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PRPO Precipio

Filed: 21 Dec 03, 7:00pm


                                                                    Exhibit 10.1

                               SECURITY AGREEMENT

          This Security Agreement is made as of December 3, 2003 by and between
LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus") and
TRANSGENOMIC, INC., a Delaware corporation (the "Company").

                                   BACKGROUND

          Company has requested that Laurus make advances available to Company;
and

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

                                    AGREEMENT

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

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

          (b)      ACCOUNTING TERMS. Any accounting terms used in this Agreement
which are not specifically defined shall have the meanings customarily given
them in accordance with GAAP and all financial computations shall be computed,
unless specifically provided herein, in accordance with GAAP consistently
applied.

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

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



          2.   LOANS.

          (a)    (i)     Subject to the terms and conditions set forth herein
and in the Ancillary Agreements, Laurus may make loans (the "Loans") to Company
from time to time during the Term which, in the aggregate at any time
outstanding, will not exceed the lesser of (x) (I) the Capital Availability
Amount minus (II) such reserves as Laurus may in its commercially reasonable
good faith judgment deem proper and necessary from time to time to preserve and
protect the Collateral and/or its rights and remedies hereunder (the "Reserves")
or (y) an amount equal to (I) the Accounts Availability, plus (II) the Inventory
Availability, minus (III) the Reserves. The amount derived at any time from
Section 2(a)(i)(y)(I), plus 2(a)(i)(y)(II), minus 2(a)(i)(y)(III) shall be
referred to as the "Formula Amount". Company shall execute and deliver to Laurus
on the Closing Date a Minimum Borrowing Note evidencing the Loans funded on the
Closing Date and a Revolving Note evidencing (without duplication of Loans
evidenced by any Minimum Borrowing Note) the Capital Availability Amount. From
time to time thereafter, Company shall execute and deliver to Laurus immediately
prior to the final funding of each additional $2,000,000 tranche of Loans
(calculated on a cumulative basis for each such tranche) an additional Minimum
Borrowing Note evidencing such tranche, in the form of Minimum Borrowing Note
delivered by Company to Laurus on the Closing Date.

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

                 (iii)   Company acknowledges that the exercise of Laurus'
discretionary rights (which shall be exercised by Laurus in good faith and in
its commercially reasonable discretion) hereunder may result during the Term in
one or more increases or decreases in the advance percentages used in
determining Accounts Availability and/or Inventory Availability and Company
hereby consents to any such increases or decreases which may limit or restrict
advances requested by Company.

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

                 (v)     If Company at any time fails to perform or observe any
of the covenants contained in this Agreement or any Ancillary Agreement, Laurus
may, but need not, perform or observe such covenant on behalf and in the name,
place and stead of Company (or, at Laurus' option, in Laurus' name) and may, but
need not, with three (3) days prior written notice to the Company (provided that
such notice shall not be required in the event Laurus in its good faith exercise
of its commercially reasonable discretion determines that such action is
necessary to preserve or protect the Collateral) take any and all other actions
which Laurus may deem necessary to cure or correct such failure (including the
payment of taxes, the satisfaction of Liens, the performance of obligations owed
to Account Debtors, lessors or other obligors, the procurement and maintenance
of insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments). The amount of all monies
expended and all costs and expenses (including attorneys' fees and legal
expenses) incurred by

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Laurus in connection with or as a result of the performance or observance of
such agreements or the taking of such action by Laurus shall be charged to
Company's account as a Loan and added to the Obligations. To facilitate Laurus'
performance or observance of such covenants of Company, Company hereby
irrevocably appoints Laurus, or Laurus' delegate, acting alone, as Company's
attorney in fact (which appointment is coupled with an interest) with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of Company any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed delivered or endorsed by Company.

                 (vi)    Laurus will account to Company monthly with a
statement of all Loans and other advances, charges and payments made pursuant to
this Agreement, and such account rendered by Laurus shall be deemed final,
binding and conclusive unless Laurus is notified by Company in writing to the
contrary within thirty (30) days of the date each account was rendered
specifying the item or items to which objection is made.

                 (vii)   During the Term, Company may borrow and prepay Loans in
excess of the Minimum Borrowing Amount, all in accordance with the terms and
conditions hereof.

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

          (c)  MINIMUM BORROWING AMOUNT. After a registration statement
registering the Registrable Securities has been declared effective by the SEC,
conversions of the Minimum Borrowing Amount into the common stock of Company may
be initiated as set forth in the Minimum Borrowing Note. From and after the date
upon which any outstanding principal of the Minimum Borrowing Amount (as
evidenced by the first Minimum Borrowing Note) is converted into common stock
(the "First Conversion Date"), (i) corresponding amounts of all outstanding
Loans (not attributable to the then outstanding Minimum Borrowing Amount)
existing on or made after the First Conversion Date will be aggregated until
they reach the sum of $2,000,000, (ii) Company will issue a new (serialized)
Minimum Borrowing Note to Laurus in respect of such $2,000,000 aggregation, and
(iii) Company shall prepare and file a subsequent registration

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statement with the SEC to register shares of its' common stock that will be
issued in accordance with such subsequent Minimum Borrowing Note in accordance
with the terms of the Registration Rights Agreement.

          3.   REPAYMENT OF THE LOANS. Company (a) may prepay the Obligations in
excess of the Minimum Borrowing Amount from time to time in accordance with the
terms and provisions of the Notes (and Section 16 hereof if such prepayment is
due to a termination of this Agreement); and (b) shall repay on the expiration
of the Term (i) the then aggregate outstanding principal balance of the Loans
made by Laurus to Company hereunder together with accrued and unpaid interest,
fees and charges and (ii) all other amounts owed Laurus under this Agreement and
the Ancillary Agreements. Any payments of principal, interest, fees or any other
amounts payable hereunder or under any Ancillary Agreement shall be made prior
to 12:00 noon (New York time) on the due date thereof in immediately available
funds.

          4.   PROCEDURE FOR LOANS. Company may by written notice request a
borrowing of Loans prior to 12:00 p.m. (New York time) on the Business Day of
its request to incur, on the next business day, a Loan. Together with each
request for a Loan (or at such other intervals as Laurus may request), Company
shall deliver to Laurus a Borrowing Base Certificate in the form of Exhibit A,
which shall be certified as true and correct by the Chief Executive Officer or
Chief Financial Officer of Company together with all supporting documentation
relating thereto. All Loans shall be disbursed from whichever office or other
place Laurus may designate from time to time and shall be charged to Company's
account on Laurus' books. The proceeds of each Loan made by Laurus shall be made
available to Company on the Business Day following the Business Day so requested
in accordance with the terms of this Section 4 by way of credit to Company's
operating account maintained with such bank as Company designated to Laurus. Any
and all Obligations due and owing hereunder may be charged to Company's account
and shall constitute Loans.

          5.   INTEREST AND PAYMENTS.

          (a)    INTEREST.

                 (i)     Except as modified by Section 5(a)(iii) below, Company
shall pay interest at the Contract Rate on the unpaid principal balance of each
Loan until such time as such Loan is collected in full in good funds in dollars
of the United States of America.

