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                                                                  EXHIBIT 10.4


                     AMENDED AND RESTATED SECURITY AGREEMENT

         AMENDED AND RESTATED SECURITY AGREEMENT dated as of July 20, 1998
between NEW ENGLAND AUDIO CO., INC., a Massachusetts corporation ("New England
Audio"), NEA DELAWARE, INC., a Delaware corporation ("NEA Delaware") (each of
New England Audio and NEA Delaware is referred to herein individually, as a
"Debtor" and collectively, as the "Debtors") and BANKBOSTON, N.A., a national
banking association, as agent (the "Agent") for itself and the other lenders
which are, or may in the future become, parties to the Credit Agreement (as
hereinafter defined).

                                    Recitals

         WHEREAS, the Debtors have entered into an Amended and Restated Credit
Agreement, dated as of July 20, 1998 (as amended, modified or supplemented from
time to time, the "Credit Agreement") with the Agent and the other lenders
parties thereto (the "Lenders"), pursuant to which the Lenders have agreed to
make Revolving Credit Advances (as defined in the Credit Agreement) to the
Debtors, upon the terms and subject to the conditions contained therein; and

         WHEREAS, in connection with the granting of the credits under the
Credit Agreement and as security for all of the Obligations, including without
limitation the obligations of the Debtors under the Credit Agreement, the Agent
is requiring the Debtors to execute and deliver this Security Agreement and
grant the security interest contemplated hereby.

         WHEREAS, the Debtors and the Agent are parties to a Security Agreement
dated as of May 30, 1997 (the "Security Agreement") and desire to amend and
restate the Security Agreement in connection with the Credit Agreement.

         NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby amend and restate the
Security Agreement and agree as follows:

                          ARTICLE 1. GRANT OF SECURITY

         Section 1.1 Grant of Security. Each Debtor hereby grants to the Agent a
continuing security interest ("Security Interest") in and to all personal
property and fixtures of each Debtor, whether now or hereafter existing or now
or hereafter acquired and wherever located, including all equipment, accounts,
inventory and general intangibles, all as more fully described as follows (the
"Collateral"):

                  (a) All money, cash, bank accounts, deposit accounts, goods,
inventory, equipment, computer hardware and software, instruments, securities,
documents, documents of title, chattel paper, accounts, accounts receivable,
lease receivables and leases including but not limited to, rights to rentals
thereunder and each Debtor's reversionary interest in property leased thereunder
and any equity rights in leases sold to third parties, contract rights,
licenses,
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general intangibles, copyrights, patents and patents pending, trademarks and
goodwill, Trade Secrets, credits, claims, demands and all other property of the
Debtors (including but not limited to leasehold improvements);

                  (b) All equipment, including without limitation all fixtures,
machinery, equipment, molds, dies, motor vehicles, and other goods whether now
owned or hereafter acquired by any Debtor, wherever located, all replacements,
substitutions and all parts thereof and all accessions thereto, as well as all
of each Debtor's right, title and interest in and to any such goods now or
hereafter held or used by any Debtor under any lease, lease-purchase,
conditional sales, use or other agreements under which any Debtor is entitled to
the use and possession thereof, with any other rights and benefits flowing from
such agreements, all as may be used or useful in connection with each Debtor's
business as now or hereafter carried on, any operations incidental to or
associated with the same, or for any other purpose (any and all such equipment,
machinery and fixtures, parts and accessions being the "Equipment");

                  (c) All inventory in all of its forms, wherever located, now
or hereafter existing including, but not limited to (i) raw materials and work
in process therefor, finished goods thereof and (ii) goods which are returned to
or repossessed by any Debtor and all accessions thereto and products thereof
(any and all such inventory, accessions and products being the "Inventory");

                  (d) All accounts receivable, including without limitation
accounts, contracts (but only to the extent assignable without causing a Default
under the Credit Agreement), contract rights, chattel paper, instruments,
licenses and other obligations of any kind whether now existing or hereafter
arising, including without limitation all rights now or hereafter existing in
and to all security agreements, leases, and other contracts securing or
otherwise relating to any such accounts, contract rights, chattel paper,
instruments, general intangibles or obligations (any and all such accounts,
contract rights, chattel paper, instruments, general intangibles and obligations
being the "Receivables," and any and all such leases, security agreements and
other contracts being the "Contracts");

                  (e) All general intangibles including without limitation,
tradenames, trademarks, service marks, tax refunds, the corporate name and all
product names; and

                  (f) All products and proceeds of any and all of the foregoing
Collateral and, to the extent not otherwise included, all 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.

         Section 1.2 Security for Obligations. This Agreement and the Security
Interest shall secure the payment and performance of the Obligations.


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                                    ARTICLE 2

                GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

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

         Section 2.1 Necessary Filings. All filings, registrations and
recordings necessary or appropriate to create, preserve and perfect the security
interest granted by each Debtor to the Agent hereby in respect of the Collateral
have been accomplished and the security interest granted to the Agent pursuant
to this Agreement in and to the Collateral constitutes, upon satisfaction of
such filings, registrations and recordings, a perfected security interest
therein (to the extent that the same can be perfected by filing, registration or
recording) prior to the rights of all other Persons therein (other than any such
rights pursuant to Liens permitted by Section 9.2 of the Credit Agreement
("Permitted Liens")) and subject to no other Liens (other than Permitted Liens)
and is entitled to all the rights, priorities and benefits afforded by the
Uniform Commercial Code to perfected security interests.

