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                                                                    EXHIBIT 10.1

                               SECURITY AGREEMENT


          This SECURITY AGREEMENT (this "AGREEMENT") dated as of November 24,
2000 is made by Midway Games Inc., a Delaware corporation (the "COMPANY"), the
other Persons listed on the signature pages hereof and the Additional Grantors
(as defined in Section 22) (the Company, the Persons so listed and the
Additional Grantors being, collectively, the "GRANTORS"), in favor of Bank of
America, N.A., as agent (together with any successors and assigns, the "AGENT")
for the Banks defined in the Credit Agreement referred to below. The Agent, the
Banks, the Issuing Bank (as defined in the Credit Agreement), the beneficiaries
of each indemnification obligation undertaken by any Grantor under any Loan
Document (as defined in the Credit Agreement) and the successors and assigns of
each of the foregoing are herein referred to collectively as the "SECURED
PARTIES."

          PRELIMINARY STATEMENTS.

          (1) The Company has entered into a Credit Agreement dated as of
September 20, 2000 (said Agreement, as it may hereafter be amended, amended and
restated, supplemented or otherwise modified from time to time, being the
"CREDIT AGREEMENT") with the Agent, the Banks and Banc of America Securities LLC
as Arranger.

          (2) Pursuant to Section 7.15 of the Credit Agreement, the Grantors are
entering into this Agreement in order to grant to the Agent for the benefit of
the Secured Parties a security interest in all of its personal property and
fixtures now owned or hereafter acquired.

          (3) Each Grantor is the owner of the shares (the "INITIAL PLEDGED
SHARES") of stock set forth opposite such Grantor's name on and as otherwise
described in Part I of Schedule I hereto and issued by the corporations named
therein and of the indebtedness (the "INITIAL PLEDGED DEBT") set forth opposite
such Grantor's name on and as otherwise described in Part II of Schedule I
hereto and issued by the obligors named therein.

          (4) The Company has authorized the Agent to open a collateral
securities account (the "COLLATERAL ACCOUNT"), with Bank of America, N.A. at its
office at 231 South LaSalle Street, Chicago, Illinois 60697 (or at such other
location as the Agent shall have designated to the Company), in the name of the
Agent and under the sole control and dominion of the Agent and subject to the
terms of this Agreement.

          (5) The Company has authorized the Agent to open collateral securities
account (the "L/C COLLATERAL ACCOUNT"), with Bank of America, N.A. at its office
at 231 South LaSalle Street, Chicago, Illinois 60697 (or at such other location
as the Agent shall have designated to the Company), in the name of the Agent and
under the sole control and dominion of the Agent and subject to the terms of
this Agreement.

          (6) The Company and certain Grantors have opened cash concentration
deposit accounts set forth on Schedule XI hereto (the "CASH CONCENTRATION
ACCOUNTS"), with Bank of America, N.A., with respect to which the Company and
the applicable Grantors have



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entered into letter agreements substantially in the form of Exhibit G hereto.
The Company and each of the applicable Grantors hereby authorize the Agent to
designate each Cash Concentration Account (whether before or after the Trigger
Event referred to in the Credit Agreement) in such manner as shall be acceptable
to the Agent.

          (7) Each Grantor will derive substantial direct and indirect benefit
from the transactions contemplated by the Loan Documents.

          (9) Terms defined in the Credit Agreement and not otherwise defined in
this Agreement are used in this Agreement as defined in the Credit Agreement.
Further, unless otherwise defined in this Agreement or in the Credit Agreement,
terms defined in Article 8 or 9 of the Uniform Commercial Code in effect in the
State of Illinois ("ILLINOIS UNIFORM COMMERCIAL CODE") and/or defined in the
Federal Book Entry Regulations (as defined below) are used in this Agreement as
such terms are defined in such Article 8 or 9 and/or the Federal Book Entry
Regulations. The term "FEDERAL BOOK ENTRY REGULATIONS" means (a) the federal
regulations contained in Subpart B ("Treasury/Reserve Automated Debt Entry
System (TRADES)") governing book-entry securities consisting of U.S. Treasury
bonds, notes and bills and Subpart D ("Additional Provisions") of 31 C.F.R. Part
357, 31 C.F.R. ss. 357.2, ss. 357.10 through ss. 357.14 and ss. 357.41 through
ss. 357.44 and (b) to the extent substantially identical to the federal
regulations referred to in clause (a) above (as in effect from time to time),
the federal regulations governing other book-entry securities.

          NOW, THEREFORE, in consideration of the premises and in order to
induce the Banks to make Credit Extensions under the Credit Agreement, each
Grantor hereby agrees with the Agent as follows:

          Section 1. Grant of Security.

          Effective upon the occurrence of the earlier of (a) a Trigger Event or
(b) a Default or an Event of Default, each Grantor hereby assigns and pledges to
the Agent for the benefit of the Secured Parties, and hereby grants to the Agent
for the benefit of the Secured Parties a security interest in, such Grantor's
right, title and interest in and to the following, in each case, as to each type
of property described below, whether now owned or hereafter acquired by such
Grantor, wherever located, and whether now or hereafter existing or arising
(collectively, the "COLLATERAL"):

          (a) all equipment in all of its forms (including, without limitation,
     all machinery, equipment, furnishings, tools, parts and supplies) all
     fixtures and all parts thereof and all accessions thereto (any and all such
     equipment, fixtures, parts and accessions being the "EQUIPMENT");

          (b) (i) all inventory in all of its forms and raw materials and work
     in process therefor, finished goods thereof and materials used or consumed
     in the manufacture, production, preparation or shipping thereof, (ii) goods
     in which such Grantor has an interest in mass or a joint or other interest
     or right of any kind (including, without limitation, goods in which such
     Grantor has an interest or right as consignee) and (iii) goods that are
     returned to or repossessed or stopped in transit by such Grantor), and



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     all accessions thereto and products thereof and documents therefor (any and
     all such inventory, accessions, products and documents being the
     "INVENTORY");

          (c) all accounts, chattel paper, instruments, deposit accounts,
     general intangibles and other obligations of any kind owed to such Grantor,
     whether or not arising out of or in connection with the sale or lease of
     goods or the rendering of services and whether or not earned by
     performance, and all rights now or hereafter existing in and to all
     security agreements, leases, guaranties, indemnities and other contracts
     securing or otherwise relating to any such accounts, chattel paper,
     instruments, deposit accounts, general intangibles or obligations (any and
     all such accounts, chattel paper, instruments, deposit accounts, general
     intangibles and obligations, to the extent not included in clause (d), (e),
     (f) or (g) below, being the "RECEIVABLES", and any and all such security
     agreements, guaranties, indemnities, leases and other contracts being the
     "RELATED CONTRACTS");

          (d) the following (the "SECURITY COLLATERAL"):

               (i) the Initial Pledged Shares and the certificates, if any,
          representing the Initial Pledged Shares, and all dividends, cash,
          instruments and other property from time to time received, receivable
          or otherwise distributed in respect of or in exchange for any or all
          of the Initial Pledged Shares;

               (ii) the Initial Pledged Debt and the instruments, if any,
          evidencing the Initial Pledged Debt (including, without limitation,
          the master promissory note in the form of Exhibit H attached hereto)
          and all interest, cash, instruments and other property from time to
          time received, receivable or otherwise distributed in respect of or in
          exchange for any or all of the Initial Pledged Debt;

               (iii) all additional shares of stock of any issuer of the Pledged
          Shares from time to time acquired by such Grantor in any manner (such
          shares, together with the Initial Pledged Shares, being the "PLEDGED
          SHARES"), and the certificates, if any, representing such additional
          shares, and all dividends, cash, instruments and other property from
          time to time received, receivable or otherwise distributed in respect
          of or in exchange for any or all of such shares;

               (iv) all additional indebtedness from time to time owed to such
          Grantor (such indebtedness, together with the Initial Pledged Debt,
          being the "PLEDGED DEBT") and the instruments, if any, evidencing such
          indebtedness, and all interest, cash, instruments and other property
          from time to time received, receivable or otherwise distributed in
          respect of or in exchange for any or all of such indebtedness;

               (v) the securities accounts, all securities entitlements with
          respect to all financial assets from time to time credited to the any
          of the Company's accounts (the "PLEDGED SECURITY ENTITLEMENTS"), and
          all financial assets from time to time credited to the any of the
          Company's accounts (the "PLEDGED FINANCIAL ASSETS"), and all
          dividends, interest, cash, instruments and other property from time to
          time received, receivable or otherwise distributed in respect of or in


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          exchange for any or all of such Pledged Security Entitlements or such
          Pledged Financial Assets;

               (vi) the commodities accounts, all of the Company's rights in and
          to all commodity contracts (the "PLEDGED COMMODITY CONTRACTS") from
          time to time carried in any of the Company's commodities accounts (the
          "COMMODITY ACCOUNTS"), and all value, cash, instruments and other
          property from time to time received, receivable or otherwise
          distributed in respect of or in exchange for any or all of such
          Pledged Commodity Contracts; and

               (vii) all other investment property (including, without
          limitation, all (A) securities, whether certificated or
          uncertificated, (B) security entitlements, (C) securities accounts,
          (D) commodity contracts and (E) commodity accounts) in which such
          Grantor has now, or acquires from time to time hereafter, any right,
          title or interest in any manner, and the certificates or instruments,
          if any, representing or evidencing such investment property, and all
          dividends, interest, distributions, value, cash, instruments and other
          property from time to time received, receivable or otherwise
          distributed in respect of or in exchange for any or all of such
          investment property;

          (e) the following (collectively, the "ACCOUNT COLLATERAL"):

               (i) the Collateral Account, all financial assets from time to
          time credited to the Collateral Account (including, without
          limitation, all Cash Equivalents1 from time to time credited to the
          Collateral Account), and all dividends, interest, cash, instruments
          and other property from time to time received, receivable or otherwise
          distributed in respect of or in exchange for any or all of such
          financial assets;

--------
(1) "CASH EQUIVALENTS" means any of the following, to the extent owned by the
Company or any of its Subsidiaries free and clear of all Liens other than Liens
created in favor of the Agent and the Banks and having a maturity of not greater
than 180 days from the date of acquisition thereof: (a) readily marketable
direct obligations of the Government of the United States or any agency or
instrumentality thereof or obligations unconditionally guaranteed by the full
faith and credit of the Government of the United States, (b) insured
certificates of deposit of or time deposits with any commercial bank that is a
Bank or a member of the Federal Reserve System, which issues (or the parent of
which issues) commercial paper rated as described in clause (c) below, is
organized under the laws of the United States or any State thereof and has
combined capital and surplus of at least $1 billion, or (c) commercial paper
issued by any corporation organized under the laws of any State of the United
States and rated at least "Prime-1" (or the then equivalent grade) by Moody's
Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. or (d)
Investments in money market or mutual funds that invest solely in Cash
Equivalents of the types described in clauses (a), (b) and (c) above.


