LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY INC
DEED OF HYPOTHEC, DATED OCTOBER 30, 2001
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>7
<FILENAME>b41767liex10-5.txt
<DESCRIPTION>DEED OF HYPOTHEC, DATED OCTOBER 30, 2001
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.5

                                DEED OF HYPOTHEC


[Seal]


ON THE THIRTIETH DAY OF OCTOBER, TWO THOUSAND AND ONE.


BEFORE Me Kevin Leonard, the undersigned Notary for the Province of Quebec,
practising in the City of Montreal,

APPEARED: LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC., a corporation
constituted under the laws of Delaware, having its principal place of business
at 8851 Trans-Canada Highway, in the City of St-Laurent, in the Province of
Quebec, herein acting and represented by Gary Moskovitz, its President and Chief
Executive Officer, hereunto duly authorized in virtue of resolutions of the
board of directors of the said corporation duly adopted, certified copies or
duplicates of which remain hereto annexed after having been signed for
identification by the said representative in the presence of the undersigned
Notary (hereinafter referred to as the "BORROWER");

                                                         PARTY OF THE FIRST PART


AND:    CIBC MELLON TRUST COMPANY, a trust company duly constituted under the
Trust Companies Act (R.S.C., 1985, c.T-20), which act has been repealed and
replaced by the Trust and Loan Companies Act (S.C., 1991, c.45), having its
principal place of business at 320 Bay Street, P.O. Box 1, Toronto, Ontario, M5H
4A6, and a place of business at 2001 University Street, Suite 1600, Montreal,
Quebec, H3A 2A6, herein acting and represented by Pierre Tremblay, Senior
Administrator, Fiduciary Services, and Ernestine Reinhold, Manager, Fiduciary
Services, and duly authorized under the terms of Article 2, Section 2,.02 of its
by-laws and an instrument in writing signed by the President and the Secretary
on October 5, 2001, a certified copy of which remains hereto annexed after
having been signed for identification by the said representatives in the
presence of the undersigned Notary (hereinafter referred to as the "SECURITY
AGENT");

                                                        PARTY OF THE SECOND PART


WHICH PARTIES HAVE DECLARED AND AGREED, IN THE PRESENCE OF THE UNDERSIGNED
NOTARY, AS FOLLOWS:


      WHEREAS the Borrower has executed the Convertible Notes as hereinafter
defined;

      WHEREAS pursuant to the Civil Code of Quebec (the "C.C.Q."), the Borrower
wishes to grant hypothecs on the universality of all of its movable property,
rights and assets, present and future, corporeal and incorporeal in favour of
the Security Agent for the benefit of the Lenders as continuing and


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collateral security for the fulfilment by the Borrower of all its obligations
under the Convertible Notes, the whole as more fully set forth hereinbelow; and

         WHEREAS the Lenders have appointed the Security Agent to act as agent
and as fonde de pouvoir (holder of the power of attorney) of the Lenders and to
hold the security hereunder in such capacities on their behalf pursuant to an
act of appointment dated October 9, 2001.

NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AS FOLLOWS:

1.       PREAMBLE AND DEFINITIONS

1.1      PREAMBLE

         The preamble shall form an integral part hereof as if herein recited at
         length.

1.2      DEFINITIONS

         In this Deed, the following terms shall have the following meanings:

         "ACCESSORIES": shall have the meaning set forth in Section 3.1.

         "BORROWER": Lumenon Innovative Lightwave Technology, Inc., a company
         incorporated under the laws of Delaware.

         "COLLATERAL": shall have the meaning set forth in Section 2.1.

         "CONVERTIBLE NOTES": the nine separate Amended and Restated Convertible
         Notes, each dated October 9, 2001 in the aggregate principal amount of
         U.S. Six Million Five Hundred Fifty Thousand Dollars (U.S. $6,550,000)
         in favour of Capital Ventures International and the seven separate
         Amended and Restated Convertible Notes each dated October 9, 2001 in
         the aggregate principal amount of U.S. Five Million Seven Hundred
         Thousand Dollars (U.S. $5,700,000) in favour of Castle Creek Technology
         Partners LLC, all executed by the Borrower, in each case as may be
         further modified, amended or restated from time to time.

         "LENDERS": Capital Ventures International, a Cayman Islands unlimited
         liability company and Castle Creek Technology Partners LLC, a limited
         liability company, and their respective successors and assigns.

         "MAJORITY LENDERS": shall have the meaning given to it in Section 5.6
         hereof.

         "OBLIGATIONS": the payment, in lawful money of the United States, of
         all principal of and interest (including interest on amounts in
         default) and premiums if any, from time to time due on the Convertible
         Notes, as well as the payment of all other sums, if any, from time to
         time due under this Deed.


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         "SECURITY AGENT": CIBC Mellon Trust Company and its successors and
         assigns.

