Document:

Exhibit 10.48

                          DEBENTURE PURCHASE AGREEMENT

         This Debenture  Purchase  Agreement  (this  "Agreement") is dated as of
September 30, 2008, among Intraop Medical Corporation, a Nevada corporation (the
"Company"),  and each purchaser  identified on the signature pages hereto (each,
including  its  successors  and assigns,  a  "Purchaser"  and  collectively  the
"Purchasers").

         WHEREAS,  subject  to the  terms  and  conditions  set  forth  in  this
Agreement  the  Company  desires to issue and sell to each  Purchaser,  and each
Purchaser,  severally  and not  jointly,  desires to purchase  from the Company,
securities of the Company as more fully described in this Agreement.

         NOW,  THEREFORE,  IN CONSIDERATION of the mutual covenants contained in
this Agreement,  and for other good and valuable  consideration  the receipt and
adequacy of which are hereby acknowledged,  the Company and each Purchaser agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         1.1  Definitions.  In addition to the terms  defined  elsewhere in this
Agreement:  (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein),  and (b) the
following terms have the meanings indicated in this Section 1.1:

                  "Action"  shall  have the  meaning  ascribed  to such  term in
         Section 3.1(i).

                  "Additional  Closing" shall have the meaning  ascribed to such
         term in Section 2.4.

                  "Additional  Purchasers"  shall have the  meaning  ascribed to
         such term in Section 2.4.

                  "Affiliate"  means any Person  that,  directly  or  indirectly
         through one or more intermediaries,  controls or is controlled by or is
         under  common  control  with a  Person,  as such  terms are used in and
         construed  under Rule 144 under the  Securities  Act. With respect to a
         Purchaser,  any investment fund or managed account that is managed on a
         discretionary  basis by the same  investment  manager as such Purchaser
         will be deemed to be an Affiliate of such Purchaser.

                  "Closing"  means the closing of the  purchase  and sale of the
         Debentures pursuant to Section 2.1.

                  "Closing Date" means,  in connection  with the Closing and, if
         applicable,  any  Additional  Closing,  the Trading Day when all of the
         Transaction   Documents   have  been  executed  and  delivered  by  the
         applicable  parties  thereto,  and all conditions  precedent to (i) the
         Purchasers'  obligations  to pay the  Subscription  Amount and (ii) the
         Company's  obligations to deliver the Debentures have been satisfied or
         waived.

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                  "Commission" means the Securities and Exchange Commission.

                  "Common  Stock"  means the common  stock of the  Company,  par
         value $0.001 per share,  and any other class of  securities  into which
         such securities may hereafter have been reclassified or changed into.

                  "Common Stock Equivalents" means any securities of the Company
         or the  Subsidiaries  which would entitle the holder thereof to acquire
         at any time  Common  Stock,  including  without  limitation,  any debt,
         preferred stock, rights, options,  warrants or other instrument that is
         at any time  convertible  into or exercisable or  exchangeable  for, or
         otherwise entitles the holder thereof to receive, Common Stock.

                  "Company Counsel" means Hanson Bridgett, LLP

                  "Debentures"  means  the 10%  Senior  Secured  Debentures  due
         December 31, 2008, subject to the terms therein, in the form of Exhibit
         A.

                  "Disclosure Schedules" shall have the meaning ascribed to such
         term in Section 3.1.

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
         amended and the rules and regulations promulgated thereunder.

                  "GAAP"  shall  (have  the  meaning  ascribed  to such  term in
         Section 3.1(g).

                  "Indebtedness" shall have the meaning ascribed to such term in
         Section 3.1(y).

                  "Intellectual Property Rights" shall have the meaning ascribed
         to such term in Section 3.1(n).

                  "Liens" means a lien, charge, security interest,  encumbrance,
         right of first refusal, preemptive right or other restriction.

                  "Material  Adverse Effect" shall have the meaning  assigned to
         such term in Section 3.1(b).

                  "Material  Permits"  shall have the  meaning  ascribed to such
         term in Section 3.1(l).

                  "Maximum Rate" shall have the meaning ascribed to such term in
         Section 5.15.

                  "Person"  means an  individual  or  corporation,  partnership,
         trust,  incorporated  or  unincorporated  association,  joint  venture,
         limited  liability  company,  joint stock  company,  government  (or an
         agency or subdivision thereof) or other entity of any kind.

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                  "Proceeding" means an action,  claim,  suit,  investigation or
         proceeding (including,  without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

                  "Purchaser Party" shall have the meaning ascribed to such term
         in Section 4.7.

                  "Receivables"  means open accounts  whether or not matured and
         whether or not executory, contract rights, chattel paper, notes, rental
         receivables,  tax refunds,  installment  payment  obligations and other
         obligations for the payment of money payable to Company, and contracts,
         documents,  invoices and other  instruments  evidencing the same, which
         Receivables  are  created  or  otherwise  arise  out  of  the  sale  of
         merchandise  or the  supplying  of  services  by Company in the regular
         course of its business  and any of  Company's  other assets or property
         defined  under the  Uniform  Commercial  Code of  Nevada  as  accounts,
         general  intangibles,  chattel paper or  instruments,  and all cash and
         non-cash proceeds thereof, and all security therefor and guaranties and
         credit  enhancements  (including  but not limited to letters of credit)
         thereof,  and all of Company's rights present or future to any property
         sold or leased which is represented thereby.

                  "Required  Approvals"  shall have the meaning ascribed to such
         term in Section 3.1(e).

                  "Rule  144"  means  Rule  144  promulgated  by the  Commission
         pursuant to the  Securities  Act, as such Rule may be amended from time
         to time,  or any similar rule or  regulation  hereafter  adopted by the
         Commission having substantially the same effect as such Rule.

                  "SEC Reports" shall have the meaning  ascribed to such term in
         Section 3.1(g).

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Security  Agreement" means the Security Agreement,  dated the
         date  hereof,  among the  Company  and the  Purchasers,  in the form of
         Exhibit E attached hereto.

                  "Security Documents" shall mean the Security Agreement and any
         other  documents and filing  required  thereunder in order to grant the
         Purchasers  a first  priority  security  interest  in the assets of the
         Company as  provided in the  Security  Agreement,  including  all UCC-1
         filing receipts.

                  "Subscription  Amount"  means,  as  to  each  Purchaser,   the
         aggregate amount to be paid for the Debentures  purchased  hereunder as
         specified  below such  Purchaser's  name on the signature  page of this
         Agreement  and next to the  heading  "Subscription  Amount",  in United
         States Dollars and in immediately available funds.

                  "Subsidiary"  means any subsidiary of the Company as set forth
         on Schedule 3.1(a).

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                  "Trading  Day" means a day on which the Common Stock is traded
         on a Trading Market.

                  "Trading  Market" means the following  markets or exchanges on
         which the Common  Stock is listed or quoted for  trading on the date in
         question:  the Nasdaq SmallCap Market, the American Stock Exchange, the
         New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
         Board.

                  "Transaction  Documents" means this Agreement,  the Debentures
         and the  Security  Agreement  and any  other  documents  or  agreements
         executed in connection with the transactions contemplated hereunder.

                                   ARTICLE II.
                                PURCHASE AND SALE

         2.1  Closing.  On the Closing  Date,  upon the terms and subject to the
conditions set forth herein,  concurrent with the execution and delivery of this
Agreement by the parties hereto,  the Company agrees to sell, and each Purchaser
agrees to purchase  in the  aggregate,  severally  and not  jointly,  $1,500,000
principal amount of the Debentures.  Each Purchaser shall deliver to the Company
via wire  transfer or a certified  check  immediately  available  funds equal to
their  respective  Subscription  Amount and the  Company  shall  deliver to each
Purchaser their  respective  Debenture as determined  pursuant to Section 2.2(a)
and the other  items set forth in Section  2.2  issuable  at the  Closing.  Upon
satisfaction of the conditions set forth in Section 2.2, the Closing shall occur
at the offices of Company  Counsel,  or such other location as the parties shall
mutually agree.

