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                                                                    Exhibit 10.4


                               SECURITY AGREEMENT

     THIS SECURITY AGREEMENT, dated as of August 1, 2002 (the "Effective Date"),
made by PEREGRINE/BRIDGE TRANSFER CORPORATION, a Delaware corporation,
organizational taxpayer identification number 74-2766592, ("Assignor"), with its
chief executive office being located at 12680 High Bluff Drive, Suite 200, San
Diego, California 92130, in favor of NEON SYSTEMS, INC., a Delaware corporation
("Secured Party"), whose address for notice hereunder is 14100 Southwest
Freeway, Suite 500, Sugar Land, Texas 77478.

                                 R E C I T A L S

     A. Assignor and Secured Party have entered into two Promissory Notes, dated
as of August 14, 2002 (as the same may from time to time be amended, renewed,
modified, extended, increased and/or rearranged, the "Notes"), providing for the
making of a term loan in the aggregate principal amount of $3,584,028 and a
convertible promissory note in the amount of $3,000,000, as each are further
described in that certain Termination and Support Agreement dated as of the date
hereof (the "Termination Agreement"), to Assignor as contemplated therein.

     B. It is a condition precedent to the making of the Notes or any advances
under the Notes that Assignor shall have executed and delivered to Secured Party
this Agreement, and Assignor has agreed to execute and deliver to Secured Party
this Agreement.

     C. In consideration of the benefits accruing to Assignor, the receipt and
sufficiency of which are hereby acknowledged, Assignor hereby makes the
following representations and warranties to Secured Party and hereby covenants
and agrees with Secured Party as follows:

                               SECURITY INTERESTS

     1.1 Grant of Security Interests. As security for the prompt and complete
payment and performance when due of all of its Obligations under the Notes,
Assignor does hereby assign and transfer unto Secured Party, and does hereby
pledge and grant to Secured Party a continuing security interest in and to the
following (collectively, the "Collateral"):

          (a)  All of the right, title and interest of Assignor in, to and under
all of the following, whether now existing or hereafter from time to time
acquired: (i) all Marks, together with the registrations and right to all
renewals thereof, and the goodwill of the business of Assignor symbolized by the
Marks, (ii) all Patents and Copyrights, (iii) all Computer Software of Assignor
and all intellectual property rights therein and all other proprietary
information of Assignor, including, but not limited to, Trade Secret Rights; and

          (b)  All Proceeds and products of any and all of the foregoing.

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     The security interest of Secured Party under this Agreement extends to all
Collateral that Assignor may acquire at any time during the term of this
Agreement.

     1.2 Power of Attorney. Assignor hereby constitutes and appoints Secured
Party its true and lawful attorney, irrevocably, with full power after the
occurrence of and during the continuance of an Event of Default (in the name of
Assignor or otherwise) to act, require, demand, receive, compound and give
acquaintance for any and all moneys and claims for moneys due or to become due
to Assignor under or arising out of the Collateral, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings which Secured Party may deem to be
necessary or advisable to protect its interests, which appointment as attorney
is coupled with an interest.

                                   ARTICLE II
                GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     Assignor represents, warrants and covenants, which representations,
warranties and covenants shall survive execution and delivery of this Agreement,
as follows:

     2.1 Necessary Filings. All filings, registrations and recordings necessary
or appropriate to create, preserve and perfect the security interest granted by
Assignor to Secured Party hereby in respect of the Collateral have been
accomplished and the security interest granted to Secured Party pursuant to this
Agreement in and to the Collateral creates a perfected security interest therein
prior to the rights of all other Persons therein and subject to no other Liens
and is entitled to all the rights, priorities and benefits afforded by the UCC
or other relevant law as enacted in any relevant jurisdiction to perfected
security interests, in each case to the extent that the Collateral consists of
the type of property in which a security interest may be perfected by
possession, by filing a financing statement under the UCC as enacted in any
relevant jurisdiction and by a filing of a Grant of Security Interest in the
respective form attached hereto in the United States Patent and Trademark Office
or in the United States Copyright Office or a similar statement or instrument in
a foreign equivalent office.

     2.2 No Liens. Assignor is, and as to Collateral acquired by it from time to
time after the date hereof Assignor will be, the owner of all Collateral free
from any Lien, security interest, encumbrance or other right, title or interest
of any Person, and Assignor shall defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein
adverse to Secured Party.

     2.3 Other Financing Statements. As of the date hereof, there is no
financing statement (or similar statement or instrument of registration under
the law of any jurisdiction) covering or purporting to cover any interest of any
kind in the Collateral (other than financing statements being terminated in
connection with the Loan, so long as such financing statements (or similar
statements or instruments of registration under the law of any jurisdiction) are
in fact terminated within 10 days after the Closing Date), and so long as the
Termination Date has not occurred, Assignor will not execute or authorize to be
filed in any public office any financing statement (or similar statements or
instruments of registration under the law of any jurisdiction) or statements
relating to the Collateral , except financing statements (or similar statements
or

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instruments of registration under the law of any jurisdiction) filed or to be
filed in respect of and covering the security interests granted hereby by
Assignor.