         Section 2.2 No Liens. Each Debtor is, and as to Collateral acquired by
it from time to time after the date hereof each such Debtor will be, the owner
of all Collateral pledged by it hereunder free from any Lien, security interest,
encumbrance or other right, title or interest of any Person (other than
Permitted Liens), and each such Debtor shall defend the Collateral against all
claims and demands of all Persons at any time claiming the same or any interest
therein (other than in connection with Permitted Liens) adverse to the Agent.

         Section 2.3 Other Financing Statements. As of the date hereof, there is
no financing statement (or similar statement or instrument of registration under
the law of any jurisdiction) covering or purporting to cover any interest of any
kind in the Collateral (other than financing statements filed in respect of
Permitted Liens), and so long as any Lender Obligations or commitments with
respect thereto are outstanding, no Debtor will execute or authorize to be filed
in any public office any financing statement (or similar statement or instrument
of registration under the law of any jurisdiction) or statements relating to the
Collateral, except financing statements filed or to be filed in respect of and
covering the security interests granted hereby by such Debtors or in connection
with Permitted Liens.

         Section 2.4 Chief Executive Office; Records. As of the date hereof, the
chief executive office of each such Debtor is located at the address indicated
on Exhibit A hereto. No Debtor will move its chief executive office except to
such new location as any Debtor may establish in accordance with the last
sentence of this Section 2.4. A complete set of books of account and records of
each Debtor relating to the Receivables and the Contract Rights are, and will
continue to be, kept at such chief executive office, at one or more of the other
record locations set forth on Exhibit A hereto for each such Debtor or at such
new locations as each Debtor may establish in accordance with the last sentence
of this Section 2.4. All Receivables and Contract Rights of each Debtor are, and
will continue to be, maintained at, and controlled


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and directed (including, without limitation, for general accounting purposes)
from, the office locations described above or such new location established in
accordance with the last sentence of this Section 2.4. No Debtor shall establish
new locations for such offices until (a) it shall have given to the Agent not
less than ten (10) days' prior written notice of its intention to do so, clearly
describing such new location and providing such other information in connection
therewith as the Agent may reasonably request and (b) with respect to such new
location, it shall have taken all action reasonably satisfactory to the Agent,
to maintain the security interest of the Agent in the Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.

         Section 2.5 Location of Inventory and Equipment. As of the date hereof,
all Inventory and Equipment held by each Debtor is located at one of the
locations shown on Exhibit B hereto for each Debtor. Each Debtor agrees that all
Inventory and Equipment now held or subsequently acquired by it shall be kept at
(or shall be in transport to) any one of the locations shown on Exhibit B
hereto, or such new location as any Debtor may establish in accordance with the
last sentence of this Section 2.5. A Debtor may establish a new location for
Inventory and Equipment only if (a) it shall have given to the Agent not less
than ten (10) days' prior written notice of its intention so to do, clearly
describing such new location and providing such other information in connection
therewith as the Agent may reasonably request and (b) with respect to such new
location, it shall have taken all action reasonably satisfactory to the Agent to
maintain the security interest of the Agent in the Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.

         Section 2.6 Recourse. This Agreement is made with full recourse to each
Debtor and pursuant to and upon all the warranties, representations, covenants
and agreements on the part of each Debtor contained herein, in the other Lender
Agreements and otherwise in writing in connection herewith or therewith.

         Section 2.7 Trade Names; Change of Name. As of the date hereof, no
Debtor operates in any jurisdiction under, or in the preceding 12 months has not
operated in any jurisdiction under, any trade names, fictitious names or other
names except its legal name and except as disclosed on Exhibit F hereto. No
Debtor shall change its legal name or assume or operate in any jurisdiction
under any trade, fictitious or other name except as established in accordance
with the last sentence of this Section 2.7. Each Debtor shall not assume or
operate in any jurisdiction under any new trade, fictitious or other name until
(a) it shall have given to the Agent ten (10) days' prior written notice of its
intention so to do, clearly describing such new name and the jurisdictions in
which such new name shall be used and providing such other information in
connection therewith as the Agent may reasonably request and (b) with respect to
such new name, it shall have taken all action reasonably requested by the Agent,
to maintain the security interest of the Agent in the Collateral intended to be
granted hereby at all times fully perfected and in full force and effect.


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         Section 2.8 Collateral in Maryland. The value of the Debtors' taxable
Collateral in Maryland shall not at any time exceed $1,000,000 without the
Agent's consent not to be unreasonably withheld.


                                    ARTICLE 3

                          SPECIAL PROVISIONS CONCERNING
                    RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS

         Section 3.1 Additional Representations and Warranties. As of the time
when each of its Receivables arises, each Debtor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto, are what they purport to be in all material
respects, and that such Receivable will, to the best knowledge of each Debtor,
evidence true and valid obligations of the account debtor named therein.

         Section 3.2 Maintenance of Records. Each Debtor will keep and maintain
at its own cost and expense, records of its Receivables and Contracts and each
Debtor will make the same available on Debtor's premises to the Agent for
inspection, at the Debtor's own cost and expense, at any and all reasonable
times upon reasonable prior notice to the Debtor. Each Debtor shall affix to
each writing constituting chattel paper, and if the Agent so directs to all
other Receivables and Contracts, as well as books, records and documents of each
Debtor evidencing or pertaining to such Receivables and Contracts, an
appropriate reference, in form and manner satisfactory to the Agent, to the fact
that such chattel paper, Receivables and Contracts have been assigned to the
Agent and that the Agent has a security interest therein. Upon the occurrence
and during the continuance of an Event of Default, and at the reasonable request
of the Agent, each Debtor shall, at its own cost and expense, deliver all
tangible evidence of its Receivables and Contract Rights (including, without
limitation, all documents evidencing the Receivables and all Contracts and each
specific writing constituting chattel paper) and such books and records to the
Agent or to its representatives (copies of which evidence and books and records
may be retained by each Debtor).