         2.2      Deliveries

                  a)       On the Closing  Date,  the Company  shall  deliver or
                           cause  to  be   delivered  to  each   Purchaser   the
                           following:

                           (i) this Agreement duly executed by the Company;

                           (ii)     a Debenture with a principal amount equal to
                                    such   Purchaser's    Subscription   Amount,
                                    registered in the name of such Purchaser;

                           (iii)    confirmation from Federal Insurance Company,
                                    the Company's property and contents insurer,
                                    confirming that the Purchasers are the first
                                    named beneficiary on the Company's  property
                                    and contents  insurance  policy and that the
                                    amount of  coverage is at least equal to the
                                    aggregate    principal    amount    of   the
                                    Debentures,  which  confirmation shall be in
                                    form and substance  reasonably  satisfactory
                                    to each Purchaser; and

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                           (iv)     the Security Agreement, duly executed by the
                                    Company,   along   with  all  the   Security
                                    Documents.

                  b)       On the Closing Date,  each Purchaser shall deliver or
                           cause to be delivered to the Company the following:

                           (i)      this   Agreement   duly   executed  by  such
                                    Purchaser;

                           (ii)     such Purchaser's Subscription Amount by wire
                                    transfer to such  accounts as  specified  in
                                    writing by the Company; and

                           (iii)    the  Security  Agreement,  duly  executed by
                                    such Purchaser.

         2.3      Closing Conditions.

                  a)       The   obligations   of  the  Company   hereunder   in
                           connection  with  the  Closing  are  subject  to  the
                           following conditions being met:

                           (i)      the accuracy in all material  respects  when
                                    made  and  on  the   Closing   Date  of  the
                                    representations   and   warranties   of  the
                                    Purchasers contained herein;

                           (ii)     all obligations, covenants and agreements of
                                    the  Purchasers  required to be performed at
                                    or prior to the Closing Date shall have been
                                    performed; and

                           (iii)    the delivery by  Purchasers of the items set
                                    forth in Section 2.2(b) of this Agreement.

                  b)       The   respective   obligations   of  the   Purchasers
                           hereunder in connection  with the Closing are subject
                           to the following conditions being met:

                           (i)      the accuracy in all material respects on the
                                    Closing  Date  of  the  representations  and
                                    warranties of the Company contained herein;

                           (ii)     all obligations, covenants and agreements of
                                    the Company  required to be  performed at or
                                    prior to the  Closing  Date  shall have been
                                    performed; and

                           (iii)    the delivery by the Company of the items set
                                    forth in Section 2.2(a) of this Agreement.

         2.4  Subsequent  Closings.  If, at any time on or prior to December 31,
2008,  Lacuna Venture Fund LLLP ("Lacuna") so elects,  the Company will sell, in
one or more closings, up to an additional $500,000 aggregate principal amount of
the  Debentures to Lacuna  and/or such other  persons as may be mutually  agreed
upon by Lacuna and the Company  (the  "Additional  Purchasers").  All such sales
made at any additional closings (each, an "Additional  Closing"),  shall be made
on  the  terms  and  conditions  set  forth  in  this  Agreement,  and  (i)  the
representations  and  warranties  of the Company set forth in Section 3.1 hereof
(and the  Disclosure  Schedule)  shall  speak as of the  Closing and the Company
shall  have  no  obligation  to  update  any  such  disclosure,   and  (ii)  the
representations  and  warranties  of the  Purchasers in Section 3.2 hereof shall
speak as of such Additional  Closing.  The Schedule of Purchasers may be amended
by the Company  without the consent of the  Purchasers to include any Additional
Purchasers  upon the  execution by such  Additional  Purchasers of a counterpart
signature page hereto. Any Debentures sold pursuant to this Section 2.4 shall be
deemed  to be  "Debentures"  for  all  purposes  under  this  Agreement  and any
Additional  Purchasers  thereof  shall  be  deemed  to be  "Purchasers"  for all
purposes under this Agreement.

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                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1 Representations and Warranties of the Company.  Except as set forth
under the  corresponding  section of the disclosure  schedules  delivered to the
Purchasers  concurrently herewith (the "Disclosure  Schedules") which Disclosure
Schedules  shall  be  deemed  a  part  hereof,  the  Company  hereby  makes  the
representations and warranties set forth below to each Purchaser.

                  (a) Subsidiaries.  All of the direct and indirect subsidiaries
         of the  Company  are set forth on Schedule  3.1(a).  The Company  owns,
         directly  or  indirectly,  all of the  capital  stock or  other  equity
         interests of each Subsidiary  free and clear of any Liens,  and all the
         issued and  outstanding  shares of capital stock of each Subsidiary are
         validly  issued  and  are  fully  paid,   non-assessable  and  free  of
         preemptive and similar rights to subscribe for or purchase  securities.
         If the Company has no subsidiaries,  then references in the Transaction
         Documents to the Subsidiaries will be disregarded.

                  (b)  Organization and  Qualification.  The Company and each of
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly   existing  and  in  good  standing   under  the  laws  of  the
         jurisdiction of its incorporation or organization (as applicable), with
         the  requisite  power and authority to own and use its  properties  and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any  Subsidiary  is in  violation  or default of any of the
         provisions of its respective  certificate or articles of incorporation,
         bylaws  or  other  organizational  or  charter  documents.  Each of the
         Company and the  Subsidiaries is duly qualified to conduct business and
         is in good  standing as a foreign  corporation  or other entity in each
         jurisdiction in which the nature of the business  conducted or property
         owned  by it makes  such  qualification  necessary,  except  where  the
         failure to be so  qualified  or in good  standing,  as the case may be,
         could not have or  reasonably  be  expected to result in (i) a material
         adverse  effect on the  legality,  validity  or  enforceability  of any
         Transaction Document,  (ii) a material adverse effect on the results of
         operations,  assets,  business,  prospects or condition  (financial  or
         otherwise) of the Company and the  Subsidiaries,  taken as a whole,  or
         (iii) a material adverse effect on the Company's  ability to perform in
         any  material  respect  on a timely  basis  its  obligations  under any
         Transaction  Document (any of (i), (ii) or (iii),  a "Material  Adverse
         Effect") and no Proceeding has been instituted in any such jurisdiction
         revoking, limiting or curtailing or seeking to revoke, limit or curtail
         such power and authority or qualification.

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                  (c) Authorization;  Enforcement. The Company has the requisite
         corporate  power and  authority  to enter  into and to  consummate  the
         transactions  contemplated  by each of the  Transaction  Documents  and
         otherwise to carry out its obligations  hereunder and  thereunder.  The
         execution  and  delivery of each of the  Transaction  Documents  by the
         Company and the  consummation  by it of the  transactions  contemplated
         thereby have been duly  authorized by all necessary  action on the part
         of the Company and no further  action is required by the  Company,  its
         board of directors or its  stockholders  in connection  therewith other
         than in  connection  with  the  Required  Approvals.  Each  Transaction
         Document has been (or upon  delivery  will have been) duly  executed by
         the Company and, when delivered in accordance with the terms hereof and
         thereof,  will  constitute  the valid  and  binding  obligation  of the
         Company  enforceable  against the Company in accordance  with its terms
         except   (i)  as   limited  by   applicable   bankruptcy,   insolvency,
         reorganization,  moratorium  and  other  laws  of  general  application
         affecting  enforcement  of  creditors'  rights  generally  and  (ii) as
         limited by laws relating to the  availability of specific  performance,
         injunctive relief or other equitable remedies.

                  (d) No Conflicts.  The execution,  delivery and performance of
         the  Transaction  Documents by the Company and the  consummation by the
         Company of the other  transactions  contemplated  hereby and thereby do
         not and will not:  (i)  conflict  with or violate any  provision of the
         Company's or any Subsidiary's certificate or articles of incorporation,
         bylaws or other  organizational or charter documents,  or (ii) conflict
         with, or constitute a default (or an event that with notice or lapse of
         time or both would become a default)  under,  result in the creation of
         any Lien upon any of the  properties  or assets of the  Company  or any
         Subsidiary,  or give to others  any rights of  termination,  amendment,
         acceleration or cancellation (with or without notice,  lapse of time or
         both) of, any  agreement,  credit  facility,  debt or other  instrument
         (evidencing  a  Company  or  Subsidiary  debt or  otherwise)  or  other
         understanding  to which the Company or any  Subsidiary is a party or by
         which any property or asset of the Company or any  Subsidiary  is bound
         or affected, or (iii) subject to the Required Approvals,  conflict with
         or result in a violation of any law, rule, regulation, order, judgment,
         injunction,  decree or other  restriction of any court or  governmental
         authority  to which the Company or a Subsidiary  is subject  (including
         federal and state  securities  laws and  regulations),  or by which any
         property or asset of the Company or a Subsidiary  is bound or affected;
         except in the case of each of clauses (ii) and (iii), such as could not
         have or reasonably be expected to result in a Material Adverse Effect.