2.       HYPOTHEC

2.1      As security for the performance of the Obligations and of the fees and
         expenses, if any, incurred by the Security Agent to secure performance
         of the Obligations or to preserve the Collateral the Borrower hereby
         grants to the Security Agent, for the benefit and as fonde de pouvoir
         of the Lenders, a hypothec in the amount of Cdn. Twenty-Four Million
         Five Hundred Thousand Dollars (Cdn. $24,500,000), with interest at the
         rate of twenty per cent (20%) per annum from the date hereof, on the
         universality of all of the Borrower's movable property, rights and
         assets, present and future, corporeal and incorporeal, of whatever
         nature and kind and wherever situate, whether now owned or hereafter
         acquired (the "COLLATERAL") including, without limitation, the
         following:

         2.1.1.   CLAIMS

                  All accounts receivable, book accounts, book debts, debts,
                  claims, customer accounts, bank accounts, rentals, revenues,
                  income, loans receivable, choses in action, judgments,
                  contract rights, proceeds of sale, demands, indemnities
                  payable under any contract of insurance (whether or not such
                  insurance is on property forming part of the Collateral),
                  rebates, refunds, amounts owing by or claimable from the
                  Crown, state or government (or any departments, agents or
                  agencies thereof) and any other moneys, amounts or demands of
                  every nature and kind howsoever arising, whether or not
                  secured, which are now or become hereafter due or owing to the
                  Borrower as well as all security interests, hypothecs,
                  assignments, guarantees, bills of exchange, notes, negotiable
                  instruments, and judgments in respect of all of the foregoing
                  and together with all contracts, agreements, invoices,
                  records, books of account, disks, programs, letters of credit
                  or guarantee and/or other documents, papers and materials in
                  any way evidencing or relating to all or any of the foregoing,
                  now or hereafter owned or acquired by or on behalf of the
                  Borrower, and all right, title and interest in any of the
                  foregoing which the Borrower now or at any time in the future
                  has or may have (hereinafter collectively referred to as the
                  "CLAIMS");

                  A right or a claim shall not be excluded from the Collateral
                  by reason of the fact that (i) the debtor thereof is domiciled
                  outside the Province of Quebec or (ii) the debtor thereof is
                  an affiliate (as such term is defined in the Canada Business
                  Corporations Act) of the Borrower (regardless of the law of
                  the jurisdiction of its incorporation) or (iii) such right or
                  claim is not related to the operations of the Borrower or (iv)
                  such right or claim is not related to the ordinary course of
                  business of the Borrower;

         2.1.2.   INSURANCE POLICIES

                  All of the Borrower's present and future insurance policies
                  maintained by the Borrower in respect of the Collateral and
                  all insurance proceeds or indemnities in respect of the
                  Collateral payable thereunder which are received by or on
                  behalf of the Borrower;


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         2.1.3.   SECURITIES

                  All of the Borrower's present and future shares in the capital
                  stock of a legal person, all of the Borrower's present and
                  future bonds, debentures, bills of exchange, promissory notes,
                  negotiable instruments and other evidences of indebtedness,
                  and all of the Borrower's present and future options,
                  warrants, investment certificates, mutual fund units, all
                  interests of the Borrower in any partnership, or any rights in
                  respect to any of the foregoing, and any other instrument or
                  title generally called or included as a security (hereinafter
                  collectively referred to as "SECURITIES"), including, without
                  limitation, all Securities issued or received in substitution,
                  renewal, addition or replacement of Securities, or issued or
                  received on the purchase, redemption, conversion, cancellation
                  or other transformation of Securities or issued or received by
                  way of dividend or otherwise to holders of Securities, and all
                  present and future instruments, bills of lading, warehouse
                  receipts, documents or other evidences of title of the
                  Borrower;

         2.1.4.   EQUIPMENT

                  All of the Borrower's present and future machinery, equipment,
                  implements, furniture, tools, rolling stock (including
                  aircraft and road vehicles), spare parts and additions;

         2.1.5.   INTELLECTUAL PROPERTY RIGHTS

                  All of the Borrower's present and future rights in any trade
                  mark, copyright, industrial design, patent, patent rights,
                  goodwill, invention, trade secret, know-how, and in any other
                  intellectual property right (registered or not) which are
                  owned by the Borrower and including any improvements and
                  modifications thereto as well as rights in any action
                  pertaining to the protection, in Canada or abroad, of any such
                  intellectual property rights;

         2.1.6.   RECORDS

                  All of the Borrower's present and future books, accounts,
                  disks, files, records, invoices, letters, papers, documents
                  and other repositories of data recording in any form or
                  medium, evidencing or relating to the Collateral;

         2.1.7.   OTHER PROPERTY

                  With respect to the Collateral, all present and future
                  substitutions and replacements thereof, increases, additions
                  and accessions thereto and thereon, and any interest of the
                  Borrower therein;

         2.1.8.   PROCEEDS

                  All of the Borrower's identifiable or traceable movable
                  property, corporeal or incorporeal, in any form derived or
                  resulting, directly or indirectly, from any dealing with the
                  Collateral, including all insurance proceeds or indemnities
                  paid under insurance contracts covering all or any part of the
                  Collateral that is received by or on behalf of the Borrower as


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                                                                               5


                  indemnification or compensation for all or any part of the
                  Collateral that are lost, destroyed or damaged, and all right,
                  title and interest in any of the foregoing which the Borrower
                  now or at any time in the future has or may have; and

         2.1.9.   FRUITS AND REVENUES

                  All of the Borrower's present and future fruits and revenues
                  emanating from the above Collateral, including without
                  limitation, the proceeds of any sale, assignment, lease or
                  other disposition of any of the present and future property of
                  the Borrower, any claim resulting from such a sale,
                  assignment, lease or other disposition, as well as any
                  property acquired in replacement thereof.