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               (ii) the L/C Collateral Account, all financial assets from time
          to time credited to the L/C Collateral Account (including, without
          limitation, all Cash Equivalents from time to time credited to the L/C
          Collateral Account), and all dividends, interest, cash, instruments
          and other property from time to time received, receivable or otherwise
          distributed in respect of or in exchange for any or all of such
          financial assets;

               (iii) the Cash Concentration Accounts, all financial assets from
          time to time credited to the Cash Concentration Accounts (including,
          without limitation, all Cash Equivalents from time to time credited to
          the Cash Concentration Accounts), and all dividends, interest, cash,
          instruments and other property from time to time received, receivable
          or otherwise distributed in respect of or in exchange for any or all
          of such financial assets, and all funds held therein and all
          certificates and instruments, if any, from time to time representing
          or evidencing the Cash Concentration Accounts;

               (iv) all Pledged Accounts (as defined in Section 5(a)) from time
          to time, all funds held therein and all certificates and instruments,
          if any, from time to time representing or evidencing the Pledged
          Accounts;

               (v) all other deposit accounts of such Grantor from time to time
          (including, without limitation, all other demand, time, savings,
          passbook accounts), all funds held therein and all certificates and
          instruments, if any, from time to time representing or evidencing such
          deposit accounts;

               (vi) all notes, certificates of deposit, deposit accounts, checks
          and other instruments from time to time delivered to or otherwise
          possessed by the Agent or the Banks for or on behalf of such Grantor,
          including, without limitation, those delivered or possessed in
          substitution for or in addition to any or all of the then existing
          Account Collateral; and

               (vii) all interest, dividends, cash, instruments and other
          property from time to time received, receivable or otherwise
          distributed in respect of or in exchange for any or all of the then
          existing Account Collateral;

          (f) the following (collectively, the "INTELLECTUAL PROPERTY
     COLLATERAL"):

               (i) all United States, international and foreign patents, patent
          applications, utility models, and statutory invention registrations,
          including, without limitation, the patents and patent applications set
          forth in Schedule II hereto (as such Schedule II may be supplemented
          from time to time by supplements to this Agreement, each such
          supplement being in substantially the form of Exhibit F hereto (an "IP
          SECURITY AGREEMENT SUPPLEMENT"), executed and delivered by such
          Grantor to the Agent from time to time), together with all reissues,
          divisions, continuations, continuations-in-part, extensions and
          reexaminations thereof, all inventions therein, all rights therein
          provided by international treaties or conventions and all improvements
          thereto, and all other



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          rights of any kind whatsoever of such Grantor accruing thereunder or
          pertaining thereto (the "PATENTS");

               (ii) all trademarks (including, without limitation, service
          marks), certification marks, collective marks, trade dress, logos,
          domain names, product configurations, trade names, business names,
          corporate names and other source identifiers, whether or not
          registered, whether currently in use or not, including, without
          limitation, all common law rights and registrations and applications
          for registration thereof, including, without limitation, the trademark
          registrations and trademark applications set forth in Schedule II
          hereto (as such Schedule II may be supplemented from time to time by
          IP Security Agreement Supplements executed and delivered by such
          Grantor to the Agent from time to time), and all other marks
          registered in the U.S. Patent and Trademark Office or in any office or
          agency of any State or Territory of the United States or any foreign
          country (but excluding any United States intent-to-use trademark
          application prior to the filing and acceptance of a Statement of Use
          or an Amendment to allege use in connection therewith to the extent
          that a valid security interest may not be taken in such an
          intent-to-use trademark application under applicable law), and all
          rights therein provided by international treaties or conventions, all
          reissues, extensions and renewals of any of the foregoing, together in
          each case with the goodwill of the business connected therewith and
          symbolized thereby, and all rights corresponding thereto throughout
          the world and all other rights of any kind whatsoever of such Grantor
          accruing thereunder or pertaining thereto (the "TRADEMARKS");

               (iii) all copyrights, copyright applications, copyright
          registrations and like protections in each work of authorship, whether
          statutory or common law, whether published or unpublished, any
          renewals or extensions thereof, all copyrights of works based on,
          incorporated in, derived from, or relating to works covered by such
          copyrights, including, without limitation, the copyright registrations
          and copyright applications set forth in Schedule II hereto (as such
          Schedule II may be supplemented from time to time by IP Security
          Agreement Supplements executed and delivered by such Grantor to the
          Agent from time to time), together with all rights corresponding
          thereto throughout the world and all other rights of any kind
          whatsoever of such Grantor accruing thereunder or pertaining thereto
          (the "COPYRIGHTS");

               (iv) all confidential and proprietary information, including,
          without limitation, know-how, trade secrets, manufacturing and
          production processes and techniques, inventions, research and
          development information, technical data, financial, marketing and
          business data, pricing and cost information, business and marketing
          plans, and customer and supplier lists and information (the "TRADE
          SECRETS");

               (v) all computer software programs and databases (including,
          without limitation, source code, object code and all related
          applications and data files), firmware, and documentation and
          materials relating thereto, and all rights with



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          respect to the foregoing, together with any and all options,
          warranties, service contracts, program services, test rights,
          maintenance rights, improvement rights, renewal rights and
          indemnifications and any substitutions, replacements, additions or
          model conversions of any of the foregoing (the "COMPUTER SOFTWARE");

               (vi) to the extent the following are assignable under the terms
          thereof and appropriate consents can be obtained through the best
          efforts of the Grantors, all license agreements, permits,
          authorizations and franchises, whether with respect to the Patents,
          Trademarks, Copyrights, Trade Secrets or Computer Software, or with
          respect to the patents, trademarks, copyrights, trade secrets,
          computer software or other proprietary right of any other Person,
          including, without limitation, the license agreements set forth in
          Schedule II hereto (as such Schedule II may be supplemented from time
          to time by IP Security Agreement Supplements executed and delivered by
          such Grantor to the Agent from time to time), and all income,
          royalties and other payments now or hereafter due and/or payable with
          respect thereto, subject, in each case, to the terms of such license
          agreements, permits, authorizations and franchises, (the "LICENSES");
          and

               (vii) any and all claims for damages for past, present and future
          infringement, misappropriation or breach with respect to the Patents,
          Trademarks, Copyrights, Trade Secrets, Computer Software or Licenses,
          with the right, but not the obligation, to sue for and collect, or
          otherwise recover, such damages;

          (g) all general intangibles of every description and in any event
     including, without limitation: (i) all tax and other refunds, rebates or
     credits of every kind and nature to which such Grantor is now or hereafter
     may become entitled; (ii) all good will, choses in action and causes of
     action, whether legal or equitable, whether in contract or tort and however
     arising; (iii) all interests in limited and general partnerships to the
     extent not included in the Security Collateral; (iv) all rights of stoppage
     in transit, replevin and reclamation; (v) all licenses, permits, consents,
     indulgences and rights of whatever kind issued in favor of or otherwise
     recognized as belonging to such Grantor by any governmental authority; and
     (vi) all indemnity agreements, guaranties, insurance policies and other
     contractual, equitable and legal rights of whatever kind or nature;





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               (h) all books, records and other written, electronic or other
          documentation in whatever form maintained now or hereafter by or for
          such Grantor in connection with the ownership of its assets or the
          conduct of its business or evidencing or containing information
          relating to the Collateral, including, without limitation: (i)
          ledgers; (ii) records indicating, summarizing, or evidencing such
          Grantor's assets (including Inventory and Receivables), business
          operations or financial condition; (iii) computer programs and
          software; (iv) computer discs, tapes, files, manuals, spreadsheets;
          (v) computer printouts and output of whatever kind; (vi) any other
          computer prepared or electronically stored, collected or reported
          information and equipment of any kind; and (vii) any and all other
          rights now or hereafter arising out of any contract or agreement
          between such Grantor and any service bureau, computer or data
          processing company or other Person charged with preparing or
          maintaining any of such Grantor's books or records or with credit
          reporting, including with regard to the Grantor's accounts (all of the
          foregoing being the "BOOKS"); and

               (i) all proceeds of any and all of the Collateral (including,
          without limitation, proceeds that constitute property of the types
          described in clauses (a) through (h) of this Section 1 and this clause
          (i)) and, to the extent not otherwise included, all (i) payments under
          insurance (whether or not the Agent is the loss payee thereof), or any
          indemnity, warranty or guaranty, payable by reason of loss or damage
          to or otherwise with respect to any of the foregoing Collateral; (ii)
          payments (in any form whatsoever) made or due and payable to such
          Grantor from 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); (iii) other amounts from time
          to time paid or payable under or in connection with any of the
          Collateral or for an account of any damage or injury to or conversion
          of any Collateral by any Person; (iv) cash and (v) proceeds of
          proceeds.

               Section 2. Security for Obligations. The Collateral granted by
     each Grantor pursuant to this Agreement jointly and severally secures the
     payment and performance of all Obligations (as defined in the Credit
     Agreement), all Liabilities (as defined in the Guaranties), all obligations
     of Guarantors under the Guaranties and all other obligations of Grantors
     now or hereafter existing under the Loan Documents, in each case whether
     direct or indirect, absolute or contingent, liquidated or unliquidated,
     determined or undetermined, and whether for principal, reimbursement
     obligations, interest, fees, premiums, penalties, indemnifications,
     contract causes of action, costs, expenses or otherwise (all of the
     foregoing being, collectively, the "SECURED OBLIGATIONS").

               Section 3. Grantors Remain Liable. Anything herein to the
     contrary notwithstanding, (a) each Grantor shall remain liable under the
     contracts and agreements included in such Grantor's Collateral to the
     extent set forth therein to perform all of its duties and obligations
     thereunder to the same extent as if this Agreement had not been executed,
     (b) the exercise by the Agent of any of the rights hereunder shall not
     release any Grantor from any of its duties or obligations under the
     contracts and agreements included in the Collateral and (c) no Secured
     Party shall have any obligation or liability under the contracts and
     agreements included in the Collateral by reason of this Agreement or any
     other Loan Document, nor shall any Secured




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     Party be obligated to perform any of the obligations or duties of any
     Grantor thereunder or to take any action to collect or enforce any claim
     for payment assigned hereunder.

               Section 4. Delivery and Control of Security Collateral.

               (a) All certificates or instruments representing or evidencing
     Security Collateral shall be delivered to and held by or on behalf of the
     Agent pursuant hereto and shall be in suitable form for transfer by
     delivery, or shall be accompanied by duly executed instruments of transfer
     or assignment in blank, all in form and substance satisfactory to the
     Agent. For the better perfection of the Agent's rights in and to the
     Security Collateral, if requested by the Banks, each Grantor shall
     forthwith, upon the pledge hereunder of any Security Collateral pursuant to
     Section 1 hereof in which it has any right, title or interest, cause such
     Security Collateral to be registered in the name of the Agent or such of
     its nominees as the Agent may direct, subject only to the revocable rights
     specified in Section 15(a). In addition, the Agent shall have the right at
     any time after the occurrence of an Event of Default or a Trigger Event to
     exchange certificates or instruments representing or evidencing Security
     Collateral for certificates or instruments of smaller or larger
     denominations. Also, the Agent shall have the right at any time to convert
     Security Collateral consisting of financial assets credited to the
     Securities Account to Security Collateral consisting of financial assets
     held directly by the Agent, and to convert Security Collateral consisting
     of financial assets held directly by the Agent to Security Collateral
     consisting of financial assets credited to the Securities Account.

               (b) With respect to any Security Collateral in which any Grantor
     has any right, title or interest and that constitutes an uncertificated
     security, such Grantor will cause the issuer thereof either (i) to register
     the Agent as the registered owner of such security or (ii) to agree in
     writing with such Grantor and the Agent that such issuer will comply with
     instructions with respect to such security originated by the Agent without
     further consent of such Grantor, such agreement to be in form and substance
     satisfactory to the Agent. Each Grantor which has issued any Pledged Shares
     pledged hereunder to any other Grantor hereby agrees that it will follow
     and comply with the instructions of the Agent with respect to such Pledged
     Shares without any further consent of such other Grantor.

               (c) With respect to any Security Collateral in which any Grantor
     has any right, title or interest and that constitutes a security
     entitlement, such Grantor will cause the securities intermediary with
     respect to such security entitlement either (i) to identify in its records
     the Agent as the entitlement holder of such security entitlement against
     such securities intermediary or (ii) to agree in writing with such Grantor
     and the Agent that such securities intermediary will comply with
     entitlement orders (that is, notifications communicated to such securities
     intermediary directing transfer or redemption of the financial asset to
     which such Grantor has a security entitlement) originated by the Agent
     without further consent of such Grantor, such agreement to be in
     substantially the form of Exhibit C hereto or otherwise in form and
     substance satisfactory to the Agent (such agreement being a "SECURITIES
     ACCOUNT CONTROL AGREEMENT").

               (d) With respect to any Security Collateral in which any Grantor
     has any right, title or interest and that constitutes a commodity contract,
     such Grantor shall cause the commodity intermediary with respect to such
     commodity contract to agree in writing with such Grantor and the Agent that
     such commodity intermediary will apply any value distributed on




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     account of such commodity contract as directed by the Agent without further
     consent of such Grantor, such agreement to be in substantially the form of
     Exhibit D hereto or otherwise in form and substance satisfactory to the
     Agent (such agreement being a "COMMODITY ACCOUNT CONTROL AGREEMENT", and
     all such agreements, together with all Securities Account Control
     Agreements being, collectively, "CONTROL AGREEMENTS").

