SECURITY
AGREEMENT
   THIS
SECURITY AGREEMENT (this “Agreement”) is made as of the 27th day of
December, 2004, by DCAP GROUP, INC., a corporation organized under the laws of
the State of Delaware, DCAP MANAGEMENT CORP., a corporation organized under the
laws of the State of New York, AIA-DCAP CORP., a corporation organized under the
laws of the Commonwealth of Pennsylvania, AARD-VARK AGENCY, LTD., a corporation
organized under the laws of the State of New York, BARRY SCOTT AGENCY, INC., a
corporation organized under the laws of the State of New York, BARRY SCOTT
COMPANIES, INC., a corporation organized under the laws of the State of
Delaware, BARRY SCOTT ACQUISITION CORP., a corporation organized under the laws
of the State of New York, BARON CYCLE, INC., a corporation organized under the
laws of the State of New York, BLAST ACQUISITION CORP., a corporation organized
under the laws of the State of Delaware, DEALERS CHOICE AUTOMOTIVE PLANNING,
INC., a corporation organized under the laws of the State of New York, IAH,
INC., a corporation organized under the laws of the State of Delaware, and
INTANDEM CORP., a corporation organized under the laws of the State of New York
(collectively, the “Obligor”) for the benefit of MANUFACTURERS AND TRADERS TRUST
COMPANY, a New York State Bank, in its
capacity as “Agent” for itself and other “Lenders” under the Financing Agreement
(as hereinafter defined) (the
“Secured Party”).
  FOR GOOD
AND VALUABLE CONSIDERATION, the receipt and sufficiency of which the Obligor
hereby acknowledges,
  FOR THE
PURPOSE OF SECURING (i) all present and future indebtedness, liabilities and
other obligations of any nature whatsoever (direct or indirect, fixed or
contingent), and whether or not now contemplated, of the Obligor to Secured
Party and the Lenders including, without limitation, those indebtedness,
liabilities and other obligations arising pursuant to or in connection with this
Agreement, that certain Guaranty of Payment Agreement dated of even date
herewith (the “Guaranty”) from the Obligor in favor of the Secured Party, as
agent for itself and the other Lenders, and/or (ii) all present and future
indebtedness, liabilities and other obligations of any nature whatsoever (direct
or indirect, fixed or contingent), and whether or not now contemplated, under or
secured by that certain Financing and Security Agreement of even date herewith
(as amended, modified, restated, substituted, extended and renewed at any time
and from time to time, the “Financing Agreement”) by and among Payments, Inc.,
the Secured Party, in its capacity as agent, and the Lenders party thereto from
time to time (all indebtedness, liabilities and other obligations under clauses
(i) and/or (ii) above collectively, the “Obligations”),
  THE
OBLIGOR HEREBY assigns, pledges and grants a security interest to Secured Party,
and covenants and agrees that Secured Party shall have a perfected and
continuing security interest in, all of the following property of the Obligor,
all whether now owned or existing or hereafter acquired or created wherever
situated (collectively, the “Collateral”):
  (a)  All
inventory, and all warranties, licenses, franchises, documents, chattel paper
and general intangibles related thereto (including, without limitation,
software), and all returned, rejected or repossessed goods; and
   1
  (b)  All
accounts, contract rights, chattel paper (including, without limitation,
electronic chattel paper), instruments, payment intangibles and other general
intangibles, health-care-insurance receivables, money and documents, and all
returned, rejected or repossessed goods, the sale or lease of which shall have
given or shall give rise to any of the foregoing; and
  (c)  All
equipment, furniture, fixtures, and other goods together with (i) all additions,
parts, fittings, accessories, special tools, attachments and accessions now and
hereafter affixed thereto and/or used in connection therewith, (ii) leases and
chattel paper with respect thereto, (iii) all replacements thereof and
substitutions therefor and (iv) and all warranties, licenses, franchises, and
general intangibles related to the foregoing (including, without limitation,
software); and
  (d)  All
general intangibles (including, without limitation, all books and records,
things in action, contractual rights, tax returns, goodwill, literary rights,
rights to performance, copyrights, trademarks and patents) and commercial tort
claims; and
   (e)  All
notes, notes receivable, drafts, letters of credit, letter-of-credit rights,
supporting obligations, deposit accounts, investment property, security,
acceptances, instruments and documents; and
  WITH
RESPECT TO EACH AND ALL OF THE FOREGOING, all insurance policies and insurance
proceeds related to any and all of the foregoing or otherwise and all cash and
noncash proceeds thereof, and all books and records in whatever media (paper,
electronic or otherwise) recorded or stored, with respect to any or all of the
foregoing and all equipment, hardware and general intangibles necessary,
beneficial or desirable to retain, access and/or process the information
contained in those books and records, and all proceeds (cash and noncash) of the
foregoing, it being the intention of the Obligor that the Collateral shall
include all of the Obligor’s personal property. All terms used herein which are
