Document:

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                                                                   Exhibit 10.37

                     AMERISOURCE PRIMARY VENDOR AGREEMENT

This Agreement is made and entered into this 4th day of April, 2001 between
AmeriSource Corporation (hereinafter referred to as AmeriSource) located at 1300
Morris Drive, Suite 100, Chesterbrook, PA 19087-5594 and Horizon Pharmacies,
Inc. (hereinafter referred to as Pharmacy), located at 531 W. Main St., Suite
100 Denison, TX 75020.

                    STATEMENT OF THE PARTIES' INTENTIONS
                    ------------------------------------

AmeriSource and Pharmacy desire to enter into a Pharmacy Primary Vendor
Agreement wherein AmeriSource shall serve as a Primary Supplier of
pharmaceuticals to Pharmacy pursuant to this Agreement, and Pharmacy shall, in
turn, receive special pricing and services from AmeriSource.

                              TERMS AND CONDITIONS
                              --------------------

NOW THEREFORE, In consideration of the mutual agreements herein contained and
the promises herein expressed, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the Parties do agree as follows:

1. TERM AND RENEWAL: The term of this Agreement shall be three (3) years
commencing on the effective date of this Agreement, unless sooner terminated
pursuant to the terms of this Agreement (the "Term"). This Agreement shall
automatically renew thereafter for up to two (2) additional successive one (1)
year periods unless either party provides to the other party written notice of
its desire to terminate this Agreement at least ninety (90) days prior to the
end of the initial or any renewal term. This Agreement shall apply to all
pharmacy locations owned by Pharmacy as of the effective date of this Agreement
as well as all pharmacy locations acquired by Pharmacy during the term hereof.

2. BREACH: Either party shall be entitled to terminate this Agreement if the
other party fails to perform in any material respect any obligation required of
such party hereunder, and such default continues for ten (10) days after the
giving of written notice by the non-defaulting party, specifying the nature and
extent of such default. Any such default that is not cured within the cure
period described above is referred to herein as a "default."
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3.       PRICE OF GOODS GRID:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
                            HORIZON PHARMACIES, INC.
-----------------------------------------------------------------------------------------------------------------
   Annual Volume                    Daily Wire Transfer                 OTC                    HBC Source
    Commitment
------------------------------- ---------------------------- --------------------------- ------------------------
<S>                             <C>                          <C>                         <C>
$*                              *                            *                           *
------------------------------- ---------------------------- --------------------------- ------------------------
$*                              *                            *                           *
------------------------------- ---------------------------- --------------------------- ------------------------
$*                              *                            *                           *
------------------------------- ---------------------------- --------------------------- ------------------------
</TABLE>

Terms: Pharmacy shall pay by electronic funds transfer (EFT) on * terms. Payment
for each day's purchases shall be due and payable * later, on a daily basis.
Pharmacy shall receive a credit limit of *.

     .    This proposal is offered with Pharmacy agreeing to fully participate
          in all AmeriSource generic formularies and applicable programs.

     Home healthcare items, AmeriSource contracted generics, Private label
     items, HBC Source, and certain slow-moving items are excluded from this
     cost pricing definition and are instead net billed.

AmeriSource reserves the right to charge and collect interest on late payments
at the lesser of (i) the rate of 1.5% per month, and (ii) the highest rate
allowed under applicable law, and to put the account on credit hold preventing
shipment in the event of late payment.

4.   INITIAL DISCOUNT: Pharmacy shall receive an additional discount *, in
addition to any other discounts contemplated under this Agreement *; HOWEVER,
the value of the discount shall not exceed *.

Pharmacy must be compliant with payment terms to be eligible for any discount
under this paragraph.

5.   DEFINITION OF COST: "Cost" means (i) the manufacturer's invoice cost on the
date the order is shipped to the Pharmacy, or (ii) the contract/bid price of the
item, as the case may be, in each case exclusive of discounts for prompt payment
given to AmeriSource by its vendors. Any reduction in this customary discount
will cause "Cost" to be increased as appropriate. Home health care items,
AmeriSource contracted items, generics, Health Services Plus items, HBC Source
items, Health Centre items and slow moving items are excluded from this
definition of cost and are instead net billed. In

*Language has been intentionally omitted and filed seperately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.

                                       2
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addition, special rebates given to AmeriSource on generic drugs with vendor
distribution allowances do not affect the determination of Cost. All Pharmacy
contracted items will be priced at the Pharmacy's negotiated contract price.

All excise, gross receipts, sales and other taxes incurred in connection with
Pharmacy's purchases hereunder, other than net income taxes of AmeriSource, will
be paid by Pharmacy.

6.   EXCEPTIONS TO COST PLUS PRICING: The following items shall not be subject
to Cost plus pricing:

     .    Trade Show purchases
     .    Generics, Vitamin Lines
     .    HBC Source
     .    Computer Services
     .    Other net prices categories, including, but not limited to, Home
          Health Care, and School and Office supplies.

7.   EARLY TERMINATION: In the event that Pharmacy commits a default hereunder,
such default is not waived by AmeriSource and AmeriSource terminates this
Agreement pursuant to Section 2 hereof as a result of such default, then
Pharmacy shall pay AmeriSource * (the "Early Termination Penalty").
Notwithstanding the foregoing, the Early Termination Penalty shall be reduced by
*. The Early Termination Penalty shall be payable to AmeriSource not later than
sixty (60) days after the date that this Agreement is terminated. The Early
Termination Penalty shall be in addition to any other damages owed by Pharmacy
to AmeriSource as a result of a breach of this Agreement.

8.   LEVEL OF PURCHASES: Pharmacy will purchase at least * of its designated
goods per month, less returns, from AmeriSource under this Agreement. It is
agreed and understood that the prices listed in paragraph 4 are based on
AmeriSource Primary Vendor status to Pharmacy. Should Pharmacy purchase less
than * of its needs from AmeriSource, *.

9. SPECIAL ORDER/ NEW ITEM REQUESTS: Special orders and/or new item requests
should be forwarded to customer service at each servicing division. One-time
orders will be drop-shipped directly to each store. Items will be stocked
accordingly based on stated usage by Pharmacy. If there is not a significant
amount of usage, the item would be handled as a one-time drop-ship item.

10.  GENERIC FORMULARIES: Pharmacy agrees to participate in all AmeriSource's
generic formularies at the level of *. If the level of generic purchases falls
below *, AmeriSource reserves the right to adjust the overall price of goods.

*Language has been intentionally omitted and filed seperately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.

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11.  RETURNED GOODS: Returns shall be accepted in accordance with the
AmeriSource Returned Goods Policy and the Prescription Drug Marketing Act, and
shall include the following financial terms:

     .    Merchandise originally purchased from AmeriSource returned in saleable
          condition within 60 days of invoice date, with the AmeriSource item
          number and invoice date information, will be credited at * of the
          original invoice amount.

     .    Merchandise originally purchased from AmeriSource returned in saleable
          condition between 61-180 days after date of invoice, with the
          AmeriSource item number and invoice date information, will be credited
          at * of cost.

     .    Merchandise originally purchased from AmeriSource returned in saleable
          condition after 180 days of invoice date, with the AmeriSource item
          number and invoice date information, will receive credit based upon
          the respective product's manufacturer's policies.

     .    Any shortages of product must be reported to the servicing division
          within 24 hours of invoice date to be considered for credit.

12.  PRODUCT AND SHELF STICKERS: AmeriSource will make individual product
stickers available to each store providing the proper information. AmeriSource
will provide shelf stickers and other shelf sticker related supplies to
pharmacies. Upon notification of bid award AmeriSource will distribute an
account opening packet which will include, but not be limited to, Telxon OE
unit, divisional contact sheet including all appropriated phone numbers,
addresses, emergency procedures, etc.

13.  FUTURE DISCUSSIONS-PAYMENT TERMS: Pharmacy shall pay by electronic funds
transfer (EFT) on * terms. Payment for each day's purchases shall be due and
payable * later, on a daily basis. Pharmacy shall receive a credit limit of *.

As Pharmacy continues to restructure its financial status, AmeriSource would be
open to a review of all terms of the Agreement, including, but not limited to,
payment terms. No change shall be effective until mutually agreed to in writing
by both parties.

14.  COST REPORTING: Pharmacy understands that rebates and discounts may need to
be reported as a part of its cost for purposes of federal and/or state
healthcare programs, including for purposes of 42 CFR 1001.952(h).

*Language has been intentionally omitted and filed seperately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.

                                       4
<PAGE>

15. PROPRIETARY SOFTWARE: AmeriSource grants to Pharmacy a non-exclusive
non-transferable license the ("License") to use the AmeriSource's proprietary
software (the "Software"), including without limitation the ECHO system and the
iECHO software, solely for the purposes of this Agreement at the Pharmacy
locations, in accordance with, and subject to, the terms and conditions of this
Agreement.

AmeriSource will provide the Software in the form of a CD-ROM, diskettes or
other media containing machine-readable object-code. AmeriSource may provide the
Software to Pharmacy on more than one medium. Regardless of the type or size of
the medium that Pharmacy receives, Pharmacy only use the medium appropriate for
its designated computer or network server.

AmeriSource or its suppliers retain all rights to the Software and related
documentation (including, but not limited to any images, "applets," photographs,
animations, video, audio, music and text incorporated therein, copyright, trade
secrets and other proprietary rights), which are not expressly granted, to
Pharmacy under this Agreement. All updates, enhancements, modifications and
additions to the software developed by AmeriSource or any other entity will be
the sole and exclusive property of AmeriSource.

Pharmacy agrees that it and its locations will not copy, duplicate, or prepare
derivative works from any element of the Software except that (i) Pharmacy may
make one (1) back-tip or archival copy of the Software at each Pharmacy location
as permitted by the copyright law of the United States; and/or (ii) install the
Software on a single hard disk at each Pharmacy location. Pharmacy shall not
remove any copyright or proprietary rights notice included in or on any Program
element, and shall reproduce all such notices in or on all copies made by
Pharmacy.

16. ECHO HARDWARE: The following hardware (the "Hardware") will be provided by
AmeriSource to each Pharmacy location, at additional cost, upon written request
by Pharmacy:

500 MHz Processor
6.4/13 GB Hard Drive
64 MB Ram
Color Monitor (15 inch)
56K Baud Modem
Windows 98

17. PROPRIETARY SOFTWARE/HARDWARE LIMITED WARRANTY: AmeriSource warrants that
the Software, if operated as directed, will perform substantially in accordance
with its documentation for a period of ninety (90) days from the date of
installation at each Pharmacy location. AmeriSource also warrants that the

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Hardware provided by AmeriSource, and the diskettes, CD-ROMs, or other media on
which the Software is provided, will be free from defects and workmanship under
normal use for a period of ninety (90) days from the date of installation at
Pharmacy. Other than as set forth in this paragraph, (a) AmeriSource makes no
warranty, express or implied, including without limitation, any implied warranty
of merchantability or fitness for a particular purpose, and (b) no oral or
written information provided by AmeriSource or its employees, agents or
representatives will create any representation or warranty.

AmeriSource's entire liability, and Pharmacy's exclusive remedy, for breach of
the warranties contained in this paragraph shall be, at AmeriSource's option, to
(i) repair or replace the Software so that it performs substantially in
accordance with its documentation; (ii) advise Pharmacy how to achieve
substantially the same functionality with the Software as described in any
documentation through a procedure different from that set forth in any
documentation, or (iii) replace defective media returned within ninety (90) days
of the date that Pharmacy receives such defective media. Any replacement
software shall not serve to extend the original ninety (90) day warranty.

18. INDEMNIFICATION: Each party agrees to indemnify, defend and hold harmless
the other party, its subsidiaries, officers, directors and successors and
assigns from and against all claims, losses, damages, liabilities and expenses
(including but not limited to attorneys' fees and court costs) arising as a
result of negligence, illegality or wrongdoing of any kind alleged or actual on
the part of such party.

19. LIMITATION OF LIABILITY: In all cases, each party's liability shall be
limited to actual damages proven by the other party, except as specifically
provided for otherwise in this Agreement. In no event shall a party be entitled
to indirect, special, consequential or punitive damages.

20. INSOLVENCY: In the event of any proceedings, voluntary or involuntary, in
bankruptcy or insolvency by or against either party, the inability of either
party to meet its debts as they become due, or in the event of the appointment,
with or without either party's consent, of an assignee for the benefit of
creditors or of a receiver, then other party shall be entitled, at its sole
option, to immediately terminate this Agreement without notice.

21. INSURANCE: During the Term of this Agreement, Pharmacy shall maintain
professional liability insurance in the amounts of not less than one million
dollars ($1,000,000.00) per incident and five million dollars ($5,000,000.00) in
the aggregate. AmeriSource shall be named on Pharmacy's policy as an additional
insured.

22. ENTIRE AGREEMENT: This Agreement supersedes all prior agreements between the
parties with regard to the subject matter hereof and there are no other

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understandings or agreements between them. No representations, warranties, or
promises pertaining to this Agreement have been made by, or shall be binding on,
any of the parties, except as expressly stated in this Agreement. This Agreement
may not be changed orally, but only by an agreement signed by the party against
whom enforcement of any such change is sought.

23. SEVERABILITY: If any provision or clause of this Agreement conflicts with
applicable law, such conflict shall not affect other provisions of the Agreement
if the provisions can be given effect without the conflicting provision. To this
end the provisions of this Agreement are declared to be severable. If any
provision of this Agreement is held to be invalid or unenforceable for any
reason whatsoever, including any conflict with applicable law, the remaining
provisions shall remain valid and unimpaired, and shall continue in full force
and effect.