         Section 3.3 Direction to Account Debtors; Contracting Parties; Etc.
Upon the occurrence and during the continuance of an Event of Default, and if
the Agent so directs, each Debtor agrees (a) to cause all payments on account of
the Receivables and Contracts to be made directly to the Cash Collateral
Account, (b) that the Agent may, at its option, directly notify the obligors
with respect to any Receivables and/or under any Contracts to make payments with
respect thereto as provided in preceding clause (a) and (c) that the Agent may
enforce collection of any such Receivables and Contracts and may adjust, settle
or compromise the amount of payment thereof, in the same manner and to the same
extent as such Debtors. Without notice to or assent by the Debtors, upon the
occurrence and during the continuance of an Event of Default, the Agent may
apply any or all amounts then in, or thereafter deposited in, the Cash
Collateral Account which application shall be effected in the manner provided in
Section 7.4 of this Agreement. The reasonable costs and expenses (including
reasonable


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attorneys' fees) of collection, whether incurred by any Debtor or the Agent,
shall be borne by the Debtors. The Agent shall deliver a copy of each notice
referred to in the preceding clause (b) to the Debtors; provided, that the
failure by the Agent to so notify any Debtor shall not affect the effectiveness
of such notice or the other rights of the Agent created by this Section 3.3.

         Section 3.4 Modification of Terms; Etc. No Debtor may rescind or cancel
any indebtedness evidenced by any Receivable or under any Contract, or modify
any term thereof or make any adjustment with respect thereto in a manner adverse
to the Agent, or extend or renew the same, or compromise or settle any material
dispute, claim, suit or legal proceeding relating thereto in a manner adverse to
the Agent, or sell any Receivable or Contract, or interest therein, without the
prior written consent of the Agent, except in accordance with the Debtor's
reasonable business practices.

         Section 3.5 Collection. Each Debtor shall endeavor, in accordance with
reasonable business practices, to cause to be collected from the account debtor
named in each of its Receivables or obligor under any Contract, as and when due
(including, without limitation, amounts which are delinquent, such amounts to be
collected in accordance with generally accepted lawful collection procedures)
any and all amounts owing under or on account of such Receivable or Contract,
and apply forthwith upon receipt thereof all such amounts as are so collected to
the outstanding balance of such Receivable or under such Contract. The
reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees) of collection, if incurred by any Debtor or the Agent, shall be
borne by the Debtors.

         Section 3.6 Instruments. If any Debtor owns or acquires any Instrument
constituting Collateral, the Debtor will within 10 Business Days notify the
Agent thereof, and upon request by the Agent, will promptly deliver such
Instrument to the Agent appropriately endorsed to the order of the Agent as
further security hereunder.


                                    ARTICLE 4

                    SPECIAL PROVISIONS CONCERNING TRADEMARKS

         Section 4.1 Additional Representations and Warranties. Except as set
forth on Schedule 5.16 to the Credit Agreement, each Debtor represents and
warrants that: (i) as of the date hereof, it is the true and lawful owner of all
right, title and interest to, or otherwise has the right to use, the registered
Marks listed on Exhibit C hereto for each Debtor and that, as of the date
hereof, said listed Marks constitute all the marks and applications for marks
registered in the United States Patent and Trademark Office that each Debtor
presently owns or uses in connection with its business; (ii) it owns, is
licensed to use or otherwise has the right to use all Marks that it uses; (iii)
it has no knowledge of any third party claim that any aspect of the Debtor's
present or contemplated business operations infringe or will infringe any
trademark, service mark or trade name in any respect which could reasonably be
expected to have a


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Material Adverse Effect on each Debtor and its Subsidiaries taken as a whole;
and (iv) except as listed on Exhibit C, as of the date hereof, it is the
beneficial and record owner of all trademark registrations and applications
listed on Exhibit C hereto for each Debtor and that said registrations are valid
and subsisting, and that no Debtor is aware of any third-party claim that any of
said registrations in respect of any Mark is invalid or unenforceable. Each
Debtor hereby grants to the Agent an absolute power of attorney to sign, upon
the occurrence and during the continuance of an Event of Default, any document
which may be required by the United States Patent and Trademark Office in order
to effect an absolute assignment of all right, title and interest in each Mark,
and record the same.

         Section 4.2 Infringements. Each Debtor agrees, promptly upon learning
thereof, to notify the Agent in writing of the name and address of, and to
furnish such pertinent information that may be available with respect to, any
party who the Debtor believes is infringing or diluting or otherwise violating
in any material respect any of the Debtor's rights in and to any Mark, or with
respect to any party claiming that the Debtor's use of any Mark violates in any
material respect any property right of that party. Each Debtor further agrees to
prosecute any Person infringing any Mark in accordance with reasonable business
practices.

         Section 4.3 Preservation of Marks. Each Debtor agrees to use its Marks
as required in each of the applicable jurisdictions during the time in which
this Agreement is in effect, sufficiently to preserve such Marks (and any
registrations thereto) as trademarks or service marks under the laws of the
United States and any other applicable law; provided, that, prior to any
Default, no Debtor shall be obligated to preserve any Mark in the event the
Debtor determines, in its reasonable business judgment, that the preservation of
such Mark is no longer desirable in the conduct of its business.

