
                                                                    Exhibit 99.4

                               SECURITY AGREEMENT

      THIS  SECURITY  AGREEMENT  (the  "Agreement"),  is  entered  into and made
effective  as of March  23,  2005,  by and  between  EARTHSHELL  CORPORATION,  a
Delaware  corporation  located at 3916 State Street,  Number 110, Santa Barbara,
California 93105 (the "Company"), and CORNELL CAPITAL PARTNERS, LP (the "Secured
Party").

      WHEREAS,  the Company shall issue to the Secured Party, secured promissory
notes in the principal amount of Two Million Five Hundred Thousand  ($2,500,000)
(collectively,  the  "Note") of which One Million  One  Hundred  Fifty  Thousand
Dollars ($1,150,000) shall be funded within three (3) business day following the
date hereof (the "First  Closing") and One Million Three Hundred Fifty  Thousand
Dollars ($1,350,000) shall be funded two (2) business days prior to the date the
registration statement (the "Registration  Statement") is filed, pursuant to the
Registration  Rights  Agreement  dated the date hereof,  with the United  States
Securities  and  Exchange   Commission   (the  "SEC")  (the  "Second   Closing")
(individually  referred  to as a  "Closing"  collectively  referred  to  as  the
"Closings"); and

      WHEREAS,  to induce the Secured Party to enter into the Note,  the Company
hereby  grants to the  Secured  Party a security  interest in and to the pledged
property   identified  on  Exhibit  A  hereto  until  the  satisfaction  of  the
Obligations, as defined herein below.

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

                                   ARTICLE 1.

                         DEFINITIONS AND INTERPRETATIONS

      Section 1.1. Recitals.

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

      Section 1.2. Interpretations.

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

      Section 1.3. Obligations Secured.

      The obligations  secured hereby are any and all obligations of the Company
now  existing or  hereinafter  incurred to the Secured  Party,  whether  oral or
written  and whether  arising  before,  on or after the date  hereof  including,
without limitation,  those obligations of the Company to the Secured Party under
this Agreement,  the Note, the Pledge and Escrow Agreement of even date herewith
by and among the Company, Benton Wilcoxon, the Secured Party and David Gonzalez,
Esq. (the "Pledge  Agreement"),  and any other amounts now or hereafter  owed to
the Secured  Party by the Company  thereunder  or hereunder  (collectively,  the
"Obligations").   This  Agreement,   the  Note  and  the  Pledge  Agreement  are
collectively referred to herein as the "Transaction Documents".

<PAGE>

      Section 1.4. Closing Dates.

      The First Closing of the purchase and sale of the Note shall take place at
10:00 a.m.  Eastern  Standard Time on the third (3rd) business day following the
date hereof,  subject to  notification  of satisfaction of the conditions to the
First Closing set forth herein and in Sections 8 and 9 below (or such later date
as is  mutually  agreed to by the  Company  and the  Secured  Party) (the "First
Closing  Date"),  and the Second  Closing of the  purchase  and sale of the Note
shall  take  place  at  10:00  a.m.  Eastern  Standard  Time on the date two (2)
business  days prior to the date the  Registration  Statement  is filed with the
SEC,  subject to  notification  of  satisfaction of the conditions to the Second
Closing set forth herein and in Sections 8 and 9 below (or such later date as is
mutually  agreed to by the Company and the Secured  Party) (the "Second  Closing
Date") (collectively referred to a the "Closing Dates"). The Closing shall occur
on the respective Closing Dates at the offices of Yorkville Advisors,  LLC, 3700
Hudson Street, Suite 3700, Jersey City, New Jersey 07302 (or such other place as
is mutually agreed to by the Company and the Secured Party).

                                   ARTICLE 2.

                 PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
                      AND TERMINATION OF SECURITY INTEREST

      Section 2.1. Pledged Property.

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

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

      Section 2.2. Rights; Interests; Etc.

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

<PAGE>

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

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

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

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

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

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

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

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

                  (ii)  any  misrepresentation,   breach  of  warranty,  breach,
nonfulfillment,  event of default or default, whether in whole or in part, shall
occur  in the  due  observance  or  performance  of any  agreement,  obligation,
representation,  warranty or any covenant,  term or provision to be performed by
the Company under this  Agreement or any other  Transaction  Document;  provided
that the Secured  Party  shall have  provided  the Company  with (10) days prior
written notice of such default (which notice may be satisfied by the delivery of
written notice pursuant to any Transaction Document);

                  (iii) the Company shall: (1) make a general assignment for the
benefit  of its  creditors;  (2) apply for or consent  to the  appointment  of a
receiver,  trustee,  assignee,  custodian,  sequestrator,  liquidator or similar
official  for  itself  or any of its  assets  and  properties;

<PAGE>

(3)  commence a voluntary  case for relief as a debtor  under the United  States
Bankruptcy Code; (4) file with or otherwise submit to any governmental authority
any petition,  answer or other  document  seeking:  (A)  reorganization,  (B) an
arrangement  with  creditors or (C) to take  advantage  of any other  present or
future  applicable  law  respecting  bankruptcy,   reorganization,   insolvency,
readjustment of debts, relief of debtors,  dissolution or liquidation;  (5) file
or otherwise submit any answer or other document admitting or failing to contest
the  material  allegations  of a petition or other  document  filed or otherwise
submitted  against it in any proceeding under any such applicable law, or (6) be
adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or

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


                                   ARTICLE 3.