defined by the Maryland Uniform Commercial Code shall have the same meanings as
assigned to them by the Maryland Uniform Commercial Code unless and to the
extent varied by this Agreement.
  The
Obligor further agrees that the Secured Party shall have in respect thereof all
of the rights and remedies of a secured party under the Maryland Uniform
Commercial Code as well as those provided in this Agreement. Notwithstanding the
fact that the proceeds of the Collateral constitute a part of the Collateral,
the Obligor may not dispose of the Collateral, or any part thereof.
  1.  The
Obligor covenants with and warrants to Secured Party that:
  (a)  The
Obligor will store the Collateral in appropriate containers, in safe and secure
locations, and in accordance with applicable laws, will take all steps necessary
to preserve and maintain the Collateral and its value, and will not permit
anything to be done to the Collateral which may materially impair its value or
security. Secured Party, or agents designated by Secured Party, shall be
permitted to enter the premises of the Obligor and examine, audit and inspect
the Collateral at any reasonable time and from time to time without
notice.
   2
  (b)  At its
expense, the Obligor will defend the title to the Collateral (or any part
thereof), and will promptly upon request by the Secured Party execute,
acknowledge and deliver or obtain any financing statement, continuation
statement, security agreement, assignment, instruments, acknowledgments,
landlord, bailee and other third party waivers, filings or other document as may
be necessary or beneficial, in the opinion of the Secured Party, to perfect (by
control or otherwise), preserve, provide notice of, maintain, continue, realize
upon, protect and/or extend the assignment, lien or security interest granted to
the Secured Party under this Agreement and its priority. The Obligor agrees that
a copy of a fully executed security agreement and/or financing statement shall
be sufficient to satisfy for all purposes the requirements of a financing
statement as set forth in Article 9 of the applicable Uniform Commercial Code.
Further, to the extent permitted by applicable laws, the Secured Party is
authorized to file, without the Obligor’s signature, one or more financing
statements, amendments to financing statements, correction statements or other
notices disclosing the Secured Party’s liens and other security interests. All
financing statements and notices may describe the Secured Party’s collateral as
all assets or all personal property of Obligor. The Obligor hereby ratifies and
confirms the validity of any and all financing statements filed by the Secured
Party prior to the date of this Agreement.
  (c)  The
Obligor will maintain on the goods included among the Collateral hazard
insurance with fire and extended coverage, naming Secured Party as an additional
insured and sole loss payee, in amounts, with endorsements, from insurers and
otherwise in form and substance satisfactory to Secured Party as determined by
Secured Party from time to time.
  (d)  The
Obligor will immediately notify the Secured Party of each change which has
caused, and of each proposed change which the Obligor believes would cause, the
information contained on EXHIBIT A to this Agreement to be no longer accurate,
complete and correct
  2.  The
Obligor hereby represents and warrants to and covenants with the Secured Party
that:
  (a)  The
Obligor has full power and authority to execute and deliver this Agreement and
to incur and perform the obligations provided for therein, all of which have
been duly authorized by all proper and necessary action of the appropriate
governing body of the Obligor and by all necessary third parties including,
without limitation, Governmental Authorities. This Agreement constitutes valid
and legally binding obligations of the Obligor, enforceable in accordance with
their terms.
  (b)  There is
no charter, bylaw, stock provision, partnership, operating agreement, articles
of organization, partnership agreement, or other document pertaining to the
organization, power or authority of the Obligor and no provision of any existing
agreement, mortgage, indenture, contract, law, court or administrative order or
proceeding binding on or applicable to the Obligor or affecting its property,
which would conflict with or in any way prevent the execution, delivery or
carrying out of the terms of this Agreement.
  (c)  The
Obligor has good title to the Collateral and the Collateral is free and clear of
liens, security interests, claims, encumbrances, and assignments, except those
granted to the Secured Party and except, with
respect to the assets of Barry Scott Companies, Inc. only , those
granted to The Progressive Corporation.
   3
 (d)  The
Secured Party has and will at all times continue to have as security for the
Obligations a valid and perfected security interest in all of the
Collateral.
  (e)  At the
time this Agreement is executed and delivered, there exists no default under
this Agreement and no condition that with the giving or notice or the passage of
time would be a default under this Agreement.
  (f)  The
information contained in EXHIBIT A, which is attached to and a part of this
Agreement, is accurate, complete and correct.
  3.  The
Obligor shall be in default under this Agreement and the Obligations if the