24. WAIVERS: Failure of either party to enforce strict performance of any
obligations under this Agreement shall not constitute a waiver of such party's
right to thereafter enforce every term and condition hereof.

25. FORCE MAJEURE: If either party to this Agreement is delayed in or prevented
from performing any of its obligations hereunder (other than payment
obligations) by reason of labor problems, inability to procure materials, power
failure, restrictive government laws or regulations, acts of God or other
similar events beyond the reasonable control of such party, then such
performance shall be excused for the period of the delay.

26. NOTICES: All notices required to be given hereunder shall be made in writing
and shall be deemed sufficiently given if delivered by certified or registered
mail return receipt requested, overnight or same-day delivery (such as Federal
Express or special courier), at the addresses set forth. The notice shall be
effective on the date indicated on the return receipt in the case of certified
or registered mail, effective on the date following the date of mailing in the
case of overnight delivery and effective the date of delivery in the case of
same-day delivery at the addresses below or at such addresses as may
subsequently be provided in writing to the respective parties:

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Jeff Greer                                          Michael Loy
Vice President, National Accounts                   Chief Financial Officer
AmeriSource Corporation                             Horizon Pharmacies, Inc.
1300 Morris Drive, Suite 100                        531 W. Main St., Suite 100
Chesterbrook, PA 19087-5594                         Denison, TX 75020

With a copy to:                                     With a copy to:
General Counsel                                     William W. Meier, III
AmeriSource Corporation                             Hallett & Perrin, P.C.
1300 Morris Drive, Suite 100                        717 N. Harwood Street
Chesterbrook, PA 19087-5594                         Suite 1400
                                                    Dallas, TX 75201

27. GOVERNING LAW: The construction, application and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.

28. ASSIGNABILITY: This Agreement may not be transferred, assigned, pledged or
hypothecated by either party hereto without the prior written consent of the
other party to this Agreement.

29. CAPTIONS: The captions, headings and arrangements used in this Agreement are
for convenience only and do not in any way affect, limit or amplify the
provisions hereof

30. COUNTERPARTS: This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original for all purposes and all of which shall be
deemed collectively to be one agreement.

                                       8
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IN WITNESS WHEREOF, the Parties, intending to be bound by the terms of this
Agreement and having the authority to bind their respective corporations, hereby
execute this Agreement by placing their signatures below:

AMERISOURCE CORPORATION                       HORIZON PHARMACIES, INC.

By: /s/ Jeff Greer                            By: /s/ P. Doug Stone
    -------------------------------------         ------------------------------

Name: Jeff Greer                               Name: P. Doug Stone

Title: Vice President National Accounts        Title: Chief Operating Officer

Date: April 4, 2001                            Date: April 4, 2001
      -----------------------------------            ---------------------------

                                               By: /s/ Michael Loy
                                                   -----------------------------

                                               Name: Michael Loy

                                               Title:  Chief Financial Officer

                                               Date: April 4, 2001
                                                     ---------------------------

                                       9<PAGE>

                                                                   Exhibit 10.22

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT.

                                                                     $620,000.00

DATE OF ISSUANCE:  December 14, 2000

                          EDGE TECHNOLOGY GROUP, INC.

                               Convertible Note

     EDGE TECHNOLOGY GROUP, INC., a Delaware corporation (together with its
successors, the "Corporation"), for value received hereby promises to pay to:

                          CATALYST MASTER FUND, L.P.

(the "Holder") and registered assigns, the principal sum of Six Hundred Twenty
Thousand Dollars ($620,000.00) ("Total Principal Amount"), on June 30, 2001 (the
"Maturity Date") and to pay interest at such times and on such terms and
conditions as specified herein.

1.   CERTAIN DEFINITIONS.

     The following terms as used herein shall have the following meanings:

     "Asset Sale" means any sale, transfer or other disposition (or series of
related sales, transfers or dispositions) of the assets of the Corporation or
any Subsidiary of the Corporation (including any sales or transfers of equity
interests of other entities owned by the Corporation or any Subsidiary of the
Corporation which equity interests do not constitute Subsidiaries of the
Corporation), or sales of capital stock of any Subsidiary of the Corporation,
including any disposition by means of a merger, consolidation or similar
transaction other than a disposition of property or assets at fair market value
in the ordinary course of business.

     "Change of Control" means (i) when any person or group of persons (within
the meaning of Sections 13 and 14 of the Securities and Exchange Act of 1934
(the "Exchange Act") and the rules and regulations of the Securities and
Exchange Commission (the "Commission") relating to such Sections) other than the
stockholders of the Corporation existing as of the date of this Convertible Note
shall have acquired beneficial ownership (within the meaning of Rules

CONVERTIBLE NOTES - Page 1
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13d-3 and 13d-5 promulgated by the Commission pursuant to the Exchange Act) of
50.1% or more of the outstanding shares of Common Stock of the Corporation after
the date hereof, or (ii) when individuals constituting the Board of Directors of
the Corporation on the date hereof (together with any new Directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Corporation was approved by a vote of at least 66% of the
Directors then still in office whose election or nomination for election was
previously so approved), cease for any reason to constitute at least two-thirds
of the Board of Directors of the Corporation then in office.

     "Closing Bid Price" shall mean for any security as of any date, the lowest
closing bid price as reported by Bloomberg, L.P. ("Bloomberg") on the principal
securities exchange or trading market where such security is listed or traded
or, if the foregoing does not apply, the lowest closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no lowest trading price is
reported for such security by Bloomberg, then the average of the bid prices of
any market-makers for such securities as reported in the "pink sheets" by the
National Quotation Bureau, Inc. (as applicable, the "Principal Market").  If the
lowest closing bid price cannot be calculated for such security on such date on
any of the foregoing bases, the lowest closing bid price of such security on
such date shall be the fair market value as mutually determined by the Holder
and the Corporation for which the calculation of the closing bid price requires,
and in the absence of such mutual determination, as determined by the Board of
Directors of the Corporation in good faith.

     "Common Stock" means the common stock of the Corporation, par value $.01
per share.

     "Financing" means any public or private financing consummated through the
issuance of debt or equity securities (including Derivative Securities, as such
term is defined in Section 4.3(b) below) of the Corporation or any Subsidiary of
the Corporation.

     "Person" means an individual, partnership, joint venture, corporation,
trust, Tribunal, unincorporated organization, and government, or any department,
agency, or political subdivision thereof.

     "Sale Event" means one of the following: (i) the occurrence of a Change of
Control of the Corporation, (ii) a transfer of all or substantially all of the
assets of the Corporation to any person or entity in a single transaction or
series of related transactions, or (iii) a consolidation or merger of the
Corporation with or into another person or entity in which the Corporation is
not the surviving entity or survives solely as a wholly-owned subsidiary of
another entity (other than a merger which is effected solely to change the
jurisdiction of incorporation of the Corporation and results in a
reclassification, conversion or exchange of outstanding shares of Common Stock
solely into shares of Common Stock).

     "Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate of which (or in which) 50% or more of:

          (a)  the outstanding capital stock having voting power to elect a
     majority of the board of directors of such corporation (irrespective of
     whether at the time capital stock of

CONVERTIBLE NOTES - Page 2
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     any other class or classes of such corporation shall or might have voting
     power upon the occurrence of any contingency),

          (b)  the interest in the capital or profits of such partnership or
     joint venture, or

          (c)  the beneficial interest of such trust or estate,

is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries.

     "Trading Day" shall mean any business day in which at least 100 shares of
Common Stock are traded on the Principal Market, or any business day in which
any other automated quotation system or exchange on which the Common Stock is
then traded is open for trading for at least four (4) hours, as applicable.

2.   INTEREST AND PRINCIPAL.

     2.1.      Interest Rate, Payment of Interest and Calculation. The
Corporation promises to pay interest in cash on the Total Principal Amount of
this Convertible Note ("Convertible Note") outstanding from time to time at the
rate of Eight Percent (8%) per annum (the "Interest Rate") or, if less, the
maximum rate permitted by applicable law. Past due amounts (including interest,
to the extent permitted by law) will also accrue interest at the Interest Rate
plus four percent (4%) per annum or, if less, the maximum rate permitted by
applicable law, and will be payable on demand. Interest on this Convertible Note
will be calculated on the basis of a 360-day year of twelve 30 day months. The
Corporation will pay interest on (i) the Maturity Date, (ii) each Conversion
Date (as hereafter defined), and (iii) the date the principal amount of this
Convertible Note shall be declared to be or shall automatically become due and
payable, on the principal sum hereof outstanding, until payment in full of the
principal sum hereof has been made.

     2.2.      Payment of Principal.
               (a)  The Corporation shall repay the unpaid principal balance of
     this Convertible Note on the Maturity Date.

               (b)  The Corporation shall be obligated to prepay all or a
     portion of this Convertible Note from 100% of the net cash proceeds
     available from any consummated Asset Sale or Financing.

               (c)  The Corporation may voluntarily prepay this Convertible Note
     prior to the Maturity Date upon twenty (20) days prior notice to the
     Holder, whereupon the Holder shall have the right to convert this
     Convertible Note pursuant to Article 4 hereof.

     2.3.      Method of Payment.  The Corporation will pay in cash all sums
becoming due on this Convertible Note for principal, interest or otherwise by
wire transfer of immediately available funds to the Holder of this Convertible
Note in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and

CONVERTIBLE NOTES - Page 3
<PAGE>

private debts at the address specified for such purpose below the Holder's name
above, or by such other method or at such other address as such Holder shall
have from time to time specified to the Corporation in writing for such purpose,
without the presentation or surrender of this Convertible Note.

     2.4.      Collateral Security. Payment of the Convertible Note is secured
by the Security Agreement dated the date hereof between the Holder and the
Corporation (as the same may be amended or modified from time to time, the
"Security Agreement").

3.   REGISTRATION.

     3.1.      Record Ownership. The Corporation shall maintain a register of
the Holder of this Convertible Note (the "Register") showing its name and
address and the serial number and principal amount of Convertible Note issued to
or transferred of record by it from time to time. The Register may be maintained
in electronic, magnetic or other computerized form. The Corporation may treat
the Person named as the Holder in the Register as the sole owner of this
Convertible Note. The Holder (as properly noted in the Register) is the Person
exclusively entitled to receive payments on this Convertible Note, receive
notifications with respect to this Convertible Note, convert it into Common
Stock and otherwise exercise all of the rights and powers as the absolute owner
hereof.

     3.2.      Registration of Transfer. Transfers of this Convertible Note may
be registered on the Register. Transfers shall be registered when this
Convertible Note is presented to the Corporation with a request to register the
transfer hereof and the Convertible Note is accompanied by a written instrument
of transfer in form reasonably satisfactory to the Corporation, duly executed by
the Holder thereof or his attorney duly authorized in writing, reasonable
assurances are given that the endorsements are genuine and effective, and the
Corporation has received evidence reasonably satisfactory to it that such
transfer is rightful and in compliance with this Convertible Note and all
applicable laws, including state and Federal securities laws. When this
Convertible Note is presented for transfer and duly transferred hereunder, it
shall be canceled and a new Convertible Note showing the name of the transferee
as the record holder thereof shall be issued in lieu hereof. When this
Convertible Note is presented to the Corporation with a reasonable request to
exchange it for an equal principal amount of Convertible Notes of other
denominations, the Corporation shall make such exchange and shall cancel this
Convertible Note and issue in lieu thereof Convertible Notes having a total
principal amount equal to the outstanding principal amount of this Convertible
Note in the denominations requested by the Holder.

     3.3.      Worn and Lost Securities. If this Convertible Note becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Corporation or its agent may issue a new Convertible Note in lieu hereof upon
its surrender bearing a number not contemporaneously outstanding. Where the
Holder claims that the Convertible Note has been lost, destroyed or wrongfully
taken, the Corporation shall issue a new Convertible Note in place of the
original Convertible Note bearing a number not contemporaneously outstanding if
the Holder so requests by written notice to the Corporation actually received by
the Corporation before it is notified that the Convertible Note has been
acquired by a bona fide purchaser and the

CONVERTIBLE NOTES - Page 4
<PAGE>

Holder has delivered to the Corporation an indemnity bond in such amount and
issued by such surety as the Corporation deems reasonably satisfactory together
with an affidavit of the Holder setting forth the facts concerning such loss,
destruction or wrongful taking and such other information in such form with such
proof or verification as the Corporation may reasonably request.

4.   CONVERSION AT THE OPTION OF THE HOLDER

     4.1.
               (a)  Optional Conversion. At the option of the Holder and at any
     time or from time to time, all or any portion of the outstanding principal
     balance of this Convertible Note may be converted into that certain number
     of fully paid and nonassessable shares of Common Stock as is determined by
     dividing such applicable balance of this Convertible Note by the Conversion
     Price (the "Conversion Shares").

               (b)  Conversion Price. Subject to adjustment pursuant to Section
     4.3 below, the "Conversion Price" shall be One Dollar and Fifty Cents
     ($1.50) per share of Common Stock.

     4.2.      Conversion Procedures.

               (a)  The conversion of this Convertible Note will be deemed to
     have been effected as of the close of business on the date on which the
     Holder delivers a notice of conversion (including via telecopy) to the
     Corporation of the conversion of this Convertible Note (the "Conversion
     Date"). Within five (5) Business Days of the Conversion Date, the Holder
     shall surrender this Convertible Note at the principal office of the
     Corporation. On the Conversion Date, the rights of the Holder of this
     Convertible Note will cease and the Person or Persons in whose name or
     names any certificate or certificates for Conversion Shares are to be
     issued upon such conversion will be deemed to have become the holder or
     holders of record of the shares of Common Stock represented thereby.

