CHASE
                                                        THE CHASE MANHATTAN BANK

                               SECURITY AGREEMENT
                                (General Purpose)

     This  Agreement,  made  this  12th  day of July  2000,  between  THE  CHASE
MANHATTAN BANK (herein  called the "Bank") and HAUPPAUGE  COMPUTER  WORKS,  LTD.
(herein called the "Borrower"), (the "Agreement").

     1.  DEFINITIONS  OF  TERMS  USED  HEREIN.   (a)  "Borrower"   includes  all
individuals  executing  this  agreement  as parties  hereto and all members of a
partnership  when the Borrower is a  partnership,  each of whom shall be jointly
and severally liable individually and as partners hereunder.  (b) "Liability" or
"Liabilities" includes all liabilities (primary,  secondary, direct, contingent,
sole,  joint  or  several)  due or to  become  due,  or  that  may be  hereafter
contracted or acquired,  of the Borrower  (including  the Borrower and any other
person) to the Bank,  including without limitation all liabilities arising under
or from any note, loan or credit agreement,  letter of credit, guaranty,  draft,
acceptance,  interest rate or foreign exchange agreement or any other instrument
or agreement of (or the  responsibility of) the Borrower or any loan, advance or
other  extension  of credit or  financial  accommodation  to the Borrower by the
Bank.  (c)  "Proceeds"  means  whatever is  received  when  Collateral  is sold,
exchanged,  leased,  collected or otherwise disposed of and includes the account
arising  when the right to payment is earned  under a  contract.  (d)  "Security
Interest" means a lien or other interest in Collateral  which secures payment of
a liability or performance of an obligation. (e) "Collateral" means the property
described  in  Section 2 hereof  and the  following  described  property  of the
Borrower:

              SEE SCHEDULE 1 ATTACHED HERETO AND MADE A PART HEREOF

All  terms  used  herein  which  are also  defined  in the New York or any other
applicable  Uniform Commercial Code shall also have at least the meanings herein
as therein defined.

     2.  SECURITY  INTEREST.  As security for the payment of all loans and other
extensions of credit or other financial accommodations now or in the future made
by the Bank to the  Borrower  and all other  liabilities  of the Borrower to the
Bank,  the  Borrower  hereby  grants  to the  Bank a  Security  Interest  in the
above-described  Collateral and all and any Proceeds  arising  therefrom and all
and any products of the Collateral.

     The Borrower  represents  and warrants  that it is the sole lawful owner of
the Collateral, free and clear of any liens and encumbrances,  and has the right
and power to pledge,  sell,  assign and transfer  absolute  title thereto to the
Bank and that no financing  statement  covering the  Collateral,  other than the
Bank's, is on file in any public office.

     To further secure the Liabilities,  the Borrower hereby grants, pledges and
assigns to the Bank a continuing lien, Security Interest and right of set-off in
and to all money,  securities  and all other  property of the Borrower,  and the
Proceeds thereof,  now or hereafter actually or constructively  held or received
by or for the Bank, Chase Securities Inc. or any other affiliate of the Bank for
any  purpose,   including  safekeeping,   custody,   pledge,   transmission  and
collection,  and in and to all of the Borrower's  deposits (general and special)
and credits with the Bank,  Chase  Securities Inc. or any other affiliate of the
Bank.  The  Borrower  authorizes  the Bank to  deliver  to others a copy of this
Agreement  as written  notification  of the  Borrower's  transfer  of a Security
Interest in the foregoing  property.  The Bank is hereby  authorized at any time
and from  time to time,  without  notice,  to apply  all or part of such  money,
securities, property, proceeds, deposits or credits to any of the Liabilities in
such amounts as the Bank may elect in its sole and absolute discretion, although
the  Liabilities  may then be  contingent  or  unmatured  and whether or not the
Collateral security may be deemed adequate.