                          ATTORNEY-IN-FACT; PERFORMANCE

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

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

      Section 3.2. Secured Party May Perform.

      If the Company fails to perform any agreement  contained  herein after any
applicable cure periods,  the Secured Party, at its option,  may itself perform,
or cause  performance of, such agreement,  and the expenses of the Secured Party
incurred in connection  therewith shall be included in the  Obligations  secured
hereby and payable by the Company under Section 10.3.

<PAGE>

                                   ARTICLE 4.

                         REPRESENTATIONS AND WARRANTIES

      The Company  represents and warrants to the Secured Party that,  except as
set forth in the SEC  Documents  (as  defined in  Section  4.5),  the  following
representations and warranties are true and correct as of the date hereof.

      Section 4.1. Organization and Qualification

      The Company and its  subsidiaries  are  corporations  duly  organized  and
validly  existing in good standing under the laws of the  jurisdiction  in which
they are  incorporated,  and have the  requisite  corporate  power to own  their
properties  and to carry on their business as now being  conducted.  Each of the
Company and its  subsidiaries  is duly qualified as a foreign  corporation to do
business and is in good  standing in every  jurisdiction  in which the nature of
the business conducted by it makes such qualification  necessary,  except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries taken as a whole.

      Section 4.2. Authorization, Enforcement, Compliance with Other Instruments

      The Company has the requisite  corporate power and authority to enter into
and perform the Transaction  Documents and any related  agreements in accordance
with the terms  hereof and  thereof,  (ii) the  execution  and  delivery  of the
Transaction  Documents  by  the  Company  and  the  consummation  by it  of  the
transactions contemplated hereby and thereby, including, without limitation, the
issuance  of the Note  have  been  duly  authorized  by the  Company's  Board of
Directors and no further  consent or  authorization  is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company,  (iv) the Transaction Documents
constitute the valid and binding  obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general  principles of equity or applicable  bankruptcy,  insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally,  the  enforcement of creditors'  rights and remedies.  The
authorized  officer of the Company executing the Transaction  Documents knows of
no reason why the Company  cannot  perform the Company's  obligations  under the
Transaction Documents.

      Section 4.3. Capitalization.

      The authorized  capital stock of the Company consists of 40,000,000 shares
of common stock,  par value $0.01 per share (the "Common  Stock") and 10,000,000
shares of Preferred  Stock.  As of the date hereof,  the Company has  18,234,615
shares of Common Stock issued and outstanding.  All of such  outstanding  shares
have  been  validly  issued  and are  fully  paid and  nonassessable.  Except as
disclosed  in the SEC  Documents,  no  shares of Common  Stock  are  subject  to
preemptive  rights or any  other  similar  rights  or any liens or  encumbrances
suffered or permitted by the Company.  Except as disclosed in the SEC Documents,
as of the  date  of  this  Agreement,  (i)  there  are no  outstanding  options,
warrants,  scrip,  rights to subscribe to, calls or commitments of any character
whatsoever  relating to, or securities or rights convertible into, any shares of
capital  stock  of  the  Company  or  any of  its  subsidiaries,  or  contracts,
commitments,  understandings  or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional  shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company  or  any  of its  subsidiaries,

<PAGE>

(ii) there are no outstanding  debt securities and (iii) there are no agreements
or arrangements  under which the Company or any of its subsidiaries is obligated
to register the sale of any of their securities under the Securities Act (except
pursuant  to the  Registration  Rights  Agreement  between  the  Company and the
Secured  Party  dated  the  date  hereof)  and  (iv)  there  are no  outstanding
registration  statements and there are no outstanding  comment  letters from the
SEC or any other  regulatory  agency.  There are no  securities  or  instruments
containing  anti-dilution  or similar  provisions  that will be triggered by the
issuance of the Note as described in this  Agreement.  The Company has furnished
to the Secured  Party true and correct  copies of the Company's  Certificate  of
Incorporation,  as amended and as in effect on the date hereof (the "Certificate
of  Incorporation"),  and the Company's By-laws, as in effect on the date hereof
(the "By-laws"), and the terms of all securities convertible into or exercisable
for  Common  Stock and the  material  rights of the  holders  thereof in respect
thereto other than stock options issued to employees and consultants.