         Section 4.4 Maintenance of Registration. Each Debtor shall, at its own
expense, diligently process all documents required by the Trademark Act of 1946,
15 U.S.C. Sections 1051 et seq. to maintain trademark registrations, including
but not limited to affidavits of use and applications for renewals of
registration in the United States Patent and Trademark Office for all of its
registered Marks pursuant to 15 U.S.C. Sections 1058(a), 1059 and 1065, and
shall pay all fees and disbursements in connection therewith and shall not
abandon any such filing of affidavit of use or any such application of renewal
prior to the exhaustion of all administrative and judicial remedies without
prior written consent of the Agent (which consent shall not be unreasonably
withheld); provided, that, prior to any Default, no Debtor shall be obligated to
maintain any Mark in the event that the Debtor determines, in its reasonable
business judgment, that the maintenance of such Mark is no longer necessary or
desirable in the conduct of its business.

         Section 4.5 Future Registered Marks. If any Mark registration issues
hereafter to any Debtor as a result of any application now or hereafter pending
before the United States Patent and Trademark Office, within sixty (60) days of
receipt of such certificate, such Debtor shall deliver to the Agent a copy of
such certificate, and an assignment for security in such Mark, to the Agent and
at the expense of such Debtor, confirming the assignment for security


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in such Mark to the Agent hereunder, the form of such security to be
substantially the same as the form hereof or in such other form as may be
reasonably satisfactory to the Agent.

         Section 4.6 Remedies. Upon the occurrence and during the continuance of
an Event of Default, the Agent may take any or all of the following actions: (a)
declare the entire right, title and interest of any Debtor in and to each of the
Marks, together with all trademark rights and rights of protection to the same,
vested in the Agent, for the benefit of the Lenders, in which event such rights,
title and interest shall immediately vest in the Agent, for the benefit of the
Lenders, and the Agent shall be entitled to exercise the power of attorney
referred to in Section 4.1 hereof to execute, cause to be acknowledged and
notarized and to record said absolute assignment with the applicable agency; (b)
take and use or sell the Marks and the goodwill of such Debtor's business
symbolized by the Marks or carry on the business and use the assets of such
Debtor which have been used in connection with the Marks; and (c) direct the
Debtor to refrain, in which event the Debtor shall refrain, from using the Marks
in any manner whatsoever, directly or indirectly, and, if requested by the
Agent, change the Debtor's corporate name to eliminate therefrom any use of any
Mark and execute such other and further documents that the Agent may request to
further confirm this and to transfer ownership of the Marks and registrations
and any pending trademark application in the United States Patent and Trademark
Office to the Agent.

         Section 4.7 Collateral Assignment. In addition to, and not in
limitation of, the grant of the security interest in Article 1 above, each
Debtor hereby grants, assigns, transfers, conveys and sets over to the Agent,
for the benefit of the Lenders, effective upon the occurrence and during the
continuance of an Event of Default, each Debtor's entire right, title and
interest in and to the Marks, the goodwill of the business symbolized by the
Marks and Proceeds. Each Debtor has delivered to the Agent an Assignment of
Trademarks (the "Assignment") and upon the occurrence and during the continuance
of an Event of Default, the Agent is hereby authorized to file such Assignment
with the United States Patent and Trademark Office. Upon payment in full of all
Obligations, the Agent will assign the Marks to the Debtor.


                                    ARTICLE 5

                          SPECIAL PROVISIONS CONCERNING
                      PATENTS, COPYRIGHTS AND TRADE SECRETS

         Section 5.1 Additional Representations and Warranties. Except as set
forth on Schedule 5.16 to the Credit Agreement, each Debtor represents and
warrants that, as of the date hereof, it is the true and lawful owner of all
rights in (a) all Trade Secrets and Proprietary Information necessary to operate
its business, (b) the Patents listed on Exhibit D hereto for each Debtor, said
Patents constituting all the patents and applications for patents that each
Debtor owns on the date hereof and (c) the Copyrights listed on Exhibit E hereto
for each Debtor, said Copyrights constituting all registrations of copyrights
and applications for


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copyright registrations that each such Debtor owns on the date hereof. Each
Debtor further warrants that it has no knowledge of any third party claim that
any aspect of its present or contemplated business operations infringe or will
infringe any patent or any copyright or that it has misappropriated any Trade
Secret or Proprietary Information, in each case in any respect which could
reasonably be expected to have a Material Adverse Effect on such Debtor and its
Subsidiaries taken as a whole. Each Debtor hereby grants to the Agent an
absolute power of attorney to sign, upon the occurrence and during the
continuance of an Event of Default, any document which may be required by the
United States Patent and Trademark Office or the United States Copyright Office
in order to effect an absolute assignment of all right, title and interest in
each Patent and Copyright, and to record the same.

         Section 5.2 Infringements. Each Debtor agrees, promptly upon learning
thereof, to furnish to the Agent in writing all pertinent information available
to such Debtor with respect to any infringement, contributing infringement or
active inducement to infringe in any material respect any Patent or Copyright or
to any claim that the practice of any Patent or the use of any Copyright
violates in any material respect any property right of a third party, or with
respect to any misappropriation of any Trade Secret right or any claim that
practice of any material Trade Secret right violates in any material respect any
property right of a third party. Each Debtor further agrees, to the extent
consistent with reasonable business practices, to prosecute any Person
infringing any Patent or Copyright or any Person misappropriating any Trade
Secret right.

         Section 5.3 Maintenance of Patents. At its own expense, each Debtor
shall make timely payment of all post-issuance fees required pursuant to 35
U.S.C. Section 41 to maintain in force rights under each Patent, absent prior
written consent of the Agent; provided, that no Debtor shall be obligated to
maintain any Patent in the event the Debtor determines, in its reasonable
business judgment, that the maintenance of such Patent is no longer necessary or
desirable in the conduct of its business.