                 (ii)    Interest and payments shall be computed on the basis of
actual days elapsed in a year of 360 days. At Laurus' option, Laurus may charge
Company account for said interest.

                 (iii)   Effective upon the occurrence of any Event of Default
and for so long as any Event of Default shall be continuing, the interest rate
on outstanding Obligations shall convert from the Contract Rate to a rate equal
to the Prime Rate plus six percent (6%) per annum (such increased rate, the
"Default Rate"), and all outstanding Obligations, including unpaid interest,
shall continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations until such Event of Default is cured
or waived in writing.

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

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

          (b)    PAYMENTS.

                 (i)     CLOSING PAYMENT. Upon execution of this Agreement by
Company and Laurus, Company shall pay to Laurus Capital Management, LLC a
closing payment in an amount equal to three and six-tenths percent (3.6%) of the
Capital Availability Amount, representing the aggregate closing payments payable
by Company during the Term. Such payments shall be deemed fully earned on the
Closing Date and shall not be subject to rebate or proration for any reason.

                 (ii)    UNUSED LINE PAYMENT. If, for any month, the average
outstanding Loans (the"Average Loan Amount") do not equal the Capital
Availability Amount, Company shall pay to Laurus at the end of such month a
payment in an amount equal to a rate of one half percent (0.5%) per annum of the
amount by which the Capital Availability Amount exceeds the Average Loan Amount.
Notwithstanding the foregoing, any unpaid fee shall be immediately due and
payable upon termination of this Agreement.

                 (iii)   OVERADVANCE PAYMENT. Without affecting Laurus' rights
hereunder in the event the Loans exceed the amounts permitted by Section 2
("Overadvances"), in the event an Overadvance occurs or is made by Laurus and
such Overadvance is not repaid by the Company within three (3) business days,
all such Overadvances shall bear interest at an annual rate equal to the Prime
Rate plus four percent (4%) per annum of the amount of such Overadvances for
each month or portion thereof as such amounts shall be outstanding.

                 (iv)    FINANCIAL INFORMATION DEFAULT. Without affecting
Laurus' other rights and remedies, in the event Company fails to deliver the
financial information required by Section 11 on or before the date required by
this Agreement and such required information remains undelivered after a three
(3) business day grace period, Company shall pay Laurus a fee in the amount of
$500.00 per week (or portion thereof) for each such failure until such failure
is cured to Laurus' satisfaction or waived in writing by Laurus. Such fee shall
be charged to Company's account upon the occurrence of each such failure.

          6.   SECURITY INTEREST.

          (a)    To secure the prompt payment to Laurus of the Obligations,
Company hereby assigns, pledges and grants to Laurus a continuing security
interest in and Lien upon all of the Collateral. All of Company's Books and
Records relating to the Collateral shall, until delivered to or removed by
Laurus, be kept by Company in trust for Laurus until all Obligations

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have been paid in full. Each confirmatory assignment schedule or other form of
assignment hereafter executed by Company shall be deemed to include the
foregoing grant, whether or not the same appears therein.

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

          (c)    Company hereby grants to Laurus an irrevocable, non-exclusive
license (exercisable upon the termination of this Agreement due to an occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by Company,
and wherever the same may be located, and including in such license access to
all media in which any of the licensed items may be recorded or stored and to
all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that on
termination of this Agreement and payment in full of the Obligations, such
license will terminate and Laurus, to the extent applicable, will reassign its
rights in and to any such license to Company or as otherwise required under
applicable law.

          7.   REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING THE
COLLATERAL. Company represents, warrants (each of which such representations and
warranties shall be deemed repeated upon the making of each request for a Loan
and made as of the time of each and every Loan hereunder) and covenants as
follows:

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

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

          (c)    The Liens granted pursuant to this Agreement, upon completion
of the filings and other actions listed on EXHIBIT 7(c) (which, in the case of
all filings and other documents referred to in said Exhibit, have been delivered
to Laurus in duly executed form)

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constitute valid perfected security interests in all of the Collateral in favor
of Laurus as security for the prompt and complete payment and performance of the
Obligations, enforceable in accordance with the terms hereof against any and all
creditors of and any purchasers from Company and such security interest is prior
to all other Liens in existence on the date hereof.

          (d)    No effective security agreement, mortgage, deed of trust,
financing statement, equivalent security or Lien instrument or continuation
statement covering all or any part of the Collateral is or will be on file or of
record in any public office, except those relating to Permitted Liens.

          (e)    Company shall not dispose of any of the Collateral whether by
sale, lease or otherwise except for the sale of Inventory in the ordinary course
of business and for the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment having an
aggregate fair market value of not more than $75,000 and only to the extent that
(i) the proceeds of any such disposition are used to acquire replacement
Equipment which is subject to Laurus' first priority security interest or are
used to repay Loans or to pay general corporate expenses, or (ii) following the
occurrence of an Event of Default which continues to exist the proceeds of which
are remitted to Laurus to be held as cash collateral for the Obligations.

          (f)    Company shall defend the right, title and interest of Laurus in
and to the Collateral against the claims and demands of all Persons whomsoever,
and take such actions, including (i) all actions necessary to grant Laurus
"control" of any Investment Property, Deposit Accounts, Letter-of-Credit Rights
or electronic Chattel Paper owned by Company, with any agreements establishing
control to be in form and substance satisfactory to Laurus, (ii) the prompt (but
in no event later than five (5) Business Days following Laurus' request
therefor) delivery to Laurus of all original Instruments, Chattel Paper,
negotiable Documents and certificated Stock owned by Company (in each case,
accompanied by stock powers, allonges or other instruments of transfer executed
in blank), (iii) notification of Laurus' interest in Collateral at Laurus'
request, and (iv) the institution of litigation against third parties as shall
be prudent in order to protect and preserve Company's and Laurus' respective and
several interests in the Collateral.

          (g)    Company shall promptly, and in any event within five (5)
Business Days after the same is acquired by it, notify Laurus of any commercial
tort claim (as defined in the UCC) acquired by it and unless otherwise consented
by Laurus, Company shall enter into a supplement to this Agreement granting to
Laurus a Lien in such commercial tort claim.

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

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

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

          (k)    Company shall notify Laurus promptly and in any event within
five (5) Business Days after obtaining knowledge thereof (i) of any event or
circumstance that to Company's knowledge would cause Laurus to consider any then
existing Account or Inventory as no longer constituting an Eligible Account or
Eligible Inventory, as the case may be; (ii) of any material delay in Company's
performance of any of its obligations to any Account Debtor; (iii) of any
assertion by any Account Debtor of any material claims, offsets or
counterclaims; (iv) of any allowances, credits and/or monies granted by Company
to any Account Debtor; (v) of all material adverse information relating to the
financial condition of an Account Debtor; (vi) of any material return of goods;
and (vii) of any loss, damage or destruction of any of the Collateral.

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

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

          (n)    All Inventory manufactured by Company in the United States of
America shall be produced in accordance with the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules, regulations and
orders related thereto or promulgated thereunder.