      Section 4.4. No Conflicts

      Except as  disclosed in the SEC  Documents,  the  execution,  delivery and
performance of the Transaction  Documents by the Company and the consummation by
the  Company of the  transactions  contemplated  hereby will not (i) result in a
violation of the Certificate of  Incorporation,  any certificate of designations
of any  outstanding  series of preferred  stock of the Company or the By-laws or
(ii)  conflict  with or  constitute  a default (or an event which 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  of,  any
agreement,  indenture  or  instrument  to  which  the  Company  or  any  of  its
subsidiaries is a party, or result in a violation of any law, rule,  regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations  and the  rules  and  regulations  of The  National  Association  of
Securities  Dealers  Inc.'s  OTC  Bulletin  Board on which the  Common  Stock is
quoted)  applicable  to the Company or any of its  subsidiaries  or by which any
property  or  asset  of the  Company  or any of its  subsidiaries  is  bound  or
affected. Except as disclosed in the SEC Documents,  neither the Company nor its
subsidiaries  is in violation of any term of or in default under its Certificate
of  Incorporation  or  By-laws  or  their  organizational  charter  or  by-laws,
respectively,  or any  material  contract,  agreement,  mortgage,  indebtedness,
indenture,  instrument,  judgment,  decree  or  order  or any  statute,  rule or
regulation  applicable to the Company or its  subsidiaries.  The business of the
Company and its subsidiaries is not being conducted,  and shall not be conducted
in violation of any law,  ordinance,  or regulation of any  governmental  entity
which  would  have  a  material  adverse  effect  on  the  Company.   Except  as
specifically contemplated by this Agreement and as required under the Securities
Act and any  applicable  state  securities  laws, the Company is not required to
obtain  any  consent,   authorization  or  order  of,  or  make  any  filing  or
registration with, any court or governmental  agency in order for it to execute,
deliver  or  perform  any of its  obligations  under  or  contemplated  by  this
Agreement in accordance with the terms hereof or thereof. Except as disclosed in
the  SEC  Documents,   all  consents,   authorizations,   orders,   filings  and
registrations  which the Company is required to obtain pursuant to the preceding
sentence  have been  obtained or effected  on or prior to the date  hereof.  The
Company and its  subsidiaries  are unaware of any facts or  circumstance,  which
might give rise to any of the foregoing.

<PAGE>

      Section 4.5. SEC Documents: Financial Statements

      Since  January 1, 2003,  the  Company  has filed all  reports,  schedules,
forms,  statements and other  documents  required to be filed by it with the SEC
under of the Securities  Exchange Act of 1934, as amended (the  "Exchange  Act")
(all of the  foregoing  filed prior to the date hereof or amended after the date
hereof and all exhibits included therein and financial  statements and schedules
thereto and  documents  incorporated  by reference  therein,  being  hereinafter
referred to as the "SEC  Documents").  The Company has  delivered to the Secured
Party or its  representatives,  or made  available  through the SEC's website at
http://www.sec.gov.,  true and complete copies of the SEC Documents. As of their
respective  dates, the financial  statements of the Company disclosed in the SEC
Documents  (the  "Financial  Statements")  complied  as to form in all  material
respects with  applicable  accounting  requirements  and the published rules and
regulations of the SEC with respect thereto. Such Financial Statements have been
prepared  in  accordance   with  generally   accepted   accounting   principles,
consistently  applied,  during  the  periods  involved  (except  (i)  as  may be
otherwise  indicated in such Financial  Statements or the notes thereto, or (ii)
in the case of  unaudited  interim  statements,  to the extent  they may exclude
footnotes or may be condensed or summary  statements) and, fairly present in all
material respects the financial  position of the Company as of the dates thereof
and the  results of its  operations  and cash flows for the  periods  then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments).  No other  information  provided by or on behalf of the Company to
the Secured Party which is not included in the SEC Documents, including, without
limitation,  information  referred  to in this  Agreement,  contains  any untrue
statement of a material  fact or omits to state any material  fact  necessary in
order to make the statements  therein,  in the light of the circumstances  under
which they were made, not misleading.

      Section 4.6. 10(b)-5.

      The SEC Documents do not include any untrue  statements of material  fact,
nor do they omit to state  any  material  fact  required  to be  stated  therein
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading.

      Section 4.7. Absence of Litigation

      Except  as  disclosed  in the SEC  Documents,  there is no  action,  suit,
proceeding,  inquiry  or  investigation  before or by any court,  public  board,
government  agency,  self-regulatory  organization  or body  pending  against or
affecting the Company,  the Common Stock or any of the  Company's  subsidiaries,
wherein an  unfavorable  decision,  ruling or finding  would (i) have a material
adverse effect on the transactions contemplated hereby (ii) adversely affect the
validity or  enforceability  of, or the  authority  or ability of the Company to
perform  its  obligations   under,  this  Agreement  or  any  of  the  documents
contemplated  herein,  or  (iii)  except  as  expressly  disclosed  in  the  SEC
Documents,  have  a  material  adverse  effect  on  the  business,   operations,
properties,  financial condition or results of operations of the Company and its
subsidiaries taken as a whole.

<PAGE>

      Section 4.8.  Acknowledgment  Regarding Secured Party's  Acceptance of the
                      Note

      The  Company  acknowledges  and agrees  that the  Secured  Party is acting
solely in the capacity of an arm's length lender with respect to this  Agreement
and the transactions  contemplated hereby. The Company further acknowledges that
the  Secured  Party is not 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 the Secured  Party or
any of their  respective  representatives  or  agents  in  connection  with this
Agreement and the transactions  contemplated hereby is merely incidental to such
Secured Party's  acceptance of the Note. The Company  further  represents to the
Secured Party that the Company's  decision to enter into this Agreement has been
based   solely  on  an   independent   evaluation   by  the   Company   and  its
representatives.