Obligor (i) breaches any agreement, covenant and warranty under this Agreement
or any other agreement, covenant or warranty between the Obligor and the Secured
Party, (ii) is in default under any of the other Obligations, including, without
limitation, any agreement with respect thereto, (iii) transfers to another
location any of the Collateral, or makes any change which would cause the
information contained on EXHIBIT A to this Agreement to be no longer accurate,
complete and correct, (iv) transfers or assigns (including, without limitation,
transfers or assignments by merger, consolidation or operation of law) or sells,
conveys, leases, assigns, transfers or otherwise disposes of all or any part of
the Collateral, except inventory sold in the ordinary course of business prior
to an event of default, (v) permits (or if there shall arise) any security
interest, encumbrance, financing statement, lien (including, without limitation,
tax lien) or charge of any kind on the Collateral, except for the liens of
Secured Party pursuant to this Agreement and except for the liens of The
Progressive Corporation on the assets of Barry Scott Companies, Inc., (vi)
changes the Obligor's name, state of organization, or entity structure, or
become organized under the laws of an additional state, (vii) liquidates,
dissolves or terminates its existence, (viii) admits in writing its inability
generally to pay its debts as they mature or shall make any assignment for the
benefit of any of its creditors, (ix) is the subject of federal or state
bankruptcy, insolvency, receivership or trustee proceedings, or (x) suffers (or
if there shall occur) an “Event of Default” (as that term is defined in the
Financing Agreement or in any of the other Financing Documents).
  4.  Upon the
occurrence of a default under this Agreement (and in addition to all of its
rights, powers and remedies under this Agreement, the Guaranty, any other
promissory notes, documents, instruments, guaranties, mortgages or other
contract with or for the benefit of the Secured Party, or securing or evidencing
payment of any indebtedness of the Obligor, at any time executed by the Obligor
and/or any other person in connection with any of the Obligations, all as the
same may be amended, modified, restated, substituted, extended and renewed at
any time and from time to time, the “Financing Documents”): The Secured Party
may, in the exercise of its sole and absolute discretion, declare all or any
part of the Obligations to be immediately due and payable. The Secured Party
shall have all of the rights and remedies of a secured party under the Maryland
Uniform Commercial Code and other applicable laws. If the sale or other
disposition of the Collateral fails to satisfy all of the Obligations, the
Obligor shall remain liable to Secured Party for any deficiency. Upon demand by
Secured Party, the Obligor shall assemble the Collateral and make it available
to Secured Party, at a place reasonably convenient for such purpose as
designated by Secured Party. The Obligor shall hold in trust for the Secured
Party all collections and proceeds of Collateral in the form received, shall not
commingle those collections or proceeds with any other assets of the Obligor and
shall deliver those collections and proceeds immediately to the Secured Party
with any necessary endorsement. The Secured Party or its agents may enter upon
and remain on the Obligor’s premises to take possession of the Collateral, to
remove it, to render it unusable, to collect it, or to sell or otherwise dispose
of it and to take any other action permitted to be taken under this Agreement or
under applicable laws. Any proceeds of the collection, the sale or other
disposition of the Collateral will be applied by the Secured Party to the
Obligations (whether then due or not), at such time or times and in such order
and manner of application as the Secured Party may from time to time in its sole
and absolute discretion determine.
   4
 5.  If the
Obligor fails to take any action required to be taken by the Obligor under this
Agreement (including, without limitation, obtaining required insurance), the
Secured Party, in the exercise of its sole and absolute discretion, may do so in
the name of the Secured Party or the Obligor as the Secured Party may elect, but
at the cost and expense of the Obligor, which cost and expense shall be
immediately due and payable to the Secured Party as part of the Obligations. In
addition to all other rights and remedies provided hereunder or as shall exist
at law or in equity from time to time, the Secured Party may (but shall be under
no obligation to), without notice to the Obligor, in the name of the Secured
Party or in the name of the Obligor or otherwise, for the use and benefit of the
Secured Party, but at the cost and expense of the Obligor, (i) following a
default under this Agreement, extend, renew, demand, collect, enforce by legal
or equitable proceedings or otherwise, exchange, surrender, compromise, give
receipt for and give renewals, extensions, discharges and releases of, any and
all of the Collateral; (ii) endorse or sign the name of the Obligor upon any
items of payment, certificates of title, instruments, financing statements,
securities, powers, documents, documents of title, or other writing relating to