               (e) No Grantor will change or add any securities intermediary or
     commodity intermediary that maintains any securities account or commodity
     account in which any of the Collateral is credited or carried, or change or
     add any such securities account or commodity account, in each case without
     first complying with the above provisions of this Section 4 in order to
     perfect the security interest granted hereunder in such Collateral.

               Section 5. Maintaining the Pledged Accounts. So long as any
     Credit Extension or any other Obligation of any Credit Party under any Loan
     Document shall remain unpaid, any Letter of Credit shall be outstanding, or
     any Bank shall have any Commitment under the Credit Agreement:

               (a) Each Grantor will maintain lockboxes and deposit accounts
          (collectively, the "PLEDGED ACCOUNTS") only with banks (the "PLEDGED
          ACCOUNT BANKS") that have entered into letter agreements in
          substantially the form of Exhibit B hereto or otherwise in form and
          substance satisfactory to the Agent with such Grantor and the Agent
          (the "PLEDGED ACCOUNT LETTERS"), other than the Cash Concentration
          Accounts and other than deposit accounts which, together with all
          other deposit accounts of the Grantors, have an average daily balance
          not exceeding $50,000 in the aggregate.

               (b) Each Grantor will (i) immediately instruct each Person
          obligated at any time to make any payment to such Grantor for any
          reason (an "OBLIGOR") to make such payment to a Pledged Account of
          such Grantor or to the Cash Concentration Accounts and (ii) deposit in
          a Pledged Account or pay to the Agent for deposit in the Cash
          Concentration Accounts, at the end of each Business Day, all proceeds
          of Collateral and all other cash of such Grantor in excess of $500,000
          in the aggregate.

               (c) Concurrently with or promptly after entering into a Pledged
          Account Letter with any Pledged Account Bank, each Grantor will
          instruct such Pledged Account Bank to transfer to the Cash
          Concentration Accounts, at the end of each Business Day, in same day
          funds, an amount equal to the credit balance of the Pledged Account in
          such Pledged Account Bank. If any Grantor shall fail to give any such
          instructions to any Pledged Account Bank, the Agent may do so without
          further notice to any Grantor.

               (d) Each Grantor agrees that it will not add any bank as a
          Pledged Account Bank or add any account as a Pledged Account to those
          listed in Schedule IX hereto, unless the Agent shall have received at
          least 10 days' prior written notice of such addition and shall have
          received a Pledged Account Letter executed by such new Pledged Account
          Bank and such Grantor or a supplement to an existing Pledged Account
          Letter covering such new Pledged Account, as the case may be (and,
          upon the receipt by the Agent of such Pledged Account Letter or
          supplement, Schedule IX hereto shall be automatically amended to
          include such Pledged Account Bank or Pledged Account). Each Grantor

                                       10
<PAGE>   11

          agrees that it will not terminate any bank as a Pledged Account Bank
          or terminate any account as a Pledged Account, unless the Agent shall
          have received at least 10 days' prior written notice of such
          termination (and, upon such termination, Schedule IX hereto shall be
          automatically amended to delete such Pledged Account Bank or Pledged
          Account).

               (e) Upon any termination of any Pledged Account Letter or other
          agreement with respect to the maintenance of a Pledged Account by any
          Grantor or any Pledged Account Bank, such Grantor will immediately
          notify all Obligors that were making payments to such Pledged Account
          to make all future payments to another Pledged Account or to the Cash
          Concentration Accounts. Each Grantor agrees to terminate any or all
          Pledged Accounts and Pledged Account Letters upon request by the
          Agent.

               (f) The Company will draw checks on, and otherwise withdraw
          amounts from, the Pledged Accounts in such amounts as may be required
          in the ordinary course of business (including, without limitation, to
          pay or prepay Indebtedness outstanding under the Loan Documents). So
          long as no Event of Default shall have occurred and be continuing, the
          Agent will direct the applicable Collateral Bank (as hereinafter
          defined) to transfer amounts on deposit in the Cash Concentration
          Accounts to the Pledged Accounts to the extent necessary to pay all
          checks drawn on, and all amounts otherwise withdrawn from, the Pledged
          Accounts.

               (g) Each Grantor agrees that it will not add any account as an
          unblocked account to those listed in Schedule X hereto (the "UNBLOCKED
          ACCOUNTS") and will not terminate any account as an Unblocked Account,
          unless the Agent shall have received at least 10 days' prior written
          notice of such addition or termination (and, upon such addition or
          termination, Schedule X hereto shall be automatically amended to add
          or delete such account, as applicable) Each Grantor further agrees
          that the funds deposited in any Unblocked Account shall not exceed
          $100,000 at any time.

               Section 6. Maintaining the Cash Concentration Accounts, the
     Collateral Account and the L/C Collateral Account. So long as any Credit
     Extension or any other Obligation of any Credit Party under any Loan
     Document shall remain unpaid, any Letter of Credit shall be outstanding, or
     any Bank shall have any Commitment under the Credit Agreement:

               (a) The Company will maintain the Cash Concentration Accounts,
          the Collateral Account and the L/C Collateral Account with the Agent
          or another commercial bank acceptable to the Agent and that, in the
          case of the Cash Concentration Accounts, the Collateral Account and
          the L/C Collateral Account, has entered into a Securities Account
          Control Agreement (the Agent or any bank with which the Cash
          Concentration Accounts, the Collateral Account or the L/C Collateral
          Account are maintained being a "COLLATERAL BANK").

               (b) It shall be a term and condition of each of the Cash
          Concentration Accounts, the Collateral Account and the L/C Collateral
          Account, notwithstanding any term or condition to the contrary in any
          other agreement relating to the Cash Concentration Accounts, the
          Collateral Account or the L/C Collateral Account, as the case may be,
          and except as otherwise provided by the provisions of Sections 5, 8
          and 20, that no amount



                                       11
<PAGE>   12

          (including interest on Cash Equivalents credited thereto) will be paid
          or released to or for the account of, or withdrawn by or for the
          account of, the Company or any other Person from the Cash
          Concentration Accounts, the Collateral Account or the L/C Collateral
          Account, as the case may be.

               Section 7. Investing of Amounts in the Cash Concentration
     Accounts, the Collateral Account and the L/C Collateral Account. The Agent
     will, subject to the provisions of Sections 5, 8 and 20, from time to time
     direct the applicable Collateral Bank to (a) invest amounts received with
     respect to the Cash Concentration Accounts, the Collateral Account and the
     L/C Collateral Account in such Cash Equivalents credited to the Cash
     Concentration Accounts, the Collateral Account and the L/C Collateral
     Account, respectively, as the Company may select and the Agent may approve
     and (b) invest interest paid on the Cash Equivalents referred to in clause
     (a) above, and reinvest other proceeds of any such Cash Equivalents that
     may mature or be sold, in each case in such Cash Equivalents credited to
     the Cash Concentration Accounts, the Collateral Account and the L/C
     Collateral Account, respectively, as the Company may select and the Agent
     may approve. Interest and proceeds that are not invested or reinvested in
     Cash Equivalents as provided above shall be deposited and held in a deposit
     account with the applicable Collateral Bank in the name of the Agent and
     under the sole control and dominion of the Agent, such deposit account to
     be deemed to constitute part of the Cash Concentration Accounts, the
     Collateral Account or the L/C Collateral Account, as the case may be. In
     addition, the Agent shall have the right at any time to direct the
     applicable Collateral Bank to exchange such Cash Equivalents for similar
     Cash Equivalents of smaller or larger determinations, or for other Cash
     Equivalents, credited to the Cash Concentration Accounts, the Collateral
     Account or the L/C Collateral Account, as the case may be.

               Section 8. Release of Amounts. So long as no Default under
     Sections 10.1(a), (f) or (g) of the Credit Agreement or Event of Default
     shall have occurred and be continuing, the Agent will direct the applicable
     Collateral Bank to pay and release to the Company or at its order or, at
     the request of the Company, to the Agent to be applied to the Obligations
     of the Company under the Loan Documents, in the case of the L/C Collateral
     Account, such amount, if any, as is then on deposit in the L/C Collateral
     Account to the extent permitted to be released under the terms of the
     Credit Agreement governing Cash Collateralized amounts (as such term is
     defined in the Credit Agreement) and, in the case of the Collateral
     Account, the amount, if any, by which the aggregate principal amount of the
     Cash Equivalents credited to the Collateral Account exceeds all amounts
     then due and payable under the Loan Documents together with all accrued and
     unpaid interest and fees under the Credit Agreement.

               Section 9. Representations and Warranties. Each Grantor
     represents and warrants as follows:

               (a) Except for Collateral in transit, all of the Equipment and
          Inventory of such Grantor are located at the places specified therefor
          in Schedule III hereto, as such Schedule III may be amended from time
          to time pursuant to Section 11(a).

               (b) The chief executive office of such Grantor, the state of
          incorporation or formation and the original copies of Related Contract
          to which such Grantor is a party, all Books and all originals of all
          chattel paper that evidence Receivables of such Grantor, are




                                       12
<PAGE>   13

          located at the address specified therefor in Schedule IV hereto, as
          such Schedule IV may be amended from time to time pursuant to Section
          13(a).

               (c) Such Grantor's federal tax identification number are set
          forth opposite such Grantor's name in Schedule V hereto.

               (d) All Security Collateral consisting of certificated securities
          and instruments have been delivered to the Agent (except for the
          treasury shares). None of the Receivables is evidenced by a promissory
          note or other instrument that has not been delivered to the Agent.

               (e) Except for Collateral in transit, such Grantor is the legal
          and beneficial owner of the Collateral of such Grantor free and clear
          of any Lien, claim, option or right of others, except for the security
          interest created under this Agreement or Permitted Liens. No effective
          financing statement or other instrument similar in effect covering all
          or any part of such Collateral or listing such Grantor or any trade
          name of such Grantor as debtor is on file in any recording office,
          except such as may have been filed in favor of the Agent relating to
          the Loan Documents or Permitted Liens.

               (f) Such Grantor has the trade names listed on Schedule VI hereto
          as such Schedule VI may be amended from time to time pursuant to
          Section 10(d). Except as set forth in Schedule VI, such Grantor has
          not, at any time during the preceding five years: (i) been known as or
          used any other corporate, trade or fictitious name; (ii) changed its
          name; (iii) been the surviving or resulting corporation in a merger or
          consolidation; or (iv) acquired through asset purchase or otherwise
          any business of any Person.

               (g) Except for Collateral in transit and subject to Permitted
          Liens, such Grantor has exclusive possession and control of the
          Equipment and Inventory and no Inventory is stored with any bailee,
          warehouseman or similar Person or on any premises leased to such
          Grantor, nor has any inventory been consigned to such Grantor or
          consigned by such Grantor to any Person or is held by such Grantor for
          any Person under any "bill and hold" or other arrangement, other than
          Inventory stored at leased premises or warehouse set forth on Schedule
          VII for which a landlord's or warehouseman's agreement, in form and
          substance satisfactory to the Agent, is or will be in effect within 90
          days from the effective date hereof, as such Schedule VII may be
          amended from time to time pursuant to Section 10(d).

               (h) (i) None of the Equipment or other Collateral is affixed to
          real property, except Collateral with respect to which such Grantor
          has supplied the Collateral Agent with all information and
          documentation necessary to make all fixture filings required to
          perfect and protect the priority of the Collateral Agent's security
          interest in all such Collateral which may be fixtures as against all
          Persons having an interest in the premises to which such property may
          be affixed; and (ii) none of the Equipment is leased from or to any
          Person, except as set forth in Schedule VIII.

               (i) The Pledged Shares pledged by such Grantor hereunder have
          been duly authorized and validly issued and are fully paid and
          non-assessable. The Pledged Debt




                                       13
<PAGE>   14

          pledged by such Grantor hereunder has been duly authorized,
          authenticated or issued and delivered, is the legal, valid and binding
          obligation of the issuers thereof, is evidenced by one or more
          promissory notes (which notes have been delivered to the Agent) and is
          not in default.