      Section 4.9. Intellectual Property Rights

      The  Company  and its  subsidiaries  own or  possess  adequate  rights  or
licenses  to use all  trademarks,  trade  names,  service  marks,  service  mark
registrations,  service names, patents, patent rights,  copyrights,  inventions,
licenses,  approvals,  governmental  authorizations,  trade  secrets  and rights
necessary to conduct their respective  businesses as now conducted.  The Company
and its  subsidiaries  do not  have any  knowledge  of any  infringement  by the
Company or its  subsidiaries of trademark,  trade name rights,  patents,  patent
rights, copyrights,  inventions, licenses, service names, service marks, service
mark registrations,  trade secret or other similar rights of others, and, to the
knowledge of the Company there is no claim,  action or proceeding  being made or
brought against, or to the Company's  knowledge,  being threatened against,  the
Company or its subsidiaries  regarding  trademark,  trade name, patents,  patent
rights,  invention,  copyright,  license,  service names, service marks, service
mark registrations,  trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances  which might give rise to
any of the foregoing.

      Section 4.10. Environmental Laws

      The Company and its  subsidiaries  are (i) in compliance  with any and all
applicable foreign,  federal,  state and local laws and regulations  relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes,  pollutants or contaminants  ("Environmental  Laws"), (ii)
have received all permits,  licenses or other  approvals  required of them under
applicable  Environmental Laws to conduct their respective  businesses and (iii)
are in compliance  with all terms and conditions of any such permit,  license or
approval.

      Section 4.11. Title.

      Any real property and  facilities  held under lease by the Company and its
subsidiaries  are held by them under valid,  subsisting and  enforceable  leases
with such  exceptions as are not material and do not interfere with the use made
and proposed to be made of such  property  and  buildings by the Company and its
subsidiaries.

<PAGE>

      Section 4.12. Insurance.

      The  Company  and each of its  subsidiaries  are  insured by  insurers  of
recognized  financial  responsibility  against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its  subsidiaries  are engaged.  Neither the
Company nor any such  subsidiary has been refused any insurance  coverage sought
or applied for and neither the Company nor any such 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 at a cost that would not materially
and adversely  affect the  condition,  financial or otherwise,  or the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.

      Section 4.13. Regulatory Permits

      The  Company  and its  subsidiaries  possess  all  material  certificates,
authorizations and permits issued by the appropriate  federal,  state or foreign
regulatory  authorities  necessary to conduct their respective  businesses,  and
neither  the  Company  nor any  such  subsidiary  has  received  any  notice  of
proceedings  relating to the revocation or modification of any such certificate,
authorization or permit.

      Section 4.14. Internal Accounting Controls

      The  Company  and each of its  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  generally  accepted
accounting  principles  and to  maintain  asset  accountability,  and  (iii) the
recorded  amounts for assets is compared with the existing  assets at reasonable
intervals and appropriate action is taken with respect to any differences.

      Section 4.15. No Material Adverse Breaches, etc

      Except as set forth in the SEC  Documents,  neither the Company nor any of
its   subsidiaries  is  subject  to  any  charter,   corporate  or  other  legal
restriction,  or any judgment,  decree,  order,  rule or regulation which in the
judgment of the  Company's  officers  has or is expected in the future to have a
material  adverse  effect on the  business,  properties,  operations,  financial
condition,   results  of   operations   or  prospects  of  the  Company  or  its
subsidiaries.  Except as set forth in the SEC Documents, neither the Company nor
any of its  subsidiaries is in breach of any contract or agreement which breach,
in the judgment of the Company's officers, has or is expected to have a material
adverse effect on the business,  properties,  operations,  financial  condition,
results of operations or prospects of the Company or its subsidiaries.

      Section 4.16. Tax Status

      Except  as set forth in the SEC  Documents,  the  Company  and each of its
subsidiaries  has made and filed all federal and state  income and all other tax
returns,  reports and  declarations  required by any jurisdiction to which it is
subject  and  (unless  and only to the extent  that the  Company and each of its
subsidiaries has set aside on its books provisions  reasonably  adequate for the
payment  of all  unpaid  and  unreported  taxes)  has paid all  taxes  and other
governmental  assessments  and charges  that are  material  in amount,  shown or
determined to be due on such  returns,  reports and  declarations,  except those
being  contested  in good  faith  and  has  set  aside  on its  books  provision
reasonably  adequate for the payment of all taxes for periods  subsequent to the
periods  to which such  returns,  reports or  declarations  apply.  There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction,  and the officers of the Company know of no basis for any such
claim.

<PAGE>

      Section 4.17. Certain Transactions

      Except as set forth in the SEC  Documents,  and  except  for arm's  length
transactions pursuant to which the Company makes payments in the ordinary course
of business  upon terms no less  favorable  than the Company  could  obtain from
third  parties and other than the grant of stock  options  disclosed  in the SEC
Documents,  none of the  officers,  directors,  or  employees  of the Company is
presently a party to any  transaction  with the Company (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 corporation, partnership, trust or other entity in which any
officer,  director,  or any such  employee has a  substantial  interest or is an
officer, director, trustee or partner.

      Section 4.18. Ownership of Pledged Property.

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

      Section 4.19. Employee Relations

      Neither the Company nor any of its  subsidiaries  is involved in any labor
dispute nor, to the knowledge of the Company or any of its subsidiaries,  is any
such dispute threatened. None of the Company's or its subsidiaries' employees is
a member of a union and the  Company  and its  subsidiaries  believe  that their
relations with their employees are good.