                  (e)  Filings,  Consents  and  Approvals.  The  Company  is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or  registration  with,  any court or
         other federal,  state, local or other  governmental  authority or other
         Person in connection  with the execution,  delivery and  performance by
         the Company of the Transaction  Documents,  other than filings required
         pursuant to Section 4.6 (collectively, the "Required Approvals").

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                  (f)  Capitalization.  Except as  disclosed in the SEC Reports,
         the Company has not issued any  capital  stock since its most  recently
         filed  periodic  report under the Exchange Act,  other than pursuant to
         the exercise of employee stock options under the Company's stock option
         plans, the issuance of shares of Common Stock to employees  pursuant to
         the  Company's  employee  stock  purchase  plan  and  pursuant  to  the
         conversion  or exercise of  outstanding  Common Stock  Equivalents.  No
         Person  has any  right of first  refusal,  preemptive  right,  right of
         participation,  or any similar right to participate in the transactions
         contemplated  by the  Transaction  Documents.  There are no outstanding
         options,  warrants, script rights to subscribe to, calls or commitments
         of any  character  whatsoever  relating  to, or  securities,  rights or
         obligations  convertible  into or exercisable or  exchangeable  for, or
         giving any Person any right to subscribe for or acquire,  any shares of
         Common Stock, or contracts, commitments, understandings or arrangements
         by which the Company or any  Subsidiary is or may become bound to issue
         additional shares of Common Stock or Common Stock  Equivalents.  All of
         the  outstanding  shares of capital  stock of the  Company  are validly
         issued,  fully paid and  nonassessable,  have been issued in compliance
         with  all  federal  and  state   securities  laws,  and  none  of  such
         outstanding  shares was issued in violation of any preemptive rights or
         similar  rights to  subscribe  for or purchase  securities.  No further
         approval or authorization of any stockholder, the Board of Directors of
         the  Company or others is  required  for the  issuance  and sale of the
         Debentures. There are no stockholders agreements,  voting agreements or
         other similar agreements with respect to the Company's capital stock to
         which  the  Company  is a party or, to the  knowledge  of the  Company,
         between or among any of the Company's stockholders.

                  (g) SEC Reports;  Financial Statements.  The Company has filed
         all reports,  schedules, forms, statements and other documents required
         to be  filed by it  under  the  Securities  Act and the  Exchange  Act,
         including pursuant to Section 13(a) or 15(d) thereof, for the two years
         preceding  the date hereof (or such  shorter  period as the Company was
         required  by law to  file  such  material)  (the  foregoing  materials,
         including the exhibits thereto and documents  incorporated by reference
         therein, being collectively referred to herein as the "SEC Reports") on
         a timely basis or has received a valid extension of such time of filing
         and has filed any such SEC Reports prior to the  expiration of any such
         extension.  As of their  respective  dates, the SEC Reports complied in
         all material  respects with the  requirements of the Securities Act and
         the  Exchange  Act and the  rules  and  regulations  of the  Commission
         promulgated  thereunder,  and  none of the  SEC  Reports,  when  filed,
         contained any untrue statement of a material fact or omitted to state a
         material  fact  required to be stated  therein or necessary in order to
         make the statements  therein,  in the light of the circumstances  under
         which they were made, not misleading.  The financial  statements of the
         Company  included in the SEC Reports  comply in all  material  respects
         with applicable  accounting  requirements and the rules and regulations
         of the  Commission  with  respect  thereto  as in effect at the time of
         filing. Such financial statements have been prepared in accordance with
         United States generally  accepted  accounting  principles  applied on a
         consistent basis during the periods involved ("GAAP"), except as may be
         otherwise  specified in such financial  statements or the notes thereto
         and except  that  unaudited  financial  statements  may not contain all
         footnotes required by GAAP, and fairly present in all material respects
         the financial position of the Company and its consolidated subsidiaries
         as of and for 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, immaterial, year-end audit adjustments.

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                  (h) Material  Changes.  Since the date of the latest financial
         statements  included  within the SEC  Reports,  except as  specifically
         disclosed in the SEC Reports,  (i) there has been no event,  occurrence
         or  development  that has had or that could  reasonably  be expected to
         result in a Material Adverse Effect,  (ii) the Company has not incurred
         any liabilities (contingent or otherwise) other than (A) trade payables
         and  accrued  expenses  incurred  in the  ordinary  course of  business
         consistent  with past practice and (B)  liabilities  not required to be
         reflected in the  Company's  financial  statements  pursuant to GAAP or
         required to be disclosed in filings made with the Commission, (iii) the
         Company has not altered its method of accounting,  (iv) the Company has
         not  declared  or made any  dividend or  distribution  of cash or other
         property  to its  stockholders  or  purchased,  redeemed  or  made  any
         agreements  to purchase  or redeem any shares of its capital  stock and
         (v) the Company has not issued any equity  securities  to any  officer,
         director or Affiliate, except pursuant to existing Company stock option
         plans.  The Company does not have  pending  before the  Commission  any
         request for confidential treatment of information.

                  (i) Litigation.  There is no action, suit, inquiry,  notice of
         violation,  proceeding or investigation pending or, to the knowledge of
         the  Company,   threatened  against  or  affecting  the  Company,   any
         Subsidiary  or any of  their  respective  properties  before  or by any
         court, arbitrator,  governmental or administrative agency or regulatory
         authority (federal, state, county, local or foreign) (collectively,  an
         "Action")  which (i)  adversely  affects or  challenges  the  legality,
         validity or enforceability  of any of the Transaction  Documents or the
         Debentures or (ii) could, if there were an unfavorable  decision,  have
         or  reasonably  be  expected  to result in a Material  Adverse  Effect.
         Neither  the Company nor any  Subsidiary,  nor any  director or officer
         thereof,  is or has been the subject of any Action involving a claim of
         violation of or liability  under federal or state  securities laws or a
         claim of  breach of  fiduciary  duty.  There  has not been,  and to the
         knowledge of the  Company,  there is not pending or  contemplated,  any
         investigation by the Commission involving the Company or any current or
         former  director  or officer of the  Company.  The  Commission  has not
         issued any stop order or other order  suspending the  effectiveness  of
         any registration statement filed by the Company or any Subsidiary under
         the Exchange Act or the Securities Act.

                  (j) Labor  Relations.  No material labor dispute exists or, to
         the  knowledge of the Company,  is imminent  with respect to any of the
         employees of the Company  which could  reasonably be expected to result
         in a Material Adverse Effect.

                  (k) Compliance.  Neither the Company nor any Subsidiary (i) is
         in default under or in violation of (and no event has occurred that has
         not been  waived  that,  with  notice  or lapse of time or both,  would
         result in a default by the Company or any  Subsidiary  under),  nor has
         the Company or any Subsidiary  received notice of a claim that it is in
         default  under or that it is in violation  of, any  indenture,  loan or
         credit  agreement or any other agreement or instrument to which it is a
         party or by which it or any of its  properties is bound (whether or not
         such default or violation has been waived), (ii) is in violation of any
         order of any court, arbitrator or governmental body, or (iii) is or has
         been  in  violation  of  any  statute,   rule  or   regulation  of  any
         governmental  authority,  including  without  limitation  all  foreign,
         federal, state and local laws applicable to its business except in each
         case as could not have a Material Adverse Effect.

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                  (l)  Regulatory  Permits.  The  Company  and the  Subsidiaries
         possess all  certificates,  authorizations  and  permits  issued by the
         appropriate  federal,  state, local or foreign  regulatory  authorities
         necessary to conduct  their  respective  businesses as described in the
         SEC Reports, except where the failure to possess such permits could not
         have or reasonably be expected to result in a Material  Adverse  Effect
         ("Material  Permits"),  and neither the Company nor any  Subsidiary has
         received  any  notice of  proceedings  relating  to the  revocation  or
         modification of any Material Permit.

