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                                                                    EXHIBIT 10.1

                          SECURITY AND PLEDGE AGREEMENT


         SECURITY AND PLEDGE AGREEMENT, dated as of January 5, 2001, between
John T. Botti on the one hand (referred to herein as "Pledgor"), intending to be
liable under this security and pledge agreement (this "Agreement"), with an
address as indicated below his signature, and Bitwise Designs, Inc., on the
other hand, having its principal office at 2165 Technology Drive, Schenectady,
New York 12308 (the "Pledgee").

                              W I T N E S S E T H :


         WHEREAS, Pledgee has made a loan to Pledgor in the principal amount of
$317,000 (the "Loan") as evidenced by that certain Promissory Note (the "Note")
of even date herewith; and

         WHEREAS, the Pledgor owns 409,341 shares of the Common Stock of Bitwise
Designs, Inc., and has been granted options to purchase 1,065,000 shares of the
Common Stock of Bitwise Designs, Inc., all of which are fully vested; and

         WHEREAS, the 409,341 shares of Common Stock of Bitwise Designs owned by
Pledgor are held in account no. ________ with Bear Stearns (the "Bear Stearns
Account"); and

         WHEREAS, the Pledgor and Pledgee have agreed that the aforementioned
shares of Common Stock of Bitwise Designs, Inc., the options to purchase the
shares of Common Stock of Bitwise Designs, Inc., the proceeds of any sales of
the such securities and the Bear Stearns Account will secure the obligations
represented by the Note; and

         WHEREAS, in connection with and prior to the making of the Loan, the
Pledgee is requiring that the Pledgor shall have executed and delivered this
Agreement and granted to it the security
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interest contemplated hereby;

         NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, and to induce the Pledgee to make the Loan, it is agreed
as follows:

         1. Pledge.

         (a) In order to secure the payment or performance, as the case may be,
in full of the obligations of the Pledgor under the Note, the Pledgor hereby
pledges, assigns, transfers, delivers, deposits, sets over and confirms as a
second priority pledge unto the Pledgee, and its successors and assigns, (i)
409,341 Shares of Common Stock of Bitwise owned (beneficially and of record) by
the Pledgor (the "Pledged Shares"), (ii) options to purchase 1,065,000 shares of
the Common Stock of Bitwise Designs, Inc. (the "Pledged Options") (the Pledged
Shares and the Pledged Options may be collectively referred to herein as the
"Pledged Securities"), (iii) all proceeds of, including cash or other securities
delivered in exchange for, the Pledged Securities, and (iv) the Bear Stearns
Account.

         (b) All of the Pledged Securities collectively owned by the Pledgor are
free and clear of all liens, claims, encumbrances, rights of third parties, and
any and all lockup agreements, except that the Pledged Shares are subject to a
first priority lien held by Bear Stearns (the "First Lien"). Further, all
restrictions on the Pledged Securities, and all restrictive legends on the share
certificates and option certificates representing the Pledged Securities, have
been removed or may be removed pursuant to the Securities Act of 1933, as
amended.

         (c) Certificates representing the Pledged Securities are currently held
by Bear Stearns under the First Lien and may not be delivered to the Pledgee
until such time as the First Lien is satisfied or the earlier consent of Bear
Stearns to such delivery is obtained by Pledgee.


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         (d) Certificates representing the Pledged Options, accompanied by
proper instruments of assignment duly executed in blank by the Pledgor are
herewith delivered to Pledgee.

         (e) The Pledgor agrees that he has delivered herewith to the Pledgee
(i) proper instruments of assignment duly executed in blank by the Pledgor
together with the certificates representing any additional shares of capital
stock of Pledgee hereafter acquired, subject to the First Lien; and (ii) a duly
executed financing statements covering the Bear Stearns Account.

         2. Pledgor and Pledgee's Rights. Subject to the First Lien, unless an
Event of Default under this Agreement shall have occurred: (i) the Pledgor shall
be entitled to receive and retain non-cash dividends and other distributions
with respect to the Pledged Securities, other than any such distributions of
securities of Pledgee which shall be forthwith delivered by Pledgor to the
Pledgee, upon the execution and delivery of this Agreement; (ii) the Pledgor
shall be entitled to receive all cash dividends and distributions in respect of
the Pledged Securities declared and paid by Bitwise Designs; (iii) Pledgor shall
have all voting rights with respect to the Pledged Securities; (iv) Pledgee
shall have, with respect to the Pledged Securities, the rights and obligations
of a secured party under Article 9 of the Uniform Commercial Code; (v) the
Pledgee may file Financing Statements and continuations thereof relating to the
Pledgor in various filing offices to perfect the Pledgee's security interest in
the Bear Stearns Account, and Debtor agrees to execute copies thereof; and (vi)
Pledgee may contact the holder of the First Lien, at any time, for the purpose
of, among other things, inquiring about the status of the First Lien and to
arrange for the delivery of the Pledged Shares to Pledgee. If any distribution
in respect of the Pledged Securities is paid, in whole or in part, in voting
securities or capital interests of Bitwise Designs, the certificates for such
securities shall be delivered by the Pledgor, subject to the First Lien, to the
Pledgee and shall constitute a part of


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the Pledged Securities.