     2.4 Chief Executive Office. The chief executive office of Assignor is
located at the address indicated in the opening paragraph of this Agreement.
Assignor will not move its chief executive office except to such new location as
Assignor may establish in accordance with the last sentence of this Section 2.4.
Assignor shall not establish new locations for such offices until (i) it shall
have given to Secured Party not less than 15 days' prior written notice of its
intention to do so, clearly describing such new location and providing such
other information in connection therewith as Secured Party may reasonably
request, and (ii) with respect to such new location, it shall have taken all
action reasonably satisfactory to Secured Party to maintain the security
interest of Secured Party in the Collateral intended to be granted hereby at all
times fully perfected and in full force and effect.

     2.5 Legal Names; Organizational Identification Number; Trade Names; Change
of Name. The legal name of Assignor, and the organizational identification
number (if any) of Assignor, is as set forth in the opening paragraph of this
Agreement. Assignor has not operated in any jurisdiction under, or in the
preceding five years has not had nor has it operated in any jurisdiction under,
any trade names, fictitious names or other names except its legal name and such
other trade or fictitious names as are listed on Annex A hereto for Assignor.
Assignor shall not change its legal name, organizational identification number
(if any) or assume or operate in any jurisdiction under any trade, fictitious or
other name except its legal name, organizational identification number and those
trade names in each case listed on Annex A hereto for Assignor and those that
may be established in accordance with the immediately succeeding sentence of
this Section 2.5. Assignor shall not change its legal name or organizational
identification number or assume or operate in any jurisdiction under any new
trade, fictitious or other name until (i) it shall have given to Secured Party
not less than 15 days prior written notice of its intention so to do, clearly
describing such new name and the jurisdictions in which such new name shall be
used and providing such other information in connection therewith as Secured
Party may reasonably request, and (ii) with respect to such new name, it shall
have taken all action reasonably requested by Secured Party to maintain the
security interest of Secured Party in the Collateral intended to be granted
hereby at all times fully perfected and in full force and effect. In addition,
to the extent that Assignor does not have an organizational identification
number on the date hereof and later obtains one, Assignor shall promptly
thereafter notify Secured Party of such organizational identification number and
shall take all actions reasonably satisfactory to Secured Party to the extent
necessary to maintain the security interest of Secured Party in the Collateral
intended to be granted hereby fully perfected and in full force and effect.

     2.6 Jurisdiction and Type of Organization. The jurisdiction of organization
of Assignor and the type of organization of Assignor are as set forth in the
opening paragraph of this Agreement. Assignor shall not change its jurisdiction
of organization or its type of organization until (i) it shall have given to
Secured Party not less than 15 days prior written notice of intention so to do,
clearly describing such new jurisdiction of organization and/or type of
organization and providing such other information in connection therewith as
Secured Party may reasonably request, and (ii) with respect to such new
jurisdiction of organization and/or type of organization, it shall have taken
all actions reasonably requested by Secured Party to maintain

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the security interest of Secured Party in the Collateral intended to be granted
hereby at all times fully perfected and in full force and effect.

                                   ARTICLE II
                    SPECIAL PROVISIONS CONCERNING TRADEMARKS

     3.1  Additional Representations and Warranties. Assignor represents and
warrants that it is the true and lawful owner of or otherwise has the right to
use (as such may be limited by law) the registered Marks listed in Annex B
hereto for Assignor and that said listed Marks include all United States and
foreign marks registered in and applications for marks filed with the United
States Patent and Trademark Office or any foreign equivalent that Assignor owns
or uses in connection with its business as of the date hereof. Assignor
represents and warrants that it owns, is licensed to use or otherwise has the
right to use, all Marks that it uses. Assignor further warrants that it has no
knowledge of any third party claim received by it that any aspect of Assignor's
present or contemplated business operations infringes or will infringe any
trademark, service mark or trade name of any other Person other than as could
not, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Assignor represents and warrants that it is the true
and lawful owner of or otherwise has the right to use all U.S. trademark
registrations and applications and all foreign trademark registrations and
applications, in each case, listed in Annex B hereto and that said registrations
are valid, subsisting, have not been canceled and that Assignor is not aware of
any third-party claim that any of said registrations is invalid or
unenforceable, is not aware that there is any reason that any of said
registrations is invalid or unenforceable, and is not aware that there is any
reason that any of said applications will not pass to registration. Assignor
hereby grants to the Secured Party an absolute power of attorney to sign, upon
the occurrence and during the continuance of an Event of Default, any document
which may be required by the United States Patent and Trademark Office or
foreign equivalent office in order to effect an absolute assignment of all
right, title and interest in each Mark, and record the same.

     3.2  Licenses and Assignments. Except as otherwise permitted hereby,
Assignor hereby agrees not to divest itself of any right under any Mark absent
prior written approval of the Secured Party.

     3.3  Infringements. Assignor agrees, promptly upon learning thereof, to
notify the Secured Party in writing of the name and address of, and to furnish
such pertinent information that may be available with respect to, any party who
Assignor believes is infringing or diluting or otherwise violating any of
Assignor's rights in and to any Mark in any manner that could reasonably be
expected to have a Material Adverse Effect, or with respect to any party
claiming that Assignor's use of any Mark violates any property right of that
party other than as could not reasonably be expected to have a Material Adverse
Effect. Assignor further agrees to prosecute in accordance with reasonable
business practices any Person infringing any Mark in any manner that could
reasonably be expected to have a Material Adverse Effect.

     3.4  Preservation of Marks. Assignor agrees to use its Marks in interstate
commerce during the time in which this Agreement is in effect and to take all
such other actions as are reasonably necessary to preserve such Marks as
trademarks or service marks under the laws of the United States or foreign
jurisdictions (other than any such Marks determined by Assignor, in

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the exercise of its reasonable business judgment, to be no longer useful or
advantageous to the ongoing conduct of its business).