                                   ARTICLE 5.

                                DEFAULT; REMEDIES

      Section 5.1. Default and Remedies.

            (a) If an Event of Default  described in Section  2.2(c)(i) and (ii)
occurs,  then in each such case the Secured Party may declare the Obligations to
be due and payable immediately,  by a notice in writing to the Company, and upon
any such declaration,  the Obligations shall become  immediately due and payable
and the Secured  Party can  immediately  exercise any of its rights and remedies
pursuant to the  Transaction  Documents or under any applicable law.

<PAGE>

If an Event of Default  described in Sections  2.2(c)(iii) or (iv) occurs and is
continuing  for the  period  set  forth  therein,  then  the  Obligations  shall
automatically  become  immediately due and payable without  declaration or other
act on the part of the  Secured  Party and the  Secured  Party  can  immediately
exercise any of its rights and remedies  pursuant to the  Transaction  Documents
and under any applicable law.

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

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

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

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

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

                  (i) to the payment of all  amounts  due the Secured  Party for
the expenses reimbursable to it hereunder or owed to it pursuant to Section 10.3
hereof;

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

                  (iii) the balance, if any, to the Company.

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

<PAGE>

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

                  (ii)  The  Company  agrees  that it shall  be  liable  for any
reasonable fees,  expenses and costs incurred by the Secured Party in connection
with  enforcement,  collection and  preservation of the  Transaction  Documents,
including,  without  limitation,  reasonable  legal fees and expenses,  and such
amounts shall be deemed  included as  Obligations  secured hereby and payable as
set forth in Section 10.3 hereof.

      Section 5.3. Proofs of Claim.

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

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

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

      Section 5.4. Duties Regarding Pledged Property.

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

<PAGE>

                                   ARTICLE 6.

                              AFFIRMATIVE COVENANTS

      The Company  covenants and agrees that, from the date hereof and until the
Obligations  have been fully paid and satisfied,  unless the Secured Party shall
consent otherwise in writing (as provided in Section 10.4 hereof):

      Section 6.1. Existence, Properties, Etc.

            (a) The  Company  shall  do,  or cause to be done,  all  things,  or
proceed with due  diligence  with any actions or courses of action,  that may be
reasonably necessary (i) to maintain Company's due organization, valid existence
and good  standing  under  the laws of its state of  incorporation,  and (ii) to
preserve  and keep in full  force and effect all  qualifications,  licenses  and
registrations in those  jurisdictions in which the failure to do so could have a
Material Adverse Effect (as defined below).

            (b) The Company shall not do, or cause to be done, any act impairing
the  Company's  corporate  power or  authority  (i) to  carry  on the  Company's
business as now conducted,  and (ii) to execute or deliver this Agreement or any
other document delivered in connection herewith,  including, without limitation,
any UCC-1 Financing  Statements  required by the Secured Party to which it is or
will be a party, or perform any of its obligations hereunder or thereunder.

            (c) For  purpose  of this  Agreement,  the  term  "Material  Adverse
Effect"  shall mean any material  and adverse  affect as  determined  by Secured
Party in its sole discretion, whether individually or in the aggregate, upon (a)
the Company's assets, business,  operations,  properties or condition, financial
or otherwise;  (b) the Company's  ability to make payment as and when due of all
or any part of the Obligations; or (c) the Pledged Property.

      Section 6.2. Financial Statements and Reports.

      Upon request by the Secured Party the Company shall furnish to the Secured
Party  financial  data that the Secured Party may reasonably  request,  within a
reasonable time after such request, including,  without limitation the following
financial data:

            (a) The balance  sheet of the Company as of the close of each fiscal
year,  the statement of earnings and retained  earnings of the Company as of the
close of such fiscal year,  and statement of cash flows for the Company for such
fiscal year,  all in reasonable  detail,  prepared in accordance  with generally
accepted  accounting  principles  consistently  applied,  certified by the chief
executive and chief financial  officers of the Company as being true and correct
and  accompanied  by a certificate  of the chief  executive and chief  financial
officers of the Company, stating that the Company has kept, observed,  performed
and fulfilled  each covenant,  term and condition of this Agreement  during such
fiscal  year  and  that no  Event  of  Default  hereunder  has  occurred  and is
continuing, or if an Event of Default has occurred and is continuing, specifying
the nature of same,  the period of  existence of same and the action the Company
proposes to take in connection therewith;

<PAGE>

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

            (c) Copies of all accountants'  reports and  accompanying  financial
reports  submitted to the Company by independent  accountants in connection with
each annual examination of the Company.

      Section 6.3. Accounts and Reports.

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

            (a)  as  soon  as   available,   a  copy  of  any  notice  or  other
communication  alleging any nonpayment or other material  breach or default,  or
any  foreclosure or other action  respecting any material  portion of its assets
and properties,  received  respecting any of the  indebtedness of the Company in
excess of $50,000 (other than the  Obligations),  or any demand or other request
for  payment  under any  guaranty,  assumption,  purchase  agreement  or similar
agreement or arrangement respecting the indebtedness or obligations of others in
excess of $50,000,  including  any received  from any person acting on behalf of
the Secured Party or beneficiary thereof; and

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

      Section 6.4. Maintenance of Books and Records; Inspection.