2.2      NO FLOATING HYPOTHEC

         The hypothec herein created in favour of the Security Agent shall not
         constitute nor be construed as a floating hypothec under the provisions
         of Article 2715 of the C.C.Q. and is created without delivery.

2.3      CONTINUING OBLIGATION

         The full amount of the hypothec herein created shall be and remain
         continuing collateral security in favour of the Security Agent, for the
         full repayment, fulfilment or performance of the Obligations and such
         hypothec shall be and remain in full force and effect until released by
         the Security Agent as provided in Section 16 hereof, notwithstanding
         the fact that all or any Obligations arise prior to, at the time of or
         subsequent to the execution hereof, the repayment or reduction or
         fulfilment at any time and from time to time of the Obligations or any
         part thereof, or the fact that at any time and from time to time there
         may be no Obligations owing to the Security Agent by the Borrower.

2.4      NO REDUCTION, DISCHARGE OR NOVATION

         No payment made by the Borrower or by any person on its behalf to the
         Security Agent shall in any way operate as a reduction or discharge of
         the Obligations, save only as and when such payment is expressly
         applied by the Security Agent in reduction of the said Obligations.

2.5      PAST, PRESENT OR FUTURE ADVANCES

         The hypothec created hereunder shall be and have effect whether or not
         the moneys thereby secured shall be received before or after or at the
         same time as the execution of any of the Convertible Notes intended to
         be thereby secured or any part thereof, or before or after, or upon the
         date of the execution of this Deed. The extinction or reduction of the
         Obligations for any reason whatsoever shall not in any way extinguish
         or reduce the hypothec granted hereby and, unless expressly cancelled
         in whole or in part by the mutual consent of the parties, such
         hypothec, to the extent not so cancelled, shall subsist with respect to
         any Obligations thereafter incurred by the Borrower from time to time.

         The Borrower shall be deemed to obligate itself again as provided in
         Article 2797 of the C.C.Q. with respect to any future obligation hereby
         secured.


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2.6      CONVERTIBLE NOTES TO RANK PARI PASSU

         The Convertible Notes shall be secured equally and rateably by the
         security created hereunder.

3.       ADDITIONAL HYPOTHEC

3.1      As additional security for the payment of the Obligations (including,
         without limitation, interest on interest, legal fees, costs of
         realization, expenses incurred by the Security Agent in connection with
         the preservation and maintenance of the hypothec hereby created and of
         the Collateral or otherwise in connection with the Obligations, and
         generally all the accessories of the Obligations) (hereinafter
         collectively called the "Accessories"), the Borrower hereby further
         hypothecates the Collateral in favour of the Security Agent for the
         benefit and as fonde de pouvoir of the Lenders for an additional sum of
         Cdn. Four Million Nine Hundred Thousand Dollars (Cdn. $4,900,000); the
         hypothecs created in favour of the Security Agent pursuant to this Deed
         being for the aggregate sum of Cdn. Twenty Nine Million Four Hundred
         Thousand Dollars (Cdn. $29,400,000).

4.       COVENANTS OF DEBTOR

4.1      The Borrower hereby binds and obliges itself, until all of the
         Obligations and Accessories have been duly repaid, performed or
         satisfied in full and to the satisfaction of the Security Agent:

         4.1.1.   to pay all fees and expenses (including the fees and expenses
                  of the Security Agent), and costs of publication in respect of
                  this Deed and in respect of all renewal titles, renewals of
                  publication, notices of address and discharges in connection
                  therewith;

         4.1.2.   to truly and punctually pay or cause to be paid the principal,
                  premium, if any, and interest to become due in respect to the
                  Convertible Notes on the dates and at the place in the moneys,
                  amounts and manner provided for with respect thereto herein or
                  therein; and

         4.1.3.   not to move outside the Province of Quebec any material
                  portion of the corporeal assets included in the Collateral
                  except:

                  (a)      with the prior written consent of the Lenders, or

                  (b)      the sale of inventory in the ordinary course of
                           business, or

                  (c)      the movement of products and/or equipment
                           (collectively, "EQUIPMENT") to a customer's premises
                           for testing purposes, provided that the Borrower will
                           use its best efforts to register a security interest
                           over such Equipment in favour of the Security Agent,
                           on behalf of the Lenders, in the jurisdiction of such
                           customer's premises within 30 days of the delivery of
                           such Equipment to such jurisdiction, or such shorter
                           period as may be required under applicable law to
                           maintain perfection of the security granted
                           hereunder.


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5.       CONCERNING THE SECURITY AGENT

5.1      FONDE DE POUVOIR

         To the full extent necessary or desirable, the Borrower and the
         Security Agent specifically acknowledge and agree that the Security
         Agent is executing and delivering this Deed, and accepting the
         hypothecs, rights, remedies, powers and benefits conferred upon the
         Security Agent hereby, as the person holding the power of attorney
         ("fonde de pouvoir") of the Lenders.