     3.5  Maintenance of Registration. Assignor shall, at its own expense, in a
commercially reasonable manner process such documents as are reasonably required
to maintain trademark registrations, including but not limited to affidavits of
use and applications for renewals of registration in the United States Patent
and Trademark Office or foreign equivalent office for all of its material
registered Marks, and shall pay all fees and disbursements in connection
therewith and shall not abandon any such filing of affidavit of use or any such
application of renewal prior to the exhaustion of all administrative and
judicial remedies without prior written consent of the Secured Party (other than
with respect to registrations and applications determined by Assignor, in the
exercise of its reasonable business judgment, to be no longer materially useful
or advantageous to the ongoing conduct of its business).

     3.6  Future Registered Marks. If any Mark registration is issued hereafter
to Assignor as a result of any application now or hereafter pending before the
United States Patent and Trademark Office or foreign equivalent office, within
30 days of receipt of such certificate, Assignor shall deliver to the Secured
Party a copy of such certificate, and an assignment for security in such Mark,
to the Secured Party and at the expense of Assignor, confirming the assignment
for security in such Mark to the Secured Party hereunder, the form of such
security to be substantially in the form of Annex E hereto or in such other form
as may be reasonably satisfactory to the Secured Party.

     3.7  Remedies. If an Event of Default shall occur and be continuing, the
Secured Party may, by written notice to Assignor, take any or all of the
following actions: (i) declare the entire right, title and interest of Assignor
in and to each of the Marks, together with all trademark rights and rights of
protection to the same, vested in the Secured Party in which event such rights,
title and interest shall immediately vest, and the Secured Party shall be
entitled to exercise the power of attorney referred to in Section 3.1 hereof to
execute, cause to be acknowledged and notarized and record said absolute
assignment with the applicable agency; (ii) take and use or sell the Marks and
the goodwill of Assignor's business symbolized by the Marks and the right to
carry on the business and use the assets of Assignor in connection with which
the Marks have been used; and (iii) direct Assignor to refrain, in which event
Assignor shall refrain, from using the Marks in any manner whatsoever, directly
or indirectly, and Assignor shall execute such further documents that the
Secured Party may reasonably request to further confirm this and to transfer
ownership of the Marks and registrations and any pending trademark application
in the United States Patent and Trademark Office or foreign equivalent office to
the Secured Party.

                                   ARTICLE IV
                          SPECIAL PROVISIONS CONCERNING
                      PATENTS, COPYRIGHTS AND TRADE SECRETS

     4.1  Additional Representations and Warranties. Assignor represents and
warrants that it is the true and lawful owner or licensee of all rights in (i)
all United States trade secrets and proprietary information necessary to operate
the business of the Assignor (the "Trade Secret Rights"), (ii) the Patents
listed in Annex C hereto for Assignor and that said Patents include all the
United States and foreign patents and applications for United States and foreign
patents that

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Assignor owns as of the date hereof and (iii) the Copyrights listed in Annex D
hereto for Assignor and that said Copyrights constitute all the United States
and foreign copyrights and applications to United States and foreign copyrights
that Assignor owns as of the date hereof. Assignor further warrants that it has
no knowledge of any third party claim that any aspect of Assignor's present or
contemplated business operations infringes or will infringe any patent of any
other Person or Assignor has misappropriated any trade secret or proprietary
information which, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect. Assignor hereby grants to the
Secured Party an absolute power of attorney to sign, upon the occurrence and
during the continuance of any Event of Default, any document which may be
required by the United States Patent and Trademark Office or foreign equivalent
office in order to effect an absolute assignment of all right, title and
interest in each Patent, and to record the same.

     4.2  Registered Copyrights; Patents. Assignor represents and warrants that
it does not as of the date hereof own any Copyrights that are registered with
the United States Copyright Office or foreign equivalent office. Assignor
covenants that should it at any time intend to seek registration for any of its
Copyrights with the United States Copyright Office or foreign equivalent office,
or should it apply for a Patent with the United States Patent and Trademark
Office or foreign equivalent office, it will give Secured Party written notice
of such intent to seek a Copyright registration or apply for a Patent with such
office not less than 30 days prior to the making of such application or
registration.

     4.3  Licenses and Assignments. Except as otherwise permitted hereby,
Assignor hereby agrees not to divest itself of any right under any Patent or
Copyright acquired after the date hereof absent prior written approval of the
Secured Party, which shall not be unreasonably withheld.

     4.4  Infringements. Assignor agrees, promptly upon learning thereof, to
furnish the Secured Party in writing with all pertinent information available to
Assignor with respect to any infringement, contributing infringement or active
inducement to infringe of any Patent or Copyright or to any claim that the
practice of any Patent or use of any Copyright violates any property right of a
third party in each case, in any manner which, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect, or
that with respect to any misappropriation of any Trade Secret Right or any claim
that practice of any Trade Secret Right violates any property right of a third
party, in each case, in any manner which, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
Assignor further agrees, absent direction of the Secured Party to the contrary,
to prosecute in a commercially reasonable manner any Person infringing any
Patent or Copyright or any Person misappropriating any Trade Secret Right, in
each case to the extent that such infringement or misappropriation, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

     4.5  Maintenance of Patents or Copyright. At its own expense, Assignor
shall as promptly as practicable pay all post-issuance fees required pursuant to
35 U.S.C. (S)41 (and all foreign equivalent fees (if any), as applicable) to
maintain in force its rights under each Patent or Copyright, absent prior
written consent of the Secured Party (other than any such Patents or

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Copyrights determined by Assignor, in the exercise of its reasonable business
judgment, to be no longer useful or advantageous to the ongoing conduct of its
business).