               (b)  As soon as possible after a conversion has been effected
     (but in any event within five (5) Business Days), the Corporation will
     deliver to the converting Holder a certificate or certificates representing
     the number of shares of Common Stock issuable by reason of such conversion
     in such name or names and such denomination or denominations as the
     converting Holder has specified.

               (c)  The issuance of certificates for shares of Common Stock upon
     conversion of this Convertible Note will be made without charge to the
     Holder for any issuance tax in respect thereof or other cost incurred by
     the Corporation in connection with such conversion and the related issuance
     of shares of Common Stock. Upon conversion of this Convertible Note, the
     Corporation will take all such actions as are necessary in order to insure
     that the Common Stock issuable with respect to such conversion will be
     validly issued, fully paid and nonassessable.

CONVERTIBLE NOTES - Page 5
<PAGE>

               (d)  If any fractional interest in a share of Common Stock would,
     except for the provisions of this subparagraph (d), be deliverable upon any
     conversion of this Convertible Note, the Corporation, in lieu of delivering
     the fractional share therefor, will pay an amount to the Holder thereof
     equal to the fair market value of such fractional interest as of the date
     of conversion.

               (e)  All accrued unpaid interest on this Convertible Note shall
     be payable upon conversion in cash; provided, however, at the sole option
                                         --------  -------
     of the Holder, such accrued unpaid interest may be added to principal and
     converted into Conversion Shares in connection with any conversion of this
     Convertible Note.

     4.3.      Adjustments. The Conversion Price shall be subject to adjustment
from time to time as follows:

               (a)  Share Reorganization. If and whenever the Corporation shall:

                    (i)    subdivide the outstanding shares of Common Stock into
     a greater number of shares;

                    (ii)   consolidate the outstanding shares of Common Stock
     into a smaller number of shares;

                    (iii)  issue Common Stock or securities convertible into or
     exchangeable for shares of Common Stock as a stock dividend to all or
     substantially all the holders of Common Stock; or

                    (iv)   make a distribution on the outstanding Common Stock
     to all or substantially all the holders of Common Stock payable in Common
     Stock or securities convertible into or exchangeable for Common Stock;

(any of such events being herein called a "Share Reorganization"), then in each
such case the Conversion Price shall be adjusted, effective immediately after
the record date at which the holders of Common Stock are determined for the
purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable
Conversion Price in effect on such record or effective date, as the case may be,
by a fraction of which:

                    (I)    the numerator shall be the number of shares of Common
     Stock outstanding on such record or effective date (without giving effect
     to the transaction); and

                    (II)   the denominator shall be the number of shares of
     Common Stock outstanding after giving effect to such Share Reorganization,
     including, in the case of a distribution of securities convertible into or
     exchangeable for shares of Common Stock, the number of shares of Common
     Stock that would have been outstanding if such securities had been
     converted into or exchanged for Common Stock on such record or effective
     date.

CONVERTIBLE NOTES - Page 6
<PAGE>

          (b)       Rights Offering. If and whenever the Corporation shall issue
     to all or substantially all the holders of Common Stock, rights, options or
     warrants under which such holders are entitled, during a period expiring
     not more than forty-five (45) days after the record date of such issue, to
     subscribe for or purchase Common Stock (or securities convertible into or
     exchangeable or exercisable for equity securities (collectively, the
     "Derivative Securities")), at a price per share (or, in the case of
     Derivative Securities, at an exchange or conversion price per share at the
     date of issue of such securities) of less than 95% of the Market Price of
     the Common Stock on such record date (any such event being herein called a
     "Rights Offering"), then in each such case the Conversion Price shall be
     adjusted, effective immediately after the record date at which holders of
     Common Stock are determined for the purposes of the Rights Offering, by
     multiplying the Conversion Price in effect on such record date by a
     fraction of which:

          (i)       the numerator shall be the sum of:

                    (I)    the number of shares of Common Stock outstanding on
     such record date; and

                    (II)   a number obtained by dividing:

                           (A)  either,

                                (x)   the product of the total number of shares
     of Common Stock so offered for subscription or purchase and the price at
     which such shares are so offered, or

                                (y)   the product of the maximum number of
     shares of Common Stock into or for which the convertible or exchangeable
     securities so offered for subscription or purchase may be converted or
     exchanged and the conversion or exchange price of such securities,

          or, as the case may be, by

                           (B)  the Market Price of the Common Stock on such
     record date; and

          (ii)   the denominator shall be the sum of:

                    (I)    the number of shares of Common Stock outstanding on
     such record date; and

                    (II)   the number of shares of Common Stock so offered for
     subscription or purchase (or, in the case of Derivative Securities,  the
     maximum number of shares of Common Stock for or into which the securities
     so offered for subscription or purchase may be converted or exchanged).

To the extent that such rights, options or warrants are not exercised prior to
the expiry time

CONVERTIBLE NOTES - Page 7
<PAGE>

thereof, the Conversion Price shall be readjusted effective immediately after
such expiry time to the Conversion Price which would then have been in effect
upon the number of shares of Common Stock (or Derivative Securities) actually
delivered upon the exercise of such rights, options or warrants. For purposes of
this Convertible Note, "Market Price" shall mean the lowest Closing Bid Price of
the Common Stock during the twenty (20) Trading Day period ending one (1)
Trading Day prior to the applicable date.

          (c)  Special Distribution. If and whenever the Corporation shall issue
     or distribute to all or substantially all the holders of Common Stock:

               (i)    shares of the Corporation of any class, other than Common
     Stock;

               (ii)   rights, options or warrants; or

               (iii)  any other assets (excluding cash dividends and equivalent
     dividends in shares paid in lieu of cash dividends in the ordinary course);

and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the  Conversion Price shall be adjusted,
effective immediately after the record date at which the holders of Common Stock
are determined for purposes of the Special Distribution, by multiplying the
Conversion Price in effect on such record date by a fraction of which:

                      (I)   the numerator shall be the difference between:

                                (x)   the product of the number of shares of
     Common Stock outstanding on such record date and the Market Price of the
     Common Stock on such date; and

                                (y)   the fair market value, as determined by
     the Directors (whose determination shall be conclusive), to the holders of
     Common Stock of the shares, rights, options, warrants, evidences of
     indebtedness or other assets issued or distributed in the Special
     Distribution (net of any consideration paid therefor by the holders of
     Common Stock), and

                      (II)  the denominator shall be the product of the number
     of shares of Common Stock outstanding on such record date and the Market
     Price of the Common Stock on such date.

               (d)    Capital Reorganization. If and whenever there shall occur:

                      (i)   a reclassification or redesignation of the shares of
     Common Stock or any change of the shares of Common Stock into other shares,
     other than in a Share Reorganization;

CONVERTIBLE NOTES - Page 8
<PAGE>

                      (ii)  a consolidation or merger of the Corporation with,
     or into another entity; or

                      (iii) the merger of the Corporation with another entity in
     which the Corporation survives as a wholly-owned subsidiary of another
     entity; or

                      (iv)  the transfer of all or substantially all of the
     assets of the Corporation to another entity;

(any such event being herein called a "Capital Reorganization"), then in each
such case the Holder who exercises the right to convert this Convertible Note
after the effective date of such Capital Reorganization shall be entitled to
receive and shall accept, upon the exercise of such right, in lieu of the number
of shares of Common Stock to which such Holder was theretofore entitled upon the
exercise of the conversion privilege, the aggregate number of shares or other
securities or property of the Corporation or of the entity resulting from such
Capital Reorganization that such Holder would have been entitled to receive as a
result of such Capital Reorganization if, on the effective date thereof, such
Holder had been the holder of the number of shares of Common Stock to which such
Holder was theretofore entitled upon conversion of this Convertible Note;
provided, however, that no such Capital Reorganization shall be consummated
-----------------
unless all necessary steps shall have been taken so that such Holder shall
thereafter be entitled to receive such number of shares or other securities of
the Corporation or of the entity resulting from such Capital Reorganization,
subject to adjustment thereafter in accordance with provisions the same, as
nearly as may be possible, as those contained above.

          (e)    Purchase Price Adjustments. In case at any time and from time
     to time the Corporation shall issue any shares of Common Stock or
     Derivative Securities (the number of shares so issued, or issuable upon
     conversion or exercise of such Derivative Securities, as applicable, being
     referred to as the "Additional Shares of Common Stock") for consideration
     less than the Conversion Price at the date of issuance of such shares of
     Common Stock or Derivative Securities, as applicable, in each such case the
     Conversion Price shall, concurrently with such issuance, be reduced to a
     price determined by multiplying the Conversion Price immediately prior to
     such event by a fraction: (I) the numerator of which shall be the sum of
     (x) the number of shares of Common Stock outstanding immediately prior to
     the issuance of such Additional Shares of Common Stock plus (y) the number
     of shares of Common Stock that the aggregate consideration received by the
     Corporation for the total number of such Additional Shares of Common Stock
     so issued would purchase at the Conversion Price and (II) the denominator
     of which shall be the sum of (x) the number of shares of Common Stock
     outstanding immediately prior to the issuance of Additional Shares of
     Common Stock plus (y) the number of such Additional Shares of Common Stock
     so issued or sold.

          (f)    Adjustment Rules. The following rules and procedures shall be
     applicable to adjustments made in this Article 4:

                 (i)    no adjustment in the Conversion Price shall be required
     unless such adjustment would result in a change of at least 1% in the
     Conversion Price then in

CONVERTIBLE NOTES - Page 9
<PAGE>

     effect; provided, however, that any adjustments which, but for the
             -----------------
     provisions of this clause would otherwise have been required to be made,
     shall be carried forward and taken into account in any subsequent
     adjustment;

                 (ii)   if any event occurs of the type contemplated by the
     adjustment provisions of this Article 4 but not expressly provided for by
     such provisions, the Corporation will give notice of such event as provided
     herein, and the Corporation's Board of Directors will make an appropriate
     adjustment in the Conversion Price so that the rights of the Holder shall
     not be diminished by such event; and

                 (iii)  if a dispute shall at any time arise with respect to any
     adjustment of the Conversion Price, such dispute shall be conclusively
     determined by the auditors of the Corporation or, if they are unable or
     unwilling to act, by a firm of independent certified public accountants
     selected by the Board of Directors of the Corporation and any such
     determination shall be binding upon the Corporation and the Holder.

          (g)    Certificate as to Adjustment. The Corporation shall from time
     to time promptly after the occurrence of any event which requires an
     adjustment in the Conversion Price deliver to the Holder a certificate
     specifying the nature of the event requiring the adjustment, the amount of
     the adjustment necessitated thereby, the Conversion Price after giving
     effect to such adjustment and setting forth, in reasonable detail, the
     method of calculation and the facts upon which such calculation is based.

          (h)    Notice to Holders. If the Corporation shall fix a record date
     for:

                 (i)    any Share Reorganization (other than the subdivision of
     outstanding Common Stock into a greater number of shares or the
     consolidation of outstanding Common Stock into a smaller number of shares),

                 (ii)   any Rights Offering,

                 (iii)  any Special Distribution,

                 (iv)   any Capital Reorganization (other than a
     reclassification or redesignation of the Common Stock into other shares),

                 (v)    any cash dividend, or

                 (vi)   any Sale Event; then

the Corporation shall, not less than ten (10) days prior to such record date or,
if no record date is fixed, prior to the effective date of such event, give to
the Holder notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.

     4.4.      Reservation of Shares.  The Corporation hereby represents and
warrants that (i) the Board of Directors of the Corporation has duly authorized
the issuance of this Convertible

CONVERTIBLE NOTES - Page 10
<PAGE>

Note by the Corporation and the Corporation has reserved for issuance from the
authorized but unissued Common Stock of the Corporation a sufficient number of
shares of Common Stock to provide for conversion in full of this Convertible
Note (giving effect to the option of the Holder to accept payment of all accrued
and unpaid interest as shares of Common Stock) into Conversion Shares, and (ii)
Holder shall receive upon conversion in full of this Convertible Note duly
authorized and unissued shares of Common Stock, which shall be fully paid, non-
assessable and issued free and clear of all liens, claims and encumbrances.

5.   EVENTS OF DEFAULT.

     5.1.      Events of Default. Any one or more of the following shall
constitute an Event of Default ("Event of Default") hereunder:
                                 ----------------

               (a)  failure of the Corporation to pay any installment of
     principal of or interest on this Convertible Note or on any other
     indebtedness of the Corporation to Holder when due; or

               (b)  failure of the Corporation to comply with any covenant,
     agreement or other obligation set forth in the Security Agreement; or

               (c)  the bankruptcy or insolvency of, the assignment for the
     benefit of creditors by, or the appointment of a receiver for any of the
     property of, or the liquidation, termination, dissolution or death or legal
     incapacity of, the Corporation or any other party liable for the payment of
     this Convertible Note, whether as maker, endorser, guarantor, surety or
     otherwise.