or part of the Collateral; and (iii) following a default under this Agreement,
take any other action necessary or beneficial to realize upon or dispose of the
Collateral. The Obligor hereby irrevocably appoints the Secured Party as its
attorney-in-fact, with power of substitution from time to time, to take such
actions as are described in this paragraph as well as any other action which the
Obligor is required to take under this Agreement or under any of the other
Financing Documents, including, without limitation, the execution,
acknowledgment and delivery of any financing statement, continuation statement,
security agreement, assignment, instruments, filings or other document as may be
necessary or beneficial, in the opinion of the Secured Party, to perfect,
preserve, provide notice of, maintain, continue, realize upon, protect and/or
extend the assignment, lien or security interest granted to the Secured Party
under this Agreement and its priority.
  6.  Without
precluding other means for giving notice, any written notice of the sale,
disposition or other intended action by Secured Party with respect to the
Collateral given at least ten (10) days prior to such sale, disposition or other
action and sent to the mailing address set forth on EXHIBIT A attached hereto,
shall in all events constitute commercially reasonable notice to the
Obligor.
  7.  The
Obligor agrees to pay to Secured Party as part of the Obligations all reasonable
expenses, charges, costs, taxes, and fees (including, without limitation,
reasonable attorney’s fees and expenses, whether incurred prior to the
institution of any suit or other proceeding or otherwise) of any nature
whatsoever paid or incurred by or on behalf of Secured Party or the Lenders in
connection with the perfection, collection, maintenance, preservation,
inspection, insuring, defense, protection, realization upon, disposition, sale
or enforcement of all or any part of the Collateral or the enforcement or
collection of the Obligations.
   5
 8.  This
Agreement may not be amended, modified, or changed in any respect except by an
agreement in writing signed by the Secured Party and the Obligor. The Secured
Party shall have the right at all times to enforce the provisions of this
Agreement in strict accordance with the terms hereof, notwithstanding any
conduct or custom on the part of the Secured Party in refraining from so doing
at any time or times. The failure or delay of the Secured Party at any time or
times to enforce the rights under such provisions, strictly in accordance with
the same, shall not be construed as having created a custom in any way or manner
contrary to specific provisions of this Agreement or as having in any way or
manner modified or waived the same.
  9.  The
rights, powers and remedies provided in this Agreement are cumulative, may be
exercised concurrently or separately, may be exercised from time to time and in
such order as the Secured Party shall determine, and are in addition to, and not
exclusive of, rights, powers and remedies provided by applicable laws, all
without regard to any right of the Obligor or any other person or entity to the
marshalling of assets, which right the Obligor and any other person or entity
who may be liable (by endorsement, guaranty, indemnity or otherwise) for all or
any part of the Obligations hereby waive to the extent permitted by applicable
laws. Without limiting the generality of the foregoing, the Secured Party and
the Lenders may: (a) proceed against any one or more Obligors and/or the
Collateral with or without proceeding against any other Obligor or any other
person obligated under any of the Obligations; (b) proceed against the Obligor
with or without proceeding under the other Financing Documents; (c) without
reducing or impairing the obligation of the Obligor and without notice, release
or compromise with any guarantor or other person liable for all or any part of
the Obligations; and (d) without reducing or impairing the obligations of the
Obligor and without notice thereof: (i) fail to perfect the security interests
and/or other interests of the Secured Party in any or all Collateral or to
release any or all the Collateral or to accept substitute Collateral, (ii) allow
all or any Obligations to arise after the date of this Agreement, (iii) waive
any provision of this Agreement, (iv) exercise or fail to exercise rights of
set-off or other rights, (v) accept partial payments or extend from time to time
the maturity of all or any part of the Obligations, and (vi) take or fail to
take any action under this Agreement or against any one or more persons
obligated under the Obligations. The Obligor, together with any guarantor,
surety or indemnitor of all or any part of the Obligations, hereby waives and
releases all claims and defenses against the Secured Party and the Lenders
and/or with respect to the payment or enforcement of the Obligations and the
Secured Party’s rights in the Collateral on account of any of the
foregoing.
  10.  In case
one or more provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions contained herein shall remain
effective and binding on the parties hereto and shall not be affected or
impaired thereby.
  11.  This
Agreement shall be binding upon and inure to the benefit of the Obligor and
Secured Party and their respective successors and assigns.
   **[Signatures
follow on next page]**
   