5.2      SECURITY AGENT

         The Security Agent may (i) resign at any time by giving written notice
         to the Borrower and the Lenders, or (ii) be removed at any time, with
         or without cause, by the Lenders, such resignation or removal to be
         effective upon the appointment of a successor Security Agent. Upon
         notice of any resignation or removal, the Lenders have the right to
         appoint a successor Security Agent who (at any time that no Event of
         Default has occurred and is continuing) shall be acceptable to the
         Borrower, acting reasonably. If no successor Security Agent is
         appointed or has accepted the appointment within thirty (30) days after
         the retiring Security Agent's notice of resignation or removal, as the
         case may be, then the retiring Security Agent or the Majority Lenders
         may, on behalf of the Lenders, appoint a successor Security Agent. Upon
         the acceptance of any such appointment by a successor Security Agent,
         the successor shall succeed to and become vested with all the rights,
         powers, privileges and duties of the retiring Security Agent and the
         retiring Security Agent shall be discharged from its duties and
         obligations under this Deed.

5.3      UNFETTERED DISCRETION TO EXERCISE POWERS

         The Security Agent, except as otherwise provided in this Deed, shall,
         as regards all the powers, authorities and discretions vested in it,
         have absolute and unfettered discretion as to the exercise thereof,
         whether in relation to the manner or as to the mode and time for the
         exercise thereof, and in the absence of fraud, it shall be in no way
         responsible for any loss, costs, damages or inconvenience that may
         result from the exercise or non-exercise thereof except if due to its
         wilful misconduct or gross negligence.

5.4      AGENT NOT BOUND TO GIVE NOTICE

         The Security Agent shall not be bound to give notice to any person of
         the execution of this Deed or of the hypothec created under this Deed
         unless and until it shall have been required to do so by the Lenders,
         either directly or through its authorized agent.

5.5      MAY VOTE IN BANKRUPTCY

         In the event of the Borrower making an authorized assignment or a
         custodian, trustee or liquidator in respect of the Borrower's
         properties being appointed under any bankruptcy, insolvency,
         liquidation or reorganization law of any jurisdiction, the Security
         Agent, acting on behalf of the Lenders, may file and prove a claim,
         value security and vote and act at all meetings of creditors and
         otherwise in such proceedings as directed.


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5.6      TO ACT ON INSTRUCTIONS OF MAJORITY LENDERS

         The Security Agent shall be obliged to act and shall act and be fully
         protected in acting upon the instructions or directions of the Lender
         or Lenders holding a majority of the then outstanding principal amount
         of the Convertible Notes, provided that, in order to ascertain whether
         the Lender or Lenders giving the instruction or direction to the
         Security Agent hold such majority of the then outstanding principal
         amount of the Convertible Notes, the Security Agent shall be entitled
         to rely, without any independent investigation or inquiry, on any
         certificate or written representation provided to it by the Lender or
         Lenders (the "MAJORITY LENDERS") giving such instruction or direction
         in connection with any proceeding, act, power, right, matter or thing
         relating to or conferred by right or to be done under this Deed, and
         provided further that the obligation of the Security Agent to commence
         or continue any act, action or proceeding under this Deed shall be
         conditional upon the Lenders furnishing, when required, sufficient
         funds to commence or continue such action or proceeding and an
         indemnity reasonably satisfactory to the Security Agent.

5.7      FREE ACCESS TO RECORDS

         If requested by the Lenders or the Majority Lenders, the Security Agent
         shall be obliged to give to the Lenders or to its officers or
         authorized agents, free access to and communication of the Security
         Agent's records relating to these presents and all matters connected
         therewith.

5.8      NO REPRESENTATION OR WARRANTY

         The Security Agent makes no statement, promise, representation or
         warranty whatsoever, and shall have no liability whatsoever, to the
         Lenders as to the authorization, execution, delivery, legality,
         enforceability or sufficiency of this Deed or as to the creation,
         perfection, priority, or enforceability of any hypothecs granted
         hereunder or as to existence, ownership, quality, condition, value or
         sufficiency of any Collateral or as to any other matter whatsoever.

5.9      ACTS BINDING ON LENDERS

         Any modification, amendment, waiver, release, termination or discharge
         of any hypothecs, right, remedy, power or benefit conferred upon the
         Security Agent that is effectuated in a writing signed by the Security
         Agent shall be binding upon all of the Lenders.

6.       EVENTS OF DEFAULT

6.1      Each of the following shall constitute an event of default hereunder
         (herein individually referred to as an "EVENT OF DEFAULT"):

         6.1.1.   the failure of the Borrower to pay any of the Obligations as
                  and when due and payable; or

         6.1.2.   if the Borrower shall become bankrupt or insolvent.


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6.2      RECOURSES

         In case of the happening and during the continuance of an Event of
         Default and after the Security Agent has declared the Obligations to be
         due and payable pursuant to Section 6.3, the Security Agent may, and
         upon instructions from the Lenders or the Majority Lenders shall, then
         declare that the security hereby constituted has become enforceable,
         whereupon the security hereby constituted shall become enforceable and
         the Security Agent shall, in addition to any of its other rights,
         forthwith be entitled to enforce the security hereby constituted and in
         that respect, to exercise, for the benefit of the Lenders, any and all
         of the rights provided for in Chapter V of Title III of Book VI of the
         C.C.Q. and in the Code of Civil Procedure of Quebec. In exercising any
         of the rights and recourses available hereunder or at law, the Security
         Agent may, at its option, in respect of all or any part of the
         Collateral, exercise such rights and recourses as are available
         hereunder or at law, without prejudice to any other rights and
         recourses of such party available in respect of the Collateral or any
         part thereof. It is understood and agreed that to the extent permitted
         by law, the Security Agent may exercise any of its rights and recourses
         in respect of the Collateral or any part thereof simultaneously or
         successively and shall be entitled to acquire all or any part of the
         Collateral.