                  (m) Title to Assets.  The  Company and the  Subsidiaries  have
         good and  marketable  title in fee simple to all real property owned by
         them  that  is  material  to  the  business  of  the  Company  and  the
         Subsidiaries  and good and  marketable  title in all personal  property
         owned by them that is material  to the  business of the Company and the
         Subsidiaries,  in each case free and clear of all Liens, except for (i)
         Liens as do not materially affect the value of such property and do not
         materially  interfere with the use made and proposed to be made of such
         property by the Company and the Subsidiaries (ii) Liens for the payment
         of  federal,  state or other  taxes,  the  payment  of which is neither
         delinquent  nor subject to  penalties  and (iii) the Lien on  inventory
         and/or  receivables  granted to E.U.  Capital  Venture,  Inc. and/or EU
         Bonding & Escrow  Corp.  Any real  property and  facilities  held under
         lease by the Company and the Subsidiaries are held by them under valid,
         subsisting  and  enforceable  leases  of  which  the  Company  and  the
         Subsidiaries are in compliance.

                  (n) Patents and Trademarks.  The Company and the  Subsidiaries
         have,  or  have  rights  to  use,  all  patents,  patent  applications,
         trademarks,   trademark  applications,   service  marks,  trade  names,
         copyrights, licenses and other similar rights necessary or material for
         use in connection with their respective  businesses as described in the
         SEC  Reports  and which the  failure  to so have  could have a Material
         Adverse Effect  (collectively,  the  "Intellectual  Property  Rights").
         Neither the Company nor any  Subsidiary  has received a written  notice
         that  the  Intellectual  Property  Rights  used by the  Company  or any
         Subsidiary  violates or infringes upon the rights of any Person. To the
         knowledge of the Company,  all such  Intellectual  Property  Rights are
         enforceable and there is no existing  infringement by another Person of
         any of the Intellectual Property Rights of others.

                  (o) Insurance. The Company and the Subsidiaries are insured by
         insurers of recognized financial responsibility against such losses and
         risks  and  in  such  amounts  as  are  prudent  and  customary  in the
         businesses  in which the  Company  and the  Subsidiaries  are  engaged,
         including,  but  not  limited  to,  directors  and  officers  insurance
         coverage at least equal to the aggregate  Subscription  Amount.  To the
         best knowledge of the Company,  such  insurance  contracts and policies
         are accurate and complete.  Neither the Company nor any  Subsidiary has
         any  reason to believe  that it will not be able to renew its  existing
         insurance  coverage  as and when  such  coverage  expires  or to obtain
         similar  coverage from similar insurers as may be necessary to continue
         its business without a significant increase in cost.

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<PAGE>

                  (p) Transactions With Affiliates and Employees.  Except as set
         forth in the SEC  Reports,  none of the  officers or  directors  of the
         Company and, to the knowledge of the Company,  none of the employees of
         the Company is presently a party to any transaction with the Company or
         any  Subsidiary  (other than for  services as  employees,  officers and
         directors),  including  any  contract,  agreement or other  arrangement
         providing for the furnishing of services to or by, providing for rental
         of real  or  personal  property  to or  from,  or  otherwise  requiring
         payments to or from any officer,  director or such  employee or, to the
         knowledge of the Company, any entity in which any officer, director, or
         any  such  employee  has a  substantial  interest  or  is  an  officer,
         director,  trustee or partner,  in each case in excess of $60,000 other
         than  (i) for  payment  of  salary  or  consulting  fees  for  services
         rendered,  (ii)  reimbursement  for expenses  incurred on behalf of the
         Company and (iii) for other employee  benefits,  including stock option
         agreements under any stock option plan of the Company.

                  (q) Sarbanes-Oxley;  Internal Accounting Controls. The Company
         is in material compliance with all provisions of the Sarbanes-Oxley Act
         of 2002 which are  applicable to it as of the Closing Date. The Company
         and the Subsidiaries  maintain a system of internal accounting controls
         sufficient to provide  reasonable  assurance that (i)  transactions are
         executed  in   accordance   with   management's   general  or  specific
         authorizations,  (ii)  transactions are recorded as necessary to permit
         preparation  of financial  statements  in  conformity  with GAAP and to
         maintain asset accountability, (iii) access to assets is permitted only
         in accordance with management's general or specific authorization,  and
         (iv) the  recorded  accountability  for  assets  is  compared  with the
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences. The Company has established disclosure
         controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
         15d-15(e))  for the Company and designed such  disclosure  controls and
         procedures to ensure that material information relating to the Company,
         including its Subsidiaries, is made known to the certifying officers by
         others within those entities,  particularly  during the period in which
         the Company's most recently  filed  periodic  report under the Exchange
         Act, as the case may be, is being  prepared.  The Company's  certifying
         officers have evaluated the effectiveness of the Company's controls and
         procedures as of the date prior to the filing date of the most recently
         filed   periodic   report  under  the  Exchange  Act  (such  date,  the
         "Evaluation  Date").  The Company  presented in its most recently filed
         periodic   report  under  the  Exchange  Act  the  conclusions  of  the
         certifying  officers about the effectiveness of the disclosure controls
         and procedures  based on their  evaluations as of the Evaluation  Date.
         Since the Evaluation  Date,  there have been no significant  changes in
         the Company's internal controls (as such term is defined in Item 307(b)
         of  Regulation  S-K under the Exchange Act) or, to the knowledge of the
         Company, in other factors that could significantly affect the Company's
         internal controls.

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<PAGE>

                  (r) Certain Fees. No brokerage or finder's fees or commissions
         are or will be payable by the Company to any broker,  financial advisor
         or consultant,  finder,  placement agent,  investment  banker,  bank or
         other  Person  with  respect to the  transactions  contemplated  by the
         Transaction  Documents.  The Purchasers  shall have no obligation  with
         respect to any fees or with  respect to any claims made by or on behalf
         of other Persons for fees of a type  contemplated  in this Section that
         may be due in  connection  with the  transactions  contemplated  by the
         Transaction Documents.

                  (s) Private Placement. Assuming the accuracy of the Purchasers
         representations   and   warranties   set  forth  in  Section   3.2,  no
         registration  under the  Securities  Act is required  for the offer and
         sale of the Debentures by the Company to the Purchasers as contemplated
         hereby.

                  (t)  Investment  Company.  The  Company is not,  and is not an
         Affiliate  of,  and  immediately  after  receipt  of  payment  for  the
         Debentures,  will not be or be an Affiliate of, an "investment company"
         within the meaning of the  Investment  Company Act of 1940, as amended.
         The Company  shall conduct its business in a manner so that it will not
         become subject to the Investment Company Act.

                  (u) Listing and Maintenance Requirements. The Company's Common
         Stock is registered  pursuant to Section 12(g) of the Exchange Act, and
         the Company has taken no action  designed to, or which to its knowledge
         is likely to have the effect of,  terminating  the  registration of the
         Common Stock under the  Exchange  Act nor has the Company  received any
         notification  that the  Commission is  contemplating  terminating  such
         registration.  The Company has not, in the 12 months preceding the date
         hereof,  received  notice from any  Trading  Market on which the Common
         Stock is or has been listed or quoted to the effect that the Company is
         not in compliance with the listing or maintenance  requirements of such
         Trading  Market.  The Company is, and has no reason to believe  that it
         will not in the  foreseeable  future continue to be, in compliance with
         all such listing and maintenance requirements.

                  (v) Application of Takeover  Protections.  The Company and its
         Board of Directors have taken all necessary action, if any, in order to
         render   inapplicable   any   control   share   acquisition,   business
         combination,  poison pill  (including any  distribution  under a rights
         agreement) or other similar anti-takeover provision under the Company's
         Certificate of Incorporation (or similar charter documents) or the laws
         of its state of incorporation that is or could become applicable to the
         Purchasers  as a result of the  Purchasers  and the Company  fulfilling
         their  obligations  or  exercising  their rights under the  Transaction
         Documents,  including  without  limitation as a result of the Company's
         issuance  of  the  Debentures  and  the  Purchasers'  ownership  of the
         Debentures.