 6
   First
Signature Page to
 Security
Agreement from
 DCAP
Group, Inc. and its wholly-owned subsidiaries
 in favor
of
 Manufacturers
and Traders Trust Company, as Agent
   IN
WITNESS WHEREOF, the Obligor has executed and delivered this Agreement under
seal as of the day and year first written above.
  ATTEST:
      
      
      /s/
    DCAP
      GROUP, INC.
      
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      
      /s/
    DCAP
      MANAGEMENT CORP.
      
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      
      /s/
    AIA-DCAP
      CORP.
      
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      
      /s/
    AARD-VARK
      AGENCY, LTD.
      
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      President
 
 
 
 [Signatures
Continue on Next Page]
  
  Second
Signature Page to
 Security
Agreement from
 DCAP
Group, Inc. and its wholly-owned subsidiaries
 in favor
of
 Manufacturers
and Traders Trust Company, as Agent
  
  ATTEST:
      
      
      /s/
    BARRY
      SCOTT AGENCY, INC.
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      /s/
    BARRY
      SCOTT COMPANIES, INC.
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      /s/
    BARRY
      SCOTT ACQUISITION CORP.
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      /s/
    BARON
      CYCLE, INC.
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      President
 
 
 [Signatures
Continue on Next Page]
 
  
  Third
Signature Page to
 Security
Agreement from
 DCAP
Group, Inc. and its wholly-owned subsidiaries
 in favor
of
 Manufacturers
and Traders Trust Company, as Agent
    ATTEST:
      
      
      /s/
    BLAST
      ACQUISITION CORP.
      
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      /s/
    DEALERS
      CHOICE AUTOMOTIVE PLANNING, INC.
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      /s/
    IAH,
      INC.
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      PresidentATTEST:
      
      /s/
    INTANDEM
      CORP.
      
      By:/s/
      Barry B. Goldstein(Seal)
      Barry
      B. Goldstein,
      President
  
  
 
  EXHIBIT
A TO SECURITY AGREEMENT
   The
Obligor further represents and warrants to the Secured Party that the
information provided to the Lender on the Perfection Certificate dated on or
about the date of this Agreement provided by each Obligor to the Lender is true
and correct and is incorporated into this Agreement by
reference.