If any Event of Default shall have occurred and be continuing, then, and in
every such occurrence, the Holder may, by notice to the Corporation, declare
this Convertible Note to be, and the Convertible Note shall thereon become,
immediately due and payable at the Repayment Price (as hereafter defined);
provided that in the case of any of the Events of Default specified in Section
--------
5.1(c) above, then, without any notice to the Corporation or any other act by
Holder, the entire amount of the Convertible Note shall become immediately due
and payable at the Repayment Price; provided further, if any Event of Default
                                    ----------------
has occurred and is continuing, and irrespective of whether this Convertible
Note has been declared immediately due and payable hereunder, the Holder may
proceed to protect and enforce the rights of such Holder by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein, or for an injunction against a
violation of any of the terms hereof, or in aid of the exercise of any power
granted hereby or by law or otherwise. The Repayment Price shall mean the sum of
(i) the principal amount of, and all accrued and unpaid interest on, the
Convertible Note outstanding and (ii) if a positive number, the Premium Amount,
where Premium Amount means the difference, if a positive number, between (A) the
product of (x) the number of shares of Common Stock into which the Convertible
Note is then convertible at the then current Conversion Price and (y) the
average Closing Bid Price for the five (5) Trading Days through and including
the Trading Day immediately preceding the applicable date the Convertible Notes
are repaid and (B) the principal amount of, and accrued and unpaid interest on,
the Convertible Note outstanding.

CONVERTIBLE NOTES - Page 11
<PAGE>

     5.2.      Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Holder is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by this Convertible Note or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by the Holder.

     5.3.      Payment of Additional Amounts.

               (a)  Any and all payments by the Corporation hereunder to the
     Holder and each "qualified assignee" thereof shall be made free and clear
     of and without deduction or withholding for any and all present or future
     taxes, levies, imposts, deductions, charges or withholdings, and all
     liabilities with respect thereto (all such taxes, levies, imposts,
     deductions, charges, withholdings and liabilities being hereinafter
     referred to as "Taxes") unless such Taxes are required by law or the
     administration thereof to be deducted or withheld. If the Corporation shall
     be required by law or the administration thereof to deduct or withhold any
     Taxes from or in respect of any sum payable with respect to the Convertible
     Note (i) the sum payable shall be increased as may be necessary so that
     after making all required deductions or withholdings (including deductions
     or withholdings applicable to additional amounts paid under this Paragraph)
     such Holder receives an amount equal to the sum it would have received if
     no such deduction or withholding had been made; (ii) the Corporation shall
     make such deductions or withholdings; and (iii) the Corporation shall
     forthwith pay the full amount deducted or withheld to the relevant taxation
     or other authority in accordance with applicable law. A "qualified
     assignee" of the Holder is a person that is organized under the laws of (I)
     the United States or (II) any jurisdiction other than the United States or
     any political subdivision thereof and that (y) represents and warrants to
     the Corporation that payments of the Corporation to such assignee under
     applicable law would not be subject to any Taxes and (z) from time to time,
     as and when requested by the Corporation, executes and delivers to the
     Corporation and the Internal Revenue Service forms, and provides the
     Corporation with any information, necessary to establish such assignee's
     continued exemption from Taxes under applicable law.

               (b)  The Corporation shall forthwith pay any present or future
     stamp or documentary taxes or any other excise or property taxes, charges
     or similar levies (all such taxes, charges and levies hereinafter referred
     to as "Other Taxes") which arise from any payment made under this
     Convertible Note or the transactions contemplated hereby.

               (c)  The Corporation shall indemnify the Holder or its qualified
     assignee, for the full amount of Taxes or Other Taxes (including, without
     limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
     payable under this Paragraph) paid by the Holder or its qualified assignee,
     and any liability (including penalties, interest and expenses) arising
     therefrom or with respect thereto, whether or not such Taxes or Other Taxes
     were correctly or legally asserted. Payment under this indemnification
     shall be

CONVERTIBLE NOTES - Page 12
<PAGE>

     made within thirty (30) days from the date such Holder or assignee makes
     written demand therefor. A certificate as to the amount of such Taxes or
     Other Taxes submitted to the Corporation by such Holder or its assignee
     shall be conclusive evidence of the amount due from the Corporation to such
     party.

               (d)  Within thirty (30) days after the date of any payment of
     Taxes, the Corporation will furnish to the Holder the original or a
     certified copy of a receipt evidencing payment thereof.

     5.4.      Modification of Convertible Note. This Convertible Note may be
modified with the written consent of the Holder and the Corporation.

     5.5.      Notices. Any notice or communication to the Corporation shall be
duly given if in writing and delivered in the manner and at the addresses
specified in the Security Agreement.

     5.6.      Successors. All agreements of the Corporation in this Convertible
Note shall bind its successors.

     5.7.      Severability. In case any provision in this Convertible Note
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.

     5.8.      Representations and Warranties of Original Holder. The original
Holder of this Convertible Note represents and warrants to the Corporation as
follows:

               (a)  The Holder is an "accredited investor" within the meaning of
     Rule 501(a) promulgated under the Securities Act and this Convertible Note
     is being acquired for its own account and, as of the date hereof, not with
     a view toward any distribution thereof except in compliance with applicable
     United States federal and state securities laws.

               (b)  The Holder understands that neither the Convertible Note nor
     the shares of Common Stock issuable upon conversion hereof, have been
     registered under the Securities Act of 1933, as amended, and, accordingly,
     such securities may not be transferred or sold except in compliance with
     the terms of this Convertible Note or pursuant to an exemption from the
     registration requirements of applicable United States federal and state
     securities laws.

     5.9.      Miscellaneous. This Convertible Note shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be governed by and construed in accordance with the laws of said State. The
parties hereto, including all guarantors or endorsers, hereby waive presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Convertible Note,
except as specifically provided herein, and assent to extensions of the time of
payment, or forbearance or other indulgence without notice. The Corporation
hereby irrevocably waives

CONVERTIBLE NOTES - Page 13
<PAGE>

any and all right to trial by jury in any legal proceeding arising out of or
relating to this Convertible Note.

     The Holder by acceptance of this Convertible Note agrees to be bound by the
provisions of this Convertible Note which are expressly binding on such Holder.

                           [Signature Page Follows]

CONVERTIBLE NOTES - Page 14
<PAGE>

     IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly
executed.

Dated:  December 14, 2000.

                              EDGE TECHNOLOGY GROUP, INC.

                              By:    /s/ Pierre Koshakji
                                    ------------------------------------------

                              Name:  Pierre Koshakji
                                    ------------------------------------------

                              Title: President
                                    ------------------------------------------
<PAGE>

                               SECURITY AGREEMENT
                               ------------------

     THIS SECURITY AGREEMENT (the "Agreement") dated as of December 14, 2000
                                   ---------
between Edge Technology Group, Inc., a Delaware corporation (the "Debtor"), and
Catalyst Master Fund, L.P. (the "Secured Party").
                                 -------------

                               R E C I T A L S:
                               ---------------

     WHEREAS, the Secured Party has as of the date hereof made a $620,000 loan
(the "Loan") to the Debtor and the Debtor has executed and delivered to Secured
      ----
Party its Convertible Note dated the date hereof in the original principal
amount of $620,000 (as the same may be amended, renewed, extended, restated,
replaced, substituted, supplemented, or otherwise modified from time to time,
the "Note") to evidence the Loan; and
     ----

     WHEREAS, execution and delivery of this Agreement is a condition to the
Secured Party making the Loan;

     NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the adequacy, receipt, and sufficiency of which are
hereby acknowledged, and in order to induce the Secured Party to make the Loan,
the parties hereto hereby agree as follows:

                                   ARTICLE I

                                  Definitions
                                  -----------

     Section 1.01.  Definitions.  As used in this Agreement, the following terms
                    -----------
have the following meanings:

     "Account" means any "account," as such term is defined in Article or
      -------
Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor and, in any
event, shall include, without limitation, each of the following, whether now
owned or hereafter acquired by the Debtor: (a) all rights of the Debtor to
payment for goods sold or leased or services rendered, whether or not earned by
performance, (b) all accounts receivable of the Debtor, (c) all rights of the
Debtor to receive any payment of money or other form of consideration, (d) all
security pledged, assigned, or granted to or held by the Debtor to secure any of
the foregoing, (e) all guaranties of, or indemnifications with respect to, any
of the foregoing, and (f) all rights of the Debtor as an unpaid seller of goods
or services, including, but not limited to, all rights of stoppage in transit,
replevin, reclamation and resale.

     "Borrower" means the Debtor.
      --------

     "Broker" means any "broker," as such term is defined in Article or Chapter
      ------
8 of the UCC, and in any event shall include, but not be limited to, any Person
defined as a broker or dealer under the federal securities laws, but without
excluding a bank acting in that capacity.

SECURITY AGREEMENT - Page 1
------------------
<PAGE>

     "Chattel Paper" means any "chattel paper," as such term is defined in
      -------------
Article or Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor.

     "Clearing Corporation" means any "clearing corporation," as such term is
      --------------------
defined in Article or Chapter 8 of the UCC, and in any event shall include, but
not be limited to, any (a) Person that is registered as a "clearing agency"
under the federal securities laws, (b) federal reserve bank, or (c) other Person
that provides clearance or settlement services with respect to Financial Assets
that would require it to register as a clearing agency under the federal
securities laws but for an exclusion or exemption from the registration
requirement, if its activities as a clearing corporation, including promulgation
of rules, are subject to regulation by a federal or state governmental
authority.

     "Collateral" has the meaning specified in Section 2.01 of this Agreement.
      ----------                               ------------

     "Commodity Account" means any commodity account, now owned or hereafter
      -----------------
acquired by the Debtor, including, without limitation, all accounts maintained
by a Commodity Intermediary in which a Commodity Contract is carried for the
Debtor.

     "Commodity Contract" means any commodity contract, and includes, without
      ------------------
limitation, a commodity futures contract, a commodity option, or other contract
that, in each case, is (a) traded on or subject to the rules of a board of trade
that has been designated as a contract market for such a contract pursuant to
the federal commodities laws, or (b) traded on a foreign commodity board of
trade, exchange, or market, and is carried on the books of a Commodity
Intermediary for a Commodity Customer.

     "Commodity Customer" means any Person for whom a Commodity Intermediary
      ------------------
carries a Commodity Contract on its books.

     "Commodity Intermediary" means (a) a Person who is registered as a futures
      ----------------------
commission merchant under the federal commodities laws, or (b) a Person who in
the ordinary course of its business provides clearance or settlement services
for a board of trade that has been designated as a contract market pursuant to
the federal commodities laws.

     "Copyright License" means any written agreement now or hereafter in
      -----------------
existence granting to the Debtor any right to use any Copyright including,
without limitation, the agreements identified on Schedule 3 hereto.
                                                 ----------

     "Copyrights" means all of the following: (a) all copyrights, works
      ----------
protectable by copyright, copyright registrations and copyright applications of
the Debtor, including, without limitation, those set forth on Schedule 3 hereto;
                                                              ----------
(b) all renewals, extensions and modifications thereof; (c) all income,
royalties, damages, profits and payments relating to or payable under any of the
foregoing; (d) the right to sue for past, present or future infringements of any
of the foregoing; (e) all other rights and benefits relating to any of the
foregoing throughout the world; and (f) all goodwill associated with and
symbolized by any of the foregoing; in each case, whether now owned or hereafter
acquired by the Debtor.

SECURITY AGREEMENT - Page 2
------------------
<PAGE>

     "Copyright Security Agreement" means the copyright security agreement to be
      ----------------------------
executed and delivered by the Debtor to the Secured Party, substantially in the
form of Exhibit A hereto, as such agreement may hereafter be amended,
        ---------
supplemented or otherwise modified from time to time.

     "Default" means any Event of Default, whether or not any requirement in
      -------
connection with such event for the giving of notice, lapse of time or happening
of any further condition has been satisfied.

     "Deposit Accounts" means any and all deposit accounts, bank accounts or
      ----------------
investment accounts now owned or hereafter acquired or opened by the Debtor, and
any account which is a replacement or substitute for any of such accounts,
together with all monies, Instruments and other property deposited therein and
all balances therein and all investments made with funds deposited therein or
otherwise held in connection therewith including, without limitation,
indebtedness (howsoever evidenced) and/or securities issued or guaranteed by the
government of the United States of America, certificates of deposit and all
contract rights, General Intangibles, contracts, Instruments, Investment
Property, Security Entitlements, Financial Assets, Commodity Contracts and other
Documents now or hereafter existing with respect thereto, including, but not
limited to, any and all renewals, extensions, reissuances and replacements and
substitutions therefor with all earnings, profits or other Proceeds therefrom in
the form of interest or otherwise.

     "Document" means any "document," as such term is defined in Article or
      --------
Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor, including,
without limitation, all documents of title and all receipts covering, evidencing
or representing goods now owned or hereafter acquired by the Debtor.

     "Entitlement Holder" means any Person identified in the records of a
      ------------------
Securities Intermediary as the Person having a Security Entitlement against the
Securities Intermediary.

     "Equipment" means any "equipment," as such term is defined in Article or
      ---------
Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor and, in any
event, shall include, without limitation, all machinery, equipment, furniture,
fixtures, trade fixtures, trailers, rolling stock, vessels, aircraft and
vehicles now owned or hereafter acquired by the Debtor and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.

     "Event of Default" shall have the meaning set forth in the Note.
      ----------------

     "Financial Asset" means any financial asset, and in any event shall
      ---------------
include, but not be limited to, any (a) Security, (b) obligation of a Person or
a share, participation or other interest in a Person or in property or an
enterprise of a Person, which is, or is of a type, dealt in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment, and (c) any property that is held by a
Securities Intermediary for another Person in a Securities Account if the
Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Article or Chapter 8 of the
UCC.