6.3      DECLARATION BY SECURITY AGENT

         Subject to the terms and conditions of the Convertible Notes, upon the
         occurrence and during the continuance of an Event of Default under this
         Deed, the Security Agent may, and upon instructions from the Lenders or
         the Majority Lenders shall, declare the whole or any part of the
         Obligations as being immediately due and payable, without presentment,
         demand, protest or other notice of any kind, all of which are hereby
         expressly waived by the Borrower, anything in this Deed to the contrary
         notwithstanding whereupon such Obligations shall become immediately due
         and payable, the whole without in any way limiting or restricting any
         of the rights of the Lenders under the Convertible Notes.

6.4      WAIVER OF EVENT OF DEFAULT

         In the event that any of the security under this Deed becomes
         enforceable, the Lenders (either directly or through an authorized
         agent) or the Security Agent acting upon the instructions of the
         Lenders or the Majority Lenders, may waive any default under this Deed,
         unconditionally or upon such terms and conditions as such person shall
         prescribe and may direct the Security Agent to cancel any declaration
         made by it pursuant to the provisions of Section 6.3, provided always
         that no act or omission by the Lenders or the Security Agent with
         respect to any specific default and any security created under this
         Deed shall extend to or be taken in any manner whatsoever to affect any
         subsequent default or the rights resulting therefrom.

6.5      VOLUNTARY SURRENDER

         If the Security Agent gives the Borrower a prior notice of its
         intention to exercise a hypothecary right the Borrower shall, and shall
         cause any other person in possession of Collateral to, immediately
         voluntarily surrender same to the Security Agent.

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6.6      LOCATION OF COLLATERAL

         The Borrower shall disclose to the Security Agent, upon written request
         of such party, the location or locations of the Collateral.

6.7      SECURITY AGENT NOT REQUIRED TO ACT

         Without limiting any provision of the Convertible Notes, the Security
         Agent shall have the right in its discretion to proceed, in the event
         that the security hereby constituted becomes enforceable, in its name
         as Security Agent under this Deed in the enforcement of the security
         created under this Deed and under any remedy provided by any applicable
         law, whether by legal proceedings or otherwise, but it shall not be
         bound to do or take any act or action in virtue of the powers conferred
         on it by this Deed unless and until it shall have been required so to
         do by the Lenders either directly or through its authorized agent,
         defining the action which it is required to take.

6.8      LIMITATION OF LIABILITY

         The Security Agent shall not be responsible or liable, otherwise than
         as a hypothecary creditor holding the power of attorney of the Lenders,
         for any debts contracted by it, for damages to persons or property or
         for salaries or non-fulfilment of contracts during any period wherein
         the Security Agent shall take possession of the Collateral pursuant to
         the terms of any applicable law or this Deed, nor shall the Security
         Agent be liable to account except in respect of amounts actually
         received or be liable for any loss on realization or for any default or
         omission for which a hypothecary or secured creditor might be liable,
         and the Security Agent shall not be bound to do, observe or perform or
         to see to the observance or performance by the Borrower of any of the
         obligations or covenants imposed upon the Borrower under this Deed nor
         in any way to supervise or interfere with the conduct of the Borrower's
         business, unless and until the security created under this Deed has
         become enforceable and the Security Agent shall have become bound to
         enforce the same and shall have been kept supplied with moneys
         reasonably necessary to provide for the expense of the required action.

6.9      PERSONS DEALING WITH THE SECURITY AGENT

         No person dealing with the Security Agent or its agents shall be
         concerned to inquire whether the security created under this Deed has
         become enforceable, or whether the powers which the Security Agent is
         purporting to exercise have become exercisable, or whether any money
         remains due upon the security of this Deed or the Convertible Notes, or
         as to the necessity or expediency of the stipulations and conditions
         subject to which any sale shall be made, or otherwise as to the
         propriety or regularity of any sale or of any other dealing by the
         Security Agent with the Collateral pursuant to the terms of any
         applicable law or this Deed or to see to the application of any money
         paid to the Security Agent, and, in the absence of fraud on the part of
         such person, such dealing shall be deemed, so far as regards the safety
         and protection of such persons, to be within the powers conferred under
         this Deed and to be valid and effectual accordingly.


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6.10     POSSESSION NOT REQUIRED

         All rights of action under this Deed may be enforced by the Security
         Agent without the possession of the Convertible Notes or the production
         thereof at the trial or in other proceedings relevant thereto.

7.       REMEDIES CUMULATIVE

7.1      No right conferred upon or reserved to the Security Agent hereby or in
         any other agreement between the Borrower and the Security Agent is
         intended to be exclusive of any other right but each such right shall
         be cumulative and shall be in addition to every other right hereunder
         and thereunder and to every other right which may now or hereafter
         exist by law or by statute or under any other security in respect of
         the Obligations which the Security Agent may have heretofore obtained
         or may hereafter obtain from the Borrower or from any other person.