               (j) The Initial Pledged Shares constitute the percentage of the
          issued and outstanding shares of stock of the issuers thereof
          indicated on Schedule I hereto, as such Schedule I may be amended from
          time to time pursuant to Section 10(d). The Initial Pledged Debt
          constitutes all of the outstanding indebtedness owed to such Grantor
          by the issuers thereof and is outstanding, as of the date hereof, in
          the principal amount indicated on Schedule I hereto, as such Schedule
          I may be amended from time to time pursuant to Section 10(d).

               (k) All of the investment property constituting Pledged Shares or
          Pledged Debt owned by such Grantor as of the date hereof is listed on
          Schedule I hereto.

               (l) Such Grantor has no Pledged Accounts or other deposit
          accounts other than the Pledged Accounts, the Unblocked Accounts
          listed on Schedule X hereto, and the Cash Concentration Accounts
          listed on Schedule XI hereto, as such Schedule IX or Schedule X may be
          amended from time to time pursuant to Section 5(d) or 5(g) and the
          permitted Unblocked Accounts aggregate average daily balance does not
          exceed the amounts referred to in Section 5(g) hereto. Such Grantor
          has instructed all existing Obligors to make all payments to either a
          Pledged Account or the Cash Concentration Accounts.

               (m) All financing statements, other documents for filings and
          other actions necessary or desirable to perfect and protect the
          security interest in the Collateral of such Grantor created under this
          Agreement have been executed and delivered to the Agent or have been
          (or are in the process of being) made or taken or, in the case of
          future-acquired Collateral, will be executed and delivered to the
          Agent or will be made or taken;

               (n) This Agreement creates in favor of the Agent for the benefit
          of the Secured Parties a valid and, together with such filings and
          other actions, perfected first priority security interest in the
          Collateral of such Grantor, securing the payment of the Secured
          Obligations.

               (o) No authorization or approval or other action by, and no
          notice to or filing with, any governmental authority or regulatory
          body or any other third party is required for (i) the grant by such
          Grantor of the assignment, pledge and security interest granted
          hereunder or for the execution, delivery or performance of this
          Agreement by such Grantor, (ii) the perfection or maintenance of the
          assignment, pledge and security interest created hereunder (including
          the first priority nature of such assignment, pledge or security
          interest), except for the filing of financing and continuation
          statements under the Uniform Commercial Code, which financing
          statements have been executed and delivered to the Agent, the
          recordation of the Intellectual Property Security Agreements referred
          to in Section 14(f) with the U.S. Patent and Trademark Office and the
          U.S. Copyright Office, which Agreements have been executed and
          delivered to the Agent or,




                                       14
<PAGE>   15

          in the case of future-acquired Collateral, will be executed and
          delivered to the Agent and the actions described in Section 4 with
          respect to Security Collateral will be taken no later than 10 days of
          the grant of the security interest under this Agreement becoming
          effective pursuant to Section 1, or (iii) for the exercise by the
          Agent of its voting or other rights provided for in this Agreement or
          the remedies in respect of the Collateral pursuant to this Agreement,
          except as may be required in connection with the disposition of any
          portion of the Security Collateral by laws affecting the offering and
          sale of securities generally.

               (p) The Inventory that has been produced or distributed by such
          Grantor has been produced in compliance in all material respects with
          all requirements of applicable law, including, without limitation, the
          Fair Labor Standards Act.

               (q) As to itself and its Intellectual Property Collateral, except
          with respect to Intellectual Property Collateral which is not material
          to the Company's business:

                    (i) To the Grantor's knowledge, the rights of such Grantor
               in or to the Intellectual Property Collateral do not
               misappropriate or infringe the intellectual property rights of
               any third party, and no claim has been asserted that the use of
               such Intellectual Property Collateral does or may infringe the
               intellectual property rights of any third party.

                    (ii) To the Grantor's best knowledge, such Grantor is the
               exclusive owner of the entire and unencumbered right, title and
               interest in and to the Intellectual Property Collateral and is
               entitled to use all such Intellectual Property Collateral without
               limitation, subject only to the license terms of the Licenses.

                    (iii) The Intellectual Property Collateral set forth on
               Schedule II hereto includes all of the patents, patent
               applications, trademark registrations and applications, copyright
               registrations and applications of such Grantor to the extent such
               Intellectual Property Collateral is material to the business of
               the Company and its Subsidiaries taken as a whole.

                    (iv) The Intellectual Property Collateral is subsisting and
               has not been adjudged invalid or unenforceable in whole or part,
               and is valid and enforceable. Such Grantor is not aware of any
               uses of any item of Intellectual Property Collateral that could
               be expected to lead to such item becoming invalid or
               unenforceable.

                    (v) Such Grantor has made or performed or will make or
               perform within a commercially reasonable time after the effective
               date of this Agreement, all filings, recordings and other acts
               and has paid all required fees and taxes to maintain and protect
               its interest in each and every item of Intellectual Property
               Collateral in full force and effect throughout the world, and to
               protect and maintain its interest therein including, without
               limitation, recordations of any of its interests in the Patents
               and Trademarks with the U.S. Patent and Trademark




                                       15
<PAGE>   16

               Office and recordation of any of its interests in the Copyrights
               with the U.S. Copyright Office.

                    (vi) No action, suit, investigation, litigation or
               proceeding has been asserted or is pending or, to the best of
               such Grantor's knowledge, threatened against such Grantor (i)
               based upon or challenging or seeking to deny or restrict the use
               of any of the Intellectual Property Collateral, or (ii) alleging
               that any services provided by, processes used by, or products
               manufactured or sold by, such Grantor infringe or misappropriate
               any patent, trademark, copyright or any other proprietary right
               of any third party, except to the extent the foregoing would not
               have a Material Adverse Effect. To the best of such Grantor's
               knowledge, no Person is engaging in any activity that infringes
               upon or misappropriates the Intellectual Property Collateral or
               upon the rights of such Grantor therein, except to the extent the
               foregoing would not have a Material Adverse Effect. Except as set
               forth on Schedule II hereto, such Grantor has not granted any
               license, release, covenant not to sue, non-assertion assurance,
               or other right to any Person with respect to any part of the
               Intellectual Property Collateral. The consummation of the
               transactions contemplated by the Transaction Documents will not
               result in the termination or impairment of any of the
               Intellectual Property Collateral, except to the extent the
               foregoing would not have a Material Adverse Effect.

                    (vii) With respect to each License: (A) such License is
               valid and binding and in full force and effect and represents the
               entire agreement between the respective licensor and licensee
               with respect to the subject matter of such License; (B) such
               License will not cease to be valid and binding and in full force
               and effect on terms identical to those currently in effect as a
               result of the rights and interest granted herein, nor will the
               grant of such rights and interest constitute a breach or default
               under such License or otherwise give the licensor or licensee a
               right to terminate such License; (C) such Grantor has not
               received any notice of termination or cancellation under such
               License; (D) such Grantor has not received any notice of a breach
               or default under such License, which breach or default has not
               been cured; (E) such Grantor has not granted to any other third
               party any rights, adverse or otherwise, under such License; and
               (F) neither such Grantor nor any other party to such License is
               in breach or default in any material respect, and no event has
               occurred that, with notice or lapse of time or both, would
               constitute such a breach or default or permit termination,
               modification or acceleration under such License.

                    (viii) To the Grantor's knowledge, (A) none of the Trade
               Secrets of such Grantor has been used, divulged, disclosed or
               appropriated to the detriment of such Grantor for the benefit of
               any other Person other than such Grantor; (B) no employee,
               independent contractor or agent of such Grantor has
               misappropriated any trade secrets of any other Person in the
               course of the performance of his or her duties as an employee,
               independent contractor or agent of such Grantor; and (C) no
               employee, independent contractor or agent of such Grantor is in
               default or breach of any term of any employment agreement,
               non-disclosure agreement, assignment of inventions agreement or
               similar agreement or contract relating in




                                       16
<PAGE>   17

               any way to the protection, ownership, development, use or
               transfer of such Grantor's Intellectual Property Collateral.

                    (ix) None of the Intellectual Property Collateral is subject
               to any outstanding decree, order, injunction, judgement or ruling
               restricting the use of such Intellectual Property Collateral or
               that would impair the validity or enforceability of such
               Intellectual Property Collateral.

               Section 10. Further Assurances.

               (a) Each Grantor agrees that from time to time, at the expense of
     such Grantor, such Grantor will promptly execute and deliver all further
     instruments and documents, and take all further action, that may be
     necessary or desirable, or that the Agent may request, in order to perfect
     and protect any pledge, assignment or security interest granted or
     purported to be granted by such Grantor hereunder or to enable the Agent to
     exercise and enforce its rights and remedies hereunder with respect to any
     Collateral of such Grantor. Without limiting the generality of the
     foregoing, each Grantor will promptly with respect to Collateral of such
     Grantor: (i) upon the occurrence of Default or an Event of Default or as
     the Agent may request, promptly mark conspicuously its Inventory
     documentation, each chattel paper included in Receivables, each Related
     Contract, and, at the request of the Agent, its records pertaining to such
     Collateral with a legend, in form and substance reasonably satisfactory to
     the Agent, indicating that such document, chattel paper, Related Contract,
     or Collateral is subject to the security interest granted hereby; (ii) if
     any such Collateral shall be evidenced by a promissory note or other
     instrument or chattel paper, deliver and pledge to the Agent hereunder such
     note or instrument or chattel paper duly indorsed and accompanied by duly
     executed instruments of transfer or assignment, all in form and substance
     satisfactory to the Agent; (iii) execute and file such financing or
     continuation statements, or amendments thereto, and such other instruments,
     notices or documents as may be necessary or desirable, or as the Agent may
     request, in order to perfect and preserve the security interest granted or
     purported to be granted by such Grantor hereunder (including financing
     statements and documents in anticipation of the revised Article 9 of the
     Uniform Commercial Code); (iv) deliver and pledge to the Agent for benefit
     of the Secured Parties certificates representing Security Collateral that
     constitutes certificated securities, accompanied by undated stock or bond
     powers executed in blank; and (v) deliver to the Agent evidence that all
     other action that the Agent may deem reasonably necessary or desirable in
     order to perfect and protect the security interest created by such Grantor
     under this Agreement has been taken.

               (b) Each Grantor hereby authorizes the Agent to file one or more
     financing or continuation statements, and amendments thereto, relating to
     all or any part of the Collateral of such Grantor without the signature of
     such Grantor where permitted by law. A photocopy or other reproduction of
     this Agreement or any financing statement covering the Collateral or any
     part thereof shall be sufficient as a financing statement where permitted
     by law.

               (c) Each Grantor will furnish to the Agent from time to time
     statements and schedules further identifying and describing the Collateral
     of such Grantor and such other reports in connection with such Collateral
     as the Agent may reasonably request, all in reasonable detail.



                                       17
<PAGE>   18

               (d) Each Grantor will (i) notify the Agent, upon 40 days' prior
     written notice, of any change in the content of Schedule I, VI or VII as
     the case may be and (ii) provide the Agent a revised Schedule I, VI or VII
     which shall amend Schedule I, VI, or VII as the case may be, provided,
     however that such change shall be in compliance with the terms and
     conditions of the Loan Documents including without limitation the terms and
     conditions of Section 12.1 of the Credit Agreement.

               Section 11. As to Equipment and Inventory.

               (a) Each Grantor will keep the Equipment and Inventory of such
     Grantor (other than Inventory in transit or sold in the ordinary course of
     business) at the places therefor specified in Section 9(a) or, upon 30
     days' prior written notice to the Agent, at such other places in a
     jurisdiction where all action required by Section 10 shall have been taken
     with respect to such Equipment and Inventory (and, upon the taking of such
     action in such jurisdiction, Schedule III hereto shall be automatically
     amended to include such other places).

               (b) Each Grantor will cause the Equipment of such Grantor to be
     maintained and preserved in the same condition, repair and working order as
     when new, ordinary wear and tear excepted, and in accordance with any
     manufacturer's manual, and will forthwith, or in the case of any loss or
     damage to any of such Equipment as soon as practicable after the occurrence
     thereof, make or cause to be made all repairs, replacements and other
     improvements in connection therewith that are reasonably necessary or
     desirable to such end. Each Grantor will promptly furnish to the Agent a
     statement respecting any loss or damage exceeding $100,000 to any of the
     Equipment or Inventory of such Grantor.