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

          (p)    Company shall maintain and keep the tangible Collateral at the
addresses listed in EXHIBIT 12(d), provided, that Company may change such
locations or open a new location, provided that Company provides Laurus at least
fifteen (15) days prior written notice of such changes or new location and (ii)
prior to such change or opening of a new location where Collateral having a
value of more than $50,000 will be located, Company executes and delivers to
Laurus such agreements as Laurus may request, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
satisfactory to Laurus.

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          (q)    EXHIBIT 7(p) lists all banks and other financial institutions
at which Company maintains deposits and/or other accounts, and such Exhibit
correctly identifies the name, address and telephone number of each such
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number. The Company shall not establish
any depository or other bank account of any with any financial institution
(other than the accounts set forth on EXHIBIT 7(p)) unless Laurus shall have
received all such documents required to perfect Laurus' first priority security
interest in such account.

          8.   PAYMENT OF ACCOUNTS.

          (a)    Company will irrevocably direct all of its present and future
Account Debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the lockbox maintained by Company
(the "Lockbox") with Silicon Valley Bank or Barclays Bank (each a "Lockbox
Bank") pursuant to the terms of the Deposit Account Control Agreement or such
other financial institution accepted by Laurus in writing as may be selected by
Company. On or prior to the Closing Date, Company shall and shall cause each
Lockbox Bank to enter into all such documentation acceptable to Laurus pursuant
to which, among other things, each Lockbox Bank agrees to: (a) sweep the Lockbox
on a daily basis and deposit all checks received therein to an account
designated by Laurus in writing and (b) comply only with the instructions or
other directions of Laurus concerning the Lockbox. All of Company's invoices,
account statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account of Company or any
other amount constituting Collateral shall conspicuously direct that all
payments be made to the Lockbox or such other address as Laurus may direct in
writing. If, notwithstanding the instructions to Account Debtors, Company
receives any such payments, Company shall immediately deposit such payments into
the Lockbox in their original form with all necessary endorsements and within
two (2) Business days following such receipt provide Laurus a copy of the check
evidencing such payment and the related deposit slip. Until so remitted, Company
shall hold all such payments in trust for and as the property of Laurus and
shall not commingle such payments with any of its other funds or property.

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

          9.   COLLECTION AND MAINTENANCE OF COLLATERAL.

          (a)    Laurus may verify Company's Accounts from time to time, but not
more often than once every three (3) months unless an Event of Default has
occurred and is continuing, utilizing an audit control company or any other
agent of Laurus.

          (b)    Proceeds of Accounts received by Laurus will be deemed received
on the Business Day after Laurus' receipt of such proceeds in good funds in
dollars of the United States of America in Laurus' account. Any amount received
by Laurus after 12:00 noon (New York time) on any Business Day shall be deemed
received on the next Business Day.

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          (c)    As Laurus receives the proceeds of Accounts, it shall remit all
such proceeds (net of interest, fees and other amounts then due and owing to
Laurus hereunder) to Company twice a week on days designated by Company.
Notwithstanding the foregoing, following the occurrence and during the
continuance of an Event of Default, Laurus, at its option, may (a) apply such
proceeds to the Obligations in such order as Laurus shall elect, (b) hold such
proceeds as cash collateral for the Obligations and Company hereby grants to
Laurus a security interest in such cash collateral amounts as security for the
Obligations and/or (c) do any combination of the foregoing.

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

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

          (a)    As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of Company, Company's audited financial
statements with a report of independent certified public accountants of
recognized standing selected by Company and acceptable to Laurus (the
"Accountants"), which annual financial statements shall include Company's
balance sheet as at the end of such fiscal year and the related statements of
Company's income, retained earnings and cash flows for the fiscal year then
ended. Delivery of Companys' filing of the Annual Report on Form 10-K will be
considered delivery of such audited financial statements on a consolidated
basis. If Laurus so requests, Company will supplementally deliver unaudited
financial statements on a consolidating basis to include all Subsidiaries and
Affiliates, all in reasonable detail and prepared in accordance with GAAP,
together with (i) if and when available, copies of any management letters
prepared by such accountants; and (ii) a certificate of Company's President,
Chief Executive Officer or Chief Financial Officer stating that such financial
statements have been prepared in accordance with GAAP and whether or not such
officer has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto;

          (b)    As soon as available and in any event within forty five (45)
days after the end of each quarter, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of Company as at the end
of and for such quarter and for the year to date period then ended. Delivery of
Company's filing of the Quarterly Report on Form 10-Q will be considered
delivery of such financial statements on a consolidated basis. If Laurus so
requests, Company will supplementally deliver unaudited financial statements on
a consolidating basis to include all Subsidiaries and Affiliates, in reasonable
detail and stating in comparative form the

                                       10


figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of Company's President, Chief Executive Officer or
Chief Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto;

          (c)    Within thirty (30) days after the end of each month (or more
frequently if Laurus so requests), agings of Company's Accounts, unaudited trial
balances and their accounts payable and a calculation of Company's Accounts,
Eligible Accounts, Inventory and Eligible Inventory as at the end of such month
or shorter time period, provided, however, that if Laurus shall request the
foregoing information more often than as set forth in the immediately preceding
clause, Company shall have thirty days from each such request to comply with
Laurus' demand; and

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

          12.  ADDITIONAL REPRESENTATIONS AND WARRANTIES. Company represents and
warrants (each of which such representations and warranties shall be deemed
repeated upon the making of a request for a Loan and made as of the time of each
Loan made hereunder), as follows:

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

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

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

          (d)    EXHIBIT 12(d) sets forth Company's name as it appears in
official filing in the state of its incorporation, the type of entity of
Company, the organizational identification number issued by Company's state of
incorporation or a statement that no such number has been issued, Company's
state of incorporation, and the location of Company's chief executive office,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept (including in each case the county
of such locations) and, except as

                                       11


set forth in such EXHIBIT 12(d), such locations have not changed during the
preceding twelve months. As of the Closing Date, during the prior five years,
except as set forth in EXHIBIT 12(d), Company has not been known as or conducted
business in any other name (including trade names). Company has only one state
of incorporation.

          (e)    Based upon the Employee Retirement Income Security Act of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i)
Company has not engaged in any Prohibited Transactions as defined in Section 406
of ERISA and Section 4975 of the Internal Revenue Code, as amended; (ii) Company
has met all applicable minimum funding requirements under Section 302 of ERISA
in respect of its plans; (iii) Company has no knowledge of any event or
occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) Company has no fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than Company's
employees; and (v) except as disclosed in EXHIBIT 12(e) attached hereto, Company
has not withdrawn, completely or partially, from any multi-employer pension plan
so as to incur liability under the Multiemployer Pension Plan Amendments Act of
1980.

          (f)    There is no pending or threatened litigation, court order,
judgment, writ, suit, action or proceeding which could reasonably be expected to
have a Material Adverse Effect.

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

          (h)    Company possesses or has licenses to use all of the
Intellectual Property necessary to conduct its business. There has been no
assertion or claim of violation or infringement with respect to any Intellectual
Property. EXHIBIT 12(i) describes all Intellectual Property of Company.