     3. USE OF  COLLATERAL.  Until  default,  the  Borrower  may sell or use the
Collateral  in any  lawful  manner,  including  without  limitation  the sale of
inventory  and other assets of the Borrower in the ordinary  course of business.
If the Collateral is or is about to become affixed to realty, the Borrower will,
at the Bank's request,  furnish the Bank a writing  executed by the mortgagee of
the realty whereby the mortgagee  subordinates  its rights and priorities to the
Bank's Security  Interest in the Collateral.  If the Collateral is or may become
subject to a landlord's lien, the Borrower will at the Bank request, furnish the
Bank with a landlord's  waiver  satisfactory  in form to the Bank.  The Borrower
shall not transfer any  Collateral to any other  location if such transfer shall
result in such  Collateral  being  located  outside of any  jurisdiction  of the
United States.

     4.  INSURANCE.  The  Borrower  will  have  and  maintain  insurance  on the
Collateral  until this  Agreement is  terminated  against all expected  risks to
which it is exposed,  including fire,  theft and collision,  and those which the
Bank may designate, such insurance to be payable to the Bank and the Borrower as
their  interest  may appear;  all policies  shall  provide for thirty (30) days'
written  minimum  cancellation  notice to the Bank. The Bank may act as attorney
for the Borrower in obtaining, adjusting, settling and canceling such insurance.

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     5. DEFAULT.  Default shall exist hereunder:  (1) if the Borrower shall fail
to pay any amount of the  Liabilities  when due or if the Borrower shall fail to
keep,  observe or perform any  provision of this  Agreement  or of any note,  or
other instrument or agreement  between the Borrower and the Bank relating to any
Liabilities  or if any default or Event of Default  specified  or defined in any
such note,  instrument or agreement shall occur; or (2) if the Borrower shall or
shall attempt to: (a) remove or allow removal of the Collateral  from the county
where the Borrower now resides,  except in the ordinary  course of business,  or
change  the  location  of its  chief  executive  office  or  principal  place of
business;  (b) sell,  encumber or  otherwise  dispose of the  Collateral  or any
interest therein or permit any lien or Security Interest (other than the Bank's)
to exist  thereon or therein,  except in the ordinary  course of  business,  (c)
conceal,  hire out or let the  Collateral,  except  in the  ordinary  course  of
business, (d) misuse or abuse the Collateral, or (e) use or allow the use of the
Collateral  in  connection  with any  undertaking  prohibited  by law; or (3) if
bankruptcy or insolvency proceedings shall be instituted by the Borrower; or (4)
if bankruptcy or insolvency proceedings shall be instituted against the Borrower
and such proceedings remain  undismissed,  undischarged or unbonded for a period
of 60 days; or (5)if the Collateral  shall be attached,  levied upon,  seized in
any legal proceedings,  or held by virtue of any lien or distress; or (6) if the
Borrower shall make any  assignment for the benefit of creditors;  or (7) if the
Borrower  shall  fail  to pay  promptly  all  taxes  and  assessments  upon  the
Collateral  or the use  thereof,  unless  disputed in good faith by  appropriate
proceedings  and  provided  that  adequate  reserves  with  respect  thereto are
maintained on the books of the Borrower in conformity  with  generally  accepted
accounting principals; or (8) if the Borrower shall die; or (9) if the Bank with
reasonable  cause determines that its interest in the Collateral is in jeopardy;
or (10) if the Borrower should fail to keep the Collateral  suitably insured. In
the Event of Default or the breach of any  undertaking  of or  conditions  to be
performed by the Borrower:  (1) all Liabilities shall become immediately due and
payable;  and (2) the Borrower  agrees upon demand to deliver the  Collateral to
the Bank, or the Bank may, with or without  legal  process,  and with or without
previous  notice or demand  for  performance,  enter any  premises  wherein  the
Collateral  may be, and take  possession  of the same,  together  with  anything
therein,  and the Bank may make disposition of the Collateral subject to any and
all applicable  provisions of the law. If the Collateral is sold at public sale,
the Bank may purchase the  Collateral  at such sale.  The Bank,  provided it has
sent the statutory notice of default,  may retain from the proceeds of such sale
all  reasonable  costs  incurred in the said taking and sale and also,  all sums
then owing by the  Borrower,  and any  surplus of any such sale shall be paid to
the Borrower.