               (c) Each Grantor will pay promptly when due all property and
     other taxes, assessments and governmental charges or levies imposed upon,
     and all claims (including, without limitation, claims for labor, materials
     and supplies) against, the Equipment and Inventory of such Grantor, except
     for claims which such Grantor is actively and in good faith disputing. In
     producing its Inventory, each Grantor will comply in all material respects
     with all requirements of applicable law, including, without limitation, the
     Fair Labor Standards Act.

               Section 12. Insurance.

     (a) Upon the occurrence of the earlier of an Event of Default or a Trigger
     Event, each Grantor will, at its own expense, maintain insurance with
     respect to the Equipment and Inventory of such Grantor in such amounts,
     against such risks, in such form and with such insurers, as shall be
     reasonably satisfactory to the Agent from time to time. Each policy of each
     Grantor for liability insurance shall provide for all losses to be paid on
     behalf of the Agent and such Grantor as their interests may appear, and
     each policy for property damage insurance shall provide for all losses
     (except for losses of less than $1,000,000 per occurrence) to be paid
     directly to the Agent. Each such policy shall in addition (i) name such
     Grantor and the Agent as insured parties thereunder (without any
     representation or warranty by or obligation upon the Agent) as their
     interests may appear, (ii) contain the agreement by the insurer that
     (except for amounts permitted to be paid directly to the Company pursuant
     to Sections 12(b) and 12(c)), any loss thereunder shall be payable to the
     Agent notwithstanding any action, inaction or breach of representation or
     warranty by such Grantor, (iii) provide that there shall be no recourse
     against



                                       18
<PAGE>   19

     the Agent for payment of premiums or other amounts with respect thereto and
     (iv) provide that at least 10 days' prior written notice of cancellation or
     of lapse shall be given to the Agent by the insurer. Each Grantor will
     deliver to the Agent a certificate for such insurance and, if so requested
     by the Agent, deliver to the Agent duplicate policies of such insurance
     and, as often as the Agent may reasonably request, a report of a reputable
     insurance broker with respect to such insurance. Further, each Grantor
     will, at the request of the Agent, duly execute and deliver instruments of
     assignment of such insurance policies to comply with the requirements of
     Section 10 and cause the insurers to acknowledge notice of such assignment.

               (b) Reimbursement under any liability insurance maintained by any
     Grantor pursuant to this Section 12 may be paid directly to the Person who
     shall have incurred liability covered by such insurance. In case of any
     loss involving damage to Equipment or Inventory when subsection (c) of this
     Section 12 is not applicable, the applicable Grantor will make or cause to
     be made the necessary repairs to or replacements of such Equipment or
     Inventory, and any proceeds of insurance properly received by or released
     to such Grantor shall be used by such Grantor, except as otherwise required
     hereunder or by the Credit Agreement, to pay or as reimbursement for the
     costs of such repairs or replacements.

               (c) So long as no Default or Event of Default shall have occurred
     and be continuing, all insurance payments received by the Agent in
     connection with any loss, damage or destruction of any Inventory or
     Equipment will be released by the Agent to the applicable Grantor for the
     repair, replacement or restoration thereof, subject to such terms and
     conditions with respect to the release thereof as the Agent may reasonably
     require. Upon the occurrence of any Default or Event of Default or the
     actual or constructive total loss (in excess of $1,000,000 per occurrence)
     of any Equipment or Inventory, all insurance payments in respect of such
     Equipment or Inventory shall be paid to the Agent and shall, in the Agent's
     sole discretion, (i) be released to the applicable Grantor to be applied as
     set forth in the first sentence of this subsection (c) or (ii) be held as
     additional Collateral hereunder or applied as specified in Section 20(b).

               Section 13. Place of Perfection; Records; Collection of
     Receivables.

               (a) Each Grantor will keep its chief executive office, and
     originals of the Related Contracts to which such Grantor is a party and all
     originals of all chattel paper that evidence Receivables of such Grantor,
     at the location therefor specified in Section 9(b) or, upon 30 days' prior
     written notice to the Agent, at such other location in a jurisdiction where
     all actions required by Section 10 shall have been taken with respect to
     the Collateral of such Grantor (and, upon the taking of such action in such
     jurisdiction, Schedule IV hereto shall be automatically amended to include
     such other location). Each Grantor will hold and preserve its records
     relating to the Collateral, the Related Contracts and chattel paper and
     will permit representatives of the Agent at any time during normal business
     hours and upon notice given reasonably in advance to inspect and make
     abstracts from such records and other documents.

               (b) Except as otherwise provided in this subsection (b), each
     Grantor will continue to collect, at its own expense, all amounts due or to
     become due such Grantor under the Receivables and the Related Contracts. In
     connection with such collections, such Grantor may take (and, at the
     Agent's direction, will take) such action as such Grantor or the Agent may
     deem necessary or advisable to enforce collection of the Receivables and
     the Related Contracts;




                                       19
<PAGE>   20

     provided, however, that so long as an Event of Default shall exist the
     Agent shall have the right at any time, in the event that the Agent in good
     faith it believes that the prospect of payment of the Secured Obligations
     in the normal course, or the performance or collection of the Receivables
     or the Related Contracts of such Grantor, is impaired and upon written
     notice to such Grantor of its intention to do so, to notify the Obligors
     under any Receivables or Related Contracts of the assignment of such
     Receivables or Related Contracts to the Agent and to direct such Obligors
     to make payment of all amounts due or to become due to such Grantor
     thereunder directly to the Agent and, upon such notification and at the
     expense of such Grantor, to enforce collection of any such Receivables or
     Related Contracts, and to adjust, settle or compromise the amount or
     payment thereof, in the same manner and to the same extent as such Grantor
     might have done. After receipt by any Grantor of the notice from the Agent
     referred to in the proviso to the preceding sentence, (i) all amounts and
     proceeds (including instruments) received by such Grantor in respect of the
     Receivables and the Related Contracts of such Grantor shall be received in
     trust for the benefit of the Agent hereunder, shall be segregated from
     other funds of such Grantor and shall be forthwith paid over to the Agent
     in the same form as so received (with any necessary indorsement) to be
     deposited in the Collateral Account and either (A) released to such Grantor
     on the terms set forth in Section 8 so long as no Event of Default shall
     have occurred and be continuing or (B) if any Event of Default shall have
     occurred and be continuing, applied as provided in Section 20(b) and (ii)
     such Grantor will not adjust, settle or compromise the amount or payment of
     any Receivable, release wholly or partly any Obligor thereof, or allow any
     credit or discount thereon. No Grantor will permit or consent to the
     subordination of its right to payment under any of the Receivables or the
     Related Contracts to any other indebtedness or obligations of the Obligor
     thereof.

               Section 14. As to Intellectual Property Collateral.

               (a) With respect to each material item of its Intellectual
     Property Collateral (other than in respect of any Intellectual Property
     Collateral that, in the judgment of such Grantor, is no longer desirable in
     the conduct of the business of the Company and its Subsidiaries taken as a
     whole), each Grantor agrees to take, at its expense, all necessary steps,
     including, without limitation, in the U.S. Patent and Trademark Office, the
     U.S. Copyright Office and any other governmental authority, to (i) maintain
     the validity and enforceability of each such item of Intellectual Property
     Collateral and maintain each such item of Intellectual Property Collateral
     in full force and effect, and (ii) pursue the registration and maintenance
     of each patent, trademark, or copyright registration or application, now or
     hereafter included in the Intellectual Property Collateral of such Grantor,
     including, without limitation, the payment of required fees and taxes, the
     filing of responses to office actions, the filing of applications for
     renewal or extension, the filing of affidavits under Sections 8 and 15 of
     the U.S. Trademark Act, the filing of divisional, continuation,
     continuation-in-part, reissue and renewal applications or extensions, the
     payment of maintenance fees and the participation in interference,
     reexamination, opposition, cancellation, infringement and misappropriation
     proceedings. No Grantor shall, without the written consent of the Agent,
     discontinue use of or otherwise abandon any Intellectual Property
     Collateral, or abandon any right to file an application for letters patent,
     trademark, or copyright, unless such Grantor shall have previously
     determined that such use or the pursuit or maintenance of such Intellectual
     Property Collateral is no longer desirable in the conduct of such Grantor's
     business and that the loss thereof would not be reasonably likely to have a
     Material Adverse




                                       20
<PAGE>   21

     Effect, in which case, such Grantor will give prompt notice of any such
     abandonment to the Agent.

               (b) Each Grantor agrees promptly to notify the Agent if such
     Grantor learns (i) that any item of the Intellectual Property Collateral
     may have become abandoned, placed in the public domain, invalid or
     unenforceable, or of any adverse determination or development regarding
     such Grantor's ownership of any of the Intellectual Property Collateral or
     its right to register the same or to keep and maintain and enforce the
     same, or (ii) of any adverse determination or the institution of any
     proceeding (including, without limitation, the institution of any
     proceeding in the U.S. Patent and Trademark Office or any court) regarding
     any item of the Intellectual Property Collateral, except to the extent the
     foregoing could not reasonably be expected to have a Material Adverse
     Effect.

               (c) In the event that any Grantor becomes aware that any item of
     the material Intellectual Property Collateral is being infringed or
     misappropriated by a third party such Grantor shall promptly notify the
     Agent and shall take such actions, at its expense, as such Grantor or the
     Agent deems reasonable and appropriate under the circumstances to protect
     such Intellectual Property Collateral, including, without limitation, suing
     for infringement or misappropriation and for an injunction against such
     infringement or misappropriation, except to the extent the foregoing could
     not reasonably be expected to have a Material Adverse Effect.

               (d) Each Grantor shall use proper statutory notice in connection
     with its use of each item of its Intellectual Property Collateral. No
     Grantor shall do or permit any act or knowingly omit to do any act whereby
     any of its material Intellectual Property Collateral may lapse or become
     invalid or unenforceable or placed in the public domain, except to the
     extent the foregoing could not reasonably be expected to have a Material
     Adverse Effect.

               (e) Each Grantor shall take all steps which it or the Agent deems
     reasonable and appropriate under the circumstances to preserve and protect
     each item of its material Intellectual Property Collateral, including,
     without limitation, maintaining the quality of any and all products or
     services used or provided in connection with any of the Trademarks,
     consistent with the quality of the products and services as of the date
     hereof, and taking all steps necessary to ensure that all licensed users of
     any of the Trademarks use such consistent standards of quality, except to
     the extent the foregoing could not reasonably be expected to have a
     Material Adverse Effect.

               (f) With respect to its Intellectual Property Collateral, each
     Grantor agrees to execute an agreement, in substantially the form set forth
     in Exhibit E hereto (an "INTELLECTUAL PROPERTY SECURITY AGREEMENT"), for
     recording the security interest granted hereunder to the Agent in such
     Intellectual Property Collateral with the U.S. Patent and Trademark Office,
     the U.S. Copyright Office and any other governmental authorities necessary
     to perfect the security interest hereunder in such Intellectual Property
     Collateral.

               (g) Each Grantor agrees that, should it obtain an ownership
     interest in any item of the type set forth in Section 1(f) which is not on
     the date hereof a part of the Intellectual Property Collateral (the
     "AFTER-ACQUIRED INTELLECTUAL PROPERTY"), (i) the provisions of Section 1
     shall automatically apply thereto, (ii) any such After-Acquired
     Intellectual Property and, in the case of trademarks, the goodwill of the
     business connected therewith or symbolized thereby, shall




                                       21
<PAGE>   22

     automatically become part of the Intellectual Property Collateral subject
     to the terms and conditions of this Agreement and of the Credit Agreement
     with respect thereto, (iii) at the end of each calendar quarter, such
     Grantor shall notify the Agent of any and all After-Acquired Intellectual
     Property obtained during such calendar quarter and provide the Agent with a
     revised Schedule II amending it no later than 30 days after the end of such
     calendar quarter, and (iv) such Grantor shall execute and deliver to the
     Agent an IP Security Agreement Supplement covering such After-Acquired
     Intellectual Property as "Additional Collateral" thereunder and as defined
     therein, for recordation with the U.S. Patent and Trademark Office, the
     U.S. Copyright Office and any other governmental authorities necessary to
     perfect the security interest hereunder in such After-Acquired Intellectual
     Property.