8.       POWERS OF LENDERS

8.1      Either Lender may, directly or through an authorized agent, exercise
         any one or more of the following powers:

         8.1.1.   Power to agree to any modification, abrogation, alteration,
                  compromise or arrangement of the rights of such Lender and/or,
                  subject to the Majority Lenders' consent, the Security Agent
                  against the Borrower or against its undertaking, property and
                  assets or any part thereof, whether such rights arise under
                  this Deed or the relevant Convertible Note or otherwise,
                  provided however that the Security Agent may decline to agree,
                  in its discretion, to any modification, abrogation,
                  alteration, compromise or arrangement which would adversely
                  affect its rights;

         8.1.2.   Power to waive and, subject to the Majority Lenders' consent,
                  direct the Security Agent to waive any default on the part of
                  the Borrower in complying with any provision of this Deed or
                  the relevant Convertible Note either unconditionally or upon
                  any conditions specified by such Lender, whether or not the
                  security under this Deed shall have become enforceable by
                  reason of such default.

8.2      The Majority Lenders, either directly or through an authorized agent,
         may exercise any one or more of the following powers:

         8.2.1.   After the occurrence and during the continuance of an Event of
                  Default, power to authorize the Borrower to sell or otherwise
                  dispose of all or part of the Collateral and to instruct the
                  Security Agent to release the same free from the hypothecs
                  created under this Deed, all upon such terms and conditions as
                  may be specified by the Majority Lenders; and

         8.2.2.   Power to direct or authorize the Security Agent to exercise
                  any power, right, remedy or authority given to it by this Deed
                  in any manner specified by the Majority Lenders or to refrain
                  from exercising any such power, right, remedy or authority.

<PAGE>
                                                                              12


9.       ADDITIONAL RIGHTS OF THE SECURITY AGENT

9.1      AGENT FOR BORROWER

         The Borrower hereby irrevocably constitutes the Security Agent or any
         manager or other officer of the Security Agent, its agent, with full
         power of substitution, in order to perform any act and sign any
         document necessary or useful to the exercise of the rights conferred on
         the Security Agent pursuant to this Deed.

9.2      ACT IN STEAD

         After the occurrence and during the continuance of an Event of Default,
         the Security Agent may, without being bound to do so, fulfil any or all
         of the obligations of the Borrower hereunder should the Borrower fail
         to do so in accordance with the provisions hereof.

9.3      NO OBLIGATION TO MAINTAIN

         To the extent that the Borrower has surrendered or will surrender the
         Collateral or any part thereof to the Security Agent or its agent or if
         the Security Agent or its agent have possession of the Collateral or
         any part thereof, neither the Security Agent nor its agent shall have
         any obligation to continue the use, operation or exploitation of the
         Collateral or any part thereof or to continue the use for which it is
         ordinarily destined or to exercise the rights pertaining to the
         Collateral or any part thereof or to make them productive; and the
         Borrower agrees that the Security Agent or its agent may do such acts
         and things, or refrain from doing such acts and things, as the Security
         Agent or its agent, in its discretion, acting reasonably, deem
         appropriate for the exercise of the rights of the Security Agent and
         the realization and enforcement of its hypothec.

9.4      USE OF PREMISES

         In order to enforce and realize its hypothec herein created, the
         Security Agent may use, at the Borrower's expense, the premises where
         the Collateral are located.

9.5      SALE OF COLLATERAL

         The Borrower agrees that with respect to any sale by the Security Agent
         of any of the Collateral in the exercise of the rights of the Security
         Agent, it will be commercially reasonable to sell such Collateral:

         9.5.1.   together or separately;

         9.5.2.   by auction or by call for tenders;

         9.5.3.   by sale by agreement with purchasers who may include persons
                  related to or affiliated with the Lenders, the Security Agent
                  or other debtors of the Lenders; and

         9.5.4.   by any combination of the foregoing,


<PAGE>
                                                                              13


         and any such sale may be on such terms as to credit or otherwise and as
         to upset price or reserve bid or price as the Security Agent, in its
         sole discretion but acting reasonably, may deem advantageous. The
         foregoing shall not preclude the Security Agent from agreeing to or
         making any sale in any other manner not prohibited by law nor shall it
         be interpreted to mean that only a sale made in conformity with the
         foregoing is commercially reasonable or that only the price received at
         a sale made in conformity with the foregoing shall constitute a
         commercially reasonable price.

9.6      SUMS RECEIVED BY SECURITY AGENT

         All sums received by the Security Agent in the exercise of its rights
         arising under or pursuant to this Deed or by law may be held by the
         Security Agent as Collateral and, after the security hereby constituted
         shall have become enforceable, shall be applied by the Security Agent,
         to the payment of the Obligations and/or Accessories, whether or not
         then exigible. The Security Agent shall impute and apply such sums
         towards payment of any part or parts of the Obligations and/or
         Accessories as the Lenders in its sole discretion shall decide, and the
         Lenders may change any imputation or application as it sees fit. The
         surplus of such sums shall be paid to the Borrower or its assignees.

9.7      NO OBLIGATION TO SEEK OTHER REMEDY

         The Security Agent may exercise the rights arising from this Deed
         without having exercised its rights against any other person liable for
         the payment of the Obligations or any of them, and without having
         realized any other security securing the Obligations.