         Section 5.4 Prosecution of Patent Application. At its own expense, such
Debtor shall diligently prosecute all applications for Patents for such Debtor
and shall not abandon any such application prior to exhaustion of all
administrative and judicial remedies, absent written consent of the Agent (which
consent shall not be unreasonably withheld); provided, that no Debtor shall be
obligated to prosecute any application in the event the Debtor determines, in
its reasonable business judgment, that the prosecuting of such application is no
longer necessary or desirable in the conduct of its business.

         Section 5.5 Other Patents and Copyrights. Within sixty (60) days of the
acquisition or issuance of a Patent, registration of a Copyright, or acquisition
of a registered copyright, the Debtor shall deliver to the Agent a copy of said
Copyright or certificate or registration of said patents, as the case may be,
with an assignment for security as to such Patent or Copyright, as the case may
be, to the Agent and at the expense of the Debtor, confirming the assignment for
security, the form of such assignment for security to be substantially the same
as the form hereof or in such other form as may be reasonably satisfactory to
the Agent.


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         Section 5.6 Remedies. Upon the occurrence and during the continuance of
an Event of Default, the Agent may take any or all of the following actions: (a)
declare the entire right, title, and interest of any Debtor in each of the
Patents and Copyrights vested in the Agent, for the benefit of the Lenders, in
which event such right, title, and interest shall immediately vest in the Agent,
for the benefit of the Lenders, and in which case the Agent shall be entitled to
exercise the power of attorney referred to in Section 5.1 hereof to execute,
cause to be acknowledged and notarized and to record said absolute assignment
with the applicable agency; (b) take and practice, use or sell the Patents and
Copyrights; and (c) direct such Debtor to refrain, in which event such Debtor
shall refrain, from practicing the Patents and using the Copyrights, directly or
indirectly, and such Debtor shall execute such other and further documents as
the Agent may request further to confirm this and to transfer ownership of the
Patents and Copyrights to the Agent, for the benefit of the Lenders.


                                    ARTICLE 6

                      PROVISIONS CONCERNING ALL COLLATERAL

         Section 6.1 Protection of Agent's Security. Each Debtor will at all
times keep its Inventory and Equipment insured in favor of the Agent, at each
such Debtor's own expense to the extent and in the manner provided in the Lender
Agreements; all policies or certificates with respect to such insurance (and any
other insurance maintained by the Debtor) (a) shall be endorsed to the Agent's
reasonable satisfaction for the benefit of the Agent (including, without
limitation, by naming the Agent as additional insured and loss payee) and (b)
shall state that such insurance policies shall not be canceled without thirty
(30) days' prior written notice thereof by the insurer to the Agent; and
certified copies of such policies or certificates with respect thereto shall be
deposited with the Agent. If any Debtor shall fail to insure its Inventory and
Equipment in accordance with the preceding sentence, or if any Debtor shall fail
to so endorse and deposit all policies or certificates with respect thereto, the
Agent shall have the right (but shall be under no obligation), upon prior
written notice to any such Debtor, to procure such insurance and such Debtor
agrees to promptly reimburse the Agent for all costs and expenses of procuring
such insurance. The Agent shall, at the time any proceeds of such insurance are
distributed to the Lenders, apply such proceeds in accordance with Section 7.4
hereof except as otherwise provided by the Credit Agreement. Each Debtor assumes
all liability and responsibility in connection with the Collateral acquired by
it and the liability of each Debtor to pay the Obligations shall in no way be
affected or diminished by reason of the fact that such Collateral may be lost,
destroyed, stolen, damaged or for any reason whatsoever unavailable to the
Debtor.

         Section 6.2 Further Actions. Each Debtor will, at its own expense,
make, execute, endorse, acknowledge, file and/or deliver to the Agent from time
to time such lists, descriptions and designations of its Collateral, warehouse
receipts, receipts in the nature of warehouse receipts, bills of lading,
documents of title, vouchers, invoices, schedules, confirmatory assignments,
conveyances, financing statements, transfer endorsements, powers


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of attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Agent reasonably
requests in order to perfect, preserve or protect its security interest in the
Collateral.

         Section 6.3 Financing Statements. Each Debtor agrees to execute and
deliver to the Agent such financing statements, in form reasonably acceptable to
the Agent, as the Agent may from time to time reasonably request, to establish
and maintain a valid, enforceable, first priority perfected security interest in
the Collateral as provided herein and the other rights and security contemplated
hereby all in accordance with the UCC as enacted in any and all relevant
jurisdictions or any other relevant law. Each Debtor will pay any applicable
filing fees, recordation taxes and related expenses relating to its Collateral.
Each Debtor hereby authorizes the Agent upon the occurrence and during the
continuance of an Event of Default to file any such financing statements without
its signature where permitted by law.


                                    ARTICLE 7

                  REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT

         Section 7.1 Remedies; Obtaining the Collateral Upon Default. Each
Debtor agrees that upon the occurrence of an Event of Default, the Agent, in
addition to any rights now or hereafter existing under applicable law, shall
have all rights as a secured creditor under the UCC in all relevant
jurisdictions and may:

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

                  (b) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the Receivables
and the Contracts) constituting the Collateral to make any payment required by
the terms of such agreement, instrument or other obligation directly to the
Agent;

                  (c) withdraw all monies, securities and instruments in the
Cash Collateral Account and/or in any other cash collateral account for
application to the Obligations in accordance with Section 7.4 hereof;

                  (d) sell, assign or otherwise liquidate any or all of the
Collateral or any part thereof in accordance with Section 7.2 hereof, or direct
the Debtor to sell, assign or otherwise


                                       11
<PAGE>   12
liquidate any or all of the Collateral or any part thereof, and, in each case,
take possession of the proceeds of any such sale or liquidation;