     4.6  Prosecution of Patent Applications. At its own expense, Assignor shall
in a commercially reasonable manner prosecute all material applications for (i)
United States and foreign Patents listed in Annex C hereto and (ii) Copyrights
listed on Annex D hereto, in each case for Assignor and shall not abandon any
such application prior to exhaustion of all administrative and judicial remedies
(other than applications determined by Assignor, in the exercise of its
reasonable business judgment, to be no longer useful or advantageous to the
ongoing conduct of its business), absent written consent of the Secured Party.

     4.7  Other Patents and Copyrights. Within 10 days of the acquisition of a
United States or foreign Patent or acquisition of a registered Copyright, other
than such Patents or Copyrights issued to Assignor upon the filing of an
application for Copyright or Patent with the relevant United States or foreign
office, which are addressed in Section 4.2 hereof, Assignor shall deliver to the
Secured Party a copy of said Copyright or certificate of registration of, said
Patents, as the case may be, with an assignment for security as to such Patent
or Copyright, as the case may be, to the Secured Party and at the expense of
Assignor, confirming the assignment for security, the form of such assignment
for security to be substantially in the form of Annex F or G hereto, as
appropriate, or in such other form as may be reasonably satisfactory to the
Secured Party.

     4.8  No Restrictions from Third Party Licensors. Assignor hereby represents
and warrants that there are no restrictions of any kind upon the grant of a
security interest in any of its Copyrights or Patents or the ownership, transfer
or sale of such Copyrights or Patents to Secured Party or any designee or
assignee thereof, including, but not limited to, any restrictions imposed by
licenses from third party licensors that are used or involved in or related to
such Copyrights.

     4.9  Remedies. If an Event of Default shall occur and be continuing, the
Secured Party may, by written notice to Assignor, take any or all of the
following actions: (i) declare the entire right, title, and interest of Assignor
in each of the Copyrights, Patents or Trade Secret Rights vested in the Secured
Party in which event such right, title, and interest shall immediately vest in
the Secured Party in which case the Secured Party shall be entitled to exercise
the power of attorney referred to in Section 4.1 hereof to execute, cause to be
acknowledged and notarized and to record said absolute assignment with the
applicable agency; (ii) take and practice or sell the Copyrights, Patents or
Trade Secret Rights; and (iii) direct Assignor to refrain, in which event
Assignor shall refrain, from practicing the Patents and using the Copyrights
directly or indirectly, and Assignor shall execute such further documents as the
Secured Party may reasonably request further to confirm this and to transfer
ownership of the Copyrights, Patents or Trade Secret Rights to the Secured
Party.

                                   ARTICLE V
                      PROVISIONS CONCERNING ALL COLLATERAL

     5.1  Protection of Secured Party's Security. Except as expressly permitted
hereunder, Assignor will do nothing to impair the rights of the Secured Party in
the Collateral. Assignor

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assumes all liability and responsibility in connection with the Collateral
acquired by it and the liability of Assignor to pay the Obligations shall in no
way be affected or diminished by reason of the fact that such Collateral may be
for any reason whatsoever unavailable to Assignor.

     5.2  Further Actions. Assignor will, at its own expense and upon the
reasonable request of the Secured Party, make, execute, endorse, acknowledge,
file and/or deliver to the Secured Party from time to time such lists,
descriptions and designations of its Collateral, warehouse receipts, receipts in
the nature of warehouse receipts, bills of lading, documents of title, vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, certificates, reports and other assurances or
instruments and take such further steps relating to the Collateral and other
property or rights covered by the security interest hereby granted, that the
Secured Party deems reasonably appropriate or advisable to perfect, preserve or
protect its security interest in the Collateral.

     5.3  Financing Statements or Other Notices. Assignor agrees to execute and
deliver to the Secured Party such financing statements or other notices, in form
reasonably acceptable to the Secured Party, as the Secured Party may from time
to time reasonably request or as are reasonably necessary or desirable in the
opinion of the Secured Party to establish and maintain a valid, enforceable,
first priority perfected security interest in the Collateral as provided herein
and the other rights and security contemplated hereby. Assignor will pay any
applicable filing fees, recordation taxes and related expenses relating to its
Collateral. Assignor hereby authorizes the Secured Party to file any such
financing statements or other notices without the signature of Assignor where
permitted by law.