               Section 15. Voting Rights; Dividends; Etc.

               (a) So long as no Default under Sections 10.1(a), (f) or (g) of
     the Credit Agreement or Event of Default has occurred:

               (i) Each Grantor shall be entitled to exercise any and all voting
          and other consensual rights pertaining to the Security Collateral of
          such Grantor or any part thereof for any purpose other than originate
          Entitlement Orders (as defined in any Control Agreement) with respect
          to the Securities Account or the Commodity Accounts; provided however,
          that such Grantor will not exercise or refrain from exercising any
          such right if such action would have a material adverse effect on the
          value of the Security Collateral or any part thereof.

               (ii) Each Grantor shall be entitled to receive and retain any and
          all dividends, interest and other distributions paid in respect of the
          Security Collateral of such Grantor if and to the extent that the
          payment thereof is not otherwise prohibited by the terms of the Loan
          Documents; provided, however, that any and all

                    (A) dividends, interest and other distributions paid or
               payable other than in cash in respect of, and instruments and
               other property received, receivable or otherwise distributed in
               respect of, or in exchange for, any Security Collateral,

                    (B) dividends and other distributions paid or payable in
               cash in respect of any Security Collateral in connection with a
               partial or total liquidation or dissolution or in connection with
               a reduction of capital, capital surplus or paid-in-surplus, and

                    (C) cash paid, payable or otherwise distributed in respect
               of principal of, or in redemption of, or in exchange for, any
               Security Collateral

          shall be, and shall be forthwith delivered to the Agent to hold as,
          Security Collateral and shall, if received by such Grantor, be
          received in trust for the benefit of the Agent, be segregated from the
          other property or funds of such Grantor and be forthwith delivered to
          the Agent as Security Collateral in the same form as so received (with
          any necessary indorsement).





                                       22
<PAGE>   23

               (iii) The Agent will execute and deliver (or cause to be executed
          and delivered) to each Grantor all such proxies and other instruments
          as such Grantor may reasonably request for the purpose of enabling
          such Grantor to exercise the voting and other rights that it is
          entitled to exercise pursuant to paragraph (i) above and to receive
          the dividends or interest payments that it is authorized to receive
          and retain pursuant to paragraph (ii) above.

               (b) Upon the occurrence of a Default under Sections 10.1(a), (f)
     or (g) or an Event of Default:

               (i) All rights of each Grantor (x) to exercise or refrain from
          exercising the voting and other consensual rights that it would
          otherwise be entitled to exercise pursuant to Section 15(a)(i) shall,
          upon notice to such Grantor by the Agent, cease and (y) to receive the
          dividends, interest and other distributions that it would otherwise be
          authorized to receive and retain pursuant to Section 15(a)(ii) shall
          automatically cease, and all such rights shall thereupon become vested
          in the Agent, which shall thereupon have the sole right to exercise or
          refrain from exercising such voting and other consensual rights and to
          receive and hold as Security Collateral such dividends, interest and
          other distributions.

               (ii) All dividends, interest and other distributions that are
          received by any Grantor contrary to the provisions of paragraph (i) of
          this Section 15(b) shall be received in trust for the benefit of the
          Agent, shall be segregated from other funds of such Grantor and shall
          be forthwith paid over to the Agent as Security Collateral in the same
          form as so received (with any necessary indorsement).

               (iii) The Agent shall be authorized to send to each Securities
          Intermediary or Commodity Intermediary as defined in and under any
          Control Agreement a Notice of Exclusive Control as defined in and
          under such Control Agreement.

               Section 16. Transfers and Other Liens; Additional Shares.

               (a) Each Grantor agrees that it will not (i) sell, assign or
     otherwise dispose of, or grant any option with respect to, any of the
     Collateral, other than sales, assignments and other dispositions of
     Collateral, and options relating to Collateral, permitted under the terms
     of the Credit Agreement, or (ii) create or suffer to exist any Lien upon or
     with respect to any of the Collateral of such Grantor except for the
     pledge, assignment and security interest created under this Agreement and
     Liens permitted under the Credit Agreement.

               (b) Each Grantor agrees that it will (i) cause each issuer of the
     Pledged Shares pledged by such Grantor not to issue any stock or other
     securities in addition to or in substitution for the Pledged Shares issued
     by such issuer, except to such Grantor, and (ii) pledge hereunder,
     immediately upon its acquisition (directly or indirectly) thereof, any and
     all additional shares of stock or other securities of each issuer of the
     Pledged Shares.

               Section 17. Agent Appointed Attorney-in-Fact. Each Grantor hereby
     irrevocably appoints the Agent such Grantor's attorney-in-fact, with full
     authority in the place and stead of such Grantor and in the name of such
     Grantor or otherwise, from time to time, upon the




                                       23
<PAGE>   24

     occurrence and during the continuance of an Event of Default, in the
     Agent's discretion, to take any action and to execute any instrument that
     the Agent may deem necessary or advisable to accomplish the purposes of
     this Agreement, including, without limitation:

               (a) to obtain and adjust insurance required to be paid to the
          Agent pursuant to Section 12,

               (b) to ask for, demand, collect, sue for, recover, compromise,
          receive and give acquittance and receipts for moneys due and to become
          due under or in respect of any of the Collateral,

               (c) to receive, indorse and collect any drafts or other
          instruments, documents and chattel paper, in connection with clause
          (a) or (b) above, and

               (d) to file any claims or take any action or institute any
          proceedings that the Agent may deem necessary or desirable for the
          collection of any of the Collateral or otherwise to enforce the rights
          of the Agent with respect to any of the Collateral.

               Section 18. Agent May Perform. If any Grantor fails to perform
     any agreement contained herein, the Agent may, as the Agent deems necessary
     to protect the security interest granted hereunder in the Collateral or to
     protect the value thereof, but without any obligation to do so and without
     notice, itself perform, or cause performance of, such agreement, and the
     expenses of the Agent incurred in connection therewith shall be payable by
     such Grantor under Section 21(b).

               Section 19. The Agent's Duties.

               (a) The powers conferred on the Agent hereunder are solely to
     protect the Secured Parties' interest in the Collateral and shall not
     impose any duty upon it to exercise any such powers. Except for the safe
     custody of any Collateral in its possession and the accounting for moneys
     actually received by it hereunder, the Agent shall have no duty as to any
     Collateral, as to ascertaining or taking action with respect to calls,
     conversions, exchanges, maturities, tenders or other matters relative to
     any Collateral, whether or not any Secured Party has or is deemed to have
     knowledge of such matters, or as to the taking of any necessary steps to
     preserve rights against any parties or any other rights pertaining to any
     Collateral. The Agent shall be deemed to have exercised reasonable care in
     the custody and preservation of any Collateral in its possession if such
     Collateral is accorded treatment substantially equal to that which it
     accords its own property.

               (b) Anything contained herein to the contrary notwithstanding,
     the Agent may from time to time, when the Agent deems it to be necessary,
     appoint one or more subagents (each a "SUBAGENT") for the Agent hereunder
     with respect to all or any part of the Collateral. In the event that the
     Agent so appoints any Subagent with respect to any Collateral, (i) the
     assignment and pledge of such Collateral and the security interest granted
     in such Collateral by each Grantor hereunder shall be deemed for purposes
     of this Agreement to have been made to such Subagent, in addition to the
     Agent, for the benefit of the Secured Parties, as security for the Secured
     Obligations of such Grantor, (ii) such Subagent shall automatically be
     vested, in addition to the Agent, with all rights, powers, privileges,
     interests and remedies of the Agent



                                       24
<PAGE>   25

     hereunder with respect to such Collateral, and (iii) the term "Agent," when
     used herein in relation to any rights, powers, privileges, interests and
     remedies of the Agent with respect to such Collateral, shall include such
     Subagent; provided, however, that no such Subagent shall be authorized to
     take any action with respect to any such Collateral unless and except to
     the extent expressly authorized in writing by the Agent.

               Section 20. Remedies. If any Event of Default shall have occurred
     and be continuing:

               (a) The Agent may exercise in respect of the Collateral, in
          addition to other rights and remedies provided for herein or otherwise
          available to it, all the rights and remedies of a secured party upon
          default under the Illinois Uniform Commercial Code (whether or not the
          Illinois Uniform Commercial Code applies to the affected Collateral)
          and also may: (i) require each Grantor to, and each Grantor hereby
          agrees that it will at its expense and upon request of the Agent
          forthwith, assemble all or part of the Collateral as directed by the
          Agent and make it available to the Agent at a place and time to be
          designated by the Agent that is reasonably convenient to both parties;
          (ii) without notice except as specified below, sell the Collateral or
          any part thereof in one or more parcels at public or private sale, at
          any of the Agent's offices or elsewhere, for cash, on credit or for
          future delivery, and upon such other terms as the Agent may deem
          commercially reasonable; (iii) occupy any premises owned or leased by
          any of the Grantors where the Collateral or any part thereof is
          assembled or located for a reasonable period in order to effectuate
          its rights and remedies hereunder or under law, without obligation to
          such Grantor in respect of such occupation; and (iv) exercise any and
          all rights and remedies of any of the Grantors under or in connection
          with the Receivables and the Related Contracts or otherwise in respect
          of the Collateral, including, without limitation, any and all rights
          of such Grantor to demand or otherwise require payment of any amount
          under, or performance of any provision of the Receivables and the
          Related Contracts. Each Grantor agrees that, to the extent notice of
          sale shall be required by law, at least ten days' notice to such
          Grantor of the time and place of any public sale or the time after
          which any private sale is to be made shall constitute reasonable
          notification. The Agent shall not be obligated to make any sale of
          Collateral regardless of notice of sale having been given. The Agent
          may adjourn any public or private sale from time to time by
          announcement at the time and place fixed therefor, and such sale may,
          without further notice, be made at the time and place to which it was
          so adjourned.

               (b) Any cash held by or on behalf of the Agent and all cash
          proceeds received by or on behalf of the Agent in respect of any sale
          of, collection from, or other realization upon all or any part of the
          Collateral may, in the discretion of the Agent, be held by the Agent
          as Collateral for, and/or then or at any time thereafter applied
          (after payment of any amounts payable to the Agent pursuant to Section
          21) in whole or in part by the Agent for the benefit of the Secured
          Parties against, all or any part of the Secured Obligations, in the
          following manner:

                    (i) first, to the Agents for any amounts owing to the Agents
               pursuant to Section 12.4 of the Credit Agreement or otherwise
               under the Loan Documents, ratably in accordance with such
               respective amounts then owing to the Agents;





                                       25
<PAGE>   26

                    (ii) second, deposited as Collateral in the L/C Collateral
               Account up to an amount equal to 100% of the aggregate L/C
               Obligations of all outstanding Letters of Credit, provided that
               in the event that any such Letter of Credit is drawn, the Agent
               shall pay to the Issuing Bank that issued such Letter of Credit
               the amount held in the L/C Collateral Account in respect of such
               Letter of Credit, provided further that, to the extent that any
               such Letter of Credit shall expire or terminate undrawn and as a
               result thereof the amount of the Collateral in the L/C Collateral
               Account shall exceed the aggregate L/C Obligations of all then
               outstanding Letters of Credit, such excess amount of such
               Collateral shall be applied in accordance with the order of
               priority set out in this Section 20(b);

                    (iii) third, to the Issuing Banks for any amounts then owing
               to them, in their capacities as such, under the Loan Documents
               ratably in accordance with such respective amounts then owing to
               the Issuing Banks; and

                    (iv) fourth, to the Banks for any amount then owing to them,
               in their capacities as such, under the Loan Documents ratably in
               accordance with such respective amounts then owing to the Banks.

          Any surplus of such cash or cash proceeds held by or on the behalf of
          the Agent and remaining after payment in full of all the Secured
          Obligations shall be paid over to the applicable Grantor or to
          whomsoever may be lawfully entitled to receive such surplus.

               (c) All payments received by any Grantor in respect of the
          Collateral shall be received in trust for the benefit of the Agent,
          shall be segregated from other funds of such Grantor and shall be
          forthwith paid over to the Agent in the same form as so received (with
          any necessary indorsement).