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

      Section 6.5. Maintenance and Insurance.

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


<PAGE>

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

      Section 6.6. Contracts and Other Collateral.

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

      Section 6.7. Defense of Collateral, Etc.

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

      Section 6.8. Payment of Debts, Taxes, Etc.

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

      Section 6.9. Taxes and Assessments; Tax Indemnity.

      The  Company  shall (a) file all tax  returns  and  appropriate  schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency,  (b) pay and  discharge  all taxes,  assessments  and  governmental
charges or levies imposed upon the Company,  upon its income and profits or upon
any  properties  belonging  to it, prior to the date on which  penalties  attach
thereto,  and (c) pay all taxes,  assessments and governmental charges or levies
that,  if  unpaid,  might  become a lien or charge  upon any of its  properties;
provided,  however,  that the  Company in good faith may  contest  any such tax,
assessment,  governmental  charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.

<PAGE>

      Section 6.10. Compliance with Law and Other Agreements.

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

      Section 6.11. Notice of Default.

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

      Section 6.12. Notice of Litigation.

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

      Section 6.13. Reporting Status

      Until the date on which the entire  outstanding  principal and interest of
the Note has been  satisfied,  the  Company  shall  file in a timely  manner all
reports  required to be filed with the SEC  pursuant to the Exchange Act and the
regulations  of the SEC  thereunder,  and the Company  shall not  terminate  its
status as an issuer  required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would otherwise permit such
termination.

      Section 6.14. Listings or Quotation

      The Company  shall  maintain  the listing or quotation of the Common Stock
upon  each  national  securities  exchange,  automated  quotation  system or The
National  Association  of Securities  Dealers Inc.'s  Over-The-Counter  Bulletin
Board  ("OTCBB") or other market,  if any, upon which shares of Common Stock are
then  listed or quoted  (subject to official  notice of  issuance).  The Company
shall maintain the Common Stock's authorization for quotation on the OTCBB.

      Section 6.15. Corporate Existence

      So long as any portion of the Note is  outstanding,  the Company shall not
directly or indirectly  consummate  any merger,  reorganization,  restructuring,
reverse  stock  split  consolidation,  sale of all or  substantially  all of the
Company's assets or any similar  transaction or related  transactions (each such
transaction,  an "Organizational  Change") unless,  prior to the consummation an
Organizational  Change,  the Company  obtains the written consent of the Secured
Party.

<PAGE>

In any such case,  the Company will make  appropriate  provision with respect to
such holders' rights and interests to insure that the provisions of this Section
6.15 will thereafter be applicable to the Note.

      Section 6.16. Transactions With Affiliates

      So long as any portion of the Note is outstanding,  the Company shall not,
and shall cause each of its  subsidiaries not to, enter into,  amend,  modify or
supplement,  or permit any subsidiary to enter into, amend, modify or supplement
any agreement,  transaction,  commitment,  or arrangement with any of its or any
subsidiary's officers,  directors,  person who were officers or directors at any
time during the previous two (2) years,  stockholders  who beneficially own five
percent (5%) or more of the Common Stock,  or Affiliates  (as defined  below) or
with  any  individual  related  by  blood,  marriage,  or  adoption  to any such
individual or with any entity in which any such entity or individual owns a five
percent (5%) or more beneficial  interest (each a "Related  Party"),  except for
(a) customary employment  arrangements and benefit programs on reasonable terms,
(b)  any  investment  in  an  Affiliate  of  the  Company,  (c)  any  agreement,
transaction, commitment, or arrangement on an arms-length basis on terms no less
favorable than terms which would have been  obtainable  from a person other than
such Related Party, (d) any agreement  transaction,  commitment,  or arrangement
which is approved by a majority of the  disinterested  directors of the Company,
for purposes  hereof,  any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested  director with respect to
any such agreement,  transaction,  commitment,  or arrangement.  "Affiliate" for
purposes hereof means,  with respect to any person or entity,  another person or
entity that, directly or indirectly,  (i) has a ten percent (10%) or more equity
interest  in that person or entity,  (ii) has ten  percent  (10%) or more common
ownership with that person or entity,  (iii) controls that person or entity,  or
(iv) shares common  control with that person or entity.  "Control" or "controls"
for  purposes  hereof  means that a person or entity  has the  power,  direct or
indirect, to conduct or govern the policies of another person or entity.

      Section 6.17. Restriction on Issuance of the Capital Stock

      So long as any portion of the Note is outstanding,  the Company shall not,
without the prior written consent of the Secured Party, (i) issue or sell shares
of Common Stock or Preferred Stock without  consideration or for a consideration
per share less than the Bid Price of the  Common  Stock  determined  immediately
prior to its issuance, (ii) issue any warrant, option, right, contract, call, or
other  security  instrument  granting the holder  thereof,  the right to acquire
Common Stock without  consideration or for a consideration less than such Common
Stock's Bid Price value  determined  immediately  prior to it's issuance,  (iii)
enter into any security  instrument  granting the holder a security  interest in
any and all assets of the Company,  or (iv) file any  registration  statement on
Form S-8.