                                   ARTICLE VI
                 REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT

     6.1  Remedies; Obtaining the Collateral Upon Default. Assignor agrees that,
if any Event of Default shall have occurred and be continuing, then and in every
such case, the Secured Party, in addition to any rights now or hereafter
existing under applicable law and under the other provisions of this Agreement,
shall have all rights as a secured creditor under any UCC, and such additional
rights and remedies to which a secured creditor is entitled under the laws in
effect in all relevant jurisdictions and may:

          (a)  personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof, from Assignor or any other
Person who then has possession of any part thereof with or without notice or
process of law, and for that purpose may enter upon Assignor's premises where
any of the Collateral is located and remove the same and use in connection with
such removal any and all services, supplies, aids and other facilities of
Assignor;

          (b)  instruct the obligor or obligors on any agreement, instrument or
other obligation constituting the Collateral to make any payment required by the
terms of such agreement, instrument or other obligation directly to Secured
Party and may exercise any and all remedies of Assignor in respect of such
Collateral;

          (c)  sell, assign or otherwise liquidate any or all of the Collateral
or any part thereof in accordance with Section 6.2 hereof, or direct Assignor to
sell, assign or otherwise

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liquidate any or all of the Collateral or any part thereof, and, in each case,
take possession of the proceeds of any such sale or liquidation;

          (d)  take possession of the Collateral or any part thereof, by
directing Assignor in writing to deliver the same to the Secured Party at any
reasonable place or places designated by the Secured Party, in which event
Assignor shall at its own expense:

               (i)    forthwith cause the same to be moved to the place or
places so designated by the Secured Party and there delivered to the Secured
Party;

               (ii)   store and keep any Collateral so delivered to the Secured
Party at such place or places pending further action by the Secured Party as
provided in Section 6.2 hereof; and

               (iii)  while the Collateral shall be so stored and kept, provide
such security and maintenance services as shall be reasonably necessary to
protect the same and to preserve and maintain it in good condition; and

          (e)  license or sublicense, whether on an exclusive or nonexclusive
basis, or otherwise transfer or assign any Marks, Patents or Copyrights included
in the Collateral for such term and on such conditions and in such manner as the
Secured Party shall in its sole judgment determine;

it being understood that Assignor's obligation so to deliver the Collateral is
of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Secured Party shall be entitled to a
decree requiring specific performance by Assignor of said obligation.

     6.2  Remedies; Disposition of the Collateral. If any Event of Default shall
have occurred and be continuing, then any Collateral repossessed by the Secured
Party under or pursuant to Section 6.1 hereof and any other Collateral whether
or not so repossessed by the Secured Party, may be sold, assigned, leased or
otherwise disposed of under one or more contracts or as an entirety, and without
the necessity of gathering at the place of sale the property to be sold, and in
general in such manner, at such time or times, at such place or places and on
such terms as the Secured Party may, in compliance with any mandatory
requirements of applicable law, determine to be commercially reasonable. Any of
the Collateral may be sold, leased or otherwise disposed of, in the condition in
which the same existed when taken by the Secured Party or after any overhaul or
repair at the expense of Assignor which the Secured Party shall determine to be
commercially reasonable. Any such disposition which shall be a private sale or
other private proceedings permitted by such requirements shall be made upon not
less than 10 days' prior written notice to Assignor specifying the time at which
such disposition is to be made and the intended sale price or other
consideration therefor, and shall be subject, for the 10 days after the giving
of such notice, to the right of Assignor or any nominee of Assignor to acquire
the Collateral involved at a price or for such other consideration at least
equal to the intended sale price or other consideration so specified. Any such
disposition which shall be a public sale permitted by such requirements shall be
made upon not less than 10 days' prior written notice to Assignor specifying the
time and place of such sale and, in the absence of

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applicable requirements of law, shall be by public auction (which may, at the
Secured Party's option, be subject to reserve), after publication of notice of
such auction (where required by applicable law) not less than 10 days prior
thereto. The Secured Party may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be made
at any time or place to which the sale may be so adjourned. To the extent
permitted by any such requirement of law, the Secured Party may bid for and
become the purchaser of the Collateral or any item thereof, offered for sale in
accordance with this Section 6.2 without accountability to Assignor. If, under
applicable law, the Secured Party shall be permitted to make disposition of the
Collateral within a period of time which does not permit the giving of notice to
Assignor as hereinabove specified, the Secured Party need give Assignor only
such notice of disposition as shall be reasonably practicable in view of such
applicable law. Assignor agrees to do or cause to be done all such other acts
and things as may be reasonably necessary to make such sale or sales of all or
any portion of the Collateral valid and binding and in compliance with any and
all applicable laws, regulations, orders, writs, injunctions, decrees or awards
of any and all courts, arbitrators or governmental instrumentalities, domestic
or foreign, having jurisdiction over any such sale or sales, all at Assignor's
expense.

     6.3  Waiver of Claims. Except as otherwise provided in this Agreement,
ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND
JUDICIAL HEARING IN CONNECTION WITH THE SECURED PARTY'S TAKING POSSESSION OR THE
SECURED PARTY'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES, and Assignor hereby further waives, to the extent permitted by law:

          (a)  all damages occasioned by such taking of possession except any
damages that are the direct result of the Secured Party's gross negligence or
willful misconduct (as determined by a court of competent jurisdiction in a
final and non-appealable decision);

          (b)  all other requirements as to the time, place and terms of sale or
other requirements with respect to the enforcement of the Secured Party's rights
hereunder; and

          (c)  all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law in
order to prevent or delay the enforcement of this Agreement or the absolute sale
of the Collateral or any portion thereof, and Assignor, for itself and all who
may claim under it, insofar as it or they now or hereafter lawfully may, hereby
waives the benefit of all such laws.

Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of Assignor therein and thereto, and shall
be a perpetual bar both at law and in equity against Assignor and against any
and all Persons claiming or attempting to claim the Collateral so sold, optioned
or realized upon, or any part thereof, from, through and under Assignor.