                  (e) take possession of the Collateral or any part thereof, by
directing the relevant Debtor in writing to deliver the same to the Agent at any
place or places reasonably designated by the Agent, in which event such Debtor
shall at its own expense:

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

                           (ii) store and keep any Collateral so delivered to
         the Agent at such place or places pending further action by the Agent
         as provided in Section 7.2 hereof; and

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

                  (f) license or sublicense, whether on an exclusive or
nonexclusive basis, any Marks, Patents or Copyrights included in the Collateral
for such term and on such conditions and in such manner as the Agent shall in
its reasonable judgment determine;

it being understood that each Debtor's obligation to deliver the Collateral is
of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Agent shall be entitled to a decree
requiring specific performance by any such Debtor of said obligation. The
Lenders agree that this Agreement may be enforced only by the action of the
Agent acting upon the instructions of the Majority Lenders and that no other
Lender shall have any right individually to seek to enforce this Agreement or to
realize upon the security to be granted hereby, it being understood and agreed
that such rights and remedies may be exercised by the Agent for the benefit of
the Lenders upon the terms of this Agreement.

         Section 7.2 Remedies: Disposition of the Collateral. Any Collateral
repossessed by the Agent under or pursuant to Section 7.1 hereof and any other
Collateral whether or not so repossessed by the Agent, may be sold, assigned,
leased or otherwise disposed of under one or more contracts or as an entirety,
and without the necessity of gathering at the place of sale the property to be
sold, and in general in such manner, at such time or times, at such place or
places and on such terms as the Agent may, in compliance with any mandatory
requirements of applicable law, determine to be commercially reasonable. Any of
the Collateral may be sold, leased or otherwise disposed of, in the condition in
which the same existed when taken by the Agent or after any overhaul or repair
at the expense of the Debtor which the Agent shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceeding permitted by such requirements shall be made upon not less than ten
(10) days' written notice to the Debtor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for


                                       12
<PAGE>   13
the ten (10) days after the giving of such notice, to the right of the Debtor or
any nominee of the Debtor to acquire the Collateral involved at a price or for
such other consideration at least equal to the intended sale price or other
consideration so specified. Any such disposition which shall be a public sale
permitted by such requirements shall be made upon not less than ten (10) days'
written notice to the Debtor specifying the time and place of such sale and, in
the absence of applicable requirements of law, shall be by public auction (which
may, at the Agent's option, be subject to reserve), after publication of notice
of such auction not less than ten (10) days prior thereto in two newspapers in
general circulation in Boston, Massachusetts. To the extent permitted by any
such requirement of law, the Agent may bid for and become the purchaser of the
Collateral or any item thereof offered for sale in accordance with this Section
without accountability to the Debtor. If, under mandatory requirements of
applicable law, the Agent shall be required to make disposition of the
Collateral within a period of time which does not permit the giving of notice to
the Debtor as hereinabove specified, the Agent need give the Debtor only such
notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of applicable law.

         Section 7.3 Waiver of Claims. Except as otherwise provided in this
Agreement, (a) EACH DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE AGENT'S TAKING
POSSESSION OR THE AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING,
WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT
REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH EACH DEBTOR WOULD OTHERWISE HAVE
UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and
(b) each Debtor hereby further waives, to the extent permitted by law:

                           (i) all damages occasioned by such taking of
         possession except any damages which are determined by a final,
         non-appealable court order to have been caused by the Agent's gross
         negligence or willful misconduct; and

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

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

Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Debtor therein and thereto, and shall
be a perpetual bar both at law and in equity against


                                       13
<PAGE>   14
the Debtor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under the Debtor.

         Section 7.4 Application of Proceeds. All moneys collected by the Agent
upon any sale or other disposition of the Collateral, together with all other
moneys received by the Agent hereunder, shall be applied as provided in Section
10.3 of the Credit Agreement. It is understood and agreed that each Debtor shall
remain liable to the extent of any deficiency between the amount of the proceeds
of the Collateral hereunder and the aggregate amount of the Obligations.

         Section 7.5 Remedies Cumulative. Each and every right, power and remedy
hereby specifically given to the Agent shall be in addition to every other
right, power and remedy specifically given under this Agreement, the other
Lender Agreements or now or hereafter existing at law, in equity or by statute
and each and every right, power and remedy whether specifically herein given or
otherwise existing may be exercised from time to time or simultaneously and as
often and in such order as may be deemed expedient by the Agent. All such
rights, powers and remedies shall be cumulative and the exercise or the
beginning of the exercise of one shall not be deemed a waiver of the right to
exercise any other or others. No delay or omission of the Agent in the exercise
of any such right, power or remedy and no renewal or extension of any of the
Obligations shall impair any such right, power or remedy or shall be construed
to be a waiver of any Default or Event of Default or an acquiescence therein. No
notice to or demand on any Debtor in any case shall entitle it to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of any of the rights of the Agent to any other or further action in any
circumstances without notice or demand. In the event that the Agent shall bring
any suit to enforce any of its rights hereunder and shall be entitled to
judgment, then in such suit the Agent may recover reasonable expenses, including
reasonable attorneys' fees, and the amounts thereof shall be included in such
judgment.

         Section 7.6 Discontinuance of Proceedings. In case the Agent shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Agent, then and in every such case each Debtor, the Agent and
each holder of any of the Obligations shall be restored to their former
positions and rights hereunder with respect to the Collateral subject to the
security interest created under this Agreement, and all rights, remedies and
powers of the Agent shall continue as if no such proceeding had been instituted.