<PAGE>

      Section 6.18. Escrow of Shares

      The Company and Benton Wilcoxon shall escrow with David Gonzalez, Esq., as
escrow  agent Two Million One  Hundred  Eleven  Thousand  Three  Hundred  Twelve
(2,111,312) shares of Common Stock (the "Composite  Pledged Shares"),  which may
be issued to the Secured Party pursuant to the terms of the Pledge Agreement.

      Section 6.19. Transfer Agent

      In the event that the  Company's  agency  relationship  with the  transfer
agent  is  terminated  for  any  reason  prior  to  the  full  repayment  of the
Obligations, the Company shall immediately appoint a new transfer agent.

      Section 6.20. Use of Proceeds

      The Company shall use the proceeds from the Note for general corporate and
working capital purposes.

      Section 6.21. Best Efforts.

      Each  party  shall  use its best  efforts  timely to  satisfy  each of the
conditions  to be  satisfied  by it as  provided  in  Sections  8 and 9 of  this
Agreement.

      Section 6.22. Fees and Expenses.

      Each of the Company and the Secured Party shall pay all costs and expenses
incurred  by such  party  in  connection  with the  negotiation,  investigation,
preparation,  execution and delivery of this Agreement and the Note. The Company
shall pay the Secured Party a commitment  fee of two and one half percent (2.5%)
of the principal amount of the Note. Such fees shall be non-refundable and shall
be credited against future Advances that may be requested by the Company.


                                   ARTICLE 7.

                               NEGATIVE COVENANTS

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

      Section 7.1. Liens and Encumbrances.

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

<PAGE>

      Section   7.2.   Certificate   of   Incorporation,    By-Laws,    Mergers,
                          Consolidations, Acquisitions and Sales.

      Without  the prior  express  written  consent of the  Secured  Party,  the
Company shall not: (a) Amend its Certificate of Incorporation or By-Laws; (b) be
a party to any merger,  consolidation  or corporate  reorganization,  unless the
Company is the  surviving  entity  (c)  purchase  or  otherwise  acquire  all or
substantially all of the assets or stock of, or any partnership or joint venture
interest in, any other person, firm or entity, (d) sell, transfer, convey, grant
a security interest in or lease all or any substantial part of its assets except
for  purchase  money  security  interest  up to  $50,000,  nor  (e)  create  any
subsidiaries nor convey any of its assets to any subsidiary.

      Section 7.3. Management, Ownership.

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

      Section 7.4. Dividends, Etc.

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

      Section 7.5. Guaranties; Loans.

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

      Section 7.6. Debt.

      The  Company  shall  not  create,  incur,  assume  or  suffer to exist any
additional  indebtedness of any description whatsoever in an aggregate amount in
excess of $50,000  (excluding  any  indebtedness  of the  Company to the Secured
Party,  trade  accounts  payable and accrued  expenses  incurred in the ordinary
course of business and the endorsement of negotiable  instruments payable to the
Company,  respectively  for  deposit or  collection  in the  ordinary  course of
business).

<PAGE>

      Section 7.7. Conduct of Business.

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

      Section 7.8. Places of Business.

      The  location  of the  Company's  chief  place of  business  is 3916 State
Street,  Number 110,  Santa  Barbara,  California  93105.  The Company shall not
change the location of its chief place of business,  chief  executive  office or
any place of business  disclosed to the Secured Party or move any of the Pledged
Property  from its current  location  without  thirty  (30) days' prior  written
notice to the Secured Party in each instance.


                                   ARTICLE 8.

                     CONDITIONS TO THE COMPANIES OBLIGATIONS

      The obligation of the Company  hereunder to issue the Notes to the Secured
Party at the Closings is subject to the satisfaction,  at or before the Closing,
of each of the following conditions,  provided that these conditions are for the
Company's  sole benefit and may be waived by the Company at any time in its sole
discretion:

      Section  8.1.  The  Secured  Party  shall have  executed  the  Transaction
Documents and delivered them to the Company.


                                   ARTICLE 9.

                  CONDITIONS TO THE SECURED PARTY'S OBLIGATIONS

      Section 9.1. The  obligation  of the Secured  Party  hereunder to fund the
Note at the First Closing is subject to the satisfaction, at or before the First
Closing Date, of each of the following conditions:

            a) The Company  shall have  executed the  Transaction  Documents and
delivered the same to the Secured Party.

            b) The  representations  and warranties of the Company shall be true
and  correct in all  material  respects  (except to the extent  that any of such
representations and warranties is already qualified as to materiality,  in which
case,  such  representations  and warranties  shall be true and correct  without
further qualification) as of the date when made and as of the First Closing Date
as though made at that time  (except for  representations  and  warranties  that
speak as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants,  agreements and conditions
required by this  Agreement to be  performed,  satisfied or complied with by the
Company at or prior to the First Closing.

<PAGE>

            c) The Company  shall have  executed  and  delivered  to the Secured
Party the Note in the amount of One Million One Hundred Fifty  Thousand  Dollars
($1,150,000).

            d)  The  Company   shall  have  provided  to  the  Secured  Party  a
certificate of good standing from the secretary of state from the state in which
the Company is incorporated.

            e) The Company  shall have filed a form UCC-1 or such other forms as
may be required to perfect the Secured Party's  interest in the Pledged Property
as detailed in this Agreement and the Subsidiary Security Agreement and provided
proof of such filings to the Secured Party.

            f) The Company shall have  delivered to the Escrow Agent the Pledged
Shares as well  executed  and  medallion  guaranteed  stock  powers as  required
pursuant to the Pledge Agreement.