                                       10

<PAGE>

     6.4  Application of Proceeds. All moneys collected by the Secured Party
upon any sale or other disposition of the Collateral, together with all other
moneys received by the Secured Party hereunder, shall be applied as follows:

          (a)  to the payment of all amounts owing the Secured Party in payment
of the Obligations; and

          (b)  to the extent proceeds remain after the application pursuant to
the preceding clause, and following the termination of this Agreement pursuant
to Section 9.8(a) hereof, to Assignor or to whomever may be lawfully entitled to
receive such surplus.

     6.5  Remedies Cumulative. Each and every right, power and remedy hereby
specifically given to the Secured Party shall be in addition to every other
right, power and remedy specifically given to the Secured Party under this
Agreement, the Notes or now or hereafter existing at law, in equity or by
statute and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time or simultaneously
and as often and in such order as may be deemed expedient by the Secured Party.
All such rights, powers and remedies shall be cumulative and the exercise or the
beginning of the exercise of one shall not be deemed a waiver of the right to
exercise any other or others. No delay or omission of the Secured Party in the
exercise of any such right, power or remedy and no renewal or extension of any
of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any Default or Event of Default or an acquiescence
therein. No notice to or demand on any Assignor in any case shall entitle it to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Secured Party to any other or
further action in any circumstances without notice or demand. In the event that
the Secured Party shall bring any suit to enforce any of its rights hereunder
and shall be entitled to judgment, then in such suit the Secured Party may
recover reasonable expenses, including reasonable attorneys' fees, and the
amounts thereof shall be included in such judgment.

     6.6  Discontinuance of Proceedings. In case the Secured Party shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Secured Party, then and in every such case Assignor and the
Secured Party shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Agreement, and all rights, remedies and powers of the Secured Party shall
continue as if no such proceeding had been instituted.

                                  ARTICLE VII
                                    INDEMNITY

     7.1  Indemnity. 1. Assignor jointly and severally agrees to indemnify,
reimburse and hold the Secured Party and its successors, assigns, employees,
affiliates and agents (hereinafter in this Section 7.1 referred to individually
as "Indemnitee," and collectively as "Indemnitees") harmless from any and all
liabilities, obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgments and any and all costs, expenses or disbursements
(including reasonable

                                       11

<PAGE>

attorneys' fees and expenses) (for the purposes of this Section 7.1 the
foregoing are collectively called "expenses") of whatsoever kind and nature
imposed on, asserted against or incurred by any of the Indemnitees in any way
relating to or arising out of (i) this Agreement or any other document executed
in connection herewith or therewith or in any other way connected with the
administration of the transactions contemplated hereby or thereby or the
enforcement of any of the terms of, or the preservation of any rights under any
thereof, or (ii) any claim by any Person that is not an Indemnitee in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim; provided that no Indemnitee shall be indemnified
pursuant to this Section 7.1(a) for losses, damages or liabilities to the extent
caused by the gross negligence or willful misconduct of such Indemnitee (as
determined by a court of competent jurisdiction in a final and non-appealable
decision). Assignor agrees that upon written notice by any Indemnitee of the
assertion of such a liability, obligation, damage, injury, penalty, claim,
demand, action, suit or judgment, Assignor shall assume full responsibility for
the defense thereof. Each Indemnitee agrees to use its best efforts to promptly
notify Assignor of any such assertion of which such Indemnitee has knowledge.

          (b)  Without limiting the application of Section 7.1(a) hereof,
Assignor agrees, jointly and severally, to pay or reimburse the Secured Party
for any and all reasonable fees, costs and expenses of whatever kind or nature
incurred in connection with the creation, preservation or protection of the
Secured Party's Liens on, and security interest in, the Collateral, including,
without limitation, all fees and taxes in connection with the recording or
filing of instruments and documents in public offices, payment or discharge of
any taxes or Liens upon or in respect of the Collateral, premiums for insurance
with respect to the Collateral and all other fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Secured Party's interest therein, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral.

          (c)  If and to the extent that the obligations of Assignor under this
Section 7.1 are unenforceable for any reason, Assignor hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.

     7.2  Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of Assignor contained in this Article VIII shall continue
in full force and effect notwithstanding the full payment of all of the other
Obligations and notwithstanding the full payment of all the Notes issued, and
the payment of all other Obligations and notwithstanding the discharge thereof.

                                       12

<PAGE>

                                  ARTICLE VIII
                                   DEFINITIONS

     The following terms shall have the meanings herein specified. Such
definitions shall be equally applicable to the singular and plural forms of the
terms defined.

     "Agreement" shall mean this Security Agreement as the same may be modified,
supplemented, amended and/or restated from time to time in accordance with its
terms.

     "Assignor" shall have the meaning provided in the first paragraph of this
Agreement.

     "Change of Control" shall mean any change in the ownership of 50% or more
of the shares of stock of Assignor or voting power of such stock (other than
among the current shareholders of Assignor on the date hereof).

     "Closing Date" shall mean August 14, 2002.

     "Collateral" shall have the meaning provided in Section 1.1 of this
Agreement.

     "Computer Software" shall mean the computer programs identified on Annex D
hereto, including such programs in executable and source code, together with the
user and programmer documentation for such programs, and any scripts or other
data or programs needed to use such programs, and all modifications,
enhancements, releases, versions, or other derivative works from such programs,
whether existing as of the Effective Date or at any time before the Termination
Date.

     "Copyrights" shall mean any United States and foreign copyright owned now
or hereafter by Assignor, including any registrations of any Copyrights, in the
United States Copyright Office or any foreign equivalent office, as well as any
application for a copyright registration now or hereafter made with the United
States Copyright Office or any foreign equivalent office by Assignor, including,
without limitation, the Computer Software.