          (i)    Neither this Agreement, the exhibits and schedules hereto, the
Ancillary Agreements nor any other document delivered by Company to Laurus or
its attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, contain any untrue statement of a
material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. The issuance of the Notes and the Warrants and
the shares of common stock issued upon conversion of the Notes and exercise of
the Warrants will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. Neither Company nor any of its Affiliates, nor any person
acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Securities.

                                       12


          (j)    The common stock of Company is registered pursuant to Section
12(b) or 12(g) of the Exchange Act and, except with respect to certain matters
set forth on EXHIBIT 12(j) attached hereto, Company has timely filed all proxy
statements, reports, schedules, forms, statements and other documents required
to be filed by it under the Exchange Act. Company has filed (i) its Annual
Report on Form 10-K for the fiscal year ended December 31, 2002 and (ii) its
Quarterly Report on Form 10-Q for the fiscal quarters ended March 31, 2003, June
30, 2003 and September 30, 2003 (collectively, the "SEC Reports"). Each SEC
Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of Company included in the
SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed) and fairly present in all
material respects the financial condition, the results of operations and the
cash flows of Company and its subsidiaries, on a consolidated basis, as of, and
for, the periods presented in each such SEC Report.

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

          (l)    Neither Company, nor any of its Affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement and the Ancillary Agreements to be integrated with prior offerings by
Company for purposes of the Securities Act which would prevent Company from
selling the Securities pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will Company or
any of its Affiliates or Subsidiaries take any action or steps that would cause
the offering of the Securities to be integrated with other offerings.

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

          (n)    Company understands the nature of the Securities issuable under
the Ancillary Agreements and recognizes that the issuance of such Securities may
have a potential

                                       13


dilutive effect. Company specifically acknowledges that its obligation to issue
the Securities is binding upon Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of Company.

          (o)    Except for agreements made in the ordinary course of business,
there is no agreement that has not been filed with the SEC as an exhibit to a
registration statement or to a form required to be filed by Company under the
Exchange Act, the breach of which could reasonably be expected to have a
Material Adverse Effect or would prohibit or otherwise interfere with the
ability of Company to enter into and perform any of its obligations under this
Agreement and/or any Registration Rights Agreement executed by Company in favor
of Laurus in any material respect.

          13.  COVENANTS.  Company covenants as follows:

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

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

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

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

                                       14


          (e)    Company will not, unless approved by Laurus in writing, (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of trade
debt) whether secured or unsecured other than Company's indebtedness to Laurus
and as set forth on EXHIBIT 13(e)(i) attached hereto and made a part hereof;
(ii) cancel any debt owing to it in excess of $75,000 in the aggregate during
any 12 month period; (iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by a Company for
deposit or collection or similar transactions in the ordinary course of
business; (iv) directly or indirectly declare, pay or make any dividend or
distribution on any class of its Stock or apply any of its funds, property or
assets to the purchase, redemption or other retirement of any Stock of Company;
(v) purchase or hold beneficially any Stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, including
any partnership or joint venture, except (x) travel advances, (y) loans to
Company's officers and employees not exceeding at any one time an aggregate of
$10,000, (z) common stock received as payment for goods or services under the
Supply Agreeement and (aa) Subsidiaries of Company; (vi) create or permit to
exist any Subsidiary, other than any Subsidiary in existence on the date hereof
and listed in EXHIBIT 13(e)(ii) unless such new Subsidiary is designated by
Laurus as either a co-borrower or guarantor hereunder and such Subsidiary shall
have entered into all such documentation required by Laurus to grant to Laurus a
first priority perfected security interest in such Subsidiary's assets to secure
the Obligations; (vii) directly or indirectly, prepay any indebtedness (other
than to Laurus and in the ordinary course of business), or repurchase, redeem,
retire or otherwise acquire any indebtedness (other than to Laurus and in the
ordinary course of business) except to make scheduled payments of principal and
interest thereof; (viii) enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a portion of the
assets or Stock of any Person or permit any other Person to consolidate with or
merge with it, unless (1) Company is the surviving entity of such merger or
consolidation, (2) no Event of Default shall exist immediately prior to and
after giving effect to such merger or consolidation, (3) Company shall have
provided Laurus copies of all documentation relating to such merger or
consolidation and (4) Company shall have provided Laurus with at least fifteen
(15) days' prior written notice of such merger or consolidation; (ix) materially
change the nature of the business in which it is presently engaged; (x) change
its fiscal year or make any changes in accounting treatment and reporting
practices without prior written notice to Laurus except as required by GAAP or
in the tax reporting treatment or except as required by law; (xi) enter into any
transaction with any employee, director or Affiliate, except in the ordinary
course on arms-length terms; or (xii) bill Accounts under any name except the
present name of Company or its existing Subsidiaries.

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

          (g)    Company will bear the full risk of loss from any loss of any
nature whatsoever with respect to the Collateral. At Company's own cost and
expense in amounts and with carriers acceptable to Laurus, Company shall (i)
keep all its insurable properties and properties in which it has an interest
insured against the hazards of fire, sprinkler leakage, those

                                       15


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

          (h)    Company will at all times have authorized and reserved a
sufficient number of shares of common stock to provide for the conversion of the
Notes and exercise of the Warrants.

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

          15.  POWER OF ATTORNEY. Company hereby appoints Laurus, or any other
Person whom Laurus may designate as Company's attorney, with power to: (i)
endorse Company's name on any checks, notes, acceptances, money orders, drafts
or other forms of payment or security that may come into Laurus' possession;
(ii) sign Company's name on any invoice or bill of lading relating to any
Accounts, drafts against Account Debtors, schedules and assignments of Accounts,
notices of assignment, financing statements and other public records,
verifications of Account and notices to or from Account Debtors; (iii) verify
the validity, amount or any other

                                       16


matter relating to any Account by mail, telephone, telegraph or otherwise with
Account Debtors; (iv) do all things necessary to carry out this Agreement, any
Ancillary Agreement and all related documents; and (v) on or after the
occurrence and continuation of an Event of Default, notify the post office
authorities to change the address for delivery of Company's mail to an address
designated by Laurus, and to receive, open and dispose of all mail addressed to
Company; PROVIDED, HOWEVER, Laurus shall forward to Company all mail not
otherwise relating to payments in respect of the Collateral. Company hereby
ratifies and approves all acts of the attorney. Neither Laurus, nor the attorney
will be liable for any acts or omissions or for any error of judgment or mistake
of fact or law, except for gross negligence or willful misconduct. This power,
being coupled with an interest, is irrevocable so long as Laurus has a security
interest and until the Obligations have been fully satisfied.