      Section 9.2. The  obligation  of the Secured  Party  hereunder to fund the
Note on the Second  Closing is  subject  to the  satisfaction,  at or before the
Second Closing Date, of each of the following conditions:

            a) The  representations  and warranties of the Company shall be true
and  correct in all  material  respects  (except to the extent  that any of such
representations and warranties is already qualified as to materiality,  in which
case,  such  representations  and warranties  shall be true and correct  without
further  qualification)  as of the date when made and as of the  Second  Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants,  agreements and conditions
required by this  Agreement to be  performed,  satisfied or complied with by the
Company at or prior to the Second  Closing  Date.  If  requested  by the Secured
Party,  the Secured  Party shall have  received a  certificate,  executed by the
Chief Executive Officer and the Chief Financial Officer of the Company, dated as
of the Second Closing Date, to the foregoing effect and as to such other matters
as  may  be  reasonably  requested  by  the  Secured  Party  including,  without
limitation an update as of the Second Closing Date regarding the  representation
contained in Section 4.3 above.

            b) The Company  shall have  executed  and  delivered  to the Secured
Party the Note in the amount of One Million Three Hundred Fifty Thousand Dollars
($1,350,000)  substantially  in the form  attached  hereto as  Exhibit B.

            c) The value of the Pledged  Shares (as  calculated  below) shall be
equal to or exceed  $7,500,000,  which is three (3) times the  $2,500,000  being
funded hereunder.  For the purposes of this Section, the Pledged Shares shall be
valued by  multiplying  the total  number of Pledged  Shares by the  closing bid
price of Composite Technology Corporation's common stock on the date immediately
prior  to  funding  date.

<PAGE>

            d) The Company shall have  certified  that (i) all conditions to the
Second  Closing  have  been  satisfied  and  (ii)  the  Company  will  file  the
Registration  Statement  with the SEC (as  contemplated  under the  Registration
Rights  Agreement of even date herewith  between the parties  hereto) within two
(2) business days after the Second Closing,  which Registration  Statement shall
fully comply with the rules and  regulations  promulgated  by the SEC for filing
thereof.  If  requested  by the  Secured  Party,  the  Secured  Party shall have
received a certificate,  executed by the Chief  Executive  Officer and the Chief
Financial  Officer of the Company,  dated as of the Second  Closing Date, to the
foregoing effect. The Secured Party shall have no obligation to fund the Company
at the Second Closing if the Company filed the  Registration  Statement.

            e) The Company shall have pledged to the Secured Party as additional
collateral  8,000,000 restricted shares of its common stock pursuant to a Pledge
and  Escrow  Agreement  in a form  satisfactory  to  the  Secured  Party  in its
discretion.  To the extent that either party  determines that the Company cannot
pledge such additional shares for any reason,  then the Secured Party shall have
the  right  to  request  other  collateral  in such  form and  amount  as may be
acceptable  to it.

            f) All conditions specified under Section 9.2 hereof shall have been
satisfied to the Secured Party's complete satisfaction on or before May 1, 2005.


                                   ARTICLE 10.

                                  MISCELLANEOUS
      Section 10.1. Notices.

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

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

   With a copy to:           Troy Rillo, Esq.
                             101 Hudson Street, Suite 3700
                             Jersey City, NJ 07302
                             Telephone: (201) 985-8300
                             Facsimile: (201) 985-8266

<PAGE>

   And if to the Company:    Earthshell Corporation
                             3916 State Street, Number 110
                             Santa Barbara, California 93105
                             Attention: Scott Houston
                                        Chief Financial Officer
                             Telephone:         (805) 563-7590
                             Facsimile:         (805) 563-7954

   With a copy to:           Kirkpatrick & Lockhart Nicholson Graham, LLP
                             201 South Biscayne Boulevard, Suite 2000
                             Miami, Florida 33131
                             Attention:        Clayton E. Parker, Esquire
                             Telephone:        (305) 539-3306
                             Facsimile:        (305) 358-7095

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

      Section 10.2. Severability.

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

      Section 10.3. Expenses.

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

      Section 10.4. Waivers, Amendments, Etc.

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

<PAGE>

      Section 10.5. Continuing Security Interest.

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

      Section 10.6. Independent Representation.

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

      Section 10.7. Applicable Law: Jurisdiction.

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

      Section 10.8. Waiver of Jury Trial.

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

      Section 10.9. Entire Agreement.

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


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>


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


                                     EARTHSHELL CORPORATION


                                     By: /s/ Scott Houston
                                        ----------------------------
                                     Name:   Scott Houston
                                     Title:  Chief Financial Officer


                                     CORNELL CAPITAL PARTNERS, LP

                                     BY:     YORKVILLE ADVISORS, LLC
                                     ITS:    GENERAL PARTNER

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

<PAGE>


                                    EXHIBIT A
                         DEFINITION OF PLEDGED PROPERTY


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

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

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

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

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

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

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

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

<PAGE>

                                    EXHIBIT B
                         FORM OF SECOND PROMISSORY NOTE