     "Default" shall mean any event which with notice or lapse of time, or both,
would constitute an Event of Default.

     "Event of Default" shall mean the occurrence and continuation of any of the
following:

          (a)  Assignor shall fail to pay the Notes, whether principal or
     interest, when due.

          (b)  Any representation or warranty made or deemed made by Assignor or
     any of its respective officers in any certificate, report, notice, or
     financial statement furnished at any time in connection with the Notes or
     any other instrument or document executed in connection with or as security
     for the Notes shall be false, misleading, or erroneous in any material
     respect when made or deemed to have been made.

                                       13

<PAGE>

          (c)  Assignor shall fail to perform, observe, or comply with any
     covenant, agreement or term contained in the Notes, for a period of five
     (5) days following the date on which Payee gives Assignor notice of such
     failure.

          (d)  Assignor shall commence a voluntary proceeding seeking
     liquidation, reorganization, or other relief with respect to itself or its
     debts under any bankruptcy, insolvency, or other similar law now or
     hereafter in effect or seeking the appointment of a trustee, receiver,
     liquidator, custodian, or other similar official of it or a substantial
     part of its property or shall consent to any such relief or to the
     appointment of or taking possession by any such official in an involuntary
     case or other proceeding commenced against it or shall make a general
     assignment for the benefit of creditors or shall generally fail to pay its
     debts as they become due or shall take any corporate action to authorize
     any of the foregoing.

          (e)  An involuntary proceeding shall be commenced against Assignor
     seeking liquidation, reorganization, or other relief with respect to it or
     its debts under any bankruptcy, insolvency, or other similar law now or
     hereafter in effect or seeking the appointment of a trustee, receiver,
     liquidator, custodian or other similar official for it or a substantial
     part of its property, and such involuntary proceeding shall remain
     undismissed and unstayed for a period of thirty (30) days.

          (f)  Assignor shall fail to pay when due any amount owing on any of
     its other debt, or the maturity of any such debt shall have been
     accelerated, or any such debt shall have been required to be prepaid prior
     to the stated maturity thereof, or any event shall have occurred that
     permits (or, with the giving of notice or lapse of time or both, would
     permit) any holder or holders of such debt or any person acting on behalf
     of such holder or holders to accelerate the maturity thereof or require any
     such prepayment.

          (g)  The Notes or any other instrument or document executed by
     Assignor in connection with or as security for the Notes shall at any time
     and for any reason cease to be in full force and effect or shall be
     declared null and void or the validity or enforceability thereof shall be
     contested or challenged by Assignor, or Assignor shall deny that it has any
     further liability or obligation hereunder prior to payment in full of all
     obligations hereunder.

          (h)  A Change of Control shall occur.

     "Indemnitee" shall have the meaning provided in Section 7.1 of this
Agreement.

     "Liens" shall mean security interest, mortgage, pledge, lien, claim,
charge, encumbrance, title retention agreement, lessor's interest in a financing
lease or analogous instrument, in, of, or on Assignor's property.

     "Marks" shall mean all right, title and interest in and to (or as may
hereafter be acquired in and to) any trademarks, service marks, domain names and
trade names now held or hereafter acquired by Assignor, including any
registration of any trademarks and service marks in the United States Patent and
Trademark Office or in any equivalent foreign office and any trade

                                       14

<PAGE>

dress including logos and/or designs used by Assignor, but excluding any such
right, title and interest of Assignor in and to same as licensee pursuant to a
contract.

     "Notes" shall have the meaning provided in paragraph A of the Recitals of
this Agreement.

     "Obligations" shall mean (i) the full and prompt payment when due (whether
at the stated maturity, by acceleration or otherwise) of all obligations,
liabilities and indebtedness (including, without limitation, principal, premium,
interest, reimbursement obligations, fees and indemnities (including, without
limitation, all interest that accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency,
reorganization or similar proceeding of Assignor at the rate provided for in the
respective documentation, whether or not a claim for post-petition interest is
allowed in any such proceeding)) of Assignor to the Secured Party, whether now
existing or hereafter incurred under, evidenced by, arising out of, or in
connection with, the Notes and the other documents executed in connection with
or as security for the Notes, and the due performance and compliance by Assignor
with all of the terms, conditions and agreements contained in the Notes; (ii)
any and all sums advanced by the Secured Party in order to preserve the
Collateral or preserve its security interest in the Collateral; (iii) in the
event of any proceeding for the collection or enforcement of any indebtedness,
obligations, or liabilities of Assignor referred to in clause (i) above, after
an Event of Default shall have occurred and be continuing, the reasonable
expenses of retaking, holding, preparing for sale or lease, selling or otherwise
disposing of or realizing on the Collateral, or of any exercise by the Secured
Party of its rights hereunder, together with reasonable attorneys' fees and
court costs; and (iv) all amounts paid by any Indemnitee as to which such
Indemnitee has the right to reimbursement under Section 7.1 of this Agreement;
it being acknowledged and agreed that the "Obligations" shall include extensions
of credit of the types described above, whether outstanding on the date of this
Agreement or extended from time to time after the date of this Agreement.

     "Patents" shall mean any United States or foreign patent to which Assignor
now or hereafter has right, title and interest therein, and any divisions,
continuations (including, but not limited to, continuations-in-parts) and
improvements thereof, as well as any application for a patent now or hereafter
made by Assignor.