          16.  TERM OF AGREEMENT. Laurus' agreement to make Loans and extend
financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Initial Term. At Laurus' election following the
occurrence of an Event of Default, Laurus may terminate this Agreement. The
termination of the Agreement shall not affect any of Laurus' rights hereunder or
any Ancillary Agreement and the provisions hereof and thereof shall continue to
be fully operative until all transactions entered into, rights or interests
created and the Obligations have been disposed of, concluded or liquidated.
Notwithstanding the foregoing, Laurus shall release its security interests at
any time after thirty (30) days notice upon payment to it of all Obligations if
Companies shall have (i) provided Laurus with an executed release of any and all
claims which Companies may have or thereafter have under this Agreement and all
Ancillary Agreements and (ii) paid to Laurus an early payment fee in an amount
equal to (1) three percent (3%) of the Capital Availability Amount if such
payment occurs prior to the first anniversary of the Initial Term or any
applicable renewal term, and (2) two percent (2%) of the Capital Availability
Amount if such payment occurs on or after the first anniversary and prior to the
second anniversary of the Initial Term or any applicable renewal term and (3)
one percent (1%) of the Capital Availability Amount on or after the second
anniversary and prior to the third anniversary of the Initial Term or any
applicable renewal term; such fee being intended to compensate Laurus for its
costs and expenses incurred in initially approving this Agreement or extending
same. Such early payment fee shall be due and payable by Company to Laurus upon
termination by acceleration of this Agreement by Laurus due to the occurrence
and continuance of an Event of Default.

          17.  TERMINATION OF LIEN. The Liens and rights granted to Laurus
hereunder and any Ancillary Agreements and the financing statements filed in
connection herewith or therewith shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Company's
account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of Company have been paid or performed in full after the
termination of this Agreement. Laurus shall not be required to send termination
statements to Company, or to file them with any filing office, unless and until
this Agreement and the Ancillary Agreements shall have been terminated in
accordance with their terms and all Obligations paid in full in immediately
available funds.

          18.  EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default:

                                       17


          (a)    failure to make payment of any of the Obligations when required
hereunder;

          (b)    failure to pay any taxes when due, such taxes continuing to be
unpaid for 15 days past the due date, unless such taxes are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves have been provided on Company's books;

          (c)    failure to perform under and/or committing any breach of this
Agreement or any Ancillary Agreement or any other agreement between Company and
Laurus which shall continue for a period of fifteen (15) days after the
occurrence thereof;

          (d)    the occurrence of a default under any agreement to which
Company is a party with third parties which has a Material Adverse Effect;

          (e)    any representation, warranty or statement made by Company
hereunder, in any Ancillary Agreement, any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading in any
material respect;

          (f)    an attachment or levy is made upon Company's assets having an
aggregate value in excess of $75,000 or a judgment is rendered against Company
or Company's property involving a liability of more than $75,000 which shall not
have been vacated, discharged, stayed or bonded pending appeal within thirty
(30) days from the entry thereof;

          (g)    any change in Company's condition or affairs (financial or
otherwise) which in Laurus' reasonable, good faith opinion, could reasonably be
expected to have a Material Adverse Effect;

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

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

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

          (k)    any Affiliate or Subsidiary of Company shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present

                                       18


business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws or
(viii) take any action for the purpose of effecting any of the foregoing;

          (l)    Company directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any assets of Company or any interest therein, except as permitted
herein or approved in writing by Laurus with 30 days notice by Company which
such approval shall be in Laurus' sole and absolute discretion;

          (m)    the occurrence of a change in the controlling ownership of
Company;

          (n)    a default by Company in the payment, when due, of any principal
of or interest on any other indebtedness for money borrowed in an amount greater
than $37,500, which is not cured within any applicable cure or grace period;

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

          (p)    if an Event of Default shall occur under and as defined in any
Note;

          (q)    any Guarantor shall breach any term or provision of any
Ancillary Agreement which is not cured within any applicable cure or grace
period;

          (r)    if any Guarantor attempts to terminate, challenges the validity
of, or its liability under any Guaranty or any Guarantor Security Agreement; or

          (s)    should any Guarantor default in its obligations under any
Guaranty or any Guarantor Security Agreement or if any proceeding shall be
brought to challenge the validity, binding effect of any Guaranty or any
Guarantor Security Agreement or should any Guarantor breach any representation,
warranty or covenant contained in any Guaranty Agreement or any Guarantor
Security Agreement or should any Guaranty or Guarantor Security Agreement cease
to be a valid, binding and enforceable obligation.

          19.  REMEDIES. Following the occurrence of an Event of Default, Laurus
shall have the right to demand repayment in full of all Obligations, whether or
not otherwise due. Until all Obligations have been fully satisfied, Laurus shall
retain its Lien in all Collateral. Laurus shall have, in addition to all other
rights provided herein and in each Ancillary Agreement, the rights and remedies
of a secured party under the UCC, and under other applicable law, all other
legal and equitable rights to which Laurus may be entitled, including the right
to take immediate possession of the Collateral, to require Company to assemble
the Collateral, at Company's expense, and to make it available to Laurus at a
place designated by Laurus which is reasonably convenient to both parties and to
enter any of the premises of Company or wherever the Collateral shall be
located, with or without force or process of law, and to keep and store the

                                       19


same on said premises until sold (and if said premises be the property of
Company, Company agrees not to charge Laurus for storage thereof), and the right
to apply for the appointment of a receiver for Company's property. Further,
Laurus may, at any time or times after the occurrence of an Event of Default,
sell and deliver all Collateral held by or for Laurus at public or private sale
for cash, upon credit or otherwise, at such prices and upon such terms as
Laurus, in Laurus' sole discretion, deems advisable or Laurus may otherwise
recover upon the Collateral in any commercially reasonable manner as Laurus, in
its sole discretion, deems advisable. The requirement of reasonable notice shall
be met if such notice is mailed postage prepaid to Company at Company's address
as shown in Laurus' records, at least ten (10) days before the time of the event
of which notice is being given. Laurus may be the purchaser at any sale, if it
is public. In connection with the exercise of the foregoing remedies, Laurus is
granted permission to use all of Company's trademarks, tradenames, tradestyles,
patents, patent applications, licenses, franchises and other proprietary rights.
The proceeds of sale shall be applied first to all costs and expenses of sale,
including attorneys' fees, and second to the payment (in whatever order Laurus
elects) of all Obligations. After the indefeasible payment and satisfaction in
full in cash of all of the Obligations, and after the payment by Laurus of any
other amount required by any provision of law, including Section 608(a)(1) of
the United States Bankruptcy Code (but only after Laurus has received what
Laurus considers reasonable proof of a subordinate party's security interest),
the surplus, if any, shall be paid to Company or its representatives or to
whosoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct. Company shall remain liable to Laurus for any
deficiency. In addition, Company shall pay Laurus a liquidation fee
("Liquidation Fee") in the amount of five percent (5%) of the actual amount
collected in respect of each Account outstanding at any time during a
"liquidation period". Such liquidation fee shall be payable without duplication
of any collection fees in respect of Accounts incurred by Laurus in connection
with the utilization by Laurus of a third party collection company. For purposes
hereof, "liquidation period" means a period: (i) beginning on the earliest date
of (x) an event referred to in Section 18(i) or 18(j), or (y) the cessation of
Company's business; and (ii) ending on the date on which Laurus has actually
received all Obligations due and owing it under this Agreement and the Ancillary
Agreements. The Liquidation Fee shall be paid on the date on which Laurus
collects the applicable Account by deduction from the proceeds thereof.. Company
and Laurus acknowledge that the actual damages that would be incurred by Laurus
after the occurrence of an Event of Default would be difficult to quantity and
that Company and Laurus have agreed that the fees and obligations set forth in
this Section and in this Agreement would constitute fair and appropriate
liquidated damages in the event of any such termination.