         3. Representations and Warranties: Pledgor represents and warrants that
he owns the Pledged Securities, that the shares are not subject to any lien,
pledge, charge, encumbrance, security interest, lockup agreement effecting the
Pledgor's ability to sell the shares, or a right or action on the part of any
third person to purchase or require such shares or any part of such share,
except as disclosed in Paragraph 1 of this Agreement. Further, the undersigned
Pledgor executing this Agreement has been authorized to execute and deliver to
Pledgee this Agreement and any other documents required to consummate the
transactions contemplated by this Agreement.

         4. Authority. Pledgor has the power and authority to execute, deliver
and perform its obligations under this Agreement and this Agreement constitutes
the legal, valid and binding obligation of Pledgor, enforceable against Pledgor
in accordance with its terms, except as limited by equitable principles,
bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditor's rights.

         5. Covenants.

         (a) The Pledgor covenants and agrees that, unless the prior written
consent of the Pledgee to the contrary is obtained, from and after the date
hereof until the payment and performance in full of all obligations of the
Pledgor under the Note, Pledgor shall defend the title to the Pledged Securities
and the lien of Pledgee thereon against the claim of any third party claiming
against or through the Pledgor and shall maintain and preserve such lien so long
as this Agreement shall remain in effect.

         (b) The Pledgor further covenants and agrees that (i) Bear Stearns, as
holder of the First Lien, may deliver the Pledged Shares to Pledgee without the
requirement of any further consent or


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writing on the part of Pledgor; and (ii) Pledgor shall, concurrently herewith,
cause Bear Stearns, as holder of the First Lien to execute and deliver to
Pledgee an Acknowledgment and Consent regarding this Security and Pledge
Agreement in the form and substance of that attached hereto as Exhibit A.

         6. Defaults and Remedies.

         (a) Subject to the rights of the First Lien, upon the occurrence of an
Event of Default as herein defined, the Pledgee is hereby authorized and
empowered and shall have the right, at its election, to transfer and register in
its name the whole or any part of the Pledged Securities, to exercise all voting
rights with respect thereto, to collect and receive all cash dividends and other
distributions made thereon, to sell in one or more sales after five (5) business
days' notice (which notice the Pledgor agrees is commercially reasonable) but
without any previous notice or advertisement, the whole or any part of the
Pledged Securities and otherwise to act with respect to the Pledged Securities
as though the Pledgee were the outright owner thereof, the Pledgor hereby
irrevocably constituting the Pledgee in such regard as his proxy and
attorney-in-fact, with full power of substitution to do so; provided, however,
that the Pledgee shall not have any duty to exercise any such right or to
preserve the same and shall not be liable for any failure to do so or for any
delay in doing so. Any sale shall be made at a public or private sale at the
Pledgee's place of business, or at any public building in the State of New York
to be named in the notice of sale, either for cash or upon credit or for future
delivery at such price as the Pledgee may deem fair, and the Pledgee may be the
purchaser of the whole or any part of the Pledged Securities so sold and hold
the same thereafter in its own right free from any claim of the Pledgor or any
right of redemption, which right is hereby expressly waived. Each sale shall be
made to the highest bidder, but the Pledgee reserves the right to reject any and
all bids at such sale which, in its sole discretion, it shall deem inadequate.


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Demands of performance, except as otherwise herein specifically provided for,
notices of sale, advertisements and the presence of property at sale are hereby
waived and any sale hereunder may be conducted by an auctioneer or any officer
or agent of the Pledgee.

         (b) If, at the original time or times appointed for the sale of the
whole or any part of the Pledged Securities, the highest bid, if there be but
one bid, shall be inadequate to discharge in full all of the obligations of the
Pledgor under the Promissory Note, or if the Pledged Securities be offered for
sale in lots, if at any of such sales, the highest bid for the lot offered for
sale would indicate to the Pledgee, in its sole discretion, the unlikelihood of
the proceeds of the sales of the whole of the Pledged Securities being
sufficient to discharge all of such obligations, the Pledgee may, on one or more
occasions, postpone any of said sales by public announcement at the time of such
sale. In the event of any such postponement, the Pledgee shall give the Pledgor
notice of such postponement or postponements of sale.