     "Person" shall mean an individual, a corporation, a company, a partnership,
a joint venture, an association, a joint stock company, a trust, an
unincorporated organization, a government or any agency or political subdivision
thereof.

     "Proceeds" shall have the meaning provided in the Uniform Commercial Code
as in effect in the State of Texas on the date hereof or under other relevant
law and, in any event, shall include, but not be limited to, (i) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to the
Secured Party or Assignor from time to time with respect to any of the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental authority (or any person acting under color of governmental
authority) and (iii) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.

                                       15

<PAGE>

     "Secured Party" shall have the meaning provided in the first paragraph of
this Agreement.

     "Termination Agreement" shall have the meaning provided in paragraph A of
the Recitals of this Agreement.

     "Termination Date" shall have the meaning provided in Section 9.8 of this
Agreement.

     "Trade Secret Rights" shall have the meaning provided in Section 4.1 of
this Agreement.

     "UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the relevant jurisdiction.

     "United States" and "U.S." shall each mean the United States of America.

                                       16

<PAGE>

                                   ARTICLE IX
                                 MISCELLANEOUS

     9.1  Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered, or three business days after being deposited in
the mail, postage prepaid, or, in the case of telecopy notice, when received,
addressed as follows in the case of Assignor and the Secured Party, or to such
other address as may be hereafter notified by the respective parties hereto:

          the Assignor:

          Peregrine/Bridge Transfer Corporation
          12680 High Bluff Drive, Suite 200
          San Diego, California 92130
          Attention:  Chief Financial Officer

          Telephone:  858-259-2500
          Telecopier: 858-259-4843


          Secured Party:

          NEON Systems, Inc.
          14100 Southwest Freeway, Suite 500
          Sugar Land, Texas  77478
          Attention: Chief Financial Officer

          Telephone:  281-491-4200
          Telecopier: 281-634-8282

provided that any notice, request or demand to or upon Secured Party shall not
be effective until received.

     9.2  Waiver; Amendment. None of the terms and conditions of this Agreement
or any other document executed in connection herewith or the Notes may be
changed, waived, modified or varied in any manner whatsoever unless in writing
duly signed by Assignor.

     9.3  Obligations Absolute. The obligations of Assignor hereunder shall
remain in full force and effect without regard to, and shall not be impaired by,
(a) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like of Assignor; (b) any exercise or
non-exercise, or any waiver of, any right, remedy, power or privilege under or
in respect of this Agreement or the Notes; or (c) any amendment to or
modification of the Notes, or any instrument or document executed in connection
with or as security for any of the Obligations; whether or not Assignor shall
have notice or knowledge of any of the foregoing.

                                       17

<PAGE>

     9.4  Successors and Assigns. This Agreement shall be binding upon Assignor
and its successors and assigns (although Assignor may not assign its rights and
obligations hereunder) and shall inure to the benefit of the Secured Party and
its respective successors and assigns. All agreements, statements,
representations and warranties made by Assignor herein or in any certificate or
other instrument delivered by Assignor or on its behalf under this Agreement
shall be considered to have been relied upon by the Secured Party and shall
survive the execution and delivery of this Agreement, the Notes, or any other
instrument or document executed in connection with or as security for any of the
Obligations regardless of any investigation made by the Secured Party or on its
behalf.

     9.5  Headings Descriptive. The headings of the several sections of this
Agreement are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.

     9.6  Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF TEXAS.

     9.7  Assignor's Duties. It is expressly agreed, anything herein contained
to the contrary notwithstanding, that Assignor shall remain liable to perform
all of the obligations, if any, assumed by it with respect to the Collateral and
the Secured Party shall not have any obligations or liabilities with respect to
any Collateral by reason of or arising out of this Agreement, nor shall the
Secured Party be required or obligated in any manner to perform or fulfill any
of the obligations of Assignor under or with respect to any Collateral.

     9.8  Termination. Upon the satisfaction in full of the Obligations and upon
written request for the termination hereof delivered by Assignor to Secured
Party, this Agreement and the security interest created hereby shall terminate
and all rights to the Collateral shall revert to Assignor. Secured Party will
thereafter, upon Assignor's request and at Assignor's expense, (i) return to
Debtor such of the Collateral in Secured Party's possession as shall not have
been sold or otherwise disposed of or applied pursuant to the terms hereof and
(ii) execute and deliver to Assignor such documents as Assignor shall reasonably
request to evidence such termination.

     9.9  Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with Assignor and the Secured
Party.

     9.10 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

     9.11 The Secured Party. The Secured Party will hold in accordance with this
Agreement all items of the Collateral at any time received under this Agreement.
It is expressly

                                       18

<PAGE>

understood and agreed that the obligations of the Secured Party as holder of the
Collateral and interests therein and with respect to the disposition thereof,
and otherwise under this Agreement, are only those expressly set forth in this
Agreement. Secured Party shall act hereunder on the terms and conditions set
forth herein.

     9.12 Benefit of Agreement. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns and shall inure to the
benefit of and be enforceable by each of the parties hereto and its successors
and assigns.

                                      * * *

                                       19

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.

                                   PEREGRINE/BRIDGE TRANSFER CORPORATION, as
                                   Assignor



                                       By:______________________________________

                                       Name:____________________________________

                                       Title:___________________________________



Accepted and Agreed to:

NEON SYSTEMS, INC.,
as Secured Party


By:_______________________________________
Name:_____________________________________
Title:____________________________________

                                       i