain in full force and effect until payment in
full of the Obligations; and (ii) be binding upon the Company and its successors
and heirs and (iii) inure to the benefit of the Secured Party and its successors
and assigns.  Upon the payment or satisfaction in full of the  Obligations,  the
Company shall be entitled to the return, at its expense,  of such of the Pledged
Property as shall not have been sold in  accordance  with  Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.

         Section 8.6.      Independent Representation.

         Each party hereto  acknowledges  and agrees that it has received or has
had the opportunity to receive  independent  legal counsel of its own choice and
that it has been sufficiently  apprised of its rights and responsibilities  with
regard to the substance of this Agreement.

         Section 8.7.      Applicable Law:  Jurisdiction.

         This Agreement  shall be governed by and interpreted in accordance with
the laws of the State of Nevada  without regard to the principles of conflict of
laws.  The parties  further agree that any action between them shall be heard in
Hudson County,  New Jersey,  and expressly consent to the jurisdiction and venue
of the  Superior  Court of New Jersey,  sitting in Hudson  County and the United
States  District  Court for the  District of New Jersey  sitting in Newark,  New
Jersey  for the  adjudication  of any civil  action  asserted  pursuant  to this
Paragraph.

         Section 8.8.      Waiver of Jury Trial.

         AS A  FURTHER  INDUCEMENT  FOR THE  SECURED  PARTY TO ENTER  INTO  THIS
AGREEMENT AND TO MAKE THE FINANCIAL  ACCOMMODATIONS TO THE COMPANY,  THE COMPANY
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING  RELATED IN ANY
WAY TO THIS  AGREEMENT  AND/OR  ANY  AND ALL  OTHER  DOCUMENTS  RELATED  TO THIS
TRANSACTION.

                                       14
<PAGE>

         Section 8.9.      Entire Agreement.

         This Agreement  constitutes the entire  agreement among the parties and
supersedes any prior agreement or  understanding  among them with respect to the
subject matter hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       15
<PAGE>

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the date first above written.

                                    COMPANY:
                                    CYCO.NET INC.

                                    By:
                                        ----------------------------------------
                                    Name:  Rick Urrea
                                    Title: President and Chief Executive Officer

                                    SECURED PARTY:
                                    CORNELL CAPITAL PARTNERS, LP

                                    BY:    YORKVILLE ADVISORS, LLC
                                    ITS:   GENERAL PARTNER

                                    By:
                                        ----------------------------------------
                                    Name:  Mark Angelo
                                    Title: Portfolio Manager

                                       16
<PAGE>

                                    EXHIBIT A
                         DEFINITION OF PLEDGED PROPERTY

         For the purpose of securing prompt and complete payment and performance
by the  Company  of all of the  Obligations,  the  Company  unconditionally  and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Company:

                  (a) all goods of the Company,  including,  without limitation,
machinery,  equipment, furniture,  furnishings,  fixtures, signs, lights, tools,
parts,  supplies  and  motor  vehicles  of every  kind and  description,  now or
hereafter owned by the Company or in which the Company may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof,  arising from the sale or disposition  thereof,  and where
applicable,  the proceeds of insurance  and of any tort claims  involving any of
the foregoing;

                  (b) all inventory of the Company,  including,  but not limited
to, all goods, wares,  merchandise,  parts, supplies,  finished products,  other
tangible  personal  property,  including such inventory as is temporarily out of
Company's  custody or possession  and including any returns upon any accounts or
other  proceeds,  including  insurance  proceeds,  resulting  from  the  sale or
disposition of any of the foregoing;

                  (c)  all  contract  rights  and  general  intangibles  of  the
Company,  including,  without limitation,  goodwill,  trademarks,  trade styles,
trade  names,  leasehold  interests,  partnership  or joint  venture  interests,
patents and patent applications,  copyrights, deposit accounts whether now owned
or hereafter created;

                  (d) all documents, warehouse receipts, instruments and chattel
paper of the Company whether now owned or hereafter created;

                  (e) all accounts and other  receivables,  instruments or other
forms of obligations and rights to payment of the Company  (herein  collectively
referred  to as  "Accounts"),  together  with the  proceeds  thereof,  all goods
represented  by such  Accounts  and all such goods that may be  returned  by the
Company's  customers,  and  all  proceeds  of any  insurance  thereon,  and  all
guarantees,  securities  and liens which the Company may hold for the payment of
any such  Accounts  including,  without  limitation,  all rights of  stoppage in
transit,  replevin and reclamation and as an unpaid vendor and/or lienor, all of
which  the  Company  represents  and  warrants  will be bona  fide and  existing
obligations of its respective customers, arising out of the sale of goods by the
Company in the ordinary course of business;

                  (f) to the  extent  assignable,  all of the  Company's  rights
under all present and future  authorizations,  permits,  licenses and franchises
issued or granted in connection with the operations of any of its facilities;

                  (g) all products and proceeds (including,  without limitation,
insurance proceeds) from the above-described Pledged Property.

A-1

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