SECURITY AGREEMENT - Page 3
------------------
<PAGE>

     "General Intangibles" means any "general intangibles," as such term is
      -------------------
defined in Article or Chapter 9 of the UCC, now owned or hereafter acquired by
the Debtor and, in any event, shall include, without limitation, each of the
following, whether now owned or hereafter acquired by the Debtor: (a) all of the
Debtor's service marks, trade names, trade secrets, registrations, goodwill,
franchises, licenses, permits, proprietary information, customer lists, designs
and inventions; (b) all of the Debtor's books, records, data, plans, manuals,
computer software, computer tapes, computer disks, computer programs, source
codes, object codes and all rights of the Debtor to retrieve data and other
information from third parties; (c) all of the Debtor's contract rights,
partnership interests, joint venture interests, securities, deposit accounts,
investment accounts and certificates of deposit; (d) all rights of the Debtor to
payment under letters of credit and similar agreements; (e) all tax refunds and
tax refund claims of the Debtor; (f) all choses in action and causes of action
of the Debtor (whether arising in contract, tort or otherwise and whether or not
currently in litigation) and all judgments in favor of the Debtor; (g) all
rights and claims of the Debtor under warranties and indemnities; and (h) all
rights of the Debtor under any insurance, surety or similar contract or
arrangement.

     "Instrument" means any "instrument," as such term is defined in Article or
      ----------
Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor, and, in any
event, shall include all promissory notes, drafts, bills of exchange and trade
acceptances of the Debtor, whether now owned or hereafter acquired.

     "Intellectual Property" means the Copyrights, Copyright Licenses, Patents,
      ---------------------
Patent Licenses, Trademarks and Trademark Licenses.

     "Inventory" means any "inventory," as such term is defined in Article or
      ---------
Chapter 9 of the UCC, now owned or hereafter acquired by the Debtor, and, in any
event, shall include, without limitation, each of the following, whether now
owned or hereafter acquired by the Debtor: (a) all goods and other personal
property of the Debtor that are held for sale or lease or to be furnished under
any contract of service; (b) all raw materials, work-in-process, finished goods,
inventory, supplies and materials of the Debtor; (c) all wrapping, packaging,
advertising and shipping materials of the Debtor; (d) all goods that have been
returned to, repossessed by or stopped in transit by the Debtor; and (e) all
Documents evidencing any of the foregoing.

     "Investment Property" means any investment property, now owned or hereafter
      -------------------
acquired by the Debtor, and, in any event, shall include, without limitation,
each of the following, whether now owned or hereafter acquired by the Debtor:
(a) any Security, whether certificated or uncertificated; (b) any Security
Entitlement; (c) any Securities Account; (d) any Commodity Contract; and (e) any
Commodity Account.

     "Issuer" means any "issuer," as such term is defined in Article or Chapter
      ------
8 of the UCC, and in any event shall include, but not be limited to, any Person
that, with respect to an obligation on or a defense to a Security, (a) places or
authorizes the placing of its name on a Security Certificate, other than as
authenticating trustee, registrar, transfer agent, or the like, to evidence a
share, participation, or other interest in its property or in an enterprise, or
to evidence its duty to perform an obligation represented by the certificate;
(b) creates a share, participation,

SECURITY AGREEMENT - Page 4
------------------
<PAGE>

or other interest in its property or in an enterprise, or undertakes an
obligation, that is an Uncertificated Security; (c) directly or indirectly
creates a fractional interest in its rights or property, if the fractional
interest is represented by a Security Certificate; or (d) becomes responsible
for, or in the place of, another Issuer.

     "Obligations" means all obligations, indebtedness and liabilities of the
      -----------
Debtor under the Note.

     "Patent License" means any written agreement now or hereafter in existence
      --------------
granting to the Debtor any right to use any invention on which a Patent is in
existence including, without limitation, the agreements described on Schedule 3
                                                                     ----------
hereto.

     "Patents" means all of the following: (a) all patents, patent applications
      -------
and patentable inventions of the Debtor, including, without limitation, those
set forth on Schedule 3 hereto, and all of the inventions and improvements
             ----------
described and claimed therein; (b) all continuations, divisions, renewals,
extensions, modifications, substitutions, continuations-in-part or reissues of
any of the foregoing; (c) all income, royalties, profits, damages, awards and
payments relating to or payable under any of the foregoing; (d) the right to sue
for past, present and future infringements of any of the foregoing; (e) all
other rights and benefits relating to any of the foregoing throughout the world;
and (f) all goodwill associated with any of the foregoing; in each case, whether
now owned or hereafter acquired by the Debtor.

     "Patent Security Agreement" means the patent security agreement to be
      -------------------------
executed and delivered by the Debtor to the Secured Party, substantially in the
form of Exhibit B hereto, as such agreement may hereafter be amended,
        ---------
supplemented or otherwise modified from time to time.

     "Permitted Liens" means Liens and security interests in favor of the
      ---------------
Secured Party.

     "Pledged Collateral" has the meaning specified in Section 4.16(b)(i) of
      ------------------                               ------------------
this Agreement.

     "Pledged Shares" means the shares of capital stock or other equity,
      --------------
partnership or membership interests described on Schedule 4 attached hereto and
                                                 ----------
incorporated herein by reference.

     "Proceeds" means any "proceeds," as such term is defined in Article or
      --------
Chapter 9 of the UCC 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 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 the
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, or purporting to act, for or on
behalf of any 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.

SECURITY AGREEMENT - Page 5
------------------
<PAGE>

     "Securities Account" means any account to which a Financial Asset is or may
      ------------------
be credited in accordance with an agreement under which the Person maintaining
the account undertakes to treat the Person for whom the account is maintained as
entitled to exercise the rights that comprise the Financial Asset.

     "Securities Intermediary" means any (a) Clearing Corporation, or (b)
      -----------------------
Person, including a bank or Broker, that in the ordinary course of its business
maintains Securities Accounts for others and is acting in that capacity.

     "Security" means any "security," as such term is defined in Article or
      --------
Chapter 8 of the UCC and, in an event, shall include, but not be limited to, any
obligation of an Issuer or a share, participation, or other interest in an
issuer or in property or an enterprise or an Issuer: (a) which is represented by
a Security Certificate in bearer or registered form, or the transfer of which
may be registered upon books maintained for that purpose by or on behalf of the
Issuer; (b) which is one of a class or series or by its terms is divisible into
a class or series of shares, participations, interests, or obligations; and (c)
which (i) is, or is of a type, dealt in or traded on securities exchanges or
securities markets; or (ii) is a medium for investment and by its terms
expressly provides that it is a security governed by Article or Chapter 8 of the
UCC.

     "Security Certificate" means any certificate representing a Security.
      --------------------

     "Security Entitlement" means any the rights and property interest of an
      --------------------
Entitlement Holder with respect to a Financial Asset.

     "Trademark License" means any written agreement now or hereafter in
      -----------------
existence granting to the Debtor any right to use any Trademark, including,
without limitation, the agreements identified on Schedule 3 hereto.
                                                 ----------

     "Trademarks" means all of the following: (a) all trademarks, trade names,
      ----------
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and labels on
which any of the foregoing have appeared or appear, all registrations and
recordings thereof and all applications in connection therewith, including,
without limitation, registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state thereof or any other country or any political
subdivision thereof, including, without limitation, those described in Schedule
                                                                       --------
3 hereof; (b) all reissues, extensions and renewals thereof; (c) all income,
-
royalties, damages and payments now or hereafter relating to or payable under
any of the foregoing, including, without limitation, damages or payments for
past or future infringements of any of the foregoing; (e) the right to sue for
past, present and future infringements of any of the foregoing; (f) all rights
corresponding to any of the foregoing throughout the world; and (g) all goodwill
associated with and symbolized by any of the foregoing; in each case, whether
now owned or hereafter acquired by the Debtor.

     "Trademark Security Agreement" means the trademark security agreement to be
      ----------------------------
executed and delivered by the Debtor to the Secured Party, substantially in the
form of Exhibit C
        ---------

SECURITY AGREEMENT - Page 6
------------------
<PAGE>

hereto, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.

     "UCC" means the Uniform Commercial Code as in effect in the State of Texas;
      ---
provided, that if, by applicable law, the perfection or effect of perfection or
non-perfection of the security interest created hereunder in any Collateral is
governed by the Uniform Commercial Code as in effect on or after the date hereof
in any other jurisdiction, "UCC" means the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof relating to
such perfection or the effect of perfection or non-perfection.

     "Uncertificated Security" means any "uncertificated security," as such term
      -----------------------
is defined in Article or Chapter 8 of the UCC, and in any event shall include,
but not be limited to, any Security that is not represented by a certificate.

     Section 1.02.  Other Definitional Provisions. References to "Sections,"
                    -----------------------------
"subsections," "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided.  All definitions contained in this Agreement are equally
applicable to the singular and plural forms of the terms defined.  All
references to statutes and regulations shall include any amendments of the same
and any successor statutes and regulations.  References to particular sections
of the UCC should be read to refer also to parallel sections of the Uniform
Commercial Code as enacted in each state or other jurisdiction where any portion
of the Collateral is or may be located.

                                  ARTICLE II

                               Security Interest
                               -----------------

     Section 2.01.  Security Interest.  As collateral security for the prompt
                    -----------------
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration or otherwise), the Debtor hereby pledges and assigns
(as collateral) to the Secured Party, and grants to the Secured Party a
continuing lien on and security interest in, all of the Debtor's right, title
and interest in and to the following, whether now owned or hereafter arising or
acquired and wherever located (collectively, the "Collateral"):

     (a)      all Accounts;

     (b)      all Chattel Paper;

     (c)      all Instruments;

     (d)      all General Intangibles;

     (e)      all Documents;

     (f)      all Equipment;

SECURITY AGREEMENT - Page 7
------------------
<PAGE>

     (g)      all Inventory;

     (h)      all Intellectual Property;

     (i)      all Investment Property;

     (j)      all Deposit Accounts of the Debtor and all funds, certificates,
              Documents, Instruments, checks, drafts, wire transfer receipts and
              other earnings, profits or other Proceeds from time to time
              representing, evidencing, deposited into or held in the Deposit
              Accounts (including, without limitation, in the form of interest);

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

     (l)      all additional shares of stock of the Subsidiaries of the Debtor
              from time to time owned or acquired by the Debtor in any manner,
              and the certificates and all dividends, cash, instruments and
              other property from time to time received, receivable or otherwise
              distributed or distributable in respect of or in exchange for any
              or all of such shares;

     (m)      all indebtedness from time to time owed to the Debtor by the
              Subsidiaries of the Debtor and the instruments evidencing such
              indebtedness, and all interest, cash, instruments and other
              property from time to time received, receivable or otherwise
              distributed or distributable in respect of or in exchange for any
              or all of such indebtedness;

     (n)      the proceeds, in cash or otherwise, of any of the property
              described in the foregoing clauses (a) through (m) and all liens,
                                         -----------         ---
              security, rights, remedies and claims of the Debtor with respect
              thereto;

     (o)      all other goods and personal property of the Debtor of any kind or
              character, whether tangible or intangible, including, without
              limitation, any and all rights in and claims under insurance
              policies, judgments and rights thereunder, and tort claims; and

     (p)      all Proceeds and products of any or all of the foregoing.

     Section 2.02.  Debtor Remains Liable.  Notwithstanding anything to the
                    ---------------------
contrary contained herein, (a) the Debtor shall remain liable under the
contracts, agreements, documents and instruments included in the 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 Secured Party of any of its rights or remedies hereunder
shall not release the Debtor from any of its duties or obligations under the
contracts, agreements, documents and instruments included in the Collateral, and
(c) the Secured Party shall not have any indebtedness,

SECURITY AGREEMENT - Page 8
------------------
<PAGE>

liability or obligation under any of the contracts, agreements, documents and
instruments included in the Collateral by reason of this Agreement, and the
Secured Party shall not be obligated to perform any of the obligations or duties
of the Debtor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.

     Section 2.03.  Delivery of Collateral.  All certificates or instruments
                    ----------------------
representing or evidencing the Pledged Shares, any Instruments or Chattel Paper
or any other Collateral including, without limitation, any Investment Property,
promptly upon the Debtor gaining any rights therein, shall be delivered to and
held by or on behalf of the Secured Party pursuant hereto in suitable form for
transfer by delivery, or accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Secured Party.  After the occurrence and during the continuation of a Default or
an Event of Default, the Secured Party shall have the right at any time to
exchange certificates or instruments representing or evidencing any Pledged
Collateral in its possession for certificates or instruments of smaller or
larger denominations.

                                  ARTICLE III

                        Representations and Warranties
                        ------------------------------

     To induce the Secured Party to enter into this Agreement and make the Loan,
the Debtor represents and warrants to the Secured Party that:

     Section 3.01. Title. The Debtor is, and with respect to Collateral acquired
                   -----
after the date hereof the Debtor will be, the legal and beneficial owner of the
Collateral free and clear of any Lien or other encumbrance, except for Permitted
Liens.

     Section 3.02.  Accounts.  Unless the Debtor has given the Secured Party
                    --------
written notice to the contrary, whenever the security interest granted hereunder
attaches to an Account, the Debtor shall be deemed to have represented and
warranted to the Secured Party as to each of its Accounts that (a) each Account
is genuine and in all respects what it purports to be, (b) each Account
represents the legal, valid and binding obligation of the account debtor
evidencing indebtedness unpaid and owed by such account debtor, (c) except for
defenses and business disputes arising in the ordinary course of business which
in the aggregate are not material, the amount of each Account represented as
owing is the correct amount actually and unconditionally owing except for normal
trade discounts granted in the ordinary course of business, and (d) except for
defenses and business disputes arising in the ordinary course of business which
in the aggregate are not material, no Account is subject to any offset,
counterclaim, or other defense.