               (d) The Agent may, without notice to any Grantor except as
          required by law and at any time or from time to time, charge, set-off
          and otherwise apply all or any part of the Secured Obligations against
          any funds held in the Cash Concentration Accounts, the Collateral
          Account or the L/C Collateral Account or in any deposit account
          related thereto.

               (e) In the event of any sale or other disposition of any of the
          Intellectual Property Collateral of any Grantor, the goodwill of the
          business connected with and symbolized by any Trademarks subject to
          such sale or other disposition shall be included therein, and such
          Grantor shall supply to the Agent or its designee such Grantor's
          know-how and expertise, and documents and things relating to any
          Intellectual Property Collateral subject to such sale or other
          disposition, and such Grantor's customer lists and other records and
          documents relating to such Intellectual Property Collateral and to the
          manufacture, distribution, advertising and sale of products and
          services of such Grantor.

               Section 21. Indemnity and Expenses.

               (a) Each Grantor agrees to indemnify, defend and save and hold
     harmless each Secured Party and each of their Affiliates and their
     respective officers, directors, employees, agents and advisors (each, an
     "INDEMNIFIED PARTY") from and against, and shall pay on demand,




                                       26
<PAGE>   27

     any and all claims, damages, losses, liabilities and expenses (including,
     without limitation, reasonable fees and expenses of counsel) that may be
     incurred by or asserted or awarded against any Indemnified Party, in each
     case arising out of or in connection with or resulting from this Agreement
     (including, without limitation, enforcement of this Agreement), except to
     the extent such claim, damage, loss, liability or expense is found in a
     final, non-appealable judgment by a court of competent jurisdiction to have
     resulted from such Indemnified Party's gross negligence or willful
     misconduct.

               (b) Each Grantor will upon demand pay to the Agent the amount of
     any and all reasonable expenses, including, without limitation, the
     reasonable fees and expenses of its counsel and of any experts and agents,
     that the Agent may incur in connection with (i) the administration of this
     Agreement, (ii) the custody, preservation, use or operation of, or the sale
     of, collection from or other realization upon, any of the Collateral of
     such Grantor, (iii) the exercise or enforcement of any of the rights of the
     Agent or the other Secured Parties hereunder or (iv) the failure by such
     Grantor to perform or observe any of the provisions hereof.

               Section 22. Amendments; Waivers; Additional Grantors; Etc.

               (a) No amendment or waiver of any provision of this Agreement,
     and no consent to any departure by any Grantor herefrom, shall in any event
     be effective unless the same shall be in writing and signed by the Agent,
     and then such waiver or consent shall be effective only in the specific
     instance and for the specific purpose for which given. No failure on the
     part of the Agent or any other Secured Party to exercise, and no delay in
     exercising any right hereunder, shall operate as a waiver thereof; nor
     shall any single or partial exercise of any such right preclude any other
     or further exercise thereof or the exercise of any other right.

               (b) Upon the execution and delivery by any Person of a security
     agreement supplement in substantially the form of Exhibit A hereto (each a
     "SECURITY AGREEMENT SUPPLEMENT"), (i) such Person shall be referred to as
     an "ADDITIONAL Grantor" and shall be and become a Grantor hereunder and
     each reference in this Agreement and the other Loan Documents to "Grantor"
     shall also mean and be a reference to such Additional Grantor, and (ii) the
     supplemental schedules I, II, III, IV, V, VI, VII, VIII and IX attached to
     each Security Agreement Supplement shall be incorporated into and become a
     part of and supplement Schedules I, II, III, IV, V, VI, VII, VIII and IX
     respectively, hereto, and the Agent may attach such supplemental schedules
     to such Schedules; and each reference to such Schedules shall mean and be a
     reference to such Schedules as supplemented pursuant to each Security
     Agreement Supplement.



                                       27
<PAGE>   28

               Section 23. Notices; Etc. All notices and other communications
     provided for hereunder shall be in writing (including telegraphic or
     telecopier) and mailed, telegraphed, telecopied or delivered to, in the
     case of the Company or the Agent, addressed to it at its address specified
     in the Credit Agreement and, in the case of each Grantor other than the
     Company, addressed to it at its address set forth opposite such Grantor's
     name on the signature pages hereto or on the signature page to the Security
     Agreement Supplement pursuant to which it became a party hereto; or, as to
     any party, at such other address as shall be designated by such party in a
     written notice to the other parties. All such notices and other
     communications shall, when mailed, telegraphed or telecopied, be effective
     when deposited in the mails, delivered to the telegraph company,
     telecopied, respectively, addressed as aforesaid; except that notices and
     other communications to the Agent shall not be effective until received by
     the Agent. Delivery by telecopier of an executed counterpart of any
     amendment or waiver of any provision of this Agreement or of any Security
     Agreement Supplement or Schedule hereto shall be effective as delivery of
     an original executed counterpart thereof.

               Section 24. Continuing Security Interest; Assignments Under the
     Credit Agreement. This Agreement shall create a continuing security
     interest in the Collateral and shall (a) remain in full force and effect
     until the latest of (i) the payment in full in cash of the Secured
     Obligations, (ii) the Revolving Termination Date and (iii) the termination
     or expiration of all Letters of Credit, (b) be binding upon each Grantor,
     its successors and assigns and (c) inure, together with the rights and
     remedies of the Agent hereunder, to the benefit of the Secured Parties and
     their respective successors, transferees and assigns. Without limiting the
     generality of the foregoing clause (c), any Bank may assign or otherwise
     transfer all or any portion of its rights and obligations under the Credit
     Agreement (including, without limitation, all or any portion of its
     Commitments, the Credit Extensions and the Note or Notes, if any, held by
     it) to any other Person, and such other Person shall thereupon become
     vested with all the benefits in respect thereof granted to such Banks
     herein or otherwise, in each case as provided in the Credit Agreement.

               Section 25. Release; Termination.

               (a) Upon any sale, lease, transfer or other disposition of any
     item of Collateral of any Grantor in accordance with the terms of the Loan
     Documents (other than sales of Inventory in the ordinary course of
     business), the Agent will, at such Grantor's expense, execute and deliver
     to such Grantor such documents as such Grantor shall reasonably request to
     evidence the release of such item of Collateral from the assignment and
     security interest granted hereby; provided, however, that (i) at the time
     of such request and such release no Default shall have occurred and be
     continuing, (ii) such Grantor shall have delivered to the Agent, at least
     ten Business Days prior to the date of the proposed release, a written
     request for release describing the item of Collateral and the terms of the
     sale, lease, transfer or other disposition in reasonable detail, including,
     without limitation, the price thereof and any expenses in connection
     therewith, together with a form of release for execution by the Agent and a
     certificate of such Grantor to the effect that the transaction is in
     compliance with the Loan Documents and as to such other matters as the
     Agent may request and (iii) the proceeds of any such sale, lease, transfer
     or other disposition required to be applied, or any payment to be made in
     connection therewith, in accordance with Article II of the Credit Agreement
     shall, to the extent so required, be paid or



                                       28
<PAGE>   29

     made to, or in accordance with the instructions of, the Agent when and as
     required under Article II of the Credit Agreement.

               (b) Upon the latest of (i) the payment in full in cash of the
     Secured Obligations, (ii) the Revolving Termination Date and (iii) the
     termination or expiration of all Letters of Credit, the pledge, assignment
     and security interest granted hereby shall terminate and all rights to the
     Collateral shall revert to the applicable Grantor. Upon any such
     termination, the Agent will, at the applicable Grantor's expense, execute
     and deliver to such Grantor such documents as such Grantor shall reasonably
     request to evidence such termination.

               Section 26. Execution in Counterparts. This Agreement may be
     executed in any number of counterparts, each of which when so executed
     shall be deemed to be an original and all of which taken together shall
     constitute one and the same agreement. Delivery of an executed counterpart
     of a signature page to this Agreement by telecopier shall be effective as
     delivery of an original executed counterpart of this Agreement.

               Section 27. Governing Law. This Agreement shall be governed by,
     and construed in accordance with, the laws of the State of Illinois,
     notwithstanding the conflicts or choice of law principles thereof.

               Section 28. Forum Selection and Consent to Jurisdiction. ANY
     LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
     DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE
     UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
     DELIVERY OF THIS AGREEMENT, EACH GRANTOR AND THE AGENT CONSENTS, FOR ITSELF
     AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE
     COURTS. THE GRANTORS AND THE COLLATERAL AGENT EACH IRREVOCABLY WAIVE ANY
     OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
     GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
     BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF
     THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE GRANTORS AND THE AGENT
     EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
     WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.

               Section 29. Waiver of Jury Trial. THE GRANTORS AND THE AGENT EACH
     WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
     ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER
     LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
     ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
     PARTIES AGAINST ANY OTHER PARTY OR ANY RELATED PERSON, PARTICIPANT OR
     ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR
     OTHERWISE. THE GRANTORS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR
     CAUSE OF ACTION SHALL BE TRIED




                                       29
<PAGE>   30

     BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
     PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
     WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
     PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
     ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY
     PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
     AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND
     THE OTHER LOAN DOCUMENTS.

               Section 30. Right of Recovery. Anything contained in the Loan
     Documents, including Guaranties to the contrary notwithstanding, the right
     of recovery against each Grantor that is a Guarantor shall be limited to a
     maximum aggregate amount equal to the greatest amount that would not render
     such Grantor's obligations under its Guaranty or this Agreement subject to
     avoidance as a fraudulent transfer or conveyance under Section 548 of Title
     11 of the United States Code or any provisions of applicable state law
     (collectively, the "FRAUDULENT TRANSFER LAWS"), in each case after giving
     effect to all other liabilities of such Grantor, contingent or otherwise,
     that are relevant under the Fraudulent Transfer Laws (specifically
     excluding, however, any liabilities of such Grantor (a) in respect of
     intercompany indebtedness to the Company or Affiliates of the Company to
     the extent that such indebtedness would be discharged in an amount equal to
     the amount paid by such Grantor under its Guaranty or this Agreement and
     (b) under any guaranty of senior unsecured indebtedness or indebtedness
     subordinated in right of payment to the Secured Obligations which guaranty
     contains a limitation as to maximum amount similar to that set forth in
     this Section, pursuant to which the liability of such Grantor hereunder is
     included in the liabilities taken into account in determining such maximum
     amount) and after giving effect as assets to the value (as determined under
     the applicable provisions of the Fraudulent Transfer Laws) of any rights to
     subrogation, contribution, reimbursement, indemnity or similar rights of
     such Grantor pursuant to (i) applicable law or (ii) any agreement providing
     for an equitable allocation among such Grantors and other Affiliates of the
     Company of obligations under guaranties by such parties (including this
     Agreement).

               Section 31. Subrogation, Contribution, Etc.

               (a) In addition to all such rights of indemnity and subrogation
     as the Grantors may have under applicable law (but subject to Section
     31(c)), the Company agrees that (i) in the event any Grantor that is a
     Guarantor makes a payment under any of its Guaranty, the Company shall
     indemnify such Grantor for the full amount of such payment and such Grantor
     shall be subrogated to the rights of the person to whom such payment is
     made to the extent of such payment and (ii) in the event any assets of any
     Grantor that is a Domestic Subsidiary are sold pursuant to any Loan
     Document to satisfy a claim of any Secured Party, the Company shall
     indemnify such Grantor in an amount equal to the greater of the book value
     or the fair market value of the assets so sold.

               (b) Each Grantor that is a Domestic Subsidiary (a "CONTRIBUTING
     GRANTOR") agrees (subject to Section 31(c)) that, in the event any other
     Grantor that is a Guarantor makes a payment under any of its Guaranty or
     any assets of any other Grantor that is a Guarantor are sold pursuant to
     any Loan Document to satisfy a claim of any Secured Party and such other





                                       30
<PAGE>   31

     Subsidiary Grantor (the "CLAIMING GRANTOR") has not been fully indemnified
     by the Company as provided in Section 31), the Contributing Grantor shall
     indemnify the Claiming Grantor in an amount equal to the amount of such
     payment or the greater of the book value or the fair market value of such
     assets, as the case may be, in each case multiplied by a fraction of which
     the numerator shall be the net worth of the Contributing Grantor on the
     date hereof and the denominator shall be the net worth of all Grantors on
     the date hereof (or, in the case of any Grantor pursuant to Section 22, the
     date of the Security Agreement Supplement hereto executed) and any
     Contributing Grantor making a payment to a Claiming Grantor pursuant to
     this Section shall be subrogated to the rights of such Claiming Grantor
     under Section 31(a) to the extent of such payment.