                  (w) Disclosure.  The Company  confirms that neither it nor any
         other Person acting on its behalf has provided any of the Purchasers or
         their agents or counsel with any information  that constitutes or might
         constitute material, nonpublic information. The Company understands and
         confirms that the Purchasers will rely on the foregoing representations
         and covenants in effecting  transactions  in securities of the Company.
         All disclosure  provided to the Purchasers  regarding the Company,  its
         business  and  the  transactions  contemplated  hereby,  including  the
         Disclosure  Schedules to this  Agreement,  furnished by or on behalf of
         the Company with respect to the  representations  and  warranties  made
         herein are true and correct  with respect to such  representations  and
         warranties  and do not contain any untrue  statement of a material fact
         or omit to  state  any  material  fact  necessary  in order to make the
         statements made therein, in light of the circumstances under which they
         were made, not misleading.  The Company acknowledges and agrees that no
         Purchaser  makes or has made any  representations  or  warranties  with
         respect  to the  transactions  contemplated  hereby  other  than  those
         specifically set forth in Section 3.2 hereof.

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<PAGE>

                  (x) No  Integrated  Offering.  Assuming  the  accuracy  of the
         Purchasers'  representations  and  warranties set forth in Section 3.2,
         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 this offering of the Debentures to
         be integrated  with prior  offerings by the Company for purposes of the
         Securities Act or any applicable shareholder approval provisions.

                  (y) Solvency.  Based on the financial condition of the Company
         as of the  Closing  Date  after  giving  effect to the  receipt  by the
         Company of the proceeds from the sale of the Debentures hereunder,  (i)
         the Company's fair saleable value of its assets exceeds the amount that
         will be required to be paid on or in respect of the Company's  existing
         debts and other liabilities (including known contingent liabilities) as
         they mature;  (ii) the Company's assets do not constitute  unreasonably
         small  capital to carry on its business for the current  fiscal year as
         now conducted; and (iii) the current cash flow of the Company, together
         with the proceeds the Company would  receive,  were it to liquidate all
         of its assets,  after taking into account all  anticipated  uses of the
         cash,  would be  sufficient  to pay all amounts on or in respect of its
         debt when such  amounts are  required to be paid.  The Company does not
         intend to incur  debts  beyond  its  ability  to pay such debts as they
         mature  (taking  into  account  the  timing  and  amounts of cash to be
         payable on or in respect of its debt).  The Company has no knowledge of
         any facts or  circumstances  which lead it to believe that it will file
         for   reorganization   or   liquidation   under   the   bankruptcy   or
         reorganization  laws of any  jurisdiction  within  one  year  from  the
         Closing  Date.  The SEC Reports  set forth as of the dates  thereof all
         outstanding  secured and unsecured  Indebtedness  of the Company or any
         Subsidiary, or for which the Company or any Subsidiary has commitments.
         For the purposes of this Agreement,  "Indebtedness"  shall mean (a) any
         liabilities  for  borrowed  money or amounts  owed in excess of $50,000
         (other than trade accounts  payable  incurred in the ordinary course of
         business),  (b)  all  guaranties,  endorsements  and  other  contingent
         obligations in respect of  Indebtedness  of others,  whether or not the
         same are or should be reflected in the Company's  balance sheet (or the
         notes  thereto),   except   guaranties  by  endorsement  of  negotiable
         instruments  for deposit or collection or similar  transactions  in the
         ordinary  course of  business;  and (c) the present  value of any lease
         payments  in  excess  of  $50,000  due  under  leases  required  to  be
         capitalized  in  accordance  with GAAP.  Neither  the  Company  nor any
         Subsidiary is in default with respect to any Indebtedness.

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<PAGE>

                  (z)  Tax   Status.   Except  for   matters   that  would  not,
         individually  or in the  aggregate,  have or  reasonably be expected to
         result in a Material  Adverse  Effect,  the Company and each Subsidiary
         has filed all necessary federal, state and foreign income and franchise
         tax returns and has paid or accrued all taxes shown as due thereon, and
         the  Company  has no  knowledge  of a tax  deficiency  which  has  been
         asserted or threatened against the Company or any Subsidiary.

                  (aa) No General  Solicitation.  Neither  the  Company  nor any
         person  acting on behalf of the  Company has offered or sold any of the
         Debentures by any form of general  solicitation or general advertising.
         The Company has offered the  Debentures for sale only to the Purchasers
         and certain other "accredited investors" within the meaning of Rule 501
         under the Securities Act.

                  (bb) Foreign Corrupt  Practices.  Neither the Company,  nor to
         the  knowledge  of the  Company,  any agent or other  person  acting on
         behalf of the Company,  has (i) directly or indirectly,  used any funds
         for unlawful  contributions,  gifts,  entertainment  or other  unlawful
         expenses related to foreign or domestic political  activity,  (ii) made
         any  unlawful  payment to foreign or domestic  government  officials or
         employees or to any foreign or domestic  political parties or campaigns
         from corporate  funds,  (iii) failed to disclose fully any contribution
         made by the  Company  (or made by any  person  acting on its  behalf of
         which the  Company  is aware)  which is in  violation  of law,  or (iv)
         violated in any material  respect any provision of the Foreign  Corrupt
         Practices Act of 1977, as amended

                  (cc)  Accountants.  The Company's  accountants  are PMB+ Helin
         Donovan,  LLP. To the knowledge of the Company,  such accountants,  who
         expressed  their  opinion  with  respect  to the  financial  statements
         included  in the  Company's  Annual  Report on Form 10-KSB for the year
         ended  September 30, 2007, are a registered  public  accounting firm as
         required by the Securities Act.

                  (dd)  Seniority.  As of the Closing Date, no  Indebtedness  or
         other  equity of the  Company is senior to the  Debentures  in right of
         payment,  whether  with  respect to  interest  or upon  liquidation  or
         dissolution,  or otherwise, other than Indebtedness secured by purchase
         money security  interests (which is senior only as to underlying assets
         covered thereby) and capital lease obligations (which is senior only as
         to the property covered thereby).

                  (ee) No Disagreements with Accountants and Lawyers.  There are
         no  disagreements  of  any  kind  presently  existing,   or  reasonably
         anticipated  by the  Company  to arise,  between  the  accountants  and
         lawyers  formerly or presently  employed by the Company and the Company
         is  current  with  respect  to any  fees  owed to its  accountants  and
         lawyers.

                  (ff)  Acknowledgment  Regarding  Purchasers'  Purchase  of the
         Debentures.  The  Company  acknowledges  and  agrees  that  each of the
         Purchasers  is  acting  solely  in  the  capacity  of an  arm's  length
         purchaser   with  respect  to  the   Transaction   Documents   and  the
         transactions contemplated hereby. The Company further acknowledges that
         no  Purchaser  is acting as a  financial  advisor or  fiduciary  of the
         Company (or in any similar capacity) with respect to this Agreement and
         the  transactions  contemplated  hereby  and any  advice  given  by any
         Purchaser  or any of their  respective  representatives  or  agents  in
         connection with this Agreement and the transactions contemplated hereby
         is merely incidental to the Purchasers' purchase of the Debentures. The
         Company  further  represents  to  each  Purchaser  that  the  Company's
         decision  to enter into this  Agreement  has been  based  solely on the
         independent  evaluation of the transactions  contemplated hereby by the
         Company and its representatives.

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<PAGE>

         3.2  Representations  and Warranties of the Purchasers.  Each Purchaser
hereby,  for itself and no other  Purchaser,  represents  and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

                  (a) Organization;  Authority. Such Purchaser is an entity duly
         organized,  validly existing and in good standing under the laws of the
         jurisdiction  of  its  organization  with  full  right,   corporate  or
         partnership  power and  authority to enter into and to  consummate  the
         transactions contemplated by the Transaction Documents and otherwise to
         carry out its  obligations  hereunder and  thereunder.  The  execution,
         delivery  and  performance  by  such  Purchaser  of  the   transactions
         contemplated  by  this  Agreement  have  been  duly  authorized  by all
         necessary  corporate or similar  action on the part of such  Purchaser.
         Each Transaction Document to which it is a party has been duly executed
         by Purchaser,  and when delivered by such Purchaser in accordance  with
         the  terms  hereof,  will  constitute  the valid  and  legally  binding
         obligation of such Purchaser, enforceable against it in accordance with
         its terms,  except (i) as limited by general  equitable  principles and
         applicable bankruptcy, insolvency, reorganization, moratorium and other
         laws of general application  affecting enforcement of creditors' rights
         generally,  (ii) as limited by laws  relating  to the  availability  of
         specific performance, injunctive relief or other equitable remedies and
         (iii) insofar as  indemnification  and  contribution  provisions may be
         limited by applicable law.