9.8      LIMITED LIABILITY OF SECURITY AGENT

         The Security Agent is only required to exercise reasonable prudence and
         diligence in the exercise of its rights or the fulfilment of its
         obligations under this Deed and, in any event, the Security Agent shall
         be responsible only for damages arising directly from its intentional
         or gross fault or gross negligence or wilful misconduct. The Borrower
         shall indemnify the Security Agent and its officers, directors and
         employees for any losses or reasonable expenses incurred by the
         Security Agent, or damages claimed against the Security Agent in the
         exercise of its rights or the fulfillment of its obligations under this
         Deed, for which the Security Agent is not so responsible. This
         indemnity shall survive the removal or resignation of the Security
         Agent under this Deed and the cancellation of this Deed.

9.9      DELEGATION

         The Security Agent may delegate to any other person, or be represented
         by any other person in, the exercise of its rights or the fulfilment of
         its obligations resulting from this Deed; the Security Agent may
         furnish to such person any information which it may have concerning the
         Borrower or the Collateral.

9.10     The Security Agent may, if acting in good faith, rely, as to the truth
         of the statements and the accuracy of the opinions expressed therein,
         upon statutory declarations, affidavits, opinions, reports, orders or
         other certificates furnished pursuant to any covenant, condition or
         other requirement of this Deed or required by the Security Agent to be
         furnished to it in the exercise of its rights and duties


<PAGE>
                                                                              14


         under this Deed where such statutory declaration, affidavit, opinion,
         report, order or other certificate complies with the requirements of
         this Deed.

9.11     The Security Agent may employ or retain and act on the advice of such
         counsel, accountants, appraisers or other experts or advisers or agents
         as it may reasonably require for the purpose of discharging its duties
         hereunder, provided that the Security Agent shall not be required to
         act on the advice of such experts or advisers and shall not be
         responsible for the misconduct of any of them. The reasonable
         remuneration, costs and expenses of any such counsel, accountants,
         appraisers or other experts or advisers or agents shall be paid by the
         Borrower.

9.12     None of the provisions of this Deed shall require the Security Agent to
         expend or risk its own funds or otherwise incur financial liability in
         the performance of any of its duties or in the exercise of any of its
         rights or powers.

10.      PROVISIONS APPLICABLE TO CLAIMS

10.1     If the Collateral includes Claims, whether present or future, then in
         addition to the other provisions of this Deed, the following provisions
         shall

         10.1.1.  The Security Agent hereby authorizes the Borrower to collect
                  when due the capital falling due of, and any revenues of, any
                  Claims until the security hereby constituted shall have become
                  enforceable and the Security Agent shall have given the
                  Borrower a notice withdrawing such authorization, whereupon
                  the Security Agent shall immediately have the right to collect
                  all such capital and revenues. This notice of withdrawal may
                  be given at any time after the security hereby constituted
                  shall have become enforceable, and may be given in respect of
                  all or any part or parts of the Claims.

         10.1.2.  Upon notice of withdrawal by the Security Agent to the
                  Borrower, the Security Agent may require the Borrower to
                  immediately remit to the Security Agent all or a specified
                  part of capital and revenues of Claims received by the
                  Borrower or to deposit the same in one or more designated bank
                  accounts or otherwise to hold, deal with or deliver such
                  capital and revenues, all on such terms and conditions as the
                  Security Agent may specify in such notice.

         10.1.3.  The Security Agent shall have no obligation to exercise any
                  rights in respect of any Claims nor to enforce or to see to
                  payments of the same, whether by legal action or otherwise.
                  After the security hereby constituted shall have become
                  enforceable, the Security Agent may give acquittances for any
                  sums it collects and may, but shall not be obliged to, realize
                  any of the Claims, grant extensions, grant releases, accept
                  compositions, renounce and generally deal with the Claims, and
                  any guarantees or security therefor, and take any action to
                  preserve, protect or secure such Claims, at such times and in
                  such manner as it deems advisable in its sole discretion,
                  without notice to or the consent of the Borrower, and without
                  incurring any liability therefor.

         10.1.4.  Any amounts collected by the Borrower or by the Security Agent
                  or deposited in a designated bank account in respect of the
                  Claims shall form part of the Collateral and be


<PAGE>
                                                                              15


                  subject to the hypothecs herein created. The Security Agent
                  may, after notice of withdrawal by the Security Agent of the
                  authorization given to the Borrower to collect the Claims as
                  hereinabove provided, apply amounts received by it in respect
                  of the Claims towards payment of all or part of the
                  Obligations even if not yet exigible, including any reasonable
                  fees, costs or other expenses incurred by the Security Agent
                  and secured hereunder, and may impute and apply such amounts
                  towards payment of any part or parts of the Obligations as the
                  Security Agent in its sole discretion shall decide, and may
                  change any imputation or application as it sees fit.

         10.1.5.  The Borrower waives any obligation the Security Agent may have
                  to inform the Borrower of any irregularity in the payment of
                  any sums exigible on any claims or rights.

11.      OTHER SECURITY

11.1     It is expressly declared and agreed between the parties hereto that the
         security hereby granted is in addition to and over and above any and
         all other security now or hereafter held by the Security Agent or any
         of the Lenders for the Obligations and any part or parts thereof.
         Without in any way limiting the generality of the foregoing, the
         present security shall not be diminished or novated or otherwise
         affected by any other security or any promissory note or other evidence
         of indebtedness which the Security Agent may have heretofore obtained
         or may hereafter obtain from the Borrower or from any other person, or
         by any other agreement which the Borrower and the Security Agent may
         have heretofore entered into or may hereafter enter into, nor shall any
         such security or note or evidence of indebtedness or agreement be
         diminished or novated or otherwise affected hereby.