         (c) In the event of any sale(s) under this Section 6, the Pledgee
shall, after deducting all costs or expenses of every kind (including attorneys
fees and disbursements) for care, safekeeping, collection, sale, delivery or
otherwise, apply the residue of the proceeds of the sale(s) to the payment or
reduction, either in whole or in part, of the obligations of the Pledgor under
the Promissory Note, whether or not then due, returning the surplus (including
any Pledged Securities not sold by the Pledgee), if any, to the Pledgor.

         (d) In view of the fact that federal and state securities laws may
impose certain restrictions on the method by which a sale of the Pledged
Securities may be affected, the Pledgor recognizes that the Pledgee may be
unable to effect a public sale of all or part of the Pledged Securities, and may
be compelled to resort to one or more private sales to a restricted group of

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purchasers who will be obligated to agree, among other things, to acquire such
securities for their own account, for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges that any such private
sales may be at places and on terms less favorable to the Pledgee than if sold
at public sales. The Pledgor agrees that any such private sales shall not be
deemed to have been made in other than a commercially reasonable manner because
such Pledged Securities shall not have been registered and that the Pledgee has
no obligation to delay sale of any such securities for the period of time
necessary to permit the issuer of such securities to register such securities
for public sale.

         (e) The Pledgor agrees that he will not at any time plead, claim or
take the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any part of
the Pledged Securities or the possession thereof by any purchaser at any sale
hereunder, and the Pledgor waives the benefit of all such laws to the extent he
lawfully may do so. The Pledgor agrees that he will not interfere with any
right, power or remedy of the Pledgee provided for in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, or the
exercise or beginning of the exercise by the Pledgee of any one or more of such
rights, powers or remedies. No failure or delay on the part of the Pledgee to
exercise any such right, power or remedy, and no notice or demand which may be
given to or made upon the Pledgor by the Pledgee with respect to any such
remedies shall operate as a waiver thereof, or limit or impair the Pledgee's
right to take any action or to exercise any power or remedy hereunder without
notice or demand, or prejudice its rights as against the Pledgor in any respect.

         (f) Each and every right granted to the Pledgee hereunder or under any
other document delivered hereunder or in connection herewith, or allowed it by
law or equity, shall be cumulative

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and may be exercised from time to time.

         (g) In addition to all other rights and remedies granted to the Pledgee
hereunder, the Pledgee shall have all the rights granted to creditors generally
under the Uniform Commercial Code as in effect in the State of New York.

         (h) For purposes herein, Event of Default shall be defined to mean the
occurrence of any of the following:

                  (i) an Event of Default under the Note; and

                  (ii) the failure to comply by Pledgor with any term or
provision of this Agreement which failure to comply has not been cured by the
Pledgor within five (5) days of such failure to comply or breach.

         7. Waiver. No failure or delay on the Pledgee's part in exercising any
power of sale, lien, option or other right hereunder, and no notice or demand
which may be given to or made upon the Pledgor by the Pledgee with respect to
any power of sale, lien, option or other right hereunder, shall constitute a
waiver thereof, or limit or impair the Pledgee's right to take any action or to
exercise any power of sale, lien, option or any other right hereunder, without
notice or demand, or prejudice the Pledgee's rights as against the Pledgor in
any respect, nor shall any single or partial exercise of any right preclude any
other or future exercise thereof or the exercise of any other right.

         8. Termination. Upon the payment and performance in full of all of the
obligations of the Pledgor under the Note, the Pledgee shall deliver to the
Pledgor the Pledged Securities which are subject to this Agreement at such time
and all instruments of assignment executed in connection therewith, free and
clear of the lien hereof and, except as otherwise provided herein, all of the
Pledgor's obligations hereunder shall, upon such payment and performance,
terminate.

         9. Renewal or Extensions: No renewal or extension of the Note, and no
delay in the

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enforcement or exercise of the rights granted the Pledgee under this Agreement
shall constitute a waiver or affect the rights of the Pledgee with respect to
the shares of stock or any part of such stock.

         10. Additional Documents: Pledgor stipulates that he will execute and
deliver to Pledgee any and all additional documents that may be necessary to
perfect the security interest given to the Pledgee under this Agreement. These
documents, include, but are not limited to, stock and/or option certificates
representing the Pledged Securities, Rule 144 paperwork, attorney opinion
letters, signed and medallion guaranteed stock powers, duly executed waivers of
any applicable lockup agreements, etc., signed by the Pledgor.