                  (b)  Own  Account.   Such  Purchaser   understands   that  the
         Debentures are  "restricted  securities"  and have not been  registered
         under the Securities Act or any applicable  state securities law and is
         acquiring the  Debentures as principal for its own account and not with
         a view to or for  distributing or reselling such Debentures or any part
         thereof in  violation of the  Securities  Act or any  applicable  state
         securities law, has no present  intention of  distributing  any of such
         Debentures in violation of the Securities  Act or any applicable  state
         securities law and has no arrangement or  understanding  with any other
         persons  regarding the  distribution of such Debentures in violation of
         the  Securities  Act or  any  applicable  state  securities  law.  Such
         Purchaser is acquiring the Debentures  hereunder in the ordinary course
         of its  business.  Such  Purchaser  does  not  have  any  agreement  or
         understanding,  directly or  indirectly,  with any Person to distribute
         any of the Debentures.

                  (c) Purchaser  Status.  At the time such Purchaser was offered
         the  Debentures,  it was,  and at the date hereof it is either:  (i) an
         "accredited  investor" as defined in Rule  501(a)(1),  (a)(2),  (a)(3),
         (a)(7)  or  (a)(8)  under  the  Securities  Act or  (ii)  a  "qualified
         institutional  buyer" as defined in Rule 144A(a)  under the  Securities
         Act.  Purchaser is not  required to be  registered  as a  broker-dealer
         under Section 15 of the Exchange Act.

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<PAGE>

                  (d) Experience of Such Purchaser. Such Purchaser, either alone
         or   together   with   its   representatives,   has   such   knowledge,
         sophistication  and experience in business and financial  matters so as
         to be capable  of  evaluating  the merits and risks of the  prospective
         investment in the Debentures, and has so evaluated the merits and risks
         of such investment. Such Purchaser is able to bear the economic risk of
         an  investment in the  Debentures  and, at the present time, is able to
         afford a complete loss of such investment.

                  (e) General Solicitation. Such Purchaser is not purchasing the
         Debentures as a result of any advertisement,  article,  notice or other
         communication  regarding  the  Debentures  published in any  newspaper,
         magazine or similar  media or  broadcast  over  television  or radio or
         presented at any seminar or any other general  solicitation  or general
         advertisement.

         The Company  acknowledges  and agrees that each Purchaser does not make
or  has  not  made  any  representations  or  warranties  with  respect  to  the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.

                                   ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1      Transfer Restrictions.

                  (a) The Debentures may only be disposed of in compliance  with
         state and federal  securities  laws. In connection with any transfer of
         Debentures other than pursuant to an effective  registration  statement
         or Rule 144, to the  Company or to an  Affiliate  of a Purchaser  or in
         connection with a pledge as contemplated in Section 4.1(b), the Company
         may require the transferor thereof to provide to the Company an opinion
         of counsel selected by the transferor and reasonably  acceptable to the
         Company,  the form and  substance of which  opinion shall be reasonably
         satisfactory to the Company,  to the effect that such transfer does not
         require   registration  of  such   transferred   Debentures  under  the
         Securities Act. As a condition of transfer,  any such transferee  shall
         agree in writing to be bound by the terms of this  Agreement  and shall
         have the rights of a Purchaser under this Agreement.

                  (b) The  Purchasers  agree  to the  imprinting,  so long as is
         required by this Section  4.1(b),  of a legend on any of the Debentures
         in the following form:

           THESE  SECURITIES  HAVE NOT BEEN  REGISTERED  WITH THE SECURITIES AND
         EXCHANGE  COMMISSION  OR THE  SECURITIES  COMMISSION  OF ANY  STATE  IN
         RELIANCE UPON AN EXEMPTION FROM  REGISTRATION  UNDER THE SECURITIES ACT
         OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,  ACCORDINGLY,  MAY NOT
         BE  OFFERED  OR  SOLD  EXCEPT  PURSUANT  TO AN  EFFECTIVE  REGISTRATION
         STATEMENT  UNDER  THE  SECURITIES  ACT  OR  PURSUANT  TO  AN  AVAILABLE
         EXEMPTION  FROM, OR IN A TRANSACTION  NOT SUBJECT TO, THE  REGISTRATION
         REQUIREMENTS  OF THE SECURITIES ACT AND IN ACCORDANCE  WITH  APPLICABLE
         STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
         TRANSFEROR  TO SUCH EFFECT,  THE SUBSTANCE OF WHICH SHALL BE REASONABLY
         ACCEPTABLE TO THE COMPANY.
         THESE SECURITIES

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<PAGE>

         4.2  Furnishing  of   Information.   As  long  as  any  Purchaser  owns
Debentures,  the  Company  covenants  to timely  file (or obtain  extensions  in
respect  thereof  and file  within the  applicable  grace  period)  all  reports
required  to be filed by the  Company  after  the date  hereof  pursuant  to the
Exchange Act. As long as any Purchaser  owns  Debentures,  if the Company is not
required to file  reports  pursuant  to the  Exchange  Act, it will  prepare and
furnish to the  Purchasers and make publicly  available in accordance  with Rule
144(c) such information as is required for the Purchasers to sell the Debentures
under Rule 144.  The Company  further  covenants  that it will take such further
action as any holder of Debentures  may  reasonably  request,  all to the extent
required from time to time to enable such Person to sell such Debentures without
registration  under the  Securities  Act within the limitation of the exemptions
provided by Rule 144.

         4.3 Publicity.  The Company and each Purchaser  shall consult with each
other in issuing  any other  press  releases  with  respect to the  transactions
contemplated  hereby,  and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company,  with respect to any press release of any Purchaser,  or
without the prior consent of each  Purchaser,  with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide  the  other  party  with  prior  notice  of  such  public  statement  or
communication.

         4.4  Non-Public  Information.  The  Company  covenants  and agrees that
neither it nor any other Person  acting on its behalf will provide any Purchaser
or its  agents  or  counsel  with  any  information  that the  Company  believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be  relying  on the  foregoing  representations  in  effecting  transactions  in
securities of the Company.

         4.5 Use of  Proceeds.  The  Company  shall be  required  to use the net
proceeds  from  the  sale  of the  Debentures  hereunder  specifically  for  the
repayment  in  full  of  existing  senior  secured  debentures  in an  aggregate
principal amount of $1,000,000 plus accrued interest thereon, with the remainder
to be used for working capital and other general corporate purposes.

         4.6 Reimbursement. If any Purchaser becomes involved in any capacity in
any  Proceeding  by or against  any Person who is a  stockholder  of the Company
(except as a result of sales, pledges,  margin sales and similar transactions by
such Purchaser to or with any current  stockholder),  solely as a result of such
Purchaser's acquisition of the Debentures under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses  (including
the cost of any  investigation  preparation and travel in connection  therewith)
incurred  in  connection   therewith,   as  such  expenses  are  incurred.   The
reimbursement  obligations  of the  Company  under  this  paragraph  shall be in
addition to any  liability  which the Company may otherwise  have,  shall extend
upon the same terms and  conditions to any  Affiliates of the Purchasers who are
actually  named in such  action,  proceeding  or  investigation,  and  partners,
directors,  agents,  employees and controlling persons (if any), as the case may
be, of the  Purchasers  and any such  Affiliate,  and shall be binding  upon and
inure  to  the  benefit  of  any   successors,   assigns,   heirs  and  personal
representatives  of the Company,  the  Purchasers and any such Affiliate and any
such  Person.  Other than with respect to willful  misconduct  by a Purchaser in
connection with the acquisition of the Debentures,  the Company also agrees that
neither the Purchasers nor any such  Affiliates,  partners,  directors,  agents,
employees or controlling  persons shall have any liability to the Company or any
Person  asserting  claims on behalf  of or in right of the  Company  solely as a
result of acquiring the Debentures under this Agreement.