     Section 3.03.  Financing Statements.  No financing statement, security
                    --------------------
agreement or other Lien instrument covering all or any part of the Collateral is
on file in any public office, except as may have been filed in favor of the
Secured Party pursuant to this Agreement and except for financing statements
evidencing Permitted Liens in favor of the Secured Party.  Except as otherwise
disclosed on Schedule 5 hereto, the Debtor does not do business and has not done
             ----------
business within the past five (5) years under a trade name or any name other
than its legal name set forth at the beginning of this Agreement.

SECURITY AGREEMENT - Page 9
------------------
<PAGE>

     Section 3.04. Principal Place of Business. The principal place of business
                   ---------------------------
and chief executive office of the Debtor, and the office where the Debtor keeps
its books and records, is located at the address of the Debtor shown on the
signature pages of this Agreement.

     Section 3.05.  Location of Collateral.  All Inventory (except Inventory in
                    ----------------------
transit) and Equipment (other than vehicles) of the Debtor are located at the
places specified on Schedule 1 hereto.  If any such location is leased by the
                    ----------
Debtor, the name and address of the landlord leasing such location is identified
on Schedule 1 hereto.  The Debtor has exclusive possession and control of its
   ----------
Inventory and Equipment.  None of the Inventory or Equipment of the Debtor is
evidenced by a Document (including, without limitation, a negotiable document of
title).  All Instruments, Chattel Paper and Security Certificates of the Debtor
have been delivered to the Secured Party.

     Section 3.06.  Perfection.  Upon the filing of Uniform Commercial Code
                    ----------
financing statements in the jurisdictions listed on Schedule 2 attached hereto,
                                                    ----------
the filing of the Patent Security Agreement and the Trademark Security Agreement
with the United States Patent and Trademark Office, the filing of the Copyright
Security Agreement with the United States Copyright Office, and upon the Secured
Party's obtaining possession of the Pledged Shares and all other Instruments,
Chattel Paper and Security Certificates of the Debtor, the security interest in
favor of the Secured Party created herein will constitute a valid and perfected
Lien upon and security interest in the Collateral, subject to no equal or prior
Liens except for those (if any) which constitute Permitted Liens in favor of the
Secured Party.

     Section 3.07. Inventory. All Inventory has been produced in compliance with
                   ---------
all requirements of the Fair Labor Standards Act.

     Section 3.08.  Intellectual Property.
                    ---------------------

     (a)  The information contained on Schedule 3 hereto is true, correct and
                                       ----------
complete. All Intellectual Property of the Debtor is identified on Schedule 3
                                                                   ----------
hereto.

     (b)  The Debtor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to the Intellectual Property free
and clear of any Liens, charges or encumbrances, including, without limitation,
any pledges, assignments, licenses, user agreements and covenants by the Debtor
not to sue third Persons, other than Permitted Liens.

     (c)  No claim has been made that the use of any of the Intellectual
Property violates or may violate the rights of any third Person.

     (d)  Each of the Patents and Trademarks identified on Schedule 3 hereto has
                                                           ----------
been properly registered with the United States Patent and Trademark Office and
each of the Copyrights identified on Schedule 3 hereto has been properly
                                     ----------
registered with the United States Copyright Office.

     Section 3.09.  Pledged Shares.
                    --------------

SECURITY AGREEMENT - Page 10
------------------
<PAGE>

     (a)  The Pledged Shares that are shares of a corporation have been duly
authorized and validly issued and are fully paid and nonassessable, and the
Pledged Shares that are membership or partnership interests (if any) have been
validly granted, under the laws of the jurisdiction of organization of the
issuers thereof.

     (b)  The Debtor is the legal and beneficial owner of the Pledged Shares,
free and clear of any Lien (other than the Lien created by this Agreement), and
the Debtor has not sold, granted any option with respect to, assigned,
transferred or otherwise disposed of any of its rights or interest in or to the
Pledged Shares.

     (c)  On the date hereof, the Pledged Shares constitute the percentage of
the issued and outstanding shares of stock, partnership interests or membership
interests of the issuers thereof indicated on Schedule 4, as such Schedule 4 may
                                              ----------          ----------
from time to time be supplemented, amended or modified.

     Section 3.10. Loan Purpose. The proceeds of the Loan shall be used by
                   ------------
Debtor solely to purchase securities of PurchasePooling.com, Inc.

                                  ARTICLE IV

                                   Covenants
                                   ---------

     The Debtor covenants and agrees with the Secured Party that until the
Obligations are paid and performed in full:

     Section 4.01. Encumbrances. The Debtor shall not create, permit or suffer
                   ------------
to exist, and shall defend the Collateral against, any Lien or other encumbrance
on the Collateral except for Permitted Liens, and shall defend the Debtor's
rights in the Collateral and the Secured Party's pledge and collateral
assignment of and security interest in the Collateral against the claims and
demands of all Persons. The Debtor shall do nothing to impair the rights of the
Secured Party in the Collateral.

     Section 4.02. Modification of Accounts. The Debtor shall, in accordance
                   ------------------------
with prudent business practices, endeavor to collect or cause to be collected
from each account debtor under its Accounts, as and when due, any and all
amounts owing under such Accounts. Without the prior written consent of the
Secured Party the Debtor shall not (a) grant any extension of time for any
payment with respect to any of the Accounts, (b) compromise, compound or settle
any of the Accounts for less than the full amount thereof, (c) release, in whole
or in part, any Person liable for payment of any of the Accounts, (d) allow any
credit or discount for payment with respect to any Account other than trade
discounts granted in the ordinary course of business, or (e) release any Lien or
guaranty securing any Account.

     Section 4.03.  Disposition of Collateral.  Except for sales of Inventory in
                    -------------------------
the ordinary course of the Debtor's business, the Debtor shall not sell, lease,
assign (by operation of law or

SECURITY AGREEMENT - Page 11
------------------
<PAGE>

otherwise) or otherwise dispose of, or grant any option with respect to, the
Collateral or any part thereof without the prior written consent of the Secured
Party.

     Section 4.04.  Further Assurances.  At any time and from time to time, upon
                    ------------------
the request of the Secured Party, and at the sole expense of the Debtor, the
Debtor shall promptly execute and deliver all such further agreements, documents
and instruments and take such further action as the Secured Party may reasonably
deem necessary or appropriate to preserve and perfect its security interest in
and pledge and collateral assignment of the Collateral and carry out the
provisions and purposes of this Agreement or to enable the Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any of
the Collateral, and, to the extent any of the Collateral is at any time in the
custody of a Clearing Corporation or of a "custodian bank" or a nominee of
either, as defined in the UCC, or any other Securities Intermediary, then the
Debtor shall cause the Secured Party to obtain "control," as defined in Article
or Chapter 8 of the UCC, of such Collateral in one of the manners prescribed in
Article or Chapter 8.106 of the UCC.  Except for Permitted Liens, the Debtor
agrees to defend the title to the Collateral and the Lien thereon of the Secured
Party against the claim of any other Person and to maintain and preserve such
Lien.  Without limiting the generality of the foregoing, the Debtor shall (a)
execute and deliver to the Secured Party such financing statements as the
Secured Party may from time to time require; (b) deliver and pledge to the
Secured Party all Documents (including, without limitation, documents of title)
evidencing Inventory or Equipment and cause the Secured Party to be named as
lienholder on all Documents of title; (c) deliver and pledge to the Secured
Party all Instruments and Chattel Paper of the Debtor with any necessary
endorsements; and (d) execute and deliver to the Secured Party such other
agreements, documents and instruments as the Secured Party may require to
perfect and maintain the validity, effectiveness and priority of the Liens
intended to be created hereunder.  The Debtor authorizes the Secured Party to
file one or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral without the signature of the
Debtor where permitted by law.  A carbon, photographic or other reproduction of
this Agreement or of any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement and may be filed as a
financing statement.

     Section 4.05.  Insurance.  The Debtor will, at its own expense, maintain
                    ---------
insurance with respect to all Collateral which constitutes goods in such
amounts, against such risks, in such form and with such insurers, as shall be
satisfactory to the Secured Party from time to time.  If requested by the
Secured Party, each policy for property damage insurance shall provide for all
losses to be paid directly to the Secured Party.  If requested by the Secured
Party, each policy of insurance maintained by the Debtor shall (i) name the
Debtor and the Secured Party as insured parties thereunder (without any
representation or warranty by or obligation upon the Secured Party) as their
interests may appear, (ii) contain the agreement by the insurer that any loss
thereunder shall be payable to the Secured Party notwithstanding any action,
inaction or breach of representation or warranty by the Debtor, (iii) provide
that there shall be no recourse against the Secured Party for payment of
premiums or other amounts with respect thereto, and (iv) provide that at least
thirty (30) days prior written notice of cancellation or of lapse shall be given
to the Secured Party by the insurer.  The Debtor will, if requested by the
Secured Party, deliver to the Secured Party original or duplicate policies of
such insurance and, as often as the Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such

SECURITY AGREEMENT - Page 12
------------------
<PAGE>

insurance. The Debtor will also, at the request of the Secured Party, duly
execute and deliver instruments of assignment of such insurance policies and
cause the respective insurers to acknowledge notice of such assignment. All
insurance payments in respect of loss of or damage to any Collateral shall be
paid to the Secured Party and applied as the Secured Party in its sole
discretion deems appropriate.

     Section 4.06.  Bailees.  If any of the Collateral is at any time in the
                    -------
possession or control of any warehouseman, bailee or any of the Debtor's agents
or processors, the Debtor shall, at the request of the Secured Party, notify
such warehouseman, bailee, agent or processor of the security interest created
hereunder and shall instruct such Person to hold such Collateral for the Secured
Party's account subject to the Secured Party's instructions.

     Section 4.07. Inspection Rights. The Debtor shall permit the Secured Party
                   -----------------
and its representatives to examine, inspect and audit the Collateral and to
examine, inspect and audit the Debtor's books and records at any reasonable time
and after notice, and as the Secured Party may desire. The Secured Party may at
any time and from time to time contact account debtors to verify the existence,
amounts and terms of the Accounts.

     Section 4.08.  Mortgagee and Landlord Waivers.  The Debtor shall cause each
                    ------------------------------
mortgagee of real property owned by the Debtor and each landlord of real
property leased by the Debtor to execute and deliver instruments satisfactory in
form and substance to the Secured Party by which such mortgagee or landlord
waives its rights, if any, in the Collateral.

     Section 4.09. Legal Changes. The Debtor shall not change its name, identity
                   -------------
or legal structure in any manner that might make any financing statement filed
in connection with this Agreement seriously misleading unless the Debtor shall
have given the Secured Party thirty (30) days prior written notice thereof and
shall have taken all action deemed necessary or desirable by the Secured Party
to protect its Liens and the perfection and priority thereof. The Debtor shall
not change its principal place of business, chief executive office or the place
where it keeps its books and records unless it shall have given the Secured
Party thirty (30) days prior written notice thereof and shall have taken all
action deemed necessary or desirable by the Secured Party to cause its security
interest in the Collateral to be perfected with the priority required by this
Agreement.

     Section 4.10. Books and Records; Information. The Debtor shall keep
                   ------------------------------
accurate and complete books and records of the Collateral and the Debtor's
business and financial condition in accordance with generally accepted
accounting principles consistently applied. The Debtor shall from time to time
at the request of the Secured Party deliver to the Secured Party such
information regarding the Collateral and the Debtor as the Secured Party may
request, including, without limitation, lists and descriptions of the Collateral
and evidence of the identity and existence of the Collateral. To the extent
required by Section 4.04 of this Agreement, the Debtor shall mark its books and
            ------------
records to reflect the security interest of the Secured Party under this
Agreement.

     Section 4.11.  Equipment and Inventory.
                    -----------------------

SECURITY AGREEMENT - Page 13
------------------
<PAGE>

     (a)  The Debtor shall keep the Equipment (other than vehicles) and
Inventory (other than Inventory in transit) at the locations specified on
Schedule 1 hereto or, upon thirty (30) days prior written notice to the Secured
----------
Party, at such other places within the United States of America where all action
required to perfect the Secured Party's security interest in the Equipment and
Inventory with the priority required by this Agreement shall have been taken.

     (b)  The Debtor shall maintain the Equipment and Inventory in good
condition and repair (ordinary wear and tear excepted) and in accordance with
any manufacturer's manual. The Debtor shall not permit any waste or destruction
of the Equipment or Inventory or any part thereof. The Debtor shall not permit
the Equipment or Inventory to be used in violation of any law, rule or
regulation or the terms of any policy of insurance. The Debtor shall not use or
permit any of the Equipment or Inventory to be used in any manner or for any
purpose that would impair its value or expose it to unusual risk.

     (c)  In producing Inventory, the Debtor shall comply with all requirements
of the Fair Labor Standards Act.

     Section 4.12. Warehouse Receipts Non-Negotiable. The Debtor agrees that if
                   ---------------------------------
any warehouse receipt or receipt in the nature of a warehouse receipt is issued
in respect of any of the Collateral, such warehouse receipt or receipt in the
nature thereof shall not be "negotiable" (as such term is used in Section 7.104
of the UCC) unless such warehouse receipt or receipt in the nature thereof is
delivered to the Secured Party.

     Section 4.13.  Notification.  The Debtor shall promptly notify the Secured
                    ------------
Party of (a) any Lien, encumbrance or claim that has attached to or been made or
asserted against any of the Collateral, (b) any material change in any of the
Collateral, including, without limitation any material damage to or loss of
Collateral, and (c) the occurrence of any other event or condition (including,
without limitation, matters as to Lien priority) that could have a material
adverse effect on the Collateral or the security interest created hereunder.