                                    ARTICLE 8

                                  MISCELLANEOUS


                                       14
<PAGE>   15
         Section 8.1 Notices. All notices and other communications made or
required to be given pursuant to this Agreement shall be in writing and shall be
mailed by United States mail, postage prepaid, or sent by hand, by telecopy or
by nationally-recognized overnight carrier service, addressed as follows:

                  (a) If to the Agent, at 100 Federal Street, Boston,
         Massachusetts 02110, Telecopier No. (617) 434-8102, Attention: Mr.
         Christopher S. Allen, Director, with a copy to: Goodwin, Procter & Hoar
         LLP, Exchange Place, Boston, MA 02109, Telecopier No. 617-523-1231,
         Attention: Edward Matson Sibble, Jr., P.C., or at such other
         address(es) or to the attention of such other Person(s) as the Agent
         shall from time to time designate in writing to the Debtors and the
         Lenders.

                  (b) If to the Debtors, c/o New England Audio Co., Inc. at 40
         Hudson Road, Shawmut Park, Canton, Massachusetts 02021, Telecopier No.
         (617) 821-9956, Attention: Joseph McGuire, Chief Financial Officer,
         with a copy to Goulston & Storrs, P.C., 400 Atlantic Avenue, Boston, MA
         02110-3333, Telecopier No. (617) 574-4112, Attention: Kitt Sawitsky,
         Esq. and Daniel Avery, Esq., or at such other address(es) or to the
         attention of such other Person(s) as New England Audio shall from time
         to time designate in writing to the Agent and the Lenders.

                  (c) If to any Lender, at the address(es) and to the attention
         of the Person(s) specified below such Lender's name on the execution
         page of this Agreement (or in the case of a Successor Lender, at the
         address(es) and to the attention of the Person(s) specified in the
         Assignment and Acceptance Agreement executed by such Successor Lender),
         or at such other address(es) and to the attention of such other
         Person(s) as any Lender shall from time to time designate in writing to
         the Agent and the Debtors.

         Any notice so addressed and mailed by registered or certified mail
shall be deemed to have been given three (3) days after deposit in the mails.
Any notice so addressed and sent by hand, by telecopy or by overnight carrier
service shall be deemed to have been given when received.

         A notice from the Agent stating that it has been given on behalf of the
Lenders shall be relied upon by the Debtors as having been given by the Lenders.

         Section 8.2 Waiver; Amendment. None of the terms and conditions of this
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by each Debtor directly affected thereby and the
Agent (with the consent of the Majority Lenders or, to the extent required by
Section 11.1 of the Credit Agreement, all of the Lenders).

         Section 8.3 Obligations Absolute. The obligations of each Debtor
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation


                                       15
<PAGE>   16
or the like of any Debtor; (b) any exercise or non-exercise, or any waiver of,
any right, remedy, power or privilege under or in respect of this Agreement or
any other Lender Agreement; or (c) any amendment to or modification of any other
Lender Agreement or any security for any of the Obligations whether or not the
Debtors shall have notice or knowledge of any of the foregoing.

         Section 8.4 Successors and Assigns. This Agreement shall be binding
upon each Debtor and its successors and assigns and shall inure to the benefit
of the Agent and the Lenders and their respective successors and assigns. All
agreements, statements, representations and warranties made by each Debtor
herein or in any certificate or other instrument delivered by any Debtor or on
its behalf under this Agreement shall be considered to have been relied upon by
the Lenders and shall survive the execution and delivery of this Agreement and
the other Lender Agreements regardless of any investigation made by the Agent or
the Lenders or on their behalf.

         Section 8.5 Headings Descriptive. The headings of the several sections
of this Agreement are inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Agreement.

         Section 8.6 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO IT
PRINCIPLES RELATING TO CHOICE OF LAW.

         Section 8.7 Debtors' Duties. It is expressly agreed, anything herein
contained to the contrary notwithstanding, that each Debtor shall remain liable
to perform all of the obligations, if any, assumed by it with respect to the
Collateral and the Agent shall not have any obligations or liabilities with
respect to any Collateral other than an obligation to act in a commercially
reasonable manner, by reason of or arising out of this Agreement, nor shall the
Agent be required or obligated in any manner to perform or fulfill any of the
obligations of any Debtor under or with respect to any Collateral.

         Section 8.8 Termination; Release. After the Termination Date, this
Agreement shall terminate (provided that all indemnities set forth in the Credit
Agreement shall survive such termination) and the Agent, at the request and
expense of the Debtors, will promptly execute and deliver to each Debtor a
proper instrument or instruments (including Uniform Commercial Code termination
statements on form UCC-3) acknowledging the satisfaction and termination of this
Agreement, and will duly assign, transfer and deliver to each Debtor (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Agent and has not theretofore been sold or
otherwise applied or released pursuant to this Agreement.


                                       16
<PAGE>   17
         Section 8.9 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with each Debtor
and the Agent.

         Section 8.10 The Agent. The Agent will hold in accordance with this
Agreement all items of the Collateral at any time received under this Agreement.
It is expressly understood and agreed that the obligations of the Agent as
holder of the Collateral and interests therein and with respect to the
disposition thereof, and otherwise under this Agreement, are only those
expressly set forth in this Agreement. The Agent shall act hereunder on the
terms and conditions set forth in this Agreement and in Section 13 of the Credit
Agreement.


                                    ARTICLE 9

                                   DEFINITIONS

         Unless otherwise defined herein, terms defined in the Credit Agreement
are used herein as therein defined and the following terms shall have the
following respective meanings (such meanings being equally applicable to the
singular and plural forms of the terms defined):

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

         "Cash Collateral Account" shall mean a non-interest bearing lockbox
account or such other account so designated by the Agent.