     6. GENERAL  AGREEMENTS.  (a) The Borrower agrees to pay the costs of filing
financing  statements  and  of  conducting  searches  in  connection  with  this
Agreement. (b) The Borrower agrees to allow the Bank through any of its officers
or agents,  at all reasonable times, to examine or inspect any of the Collateral
and to examine,  inspect and make extracts from the Borrower's books and records
relating to the  Collateral.  (c) The  Borrower  will  promptly pay when due all
taxes and  assessments  upon the  Collateral or for its use of operation or upon
the proceeds thereof or upon this Agreement or upon any note or other instrument
or agreement evidencing any of the Liabilities.  (d) At its option, the Bank may
discharge taxes,  liens or Security  Interests or other encumbrances at any time
levied  or  placed  on the  Collateral,  and may pay  for  the  maintenance  and
preservation of the Collateral, and the Borrower agrees to reimburse the Bank on
demand for any  reasonable  payment  made or any  expense  incurred  by the Bank
pursuant to the foregoing  authorization,  including outside or in-house counsel
fees and disbursements  incurred or expended by the Bank in connection with this
Agreement.  (e) The  Borrower  hereby  authorizes  the  Bank  to file  financing
statements  and any  amendments  thereto  without the signature of the Borrower.
Such  authorization  is  limited  to  the  Security  Interest  granted  by  this
Agreement.  (f) The  Borrower  agrees  that the Bank has the right to notify (on
invoices  or  otherwise)  account  debtors  and other  obligors or payors on any
Collateral of its assignment to the Bank,  and that all payments  thereon should
be made directly to the Bank,  and that the Bank has full power and authority to
collect, compromise,  endorse, sell or otherwise deal with the Collateral on its
own name or that of the Borrower at any time,  following  the  occurrence  of an
Event of Default. (g) The Borrower agrees to pay or reimburse the Bank on demand
for all  reasonable  costs and expenses  incurred by it in  connection  with the
administration  and  enforcement  of  this  Agreement  and  the  administration,
preservation, protection, collection or realization of any Collateral (including
outside or in-house  attorneys'  fees and  expenses).  (h) The Bank shall not be
deemed to have waived any of its rights hereunder, or under any other agreement,
instrument or paper signed by the Borrower  unless such waiver is in writing and
signed by the Bank.  No delay or omission on the part of the Bank in  exercising
any right shall operate as a waiver thereof or of any other right. A waiver upon
any one  occasion  shall not be  construed  as a bar or a waiver of any right or
remedy on any  future  occasion.  All of the rights  and  remedies  of the Bank,
whether evidenced hereby or by any other Agreement,  instrument or paper,  shall
be cumulative and may be exercised  singly or  concurrently.  (i) This Agreement
shall be governed by and construed in  accordance  with the laws of the State of
New York. (j) This Agreement,  and the Security Interests,  obligations,  rights
and  remedies  created  hereby,  shall  inure to the benefit of the Bank and its
successors  and  assigns  and be  binding  upon  the  Borrower  and  its  heirs,
executors, administrators, legal representatives, successors and assigns.

     7. EXECUTION BY THE BANK. This Agreement shall take effect immediately upon
execution by the  Borrower,  and the  execution  hereof by the Bank shall not be
required as a condition to the  effectiveness  of this Agreement.  The provision
for execution of this  Agreement by the Bank is only for purposes of filing this

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Agreement  as a  security  agreement  under  the  Uniform  Commercial  Code,  if
execution hereof by the Bank is required for purposes of such filing.


                             HAUPPAUGE COMPUTER WORKS, LTD.
                                      (Borrower)

                             By /s/ Kenneth R. Aupperle, as President
                                --------------------------------------

                             By /s/ Kenneth Plotkin, as Chairman and CEO
                                ----------------------------------------

                                          91 Cabot Court
                                          Hauppauge, NY 11788

                             Places of  business  in counties other than above:

                             ---------------------------------------

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                             ---------------------------------------
THE CHASE MANHATTAN BANK


By: /s/ Christopher Jantzen, VP
    ----------------------------
          (Name and Title)

Address:   395 N. Service Road, 3rd Floor
           Melville, NY 11747


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