     Section 4.14. Collection of Accounts. So long as no Default has occurred
                    ----------------------
and is continuing and except as otherwise provided in this Section 4.14 and in
                                                           ------------
Section 5.01, the Debtor shall have the right to collect and receive payments on
------------
the Accounts.  In connection with such collections, the Debtor may take (and, at
the Secured Party's direction, shall take) such actions as the Debtor or the
Secured Party may deem necessary or advisable to enforce collection of the
Accounts.  Upon the request of the Secured Party, the Debtor shall cause all
account debtors and other Persons obligated in respect of the Accounts to make
all payments on the Accounts directly to any collection or collateral account
established by the Secured Party and the Debtor shall cause all other Proceeds
of Collateral to be deposited directly to such account.  Until such Proceeds are
delivered to such account, such Proceeds shall be held in trust by the Debtor
for the benefit of the Secured Party and shall not be commingled with any other
funds or property of the Debtor.  All Proceeds of Collateral received by the
Secured Party pursuant to this Section 4.14 will be applied by the Secured Party
                               ------------
to the Obligations as provided in the Note.

     Section 4.15.  Intellectual Property.
                    ---------------------

SECURITY AGREEMENT - Page 14
------------------
<PAGE>

     (a)  The Debtor shall prosecute diligently all applications in respect of
Intellectual Property, now or hereafter pending.

     (b)  The Debtor shall make federal applications on all of its unpatented
but patentable inventions and all of its registrable but unregistered Copyrights
and Trademarks.

     (c)  The Debtor shall preserve and maintain all of its rights in the
Intellectual Property and shall protect the Intellectual Property from
infringement, unfair competition, cancellation or dilution by all appropriate
action, including the commencement and prosecution of legal proceedings to
recover damages for infringement and to defend and preserve its rights in the
Intellectual Property.

     (d)  The Debtor shall not abandon any of the Intellectual Property.

     (e)  The Debtor shall not sell or assign any of its interest in, or grant
any license under (except as permitted by Section 5.05 hereof), any of the
                                          ------------
Intellectual Property without the prior written consent of the Secured Party and
shall maintain the quality of any and all products and services with respect to
which the Intellectual Property is used. The Debtor shall not enter into any
agreement regarding Intellectual Property, including, but not limited to any
licensing agreement not permitted by Section 5.05 hereof, that is or may be
                                     ------------
inconsistent with the Debtor's obligations under this Agreement.

     (f)  If the Debtor shall obtain rights to or become entitled to the benefit
of any Intellectual Property not identified on Schedule 3 hereto, the Debtor
                                               ----------
shall give the Secured Party prompt written notice thereof and the provisions of
this Agreement shall automatically apply thereto and the Debtor hereby
authorizes the Secured Party to modify or update Schedule 3 hereto to include
                                                 ----------
any such new Intellectual Property.

     (g)  Upon the occurrence of any event that would require any addition to or
modification of Schedule 3 hereto or upon the request of the Secured Party, the
                ----------
Debtor shall furnish to the Secured Party statements and schedules further
identifying the Intellectual Property and such other items in connection with
the Intellectual Property as the Secured Party may request. Promptly upon the
request of the Secured Party, the Debtor shall modify this Agreement by amending
Schedule 3 hereto to include any Intellectual Property that becomes part of the
----------
Collateral.

     (h)  If a Default shall have occurred and be continuing, the Debtor shall
use its best efforts to obtain any consents, waivers or agreements necessary to
enable the Secured Party to exercise its rights and remedies with respect to the
Intellectual Property.

     (i)  The Debtor shall, at the request of the Secured Party, execute and
deliver to the Secured Party the Copyright Security Agreement, the Patent
Security Agreement, and the Trademark Security Agreement and all other
documents, instruments, and other items as may be necessary for the Secured
Party to file such agreements with the United States Copyright Office, the
United States Patent and Trademark Office, and any similar domestic or foreign
office, department, or agency. The Debtor will, at any time and from time to
time upon the request of

SECURITY AGREEMENT - Page 15
------------------
<PAGE>

the Secured Party, execute and deliver to the Secured Party all such other
agreements, documents, instruments and other items as may be necessary or
appropriate for the Secured Party to create and perfect its security interest in
the Intellectual Property and to make all appropriate filings with respect
thereto.

     Section 4.16.  Voting Rights; Distributions, etc.
                    ----------------------------------

     (a)  So long as no Default shall have occurred and be continuing:

          (i)    The Debtor shall be entitled to exercise any and all voting and
other consensual rights (including, without limitation, the right to give
consents, waivers and notifications in respect of any of the Pledged Collateral)
pertaining to any of the Pledged Collateral or any part thereof; provided;
however, that without the prior written consent of the Secured Party, no vote
shall be cast or consent, waiver or ratification given or action taken which
would (x) be inconsistent with or violate any provision of this Agreement or (y)
amend, modify or waive any term, provision or condition of the certificate of
incorporation, by-laws, certificate of formation or other charter document or
other agreement relating to, evidencing, providing for the issuance of or
securing any Collateral; and provided further that the Debtor shall give the
Secured Party at least five (5) Business Days' prior written notice in the form
of an officer's certificate of the manner in which it intends to exercise, or
the reasons for refraining from exercising, any voting or other consensual
rights pertaining to the Collateral or any part thereof which might have a
material adverse effect on the value of the Collateral or any part thereof; and

          (ii)   Unless a Default shall have occurred and be continuing, the
Debtor shall be entitled to receive and retain any and all dividends and
interest paid in respect to any of the Collateral; provided, however, that any
                                                   --------  -------
and all

                 (A)  dividends, interest or 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
Collateral,

                 (B)  dividends, interest or other distributions hereafter paid
or payable in cash in respect of any 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 redemption
of, or in exchange for, any Collateral,

shall be, and shall be forthwith delivered to the Secured Party to hold as,
Collateral and shall, if received by the Debtor, be received in trust for the
benefit of the Secured Party, be segregated from the other property or funds of
the Debtor and be forthwith delivered to the Secured Party as Collateral in the
same form as so received (with any necessary endorsement).  All amounts (other
than amounts described in clauses (ii) (A)-(C) above) received by the Secured
                          --------------------
Party in respect of any Pledged Collateral shall be either (1) promptly released
to the Debtor, so long as no Default shall have occurred and be continuing or
(2) if any Default shall have occurred and be continuing, held by the Secured
Party and applied to the Obligations.  During the continuance of

SECURITY AGREEMENT - Page 16
------------------
<PAGE>

any Default, any dividends, interest or other distributions (whether in cash,
securities, property or otherwise) received by the Debtor with respect to any
Pledged Collateral shall be held by the Debtor in trust for the benefit of the
Secured Party and, upon the request of the Secured Party, shall be delivered
promptly to the Secured Party to hold as Collateral. If such Default is waived
or cured to the satisfaction of the Secured Party, any such distributions
(except those of the types described in clauses (ii)(A)-(C) above) shall be
                                        -------------------
returned promptly to the Debtor (provided that no other Default exists).

     (b)  Upon the occurrence and during the continuance of a Default:

          (i)    The Secured Party may, without notice to the Debtor, transfer
or register in the name of the Secured Party or any of its nominees any or all
of the Collateral described in Section 2.01(k) through (m) of this Agreement,
                               ---------------         ---
the proceeds thereof (in cash or otherwise) and all liens, security, rights,
remedies and claims of the Debtor with respect thereto (collectively, the
"Pledged Collateral") held by the Secured Party hereunder, and the Secured Party
-------------------
or its nominee may thereafter, after delivery of notice to the Debtor, exercise
all voting and corporate rights at any meeting of any corporation, partnership
or other business entity issuing any of the Pledged Collateral and any and all
rights of conversion, exchange, subscription or any other rights, privileges or
options pertaining to any of the Pledged Collateral as if it were the absolute
owner thereof, including, without limitation, the right to exchange at its
discretion any and all of the Pledged Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of any corporation,
partnership or other business entity issuing any of such Pledged Collateral or
upon the exercise by any such issuer or the Secured Party of any right,
privilege or option pertaining to any of the Pledged Collateral, and in
connection therewith, to deposit and deliver any and all of the Pledged
Collateral with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine, all
without liability except to account for property actually received by it but the
Secured Party shall have no duty to exercise any of the aforesaid rights,
privileges or options, and the Secured Party shall not be responsible for any
failure to do so or delay in so doing.

          (ii)   All rights of the Debtor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
Subsection 4.16(a)(i) and to receive the dividends, interest and other
---------------------
distributions which it would otherwise be authorized to receive and retain
pursuant to Subsection 4.16(a)(ii) shall be suspended until such Default shall
            ----------------------
no longer exist, and all such rights shall, until such Default shall no longer
exist, thereupon become vested in the Secured Party which shall thereupon have
the sole right to exercise such voting and other consensual rights and to
receive and hold as Pledged Collateral such dividends, interest and other
distributions.

          (iii)  All dividends, interest and other distributions which are
received by the Debtor contrary to the provisions of this Subsection 4.16(b)
                                                          ------------------
shall be received in trust for the benefit of the Secured Party, shall be
segregated from other funds of the Debtor and shall be forthwith paid over to
the Secured Party as Collateral in the same form as so received (with any
necessary endorsement).

SECURITY AGREEMENT - Page 17
------------------
<PAGE>

          (iv)   The Debtor shall execute and deliver (or cause to be executed
and delivered) to the Secured Party all such proxies and other instruments as
the Secured Party may reasonably request for the purpose of enabling the Secured
Party to exercise the voting and other rights which it is entitled to exercise
pursuant to this Subsection 4.16(b) and to receive the dividends, interest and
                 ------------------
other distributions which it is entitled to receive and retain pursuant to this
Subsection 4.16(b). The foregoing shall not in any way limit the Secured Party's
------------------
power and authority granted pursuant to Section 5.01.
                                        ------------

     Section 4.17.  Transfers and Other Liens.
                    -------------------------

     (a)  The Debtor shall not grant any option with respect to, exchange, sell
or otherwise dispose of any of the Collateral, except for the sales of inventory
in the ordinary course of its business, or create or permit to exist any Lien
upon or with respect to any of the Collateral except for the Liens created
hereby.

     (b)  The Debtor agrees that it will (i) cause each issuer of any of the
Collateral not to issue any shares of stock, notes or other securities or
instruments in addition to or in substitution for any of the Collateral, except,
with the written consent of the Secured Party, to the Debtor, (ii) pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all such shares of stock, membership interests, partnership interests,
notes or instruments, and (iii) promptly (and in any event within three Business
Days) deliver to the Secured Party an Amendment, duly executed by the Debtor, in
substantially the form of Exhibit D hereto (an "Amendment"), in respect of such
                          ---------
shares of stock, membership interests, partnership interests, notes or
instruments, together with all certificates, notes or other instruments
representing or evidencing the same. The Debtor hereby (i) authorizes the
Secured Party to attach each Amendment to this Agreement, (ii) agrees that all
such shares of stock, membership interests, partnership interests, notes or
instruments listed on any Amendment delivered to the Secured Party shall for all
purposes hereunder constitute Collateral, and (iii) is deemed to have made, upon
such delivery, the representations and warranties contained in Article III with
                                                               -----------
respect to such Collateral.

     Section 4.18. Possession; Reasonable Care. Regardless of whether a Default
                   ---------------------------
has occurred or is continuing, the Secured Party shall have the right to hold in
its possession all Pledged Collateral pledged, assigned or transferred hereunder
and from time to time constituting a portion of the Collateral. The Secured
Party may, from time to time, in its sole discretion, appoint one or more agents
(which in no case shall be the Debtor or an affiliate of the Debtor) to hold
physical custody, for the account of the Secured Party, of any or all of the
Collateral. The Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the Secured
Party accords its own property, it being understood that the Secured Party shall
not have any responsibility for (a) ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relative
to any Collateral, whether or not the Secured Party has or is deemed to have
knowledge of such matters, or (b) taking any necessary steps to preserve rights
against any parties with respect to any Collateral. Following the occurrence of
a Default, the Secured Party shall be entitled to take possession of the
Collateral.

SECURITY AGREEMENT - Page 18
------------------
<PAGE>

     Section 4.19.  Acknowledgment of Pledge.  The Debtor shall deliver to the
                    ------------------------
Secured Party, concurrently with the execution hereof, acknowledgment by each
financial institution in which any Deposit Account is held or maintained that
the pledge of such Deposit Account has been recorded in the books and records of
the financial institution, and that the Secured Party shall have dominion and
control over such Deposit Account, such acknowledgment to be in form and
substance satisfactory to the Secured Party.