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

                                       20


respect to this Agreement, the Ancillary Agreements and the transactions
evidenced hereby and thereby.

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

          22.  ASSIGNMENT BY LAURUS. Laurus may assign any or all of the
Obligations together with any or all of the security therefor to any Person
which is not a competitor of Company and any such transferee shall succeed to
all of Laurus' rights with respect thereto. Upon such transfer, Laurus shall be
released from all responsibility for the Collateral to the extent same is
assigned to any transferee. Laurus may from time to time sell or otherwise grant
participations in any of the Obligations and the holder of any such
participation shall, subject to the terms of any agreement between Laurus and
such holder, be entitled to the same benefits as Laurus with respect to any
security for the Obligations in which such holder is a participant. Company
agrees that each such holder may exercise any and all rights of banker's lien,
set-off and counterclaim with respect to its participation in the Obligations as
fully as though Company were directly indebted to such holder in the amount of
such participation.

                                       21


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

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

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

          26.  REPRESENTATIONS AND WARRANTIES OF LAURUS.

     Laurus hereby represents and warrants to Company as follows:

          (a)    Laurus has all necessary power and authority under all
applicable provisions of law to execute and deliver this Agreement and the
Ancillary Agreements and to carry out their provisions. All corporate action on
Laurus' part required for the lawful execution and delivery of this Agreement
and the Ancillary Agreements have been or will be effectively taken prior to the
Closing Date. Upon their execution and delivery, this Agreement and the other
Ancillary Agreements will be valid and binding obligations of Laurus,
enforceable in accordance

                                       22


with their terms, except (1) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (2) as limited by general principles of
equity that restrict the availability of equitable and legal remedies.

          (b)    Laurus understands that the Securities are being offered and
sold pursuant to an exemption from registration contained in the 1933 Act based
in part upon Laurus's representations contained in this Agreement, including,
without limitation, that Laurus is an "accredited investor" within the meaning
of Regulation D. Laurus has had an opportunity to ask questions and receive
answers from Company regarding Company's business, management and financial
affairs and the terms and conditions of the offering and the Securities and to
obtain additional information (to the extent Company possessed such information
or could acquire it without unreasonable effort or expense) necessary to verify
any information furnished to Laurus or to which Laurus had access.

          (c)    Laurus has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to Company
so that it is capable of evaluating the merits and risks of its investment in
Company and has the capacity to protect its own interests. Laurus must bear the
economic risk of this investment until the Securities are sold pursuant to (i)
an effective registration statement under the 1933 Act, or (ii) an exemption
from registration is available.

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

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

          (f)    Laurus will not make any resale of the Securities under any
Registration Statement (as defined in the Registration Rights Agreement) without
effectively complying with the prospectus delivery requirement under the
Securities Act (as defined in the Registration Rights Agreement).

          (g)    Laurus has no present intention of distributing any Securities
or any arrangement or understanding with any other persons regarding the
distribution of any Securities within the meaning of Section 2(11) of the
Securities Act. Laurus has not entered into any agreement, understanding or
arrangement with any underwriter or broker-dealer regarding any resale of the
Securities and will promptly notify Company if it enters into such an agreement.

          27.  REVIVAL. Company further agrees that to the extent Company makes
a payment or payments to Laurus, which payment or payments or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be

                                       23


repaid to a trustee, receiver or any other party under any bankruptcy act, state
or federal law, common law or equitable cause, then, to the extent of such
payment or repayment, the obligation or part thereof intended to be satisfied
shall be revived and continued in full force and effect as if said payment had
not been made.

          28.  NOTICES. Any notice or request hereunder may be given to Company
or Laurus at the respective addresses set forth below or as may hereafter be
specified in a notice designated as a change of address under this Section. Any
notice or request hereunder shall be given by registered or certified mail,
return receipt requested, hand delivery, overnight mail or telecopy (confirmed
by mail). Notices and requests shall be, in the case of those by hand delivery,
deemed to have been given when delivered to any officer of the party to whom it
is addressed, in the case of those by mail or overnight mail, deemed to have
been given three (3) business days after the date when deposited in the mail or
with the overnight mail carrier, and, in the case of a telecopy, when confirmed.

Notices shall be provided as follows:

          If to Laurus:                     Laurus Master Fund, Ltd.
                                            c/o Laurus Capital Management, LLC
                                            825 Third Avenue 14th Fl.
                                            New York, New York 10022
                                            Attention:  David Grin
                                            Telephone:  (212) 541-4434
                                            Telecopier:  (212) 541-5800

                                       24


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

          If to Company:                    Transgenomic, Inc.
                                            12325 Emmet Street
                                            Omaha, Nebraska  68164
                                            Attention:  Chief Financial Officer
                                            Telephone:  (402) 452-5446
                                            Telecopier:

          With a copy to:                   Kutak Rock LLP
                                            1650 Farnam Street
                                            Omaha, Nebraska 68102
                                            Attention:  Steven Amen
                                            Telephone: (402) 346-6000
                                            Telecopier: (402) 346-1148

or such other address as may be designated in writing hereafter in accordance
with this Section 28 by such Person.

          29.  GOVERNING LAW, JURISDICTION AND WAIVER OF JURY TRIAL. (a) THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.

          (b)  COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN COMPANY AND
LAURUS PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS; PROVIDED, THAT LAURUS AND COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF
NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS,
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS. COMPANY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY

                                       25


SUCH COURT, AND COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO COMPANY AT THE ADDRESS SET FORTH IN SECTION 27 AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY'S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.

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

          30.  LIMITATION OF LIABILITY. Company acknowledges and understands
that in order to assure repayment of the Obligations hereunder Laurus may be
required to exercise any and all of Laurus' rights and remedies hereunder and
agrees that, except as limited by applicable law, neither Laurus nor any of
Laurus' agents shall be liable for acts taken or omissions made in connection
herewith or therewith except for actual bad faith.

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

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

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

                                       26


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

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

          36.  PUBLICITY. Without the written approval of the other party
hereto, which such approval not being unreasonably withheld, neither Company nor
Laurus shall issue a press release relating to the financial arrangement entered
into by and between Company and Laurus, including, without limitation,
announcements which are commonly known as tombstones.

          37.  LEGENDS. The Securities shall bear legends as follows;

          (a)    The Note shall bear substantially the following legend:

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

          (b)    Any shares of common stock issued pursuant to
conversion of the Note or exercise of the Warrants, shall bear a
legend which shall be in substantially the following form until such
shares are covered by an effective registration statement filed with
the SEC:

          "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
          ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT
          BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
          ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
          SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
          COUNSEL REASONABLY SATISFACTORY TO

                                       27


          TRANSGENOMIC, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

          (c)    The Warrants shall bear substantially the following
          legend:

          "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
          OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
          SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
          UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR
          SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
          REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
          SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE
          SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
          SATISFACTORY TO TRANSGENOMIC, INC. THAT SUCH REGISTRATION IS
          NOT REQUIRED."