               (c) Notwithstanding any provision of this Agreement to the
     contrary, all rights of the Grantors under Sections 31(a) and 31(b) and all
     other rights of indemnity, contribution or subrogation under applicable law
     or otherwise shall be fully subordinated to the indefeasible payment in
     full in cash of the Secured Obligations. No failure on the part of the
     Company or any other Grantor to make the payments required by 31(a) and
     31(b) (or any other payments required under applicable law or otherwise)
     shall in any respect limit the obligations and liabilities of any Grantor
     with respect to its obligations hereunder and under the other Loan
     Documents, and each Grantor shall remain liable for the full amount of the
     obligations of such Grantor hereunder and under the other Loan Documents.

               Section 32. Certain Third-Party Agreements.

               (a) This Agreement is absolute, unconditional and irrevocable and
     is in no way conditioned or contingent on the Company's or any Grantor's
     performance of any obligation hereunder or under any other Loan Document,
     any attempt to enforce in whole or in part any of the Company's liabilities
     and obligations to any Secured Party or the existence or continuance of the
     Company or any other Person as a legal entity, nor shall this Agreement or
     the Grantors' respective obligations hereunder be limited, impaired,
     restricted or otherwise affected by the consolidation or merger of the
     Company with or into any other entity, the sale, lease or other disposition
     by the Company of all or substantially all of its assets to any other
     entity (whether or not effected in compliance with the Loan Documents), or
     the bankruptcy or insolvency of the Company, the admission in writing by
     the Company of its inability to pay its debts as they mature, or its making
     of a general assignment for the benefit of, or entering into a composition
     or arrangement with, creditors.

               (b) The Collateral Agent and the other Secured Parties may, at
     any time and from time to time, without the consent of or notice to the
     Grantors, except such notice as may be required by applicable statute which
     cannot be waived, without incurring responsibility to the Grantors, and
     without impairing or releasing the obligations of the Grantors hereunder,
     upon or without any terms or conditions and in whole or in part, (i) to the
     extent permitted by the Loan Documents, change the manner, place and terms
     of payment or change or extend the time of payment of, renew or alter any
     obligation of the Company hereby secured, or in any manner modify, amend or
     supplement the terms of the Loan Documents (other than this Agreement) or
     any documents, instruments or agreements executed in connection therewith
     (other than this Agreement), and this Agreement shall apply to the
     obligations and liabilities of the Company, as changed, extended, renewed,
     modified, amended, supplemented or altered in any manner, (ii)




                                       31
<PAGE>   32

     exercise or refrain from exercising any rights against the Company or
     others (including the other Grantors) or otherwise act or refrain from
     acting, (iii) settle or compromise any obligations and liabilities herein
     secured or any obligations and liabilities (including any of those
     hereunder) incurred directly or indirectly in respect thereof or hereof,
     and may subordinate the payment of all or any part thereof to the payment
     of any obligations and liabilities which may be due to the Collateral
     Agent, the other Secured Parties or others, (iv) in the manner permitted by
     the Loan Documents, sell, exchange, release, surrender, realize upon or
     otherwise deal with in any manner or in any order any property pledged or
     mortgaged by anyone to secure or in any manner securing the Secured
     Obligations, any liabilities or obligation (including any of those
     hereunder) incurred directly or indirectly in respect thereof or hereof or
     any other obligations or liabilities of the Company or the other Grantors
     to the Secured Parties or any offset there against, (v) take and hold
     security or additional security for any or all of the Secured Obligations,
     (vi) apply any sums by whomsoever paid or howsoever realized to any
     obligations and liabilities of the Company to the Secured Parties
     regardless of what obligations and liabilities remain unpaid, and (vii) in
     accordance with the Loan Documents, assign their rights and interests under
     this Agreement or the other Loan Documents, in whole or in part. Without
     limiting the generality of the foregoing, each Grantor hereby specifically
     waives such Grantor's rights and benefits under any statute, regulation,
     judicial decision or other law which purports to exonerate or reduce the
     liability of a surety if the underlying obligation is altered in any
     respect or if the rights and remedies of the creditor against the principal
     in respect of a secured obligation are in any way altered, impaired or
     suspended and agrees that, by so doing, such Grantor's obligations
     hereunder shall continue even if the Secured Parties alter any obligations
     under the Loan Documents (other than this Agreement) in any respect or the
     Secured Parties' remedies or rights against the Company are in any way
     impaired or suspended without such Grantor's consent.

               (c) No invalidity, irregularity or unenforceability of the
     obligations or liabilities of the Company under the Credit Agreement or any
     other Loan Document shall affect, impair or be a defense to this Agreement.
     Each Grantor hereby waives any and all benefits and defenses under any
     statute, regulation, judicial decision or other law which purports to
     exonerate or reduce the liability of a surety as a result of any disability
     or absence of liability of the principal or any defense to liability or
     enforcement which the principal may have and agrees that, by so doing, such
     Grantor's obligations and the security interests granted hereunder shall
     continue even if the Company had no liability at the time of execution of
     the Credit Agreement or thereafter ceased or ceases to be liable. Each
     Grantor also waives any and all benefits and defenses under any statute,
     regulation, judicial decision or other law which purports to limit the
     liability of a surety to that of the principal or to reduce the liability
     of a surety in proportion to any reduction in the liability of the
     principal and agrees that, by so doing, such Grantor's obligations
     hereunder may be more burdensome than that of the Company.

               (d) Each Grantor, to the extent permitted under applicable law,
     hereby waives any right, whether arising under any statute, regulation,
     judicial decision or otherwise, to require the Collateral Agent or any
     other Secured Party to (i) proceed against the Company or any other Person
     acting as surety, guaranteeing or providing collateral or other credit
     support for the Company's obligations under the Loan Documents (each a
     "THIRD PARTY CREDIT SUPPORT PROVIDER"), (ii) proceed against or exhaust any
     security received from the Company or any Third Party Credit Support
     Provider, or (iii) pursue any other right or remedy in the Collateral
     Agent's or the other Secured Parties' power whatsoever.





                                       32
<PAGE>   33

               (e) Each Grantor further waives, to the extent permitted under
     applicable law: (i) any defense resulting from the absence, impairment or
     loss of any right of reimbursement, subrogation, contribution or other
     right or remedy of such Grantor against the Company, any Third Party Credit
     Support Provider or any security, whether resulting from an election by the
     Collateral Agent and the other Secured Parties to foreclose upon security
     by judicial or nonjudicial sale or otherwise; (ii) any setoff or
     counterclaim of the Company or any defense of any kind (including defenses
     resulting from any disability) or the cessation or stay of enforcement from
     any cause whatsoever of the liability of the Company (including without
     limitation the lack of validity or enforceability of the Loan Documents);
     (iii) any right to exoneration, in whole or in part, of sureties or Third
     Party Credit Support Providers which would otherwise be applicable; (iv)
     except as required under the respective Loan Documents, all presentments,
     demands for performance, notices of non-performance, protests, notice of
     dishonor, notices of acceptance of this Agreement or of the existence,
     creation or incurring of new or additional obligations under the Loan
     Documents, or any other notices of any kind; and (v) all valuation,
     appraisal, extension or redemption laws now or hereafter in effect.

               (f) Each Grantor acknowledges that it has the ability, and hereby
     assumes the obligation and responsibility, to keep informed of the
     financial condition of the Company and any Third Party Credit Support
     Provider and of other matters or circumstances affecting the ability of any
     of them to pay or perform their respective obligations thereunder or the
     risk of nonpayment and nonperformance. Each Grantor hereby waives any
     obligation on the part of the Collateral Agent or any other Secured Party
     to inform such Grantor of the financial condition, or any changes in
     financial condition, of the Company or any Third Party Credit Support
     Provider or of any other matter or circumstance which might effect the
     ability of the Company to pay and perform under the Loan Documents, or the
     risk of nonpayment or nonperformance.

                  [SIGNATURES ON THE FOLLOWING PAGES]







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<PAGE>   34


          IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.


<TABLE>
<CAPTION>
                                                     MIDWAY GAMES INC.

Address for Notices for Each Signatory:              By: /s/  Harold H. Bach, Jr.
--------------------------------------                  -----------------------------------------------
<S>                                                  <C>
c/o Midway Games Inc.                                Name:  Harold H. Bach, Jr.
3401 North California Avenue                         Title: Executive Vice President - Finance,
Chicago, Illinois 60618                              Treasurer and Chief Financial Officer
Attn: Chief Financial Officer
Telephone:        773/961-2222
Facsimile:        773/961-1099


                                                     MIDWAY INTERACTIVE INC.

With a copy to:                                      By: /s/  Harold H. Bach, Jr.
                                                        -----------------------------------------------
                                                     Name:  Harold H. Bach, Jr.
                                                     Title: Senior Vice President - Finance,
Deborah K. Fulton                                    Treasurer and Chief Financial Officer
Vice President, Secretary and
General Counsel
Midway Games Inc.
3401 North California Avenue                         MIDWAY HOME ENTERTAINMENT INC.
Chicago, Illinois 60618
Telephone:  773/961-1667
Facsimile:  773/961-1020                             By: /s/ Harold H. Bach, Jr.
                                                        -----------------------------------------------
                                                     Name:  Harold H. Bach, Jr.
                                                     Title: Vice President - Finance and Treasurer



                                                     MIDWAY GAMES WEST INC.

                                                     By: /s/  Harold H. Bach, Jr.
                                                        -----------------------------------------------
                                                     Name:  Harold H. Bach, Jr.
                                                     Title: Senior Vice President - Finance



                                                     MIDWAY AMUSEMENT GAMES, LLC

                                                     By: /s/  Harold H. Bach, Jr.
                                                        -----------------------------------------------
                                                     Name:  Harold H. Bach, Jr.
                                                     Title: Vice President - Finance, Treasurer
                                                            and Chief Financial Officer


                                                     MIDWAY SALES COMPANY, LLC

                                                     By: /s/  Harold H. Bach, Jr.
                                                        -----------------------------------------------
                                                     Name:  Harold H. Bach, Jr.
                                                     Title: Vice President - Finance, Treasurer
                                                            and Chief Financial Officer




Accepted by:

BANK OF AMERICA, N.A., AS AGENT

By:  /s/  David A. Johanson
   ---------------------------------
Print Name:  David A. Johanson
Title:       Vice President


</TABLE>





                                       34
<PAGE>   35

<TABLE>
<CAPTION>
LIST OF EXHIBITS
<S>                        <C>
Exhibit A                  Form of Security Agreement Supplement
Exhibit B                  Form of Pledged Account Letter
Exhibit C                  Form of Control Agreement (Securities Account)
Exhibit D                  Form of Control Agreement (Commodity Account)
Exhibit E                  Form of Intellectual Property Security Agreement
Exhibit F                  Form of Intellectual Property Security Agreement Supplement
Exhibit G                  Form of Cash Concentration Account Letter
Exhibit H                  Intercompany Note


LIST OF SCHEDULES

Schedule I                 Pledged Shares and Pledged Debt
Schedule II                Patents, Trademarks, Trade Names, Copyrights and Licenses
Schedule III               Locations of Equipment and Inventory
Schedule IV                Chief Executive Office, State of Incorporation or Formation, and
                           Location of Books, Records and Original Chattel Paper Pertaining to Receivables
Schedule V                 Federal Tax Identification Number
Schedule VI                Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names
Schedule VII               Inventory Stored with Warehousemen or on Leased Premises
Schedule VIII              Leased Equipment
Schedule IX                Pledged Accounts (Deposit Accounts and Lockbox Accounts)
Schedule X                 Permitted Unblocked Accounts
Schedule XI                Cash Concentration Accounts
</TABLE>



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