         "Chattel Paper" and "chattel paper" shall have the meaning provided in
the Uniform Commercial Code as in effect on the date hereof in the Commonwealth
of Massachusetts.

         "Contract Rights" shall mean all rights of any Debtor (including,
without limitation, all rights to payment) under each Contract.

         "Copyrights" shall mean any United States copyright owned (or subject
to the rights of ownership) by any Debtor, including any registrations of any
copyright in the United States Copyright Office, as well as any application for
a copyright registration now or hereafter made with the United States Copyright
Office by any Debtor.

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

         "Documents" and "documents" shall have the meaning provided in the
Uniform Commercial Code as in effect on the date hereof in the Commonwealth of
Massachusetts.


                                       17
<PAGE>   18
         "Event of Default" shall mean any Event of Default under, and as
defined in, the Credit Agreement and shall in any event, without limitation,
include any payment default on any of the Obligations after the expiration of
any applicable grace period.

         "General Intangibles" and "general intangibles" shall have the meaning
provided in the Uniform Commercial Code as in effect on the date hereof in the
Commonwealth of Massachusetts.

         "Goods" and "goods" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the Commonwealth of
Massachusetts.

         "Instrument" or "instrument" shall have the meaning provided in the
Uniform Commercial Code as in effect on the date hereof in the Commonwealth of
Massachusetts.

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

         "Marks" shall mean any United States trademarks, service marks and
trade names now owned, subject to a right of ownership or hereafter acquired by
any Debtor, including any registration of, or application for, any trademarks
and service marks in the United States Patent and Trademark Office, and any
trade dress including logos and/or designs used by any Debtor in the United
States.

         "Obligations" shall mean (a) the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations and liabilities of each Debtor now existing or hereafter incurred
under, arising out of or in connection with any Lender Agreement to which each
such Debtor is a party and the due performance and compliance by each Debtor
with the terms of each such Lender Agreement; (b) any and all sums advanced by
the Agent in order to preserve the Collateral or preserve its security interest
in the Collateral; (c) in the event of any proceeding for the collection or
enforcement of any obligations or liabilities referred to in clause (a), upon
the occurrence and during the continuance of an Event of Default, the reasonable
expenses of re-taking, holding, preparing for sale or lease, selling or
otherwise disposing of or realizing on the Collateral, or of any exercise by the
Agent of its rights hereunder, together with reasonable attorneys' fees and
court costs; (d) all amounts paid by any Indemnitee as to which such Indemnitee
has the right to reimbursement under Section 14.5 of the Credit Agreement; and
(e) all other Lender Obligations.

         "Patents" shall mean any United States patent owned, subject to a right
of ownership by or hereafter acquired by any Debtor and any divisions,
continuations, reissues, reexaminations, extensions or renewals thereof, as well
as any application for a United States patent now or hereafter made by the
Debtor or subject to a right of ownership in the Debtor.


                                       18
<PAGE>   19
         "Proceeds" shall have the meaning provided in the Uniform Commercial
Code as in effect in the Commonwealth of Massachusetts on the date hereof or
under other relevant law and, in any event, shall include, but not be limited
to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to the Agent or any Debtor from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to any Debtor 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) and (c) any and all other amounts from time to time paid
or payable under or in connection with any of the Collateral.

         "Proprietary Information" means all information and know-how worldwide,
including, without limitation, technical data, manufacturing data, research and
development data, data relating to compositions, processes and formulations,
manufacturing and production know-how and experience, management know-how,
training programs, manufacturing, engineering and other drawings,
specifications, performance criteria, operating instructions, maintenance
manuals, technology, technical information, software, engineering and computer
data and databases, design and engineering specifications, catalogs, promotional
literature and financial, business and marketing plans, inventions and invention
disclosures.

         "Termination Date" shall mean the date on which all Obligations are
paid in full and the Lenders shall have no further commitments to or for the
account of the Debtors.

         "Trade Secrets" means any secretly held existing engineering and other
data, information, production procedures and other know-how relating to the
design, manufacture, assembly, installation, use, operation, marketing, sale and
servicing of any products or business of any Debtor worldwide whether written or
not written.

                           [INTENTIONALLY LEFT BLANK]


                                       19
<PAGE>   20
         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.

                                    DEBTORS:

                                    NEW ENGLAND AUDIO CO., INC.


                                    By: /s/ Jeffrey S. Stone
                                        ------------------------------------
                                        Name: Jeffrey S. Stone
                                        Title: President

                                    NEA DELAWARE, INC.


                                    By: /S/ Jeffrey S. Stone
                                        ------------------------------------
                                        Name: Jeffrey S. Stone
                                        Title: President


                                    AGENT:

                                    BANKBOSTON, N.A., as Agent


                                    By: /s/ Christopher S. Allen
                                        ------------------------------------
                                        Name: 
                                        Title: Director

<PAGE>   21
                                    EXHIBIT A

                              to Security Agreement

                    See Schedule 5.2 to the Credit Agreement

<PAGE>   22
                                    EXHIBIT B

                              to Security Agreement


                    See Schedule 5.2 to the Credit Agreement

<PAGE>   23
                                    EXHIBIT C

                              to Security Agreement

                    See Schedule 5.13 to the Credit Agreement

<PAGE>   24
                                    EXHIBIT D

                              to Security Agreement


                    See Schedule 5.13 to the Credit Agreement

<PAGE>   25
                                    EXHIBIT E

                              to Security Agreement


                    See Schedule 5.13 to the Credit Agreement

<PAGE>   26
                                    EXHIBIT F

                              to Security Agreement


                    See Schedule 5.13 to the Credit Agreement