          38.  SHORTING. Neither Laurus nor any of its Affiliates or investment
partners will, or cause any person or entity, directly or indirectly to, engage
in "short sales" of Company's common stock or any other hedging strategies
directly related to Company's common stock.

       [Balance of page intentionally left blank; signature page follows.]

                                       28


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


                                        TRANSGENOMIC, INC.


                                        By: /s/ Michael J. Draper
                                           --------------------------------
                                        Name:   Michael J. Draper
                                             ------------------------------
                                        Title:  CFO
                                              -----------------------------


                                        LAURUS MASTER FUND, LTD.


                                        By: /s/ David Grin
                                           --------------------------------
                                        Name:
                                             ------------------------------
                                        Title:
                                              -----------------------------

                                       29


                              ANNEX A - DEFINITIONS

          "ACCOUNT DEBTOR" means any Person who is or may be obligated with
respect to, or on account of, an Account.

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

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

          "ACCOUNTS AVAILABILITY" means the amount of Loans against Eligible
Accounts and Eligible Foreign Accounts Laurus may from time to time make
available to Company up to ninety percent (90%) of the net face amount of
Eligible Accounts and Eligible Foreign Accounts based on Accounts of Company.

          "AFFILIATE" of any Person means (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, (b) any Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.

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

          "BOOKS AND RECORDS" means all books, records, board minutes,
contracts, licenses, insurance policies, environmental audits, business plans,
files, computer files, computer discs and other data and software storage and
media devices, accounting books and records,

                                       30


financial statements (actual and pro forma), filings with Governmental
Authorities and any and all records and instruments relating to the Collateral
or otherwise necessary or helpful in the collection thereof or the realization
thereupon.

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

          "CAPITAL AVAILABILITY AMOUNT" means $7,500,000.

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

          "CLOSING DATE" means the date on which Company shall first receive
proceeds of the initial Loans.

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

          (a)    all Inventory;

          (b)    all Equipment;

          (c)    all Fixtures;

          (d)    all General Intangibles;

          (e)    all Accounts;

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

          (g)    all Investment Property;

          (h)    all Stock;

          (i)    all Chattel Paper;

          (j)    all Letter-of-Credit Rights;

          (k)    all Instruments;

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

          (m)    all Books and Records;

                                       31


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

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

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

          "CONTRACT RATE" means an interest rate per annum equal to the greater
of (a) Prime Rate plus two percent (2.0%) per annum and (b) six percent (6.0%)
per annum; provided, however, the Contract Rate shall be subject to adjustment
as follows: if (i) Company shall have registered the shares of Company's common
stock underlying the conversion of the applicable Minimum Borrowing Note and
that certain warrant issued to Laurus on a registration statement declared
effective by the SEC, and (ii) the volume weighted average price of the common
stock as reported by Bloomberg, L.P. on the principal market for any of the 10
trading days immediately preceding any applicable date upon which interest is
payable under Section 5 hereof exceeds the then applicable Fixed Conversion
Price by a multiple of at least fifteen percent (15%), then the Contract Rate
for the succeeding calendar month shall automatically be reduced by twenty-five
basis points (25 b.p.) for such month for each such fifteen percent (15%)
multiple.

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

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

          "DEPOSIT ACCOUNTS" means all "deposit accounts" as such term is
defined in the UCC, now or hereafter held in the name of any Person, including,
without limitation, the Lockbox Account.

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

          "ELIGIBLE ACCOUNTS" means and includes each Account (payable in United
States dollars) which conforms to the following criteria: (a) shipment of the
merchandise or the rendition of services has been completed; (b) no return,
rejection or repossession of the merchandise has occurred; (c) merchandise or
services shall not have been rejected or disputed by the Account Debtor and
there shall not have been asserted any offset, defense or counterclaim; (d)
continues to be in full conformity with the representations and warranties made
by Company to Laurus with respect thereto; (e) Laurus is, and continues to be,
satisfied with the credit standing of the Account Debtor in relation to the
amount of credit extended as determined

                                       32


by Laurus in the good faith exercise of its reasonable discretion; (f) there are
no facts existing or threatened which are likely to result in any adverse change
in an Account Debtor's financial condition; (g) is documented by an invoice in a
form approved by Laurus and shall not be unpaid more than one hundred and twenty
(120) days from invoice date; (h) not more than twenty-five percent (25%) of the
unpaid amount of invoices due from such Account Debtor remains unpaid more than
one hundred and twenty (120) days from invoice date; (i) is not evidenced by
chattel paper or an instrument of any kind with respect to or in payment of the
Account unless such instrument is duly endorsed to and in possession of Laurus
or represents a check in payment of a Account; (j) the Account Debtor is located
in the United States except with respect to Eligible Foreign Accounts; (k)
Laurus has a first priority perfected Lien in such Account and such Account is
not subject to any Lien other than Permitted Liens; (l) does not arise out of
transactions with any employee, officer, director, stockholder or Affiliate of
Company; (m) is payable to Company; (n) does not arise out of a bill and hold
sale prior to shipment and does not arise out of a sale to any Person to which
Company is indebted; (o) is net of any returns, discounts, claims, credits and
allowances; (p) if the Account arises out of contracts between Company and the
United States, any state, or any department, agency or instrumentality of any of
them ("Government Accounts"), Company has so notified Laurus, in writing, prior
to the creation of such Account, and there has been compliance with any
governmental notice or approval requirements, including compliance with the
Federal Assignment of Claims Act; provided that, so long as no Event of Default
shall have occurred and be continuing, such compliance shall only be required to
the extent that the total unpaid Government Accounts exceed twenty percent (20%)
of all Eligible Accounts; (q) is a good and valid account representing an
undisputed bona fide indebtedness incurred by the Account Debtor therein named,
for a fixed sum as set forth in the invoice relating thereto with respect to an
unconditional sale and delivery upon the stated terms of goods sold by Company
or work, labor and/or services rendered by Company; (r) does not arise out of
progress billings prior to completion of the order; (s) the total unpaid
Accounts from such Account Debtor does not exceed twenty-five percent (25%) of
all Eligible Accounts; (t) Company's right to payment is absolute and not
contingent upon the fulfillment of any condition whatsoever; (u) Company is able
to bring suit and enforce its remedies against the Account Debtor through
judicial process; (v) does not represent interest payments, late or finance
charges owing to Company; and (w) is otherwise satisfactory to Laurus as
determined by Laurus in the good faith exercise of its commercially reasonable
discretion. In the event Company requests that Laurus include within Eligible
Accounts certain Accounts of one or more of Company's acquisition targets,
Laurus shall at the time of such request consider such inclusion, but any such
inclusion shall be at the sole option of Laurus and shall at all times be
subject to the execution and delivery to Laurus of all such documentation
(including, without limitation, guaranty and security documentation) as Laurus
may require in its sole discretion.