         11. Miscellaneous.

         (a) No Waiver. Neither the failure by Pledgee to, nor the delay on the
part of Pledgee in, the exercise of any power or right granted to it hereunder,
or with respect to any agreement or instrument executed and delivered pursuant
to this Agreement, shall constitute a waiver of such power or right or prevent
Pledgee's exercise or partial exercise of any other right, power or privilege,
it being understood that the rights and remedies of Pledgee under and in respect
of this Agreement and the other documents referred to herein are cumulative and
shall be in addition to any and all other rights and remedies now or hereafter
existing in law or in equity. No modification or waiver of any provision of this
Agreement nor consent to any departure herefrom by any party shall, in any
event, be effective unless such waiver or modification shall be in writing
signed by the party against whom enforcement of the waiver or modification is
sought and then shall be effective only for the period and on the conditions,
and for the specific instance and purpose, for which given. No notice to or
demand on Pledgor in any case shall entitle Pledgor to any other or further
notice or demand in similar or other circumstances. This Agreement may not be
changed or terminated orally.

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         (b) Entire Agreement. This Agreement, together with the other documents
executed and delivered in connection herewith, contains the sole and entire
understanding and agreement of Pledgor and Pledgee with respect to the subject
matter hereof and all prior negotiations, discussions, commitments,
representations, agreements and understandings heretofore between Pledgor and
Pledgee with respect thereto are merged herein.

         (c) Amendment or Modification: This Agreement may not be amended or
modified except in writing, executed and signed by the parties.

         (d) Successors and Assigns. This Agreement shall be binding on and
shall inure to the benefit of the parties hereto and their respective permitted
successors and assigns. Pledgor may not assign this Agreement without Pledgee's
written consent, and any such attempted assignment without such consent shall be
null and void.

         (e) Binding Effect: This Agreement shall be binding on the parties and
their representatives, heirs, successors, and assigns.

         (f) Notices. All notices, requests, demands, consents or other
communications provided for herein shall be in writing and shall be deemed to
have been given or made when received or three days following deposit for
mailing by first-class registered or certified mail, return receipt requested,
to the address of the other party set forth below or to such other address as
may be specified by notice given in accordance with this Section 11:

         If to Pledgor, to:                          John T. Botti
                                                     Bitwise Designs, Inc.
                                                     2165 Technology Drive
                                                     Schenectady, NY 12308

         If to Pledgee, to:                          Bitwise Designs, Inc.
                                                     2165 Technology Drive
                                                     Schenectady, NY 12308
                                                     Attention: Dennis H. Bunt

         (g) APPLICABLE LAW: SERVICE OF PROCESS; APPOINTMENT OF PROCESS

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AGENT. THIS AGREEMENT SHALL BE DEEMED TO BE MADE AND TO BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PROVISIONS OF CHOICE OF LAW THEREUNDER. PLEDGOR HEREBY IRREVOCABLY CONSENTS
TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK OR OF
ANY FEDERAL COURT LOCATED WITHIN SCHENECTADY COUNTY, NEW YORK IN CONNECTION WITH
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. PLEDGOR
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION
OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE
OR FORUM NON- CONVENIENS OR ANY SIMILAR BASIS. PLEDGOR SHALL NOT BE ENTITLED IN
ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE
LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK. NOTHING IN THIS SECTION
SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF PLEDGEE TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST PLEDGOR IN ANY
JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.

         (h) Waiver of Jury Trial. To the fullest extent permitted by law,
Pledgor hereby waives trial by jury in any litigation in any court with respect
to, in connection with, or arising out of this Agreement, or any instrument,
document or guaranty delivered pursuant to this Agreement, or the validity,
protection, interpretation, collection or enforcement hereof, or any other claim
or dispute hereunder.

         (i) Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole

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but this Agreement shall be construed and enforced only to such extent as shall
be permitted by law.

         (j) Captions. The captions of the various sections of this Agreement
have been inserted only for the purposes of convenience; such captions are not a
part of this Agreement and shall not be deemed, in any manner, to modify,
explain, enlarge or restrict any of the provisions of this Agreement.

         (k) Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and both of which shall constitute a
single instrument.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

                                    PLEDGOR:
                                                --------------------------------
                                                John T. Botti


                                    PLEDGEE:    BITWISE DESIGNS, INC.


                                             By:
                                                --------------------------------
                                                Dennis H. Bunt,
                                                Chief Financial Officer

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