12.      TIME OF THE ESSENCE

12.1     Is it understood and agreed by the Borrower and the Security Agent that
         in addition to any other circumstances where the Borrower is in default
         by operation of law, time is of the essence in this Deed and that the
         mere lapse of time shall have the effects contemplated by the present
         Deed, without the necessity of further notice or delay, in accordance
         with Article 1594 of the C.C.Q.

13.      SEVERABILITY

13.1     If any clause of the present Deed, or any part thereof, is null or
         otherwise unenforceable, without effect, or deemed unwritten, such
         clause shall be considered separate and severable from this Deed and
         the remaining provisions hereof shall continue in full force and
         effect.

14.      WAIVER

14.1     The Security Agent may, with the consent of the Majority Lenders, grant
         extensions of time and other indulgences and give up security, accept
         compositions, compromise, settle, grant releases and discharges and
         otherwise deal with the Borrower or debtors of the Borrower, sureties
         and others and

<PAGE>
                                                                              16


         with the Collateral and other security as the Security Agent may see
         fit without prejudice to the liability of the Borrower or the rights of
         the Security Agent to hold and realize the hypothecs created pursuant
         to the present Deed. Furthermore, the Security Agent may, after the
         security hereby constituted has become enforceable, demand, collect and
         sue on Collateral in either the Borrower's or the Security Agent's
         name, at the Majority Lenders' or the Security Agent's option, and may
         endorse the Borrower's name on any and all cheques, commercial paper
         and any other instruments pertaining to or constituting Collateral.

14.2     No act, delay or omission by the Security Agent in exercising any right
         or remedy hereunder or with respect to any Obligations or Accessories
         shall operate or be construed as a waiver thereof or of any other right
         or remedy and no waiver of any provision hereof shall be effective
         unless in writing.

15.      AMENDMENTS

15.1     No modification, variation or amendment of any provision of this Deed
         shall be made except by written agreement executed by the parties
         hereto.

16.      ACQUITTANCES

16.1     RELEASE

         Subject to and upon the Lenders confirming the repayment and
         fulfillment and performance in full of the Obligations, the Security
         Agent shall (within a reasonable time after it receives from the
         Borrower a written request for release of the Collateral) execute and
         deliver to the Borrower an instrument in form and substance
         satisfactory to the Security Agent releasing (without recourse, without
         warranty, and without any liability whatsoever) any and all hypothecs
         and other security the Security Agent may then hold in the Collateral
         and thereupon the Security Agent shall, at the Borrower's expense,
         execute and deliver to the Borrower such deeds and other documents as
         the Borrower may reasonably request to evidence such release and effect
         the cancellation of any publication hereof.

16.2     All acquittances and other deeds to which the Security Agent may become
         party shall be approved by the legal advisors of the Lenders, the whole
         at the Borrower's expense.

17.      NOTICES

17.1     All communications provided for or permitted hereunder shall be given
         and any demand to any of the Parties shall be delivered to the parties
         at the addresses set forth at the beginning of this Deed.

18.      GOVERNING LAW

18.1     The present Deed shall be governed by and construed in accordance with
         the laws of Quebec and the federal laws of Canada applicable therein.

<PAGE>
                                                                              17


19.      CONFLICTS

19.1     If any term, condition or provision of this Deed is inconsistent or in
         conflict with any term, condition or provision of any of the
         Convertible Notes, the relevant term, condition or provision of such
         Convertible Note shall govern and prevail and this Deed shall be deemed
         to be amended to the extent necessary to eliminate such conflict or
         inconsistency save and except in respect of the provisions of this Deed
         which relate to the creation and enforcement of the hypothecs hereby
         constituted, which provisions shall govern and prevail over the
         provisions of the Convertible Notes.

20.      CHOICE OF LANGUAGE

20.1     The parties hereto declare that they require that this Deed and any
         related documents be drawn up and executed in English only; les parties
         soussignees declarent qu'elles exigent que cet acte et tous les
         documents s'y rattachant soient rediges en anglais seulement.


         WHEREOF ACTE, done and passed at the City of Montreal on the date
aforesaid, and remains of record in the office of the undersigned Notary under
his minute number FOUR THOUSAND FOUR HUNDRED AND SEVENTY-SEVEN (4477).

         The representatives of the parties declared to the Notary to have taken
cognizance of the present deed and to have exempted him from reading same or
having same read, following which the representatives of the parties signed in
the presence of the Notary and as follows:



                                LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.


                                Per: /s/ Gary Moskovitz
                                     ------------------------------------------
                                     GARY MOSKOVITZ


                                CIBC MELLON TRUST COMPANY



                                Per: /s/ Pierre Tremblay
                                     ------------------------------------------
                                     PIERRE TREMBLAY


                                Per: /s/ Ernestine Reinhold
                                     ------------------------------------------
                                     ERNESTINE REINHOLD


<PAGE>
                                                                              18



                                   /s/ Kevin Leonard
                                   ------------------------------------------
                                   KEVIN LEONARD, NOTARY


                                   A true copy of the original hereof remaining
                                   of record in my office.
                                   /s/ Kevin Leonard



</TEXT>
</DOCUMENT>