          "ELIGIBLE FOREIGN ACCOUNTS" means and includes each Account with
respect to which the Account Debtor is located in a country other than the
United States of America and which conforms to the following criteria: (a) is
deemed an "Eligible Account" hereunder and (b) (i) the goods which gave rise to
such Account were shipped after receipt by Laurus of an irrevocable letter of
credit naming Laurus as the beneficiary thereof issued and confirmed by a
financial institution acceptable in all respects to Laurus and otherwise in form
and substance acceptable to Laurus in the face amount covering the gross amount
of the Account and payable in United States dollars at a place of payment
located within the United States or (ii) such Account is covered by an insurance
policy issued by an insurance carrier acceptable to Laurus in

                                       33


all respects, the proceeds under which shall be assigned to Laurus pursuant to
such documentation acceptable to Laurus in all respects and shall otherwise be
satisfactory to Laurus in all respects.

          "ELIGIBLE INVENTORY" means Inventory owned by Company which Laurus, in
its sole and absolute discretion, determines: (a) is subject to a first priority
perfected Lien in favor of Laurus and is subject to no other Liens whatsoever
(other than Permitted Liens); (b) is located on premises with respect to which
Laurus has received a landlord or mortgagee waiver acceptable in form and
substance to Laurus; (c) is not in transit; (d) is in good condition and meets
all standards imposed by any governmental agency, or department or division
thereof having regulatory Governmental Authority over such Inventory, its use or
sale including the Federal Fair Labor Standards Act of 1938 as amended, and all
rules, regulations and orders thereunder; (e) is currently either usable or
salable in the normal course of Company's business; (f) is not placed by Company
on consignment or held by Company on consignment from another Person; (g) is in
conformity with the representations and warranties made by Company to Laurus
with respect thereto; (h) is not subject to any licensing, patent, royalty,
trademark, trade name or copyright agreement with any third parties; (i) does
not require the consent of any Person for the completion of manufacture, sale or
other disposition of such Inventory and such completion, manufacture or sale
does not constitute a breach or default under any contract or agreement to which
Company is a party or to which such Inventory is or may be subject; (j) is not
work-in-process; (k) is covered by casualty insurance acceptable to Laurus; and
(l) not to be ineligible for any other reason.

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

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

          "EVENT OF DEFAULT" means the occurrence of any of the events set forth
in Section 18.

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

          "FORMULA AMOUNT" has the meaning set forth in Section 2(a)(i).

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

          "GE AGREEMENT" means that certain Master Lease Agreement dated as of
December 12, 2002 by and between General Electric Capital Corporation and
Company.

                                       34


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

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

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

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

          "GUARANTOR" means Transgenomic UK and any other Person who may
guarantee payment of performance of the whole or any part of the Obligations.

          "GUARANTOR SECURITY AGREEMENTS" means all security agreements,
mortgages, cash collateral deposit letters, pledges and other agreements which
are executed by any Guarantor in favor of Laurus.

          "GUARANTY" means all agreements to perform all or any portion of the
Obligations on behalf of Company.

          "INDEMNIFIED PERSON" shall have the meaning given to such term in
Section 25.

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

                                       35


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

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

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

          "INVENTORY AVAILABILITY" means the amount of Loans against Eligible
Inventory Laurus may from time to time make available to Company up to the
lesser of (a) one hundred percent (100%) of the value of Company's Eligible
Inventory (calculated on the basis of the lower of cost or market, on a first-in
first-out basis), (b) thirty percent (30%) of Accounts Availability and (c)
$1,000,000.

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

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

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

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

          "LOANS" shall have the meaning set forth in Section 2(a)(i) and shall
include all other extensions of credit hereunder and under any Ancillary
Agreement.

                                       36


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

          "MAXIMUM LEGAL RATE" shall have the meaning given to such term in
Section 5(a)(iv).

          "MINIMUM BORROWING AMOUNT" means $2,000,000, which such aggregate
amount shall be evidenced by Minimum Borrowing Notes.

          "MINIMUM BORROWING NOTES" shall mean each Secured Convertible Note,
which shall be issued in a series, made by Company in favor of Laurus to
evidence the Minimum Borrowing Amount.

          "NOTES" means each of the Minimum Borrowing Notes and the Revolving
Note made by Company in favor of Laurus in connection with the transactions
contemplated hereby, as the same may be amended, modified and supplemented from
time to time, as applicable.

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

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

          "PERMITTED LIENS" means (a) Liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (b) Liens incurred in the ordinary course of business
in connection with workmen's compensation, unemployment insurance or other forms
of governmental insurance or benefits,

                                       37


relating to employees, securing sums (i) not overdue or (ii) being diligently
contested in good faith provided that adequate reserves with respect thereto are
maintained on the books of the applicable Company in conformity with GAAP; (c)
Liens in favor of Laurus; (d) Liens for taxes (i) not yet due or (ii) being
diligently contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the books of the
applicable Company in conformity with GAAP provided, that, the Lien shall have
no effect on the priority of Liens in favor of Laurus or the value of the assets
in which Laurus has a Lien; (e) Purchase Money Liens securing Purchase Money
Indebtedness to the extent permitted in this Agreement and (f) Liens specified
on EXHIBIT 2 hereto.

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

          "PRIME RATE" means the "prime rate" published in THE WALL STREET
JOURNAL from time to time. The Prime Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in such rate.

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

          "PURCHASE MONEY INDEBTEDNESS" means (a) any indebtedness incurred for
the payment of all or any part of the purchase price of any fixed asset,
including indebtedness under capitalized leases, (b) any indebtedness incurred
for the sole purpose of financing or refinancing all or any part of the purchase
price of any fixed asset, and (c) any renewals, extensions or refinancings
thereof (but not any increases in the principal amounts thereof outstanding at
that time).

                                       38


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

          "REGISTRATION RIGHTS AGREEMENTS" means those registration rights
agreements from time to time entered into between Company and Laurus, as
amended, modified and supplemented from time to time.

          "REVOLVING NOTE" means that secured revolving note made by Company in
favor of Laurus in the aggregate principal amount (without duplication of any
amounts owing under the Minimum Borrowing Notes) of Seven Million Five Hundred
Thousand Dollars ($7,500,000).

          "SECURITIES" means the Notes and the Warrants being issued by Company
to Laurus pursuant to this Agreement and the Ancillary Agreements and the shares
of the common stock of Company which may be issued pursuant to conversion of
such Notes in whole or in part or exercise of such Warrants.

          "SECURITIES ACT" shall have the meaning given to such term in Section
12(i).

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

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

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

          "SUPPLY AGREEMENT" means that certain Supply Agreement dated June 15,
2002 by and between Geron Corporation and Company.

          "SUPPORTING OBLIGATIONS" means all "supporting obligations" as such
term is defined in the UCC.

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

          "TRANSGENOMIC UK" means Transgenomic, Ltd., a United Kingdom
corporation.

                                       39


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

          "WARRANTS" has the meaning set forth in the Registration Rights
Agreements.

                                       40