-17-
<PAGE>

         4.7  Indemnification  of Purchasers.  Subject to the provisions of this
Section  4.7,  the Company  will  indemnify  and hold the  Purchasers  and their
directors,  officers,  shareholders,  members,  partners,  employees  and agents
(each,  a  "Purchaser  Party")  harmless  from any and all losses,  liabilities,
obligations,  claims, contingencies,  damages, costs and expenses, including all
judgments,  amounts paid in settlements,  court costs and reasonable  attorneys'
fees and costs of  investigation  that any such  Purchaser  Party may  suffer or
incur  as  a  result  of  or   relating   to  (a)  any  breach  of  any  of  the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other  Transaction  Documents  or (b) any action  instituted
against  a  Purchaser,  or any of them or their  respective  Affiliates,  by any
stockholder  of the  Company who is not an  Affiliate  of such  Purchaser,  with
respect to any of the  transactions  contemplated by the  Transaction  Documents
(unless such action is based upon a breach of such Purchaser's  representations,
warranties or covenants  under the  Transaction  Documents or any  agreements or
understandings  such  Purchaser  may  have  with  any  such  stockholder  or any
violations by such Purchaser of state or federal  securities laws or any conduct
by Purchaser which constitutes  fraud,  gross negligence,  willful misconduct or
malfeasance).  If any action  shall be brought  against any  Purchaser  Party in
respect  of which  indemnity  may be sought  pursuant  to this  Agreement,  such
Purchaser  Party shall promptly  notify the Company in writing,  and the Company
shall  have the right to assume  the  defense  thereof  with  counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any  such  action  and  participate  in the  defense  thereof,  but the fees and
expenses of such counsel shall be at the expense of such Purchaser  Party except
to the extent that (i) the employment  thereof has been specifically  authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume  such  defense  and to employ  counsel or (iii) in such action
there is,  in the  reasonable  opinion  of such  separate  counsel,  a  material
conflict  on any  material  issue  between  the  position of the Company and the
position  of such  Purchaser  Party.  The  Company  will  not be  liable  to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected  without  the  Company's  prior  written  consent,  which  shall not be
unreasonably  withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations,  warranties,  covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.

-18-
<PAGE>

         4.8 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any  person  to amend or  consent  to a waiver  or  modification  of any
provision of any of the Transaction  Documents unless the same  consideration is
also offered to all of the parties to the Transaction  Documents.  Further,  the
Company shall not make any payment of principal or interest on the Debentures in
amounts  which  are   disproportionate  to  the  respective   principal  amounts
outstanding  on  the  Debentures  at  any  applicable  time.  For  clarification
purposes,  this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser,  and is intended for
the  Company  to treat  the  Purchasers  as a class  and shall not in any way be
construed as the  Purchasers,  if more than one, acting in concert or as a group
with respect to the purchase or disposition of the Debentures or otherwise.

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 Fees and Expenses. Except as expressly set forth in the Transaction
Documents  to the  contrary,  each party shall pay the fees and  expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party  incident  to the  negotiation,  preparation,  execution,
delivery and performance of this  Agreement.  The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Debentures.

         5.2 Entire  Agreement.  The  Transaction  Documents,  together with the
exhibits and schedules thereto,  contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

         5.3 Notices.  Any and all notices or other communications or deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
set forth on the signature  pages  attached  hereto prior to 5:30 p.m. (New York
City  time)  on a  Trading  Day,  (b) the next  Trading  Day  after  the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day,  (c) the 2nd Trading  Day  following  the date of mailing,  if sent by U.S.
nationally  recognized  overnight courier service, or (d) upon actual receipt by
the party to whom such  notice is  required  to be given.  The  address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

         5.4 Amendments;  Waivers.  No provision of this Agreement may be waived
or amended except in a written  instrument  signed, in the case of an amendment,
by the  Company and the  holders of at least 50% of the  outstanding  and unpaid
principal amount owing under all Debentures then  outstanding;  provided that no
provision of Section 2.4 may be amended without the consent of Lacuna. No waiver
of any default with respect to any  provision,  condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any  subsequent  default  or a  waiver  of any  other  provision,  condition  or
requirement  hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

-19-
<PAGE>

         5.5  Headings.  The headings  herein are for  convenience  only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent,  and no
rules of strict construction will be applied against any party.

         5.6  Successors and Assigns.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their successors and permitted  assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written  consent of each  Purchaser.  Any Purchaser may assign
any or all of its  rights  under  this  Agreement  to any  Person  to whom  such
Purchaser  assigns or transfers any Debentures,  provided such transferee agrees
in  writing to be bound,  with  respect to the  transferred  Debentures,  by the
provisions hereof that apply to the "Purchasers".

         5.7 No  Third-Party  Beneficiaries.  This Agreement is intended for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.

         5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance  with the internal laws of the State of
Delaware , without  regard to the  principles of conflicts of law thereof.  Each
party  agrees  that  all  legal  proceedings   concerning  the  interpretations,
enforcement and defense of the  transactions  contemplated by this Agreement and
any other Transaction  Documents  (whether brought against a party hereto or its
respective affiliates,  directors, officers, shareholders,  employees or agents)
shall be commenced  exclusively in the courts of the State of California located
in Santa Clara  County and the United  States  District  Court for the  Northern
District of California.  Each party hereby irrevocably  submits to the exclusive
jurisdiction  of the courts of the State of  California  located in Santa  Clara
County  and the  United  States  District  Court for the  Northern  District  of
California  for the  adjudication  of any  dispute  hereunder  or in  connection
herewith  or with  any  transaction  contemplated  hereby  or  discussed  herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby  irrevocably  waives, and agrees not to assert in any suit, action or
proceeding,  any claim that it is not personally  subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and  consents  to process  being  served in any such suit,  action or
proceeding  by  mailing a copy  thereof  via  registered  or  certified  mail or
overnight  delivery  (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient  service of process and notice  thereof.  Nothing
contained  herein shall be deemed to limit in any way any right to serve process
in any manner  permitted by law. The parties  hereby waive all rights to a trial
by jury.  If either party shall  commence an action or proceeding to enforce any
provisions  of the  Transaction  Documents,  then the  prevailing  party in such
action or proceeding  shall be reimbursed by the other party for its  attorneys'
fees and other costs and expenses incurred with the  investigation,  preparation
and prosecution of such action or proceeding.

-20-
<PAGE>

         5.9 Survival. The representations and warranties contained herein shall
survive  the  Closing  and  the  delivery,  exercise  and/or  conversion  of the
Debentures, as applicable for the applicable statue of limitations.

         5.10  Execution.  This  Agreement  may  be  executed  in  two  or  more
counterparts,  all of which when taken  together shall be considered one and the
same agreement and shall become effective when  counterparts have been signed by
each party and  delivered  to the other  party,  it being  understood  that both
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed)  with the same force and effect as if such  facsimile  signature  page
were an original thereof.

         5.11  Severability.  If any  provision of this  Agreement is held to be
invalid or unenforceable in any respect,  the validity and enforceability of the
remaining  terms  and  provisions  of  this  Agreement  shall  not in any way be
affected or impaired  thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor,  and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

         5.12  Replacement  of  Debentures.  If any  certificate  or  instrument
evidencing any Debentures is mutilated,  lost, stolen or destroyed,  the Company
shall  issue or cause to be issued in  exchange  and  substitution  for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument,  but only upon receipt of evidence reasonably satisfactory to the
Company  of such  loss,  theft  or  destruction  and  customary  and  reasonable
indemnity,  if requested.  The  applicants  for a new  certificate or instrument
under  such  circumstances  shall  also  pay any  reasonable  third-party  costs
associated with the issuance of such replacement Debentures.

         5.13  Remedies.  In addition to being  entitled to exercise  all rights
provided herein or granted by law,  including  recovery of damages,  each of the
Purchasers  and the Company will be entitled to specific  performance  under the
Transaction  Documents.  The  parties  agree that  monetary  damages  may not be
adequate  compensation  for  any  loss  incurred  by  reason  of any  breach  of
obligations  described in the  foregoing  sentence and hereby agrees to waive in
any action for specific  performance  of any such  obligation the defense that a
remedy at law would be adequate.

         5.14 Payment Set Aside.  To the extent that the Company makes a payment
or  payments to  Purchaser  pursuant to any  Transaction  Document or  Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such  enforcement  or exercise or any part thereof are  subsequently
invalidated,  declared to be fraudulent or  preferential,  set aside,  recovered
from, disgorged by or are required to be refunded,  repaid or otherwise restored
to the  Company,  a  trustee,  receiver  or  any  other  person  under  any  law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable  cause of action),  then to the extent of any such  restoration
the  obligation  or part thereof  originally  intended to be satisfied  shall be
revived and  continued  in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

-21-
<PAGE>

         5.15 Usury.  To the extent it may  lawfully  do so, the Company  hereby
agrees not to insist upon or plead or in any manner  whatsoever  claim, and will
resist any and all efforts to be compelled to take the benefit or advantage  of,
usury  laws  wherever  enacted,  now or at  any  time  hereafter  in  force,  in
connection  with any  claim,  action or  proceeding  that may be  brought by any
Purchaser  in  order to  enforce  any  right or  remedy  under  any  Transaction
Document.  Notwithstanding  any  provision  to  the  contrary  contained  in any
Transaction  Document,  it is  expressly  agreed  and  provided  that the  total
liability of the Company  under the  Transaction  Documents  for payments in the
nature of interest  shall not exceed the maximum  lawful rate  authorized  under
applicable law (the "Maximum Rate"), and, without limiting the foregoing,  in no
event  shall any rate of  interest or default  interest,  or both of them,  when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed  that  if the  maximum  contract  rate  of  interest  allowed  by law and
applicable to the Transaction  Documents is increased or decreased by statute or
any official  governmental action subsequent to the date hereof, the new maximum
contract rate of interest  allowed by law will be the Maximum Rate applicable to
the  Transaction  Documents  from  the  effective  date  forward,   unless  such
application  is  precluded  by  applicable  law.  If  under  any   circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to Indebtedness  evidenced by the Transaction  Documents,
such excess shall be applied by such Purchaser to the unpaid  principal  balance
of any such  Indebtedness or be refunded to the Company,  the manner of handling
such excess to be at such Purchaser's election.

         5.16  Independent  Nature of Purchasers'  Obligations  and Rights.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the  obligations  of any other  Purchaser,  if any,  and no Purchaser
shall be  responsible in any way for the  performance of the  obligations of any
other Purchaser under any Transaction  Document.  Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall  be  deemed  to  constitute  the  Purchasers,  if  more  than  one,  as  a
partnership,  an  association,  a joint venture or any other kind of entity,  or
create a presumption  that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights,  including without  limitation the rights arising out of
this Agreement or out of the other  Transaction  Documents,  and it shall not be
necessary  for any other  Purchaser to be joined as an  additional  party in any
proceeding for such purpose.

         5.17 Liquidated Damages.  The Company's  obligations to pay any partial
liquidated  damages or other amounts owing under the Transaction  Documents is a
continuing  obligation of the Company and shall not  terminate  until all unpaid
partial liquidated damages and other amounts have been paid  notwithstanding the
fact that the instrument or security  pursuant to which such partial  liquidated
damages or other amounts are due and payable shall have been canceled.

-22-
<PAGE>

         5.18  Construction.  The parties  agree that each of them and/or  their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, 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 the Transaction Documents or any amendments hereto.

                            (Signature Pages Follow)

-23-
<PAGE>

IN WITNESS  WHEREOF,  the parties  hereto have  caused this  Debenture  Purchase
Agreement to be duly executed by their respective  authorized  signatories as of
the date first indicated above.

INTRAOP MEDICAL CORPORATION

By: /s/ Howard Solovei                                    Address for Notice:
    ------------------                                    -------------------
    Name: Howard Solovei                                  570 Del Rey Avenue
    Title:   Chief Financial Officer                      Sunnyvale CA 94085

With a copy to (which shall not constitute notice):

PURCHASERS:

E.U. Capital Venture, Inc.                                Address for Notice:
                                                          --------------------
                                                          15720 Simoni Drive
                                                          San Jose CA 95127

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

Encyclopedia Equipment LLC                                Address for Notice:
                                                          -------------------
                                                          131 Rivoli Street
                                                          San Francisco CA 94117
By: /s/ Oliver Janssen
    ------------------
Name: Oliver Janssen
Title:  Member

Lacuna Venture Fund LLLP                                  Address for Notice:
                                                          -------------------
                                                          Lacuna Gap Capital
                                                          1100 Spruce Street
By: /s/ Wink Jones                                        Suite 102
    --------------                                        Boulder CO 80302
Name:   Wink Jones
Title:  Partner

-24-Exhibit 10.49
                               SECURITY AGREEMENT

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

                              W I T N E S S E T H:

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

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

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

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

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

<PAGE>

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

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

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

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

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

                           (v) All commercial tort claims;

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

                           (vii) All investment property;

                           (viii) All supporting obligations;

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

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

<PAGE>

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

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

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

                  (a)  The  Company  has  the  requisite   corporate  power  and
         authority to enter into this  Agreement  and otherwise to carry out its
         obligations hereunder.  The execution,  delivery and performance by the
         Company of this  Agreement  and the filings  contemplated  therein have
         been duly authorized by all necessary action on the part of the Company
         and no further  action is required by the Company.  This  Agreement has
         been duly  executed by the  Company.  This  Agreement  constitutes  the
         legal, valid and binding obligation of the Company, enforceable against
         the Company in accordance with its terms except as such  enforceability
         may be limited by applicable bankruptcy, insolvency, reorganization and
         similar laws of general application relating to or affecting the rights
         and remedies of creditors and by general principles of equity.

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

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

<PAGE>

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

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

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

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

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

         7. Duty To Hold In Trust.

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

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

<PAGE>

         8. Rights and Remedies Upon Default.

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

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

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

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

<PAGE>

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

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

<PAGE>

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

         15. Power of Attorney; Further Assurances.

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

<PAGE>

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

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

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

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

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

<PAGE>

         19. Miscellaneous.

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

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

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

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

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

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

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

<PAGE>

                  (h)  All  questions  concerning  the  construction,  validity,
         enforcement and  interpretation  of this Agreement shall be governed by
         and construed and enforced in accordance  with the internal laws of the
         State of Delaware, without regard to the principles of conflicts of law
         thereof.  The  Company  agrees  that  all  proceedings  concerning  the
         interpretations,   enforcement   and   defense   of  the   transactions
         contemplated  by this  Agreement and the  Debentures  (whether  brought
         against  a  party  hereto  or  its  respective  affiliates,  directors,
         officers,  shareholders,  partners, members, employees or agents) shall
         be  commenced  exclusively  in the  courts of the  State of  California
         located in Santa Clara County and the United States  District Court for
         the Northern  District of California.  The Company  hereby  irrevocably
         submits  to the  exclusive  jurisdiction  of the courts of the State of
         California located in Santa Clara County and the United States District
         Court for the Northern  District of California for the  adjudication of
         any dispute hereunder or in connection herewith or with any transaction
         contemplated hereby or discussed herein, and hereby irrevocably waives,
         and  agrees not to assert in any  proceeding,  any claim that it is not
         personally  subject to the  jurisdiction  of any such court,  that such
         proceeding  is improper.  Each party hereto hereby  irrevocably  waives
         personal service of process and consents to process being served in any
         such  proceeding by mailing a copy thereof via  registered or certified
         mail or overnight delivery (with evidence of delivery) to such party at
         the address in effect for notices to it under this Agreement and agrees
         that such  service  shall  constitute  good and  sufficient  service of
         process and notice thereof. Nothing contained herein shall be deemed to
         limit in any way any right to serve process in any manner  permitted by
         law. Each party hereto hereby irrevocably waives, to the fullest extent
         permitted by applicable  law, any and all right to trial by jury in any
         legal  proceeding  arising out of or relating to this  Agreement or the
         transactions  contemplated  hereby.  If  any  party  shall  commence  a
         proceeding  to  enforce  any  provisions  of this  Agreement,  then the
         prevailing  party in such  proceeding  shall be reimbursed by the other
         party for its reasonable  attorney's  fees and other costs and expenses
         incurred with the  investigation,  preparation  and prosecution of such
         proceeding.

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

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

<PAGE>

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

                            [SIGNATURE PAGES FOLLOW]

<PAGE>

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

                                          INTRAOP MEDICAL CORPORATION

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

                                          HOLDERS:

                                          E.U. Capital Venture, Inc.

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

                                          Encyclopedia Equipment LLC

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

                                          Lacuna Venture Fund LLLP

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

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