                                   ARTICLE V

                          Rights of the Secured Party
                          ---------------------------

     Section 5.01. Power of Attorney. The Debtor hereby irrevocably constitutes
                   -----------------
and appoints the Secured Party and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of the Debtor or in its own name, to take after
the occurrence and during the continuance of a Default and from time to time
thereafter, any and all action and to execute any and all documents and
instruments which the Secured Party at any time and from time to time deems
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, the Debtor hereby gives the Secured
Party the power and right on behalf of the Debtor and in its own name to do any
of the following after the occurrence and during the continuance of a Default
and from time to time thereafter, without notice to or the consent of the
Debtor:

          (a)  to demand, sue for, collect or receive, in the name of the Debtor
     or in its own name, any money or property at any time payable or receivable
     on account of or in exchange for any of the Collateral and, in connection
     therewith, endorse checks, notes, drafts, acceptances, money orders,
     documents of title or any other instruments for the payment of money under
     the Collateral or any policy of insurance;

          (b)  to pay or discharge taxes, Liens or other encumbrances levied or
     placed on or threatened against the Collateral;

          (c)  to notify post office authorities to change the address for
     delivery of mail of the Debtor to an address designated by the Secured
     Party and to receive, open and dispose of mail addressed to the Debtor;

          (d)  (i) to direct account debtors and any other parties liable for
     any payment under any of the Collateral to make payment of any and all
     monies due and to become due thereunder directly to the Secured Party or as
     the Secured Party shall direct; (ii) to receive payment of and receipt for
     any and all monies, claims and other amounts due and to become due at any
     time in respect of or arising out of any Collateral; (iii) to sign and
     endorse any invoices, freight or express bills, bills of lading, storage or
     warehouse receipts, drafts against debtors, assignments, proxies, stock
     powers, verifications and notices in connection with accounts and other
     documents relating to the Collateral; (iv) to commence and prosecute any
     suit, action or proceeding at law or in equity in any court of

SECURITY AGREEMENT - Page 19
------------------
<PAGE>

     competent jurisdiction to collect the Collateral or any part thereof and to
     enforce any other right in respect of any Collateral; (v) to defend any
     suit, action or proceeding brought against the Debtor with respect to any
     Collateral; (vi) to settle, compromise or adjust any suit, action or
     proceeding described above and, in connection therewith, to give such
     discharges or releases as the Secured Party may deem appropriate; (vii) to
     exchange any of the Collateral for other property upon any merger,
     consolidation, reorganization, recapitalization or other readjustment of
     the issuer thereof and, in connection therewith, deposit any of the
     Collateral with any committee, depositary, transfer agent, registrar or
     other designated agency upon such terms as the Secured Party may determine;
     (viii) to add or release any guarantor, indorser, surety or other party to
     any of the Collateral; (ix) to renew, extend or otherwise change the terms
     and conditions of any of the Collateral; (x) to grant or issue any
     exclusive or nonexclusive license under or with respect to any of the
     Intellectual Property; (xi) to endorse the Debtor's name on all
     applications, documents, papers and instruments necessary or desirable in
     order for the Secured Party to use any of the Intellectual Property; (xii)
     to make, settle, compromise or adjust any claims under or pertaining to any
     of the Collateral (including claims under any policy of insurance); and
     (xiii) to sell, transfer, pledge, convey, make any agreement with respect
     to or otherwise deal with any of the Collateral as fully and completely as
     though the Secured Party were the absolute owner thereof for all purposes,
     and to do, at the Secured Party's option and the Debtor's expense, at any
     time, or from time to time, all acts and things which the Secured Party
     deems necessary to protect, preserve, maintain, or realize upon the
     Collateral and the Secured Party's security interest therein.

     This power of attorney is a power coupled with an interest and shall be
irrevocable.  The Secured Party shall be under no duty to exercise or withhold
the exercise of any of the rights, powers, privileges and options expressly or
implicitly granted to the Secured Party in this Agreement, and shall not be
liable for any failure to do so or any delay in doing so.  Neither the Secured
Party nor any Person designated by the Secured Party shall be liable for any act
or omission or for any error of judgment or any mistake of fact or law.  This
power of attorney is conferred on the Secured Party solely to protect, preserve,
maintain and realize upon its security interest in the Collateral.  The Secured
Party shall not be responsible for any decline in the value of the Collateral
and shall not be required to take any steps to preserve rights against prior
parties or to protect, preserve or maintain any Lien given to secure the
Collateral.

     Section 5.02. Setoff. The Secured Party shall have the right to set off and
                   ------
apply against the Obligations, at any time and without notice to the Debtor, any
and all deposits (general, time or demand, provisional or final) or other sums
at any time credited by or owing from the Secured Party to the Debtor whether or
not the Obligations are then due. The rights and remedies of the Secured Party
hereunder are in addition to other rights and remedies (including, without
limitation, other rights of setoff) that the Secured Party may have.

     Section 5.03. Assignment by the Secured Party. The Secured Party may at any
                   -------------------------------
time assign or otherwise transfer all or any portion of its rights and
obligations under this Agreement and the Note, in connection with an assignment
of the Obligations, to any other Person, and such Person shall thereupon become
vested with all the benefits thereof granted to the Secured Party herein or
otherwise.

SECURITY AGREEMENT - Page 20
------------------
<PAGE>

     Section 5.04. Performance by the Secured Party. If the Debtor shall fail to
                   --------------------------------
perform any covenant or agreement contained in this Agreement, the Secured Party
may perform or attempt to perform such covenant or agreement on behalf of the
Debtor. In such event, the Debtor shall, at the request of the Secured Party,
promptly pay any amount expended by the Secured Party in connection with such
performance or attempted performance to the Secured Party, together with
interest thereon at the applicable rate of interest set forth in the Note from
and including the date of such expenditure to but excluding the date such
expenditure is paid in full. Notwithstanding the foregoing, it is expressly
agreed that the Secured Party shall not have any liability or responsibility for
the performance of any obligation of the Debtor under this Agreement.

     Section 5.05. License. If no Default shall have occurred and be continuing,
                   -------
the Debtor shall have the exclusive, non-transferable right and license to use
the Intellectual Property in the ordinary course of business and the exclusive
right to grant to other Persons licenses and sublicenses with respect to the
Intellectual Property for full and fair consideration. The Debtor agrees not to
sell or assign its interest in, or grant any sublicense under, the license
granted under this Section 5.05 without the prior written consent of the Secured
                   ------------
Party.

     Section 5.06. Change of Depository. In the event of the termination by any
                   --------------------
financial institution in which any Deposit Account is maintained of any
agreement with or for the benefit of the Secured Party, or if any such financial
institution shall fail to comply with any provisions of any such agreement or
any instructions of the Secured Party in accordance with any such agreement or
this Agreement, or if the Secured Party determines in its sole discretion that
the financial condition of any such financial institution has materially
deteriorated, the Debtor agrees to transfer the affected Deposit Account(s) to
another financial institution acceptable to the Secured Party and cause such
substitute financial institution to execute such agreements as the Secured Party
may require, in form and substance reasonably acceptable to the Secured Party,
to ensure that the Secured Party has a perfected, first priority security
interest in the Deposit Account(s) held with such substitute financial
institution. If any affected Deposit Account is a lockbox account, the Debtor
agrees to notify its account debtors promptly to remit all payments which were
being sent to the terminated Deposit Account directly to the substitute Deposit
Account.

     Section 5.07. Collection of Deposit Accounts. Upon written demand from the
                   ------------------------------
Secured Party to any financial institution in which any of the Deposit Accounts
are maintained, each such financial institution is hereby authorized and
directed by the Debtor to make payment directly to the Secured Party of the
funds in or credited to the Deposit Accounts, or such part thereof as the
Secured Party may request, and each such financial institution shall be fully
protected in relying upon the written statement of the Secured Party that the
Deposit Accounts are at the time of such demand assigned hereunder and that the
Secured Party is entitled to payment of the Obligations therefrom. The Secured
Party's receipt for sums paid it pursuant to such demand shall be a full and
complete release, discharge and acquittance to the Depository or other financial
institution making such payment to the extent of the amount so paid. The Debtor
hereby authorizes the Secured Party upon the occurrence and during the
continuation of a Default and so long as any part of the Obligations remain
unpaid, (i) to withdraw, collect and receipt for any and all funds, securities
or other investments on deposit in or payable on the Deposit Accounts; (ii) on
behalf of

SECURITY AGREEMENT - Page 21
------------------
<PAGE>

the Debtor to endorse the name of the Debtor upon any checks, drafts or other
instruments payable to the Debtor evidencing payment on the Deposit Accounts;
and (iii) to surrender or present for notation of withdrawal the passbook,
certificate or other documents issued to the Debtor in connection with the
Deposit Accounts. No power granted herein to the Secured Party by the Debtor
shall terminate upon any disability of the Debtor.

                                  ARTICLE VI

                                    Default
                                    -------

     Section 6.01. Rights and Remedies. If a Default shall have occurred and be
                   -------------------
continuing, the Secured Party shall have the following rights and remedies:

          (i)    In addition to all other rights and remedies granted to the
Secured Party in this Agreement or in the Note or by applicable law, the Secured
Party shall have all of the rights and remedies of a secured party under the UCC
(whether or not the UCC applies to the affected Collateral) and the Secured
Party may also, 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
exchange, broker's board or at any of the Secured Party's offices or elsewhere,
for cash, on credit or for future delivery, and upon such other terms as the
Secured Party may deem commercially reasonable or otherwise as may be permitted
by law. Without limiting the generality of the foregoing, the Secured Party may
(A) without demand or notice to the Debtor, collect, receive or take possession
of the Collateral or any part thereof and for that purpose the Secured Party may
enter upon any premises on which the Collateral is located and remove the
Collateral therefrom or render it inoperable, and/or (B) sell, lease or
otherwise dispose of the Collateral, or any part thereof, in one or more parcels
at public or private sale or sales, at the Secured Party's offices or elsewhere,
for cash, on credit or for future delivery, and upon such other terms as the
Secured Party may deem commercially reasonable or otherwise as may be permitted
by law. The Secured Party shall have the right at any public sale or sales, and,
to the extent permitted by applicable law, at any private sale or sales, to bid
(which bid may be, in whole or in part, in the form of cancellation of
indebtedness) and become a purchaser of the Collateral or any part thereof free
of any right or equity of redemption on the part of the Debtor, which right or
equity of redemption is hereby expressly waived and released by the Debtor. Upon
the request of the Secured Party, the Debtor shall assemble the Collateral and
make it available to the Secured Party at any place designated by the Secured
Party that is reasonably convenient to the Debtor and the Secured Party. The
Debtor agrees that the Secured Party shall not be obligated to give more than
five (5) days prior written notice of the time and place of any public sale or
of the time after which any private sale may take place and that such notice
shall constitute reasonable notice of such matters. The Secured Party shall not
be obligated to make any sale of Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of Collateral may have been given.
The Secured Party may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned. The Debtor
shall be liable for all expenses of retaking, holding, preparing for sale or the
like, and all attorneys' fees, legal expenses and other costs and expenses
incurred by the Secured Party in connection with the collection of the
Obligations and the

SECURITY AGREEMENT - Page 22
------------------
<PAGE>

enforcement of the Secured Party's rights under this Agreement. The Debtor shall
remain liable for any deficiency if the Proceeds of any sale or other
disposition of the Collateral applied to the Obligations are insufficient to pay
the Obligations in full. The Secured Party may apply the Collateral against the
Obligations in such order and manner as the Secured Party may elect in its sole
discretion. The Debtor waives all rights of marshaling, valuation and appraisal
in respect of the Collateral. Any cash held by the Secured Party as Collateral
and all cash proceeds received by the Secured Party 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 Secured Party, be held by the Secured Party as
collateral for, and then or at any time thereafter applied in whole or in part
by the Secured Party against, the Obligations in such order as the Secured Party
shall select. Any surplus of such cash or cash proceeds and interest accrued
thereon, if any, held by the Secured Party and remaining after payment in full
of all the Obligations shall be paid over to the Debtor or to whomsoever may be
lawfully entitled to receive such surplus; provided that the Secured Party shall
have no obligation to invest or otherwise pay interest on any amounts held by it
in connection with or pursuant to this Agreement.

          (ii)   The Secured Party may cause any or all of the Collateral held
by it to be transferred into the name of the Secured Party or the name or names
of the Secured Party's nominee or nominees.

          (iii)  The Secured Party may exercise any and all rights and remedies
of the Debtor under or in respect of the Collateral, including, without
limitation, any and all rights of the Debtor to demand or otherwise require
payment of any amount under, or performance of any provision of, any of the
Collateral and any and all voting rights and corporate powers in respect of the
Collateral.

          (iv)   The Secured Party may collect or receive all money or property
at any time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so.

          (v)    On any sale of the Collateral, the Secured Party is hereby
authorized to comply with any limitation or restriction with which compliance is
necessary, in the view of the Secured Party's counsel, in order to avoid any
violation of applicable law or in order to obtain any required approval of the
purchaser or purchasers by any applicable governmental authority.

          (vi)   For purposes of enabling the Secured Party to exercise its
rights and remedies under this Section 6.01 and enabling the Secured Party and
                               ------------
its successors and assigns to enjoy the full benefits of the Collateral, the
Debtor hereby grants to the Secured Party an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to the Debtor) to
use, assign, license or sublicense any of the Intellectual Property, including
in such license reasonable access to all media in which any of the licensed
items may be recorded or stored and all computer programs used for the
completion or printout thereof. This license shall also inure to the benefit of
all successors, assigns and transferees of the Secured Party.

          (vii)  The Secured Party may require that the Debtor assign all of its
right, title and interest in and to the Intellectual Property or any part
thereof to the Secured Party or such

SECURITY AGREEMENT - Page 23
------------------
<PAGE>

other Person as the Secured Party may designate pursuant to documents
satisfactory to the Secured Party.

     6.02.     Registration Rights, Private Sales, etc.
               ----------------------------------------

     (a)  If the Secured Party shall determine to exercise its right to sell all
or any of the Collateral pursuant to Section 6.01, the Debtor agrees that, upon
                                     ------------
the reasonable request of the Secured Party (which request may be made by the
Secured Party in its sole discretion), the Debtor will, at its own expense:

          (i)    execute and deliver, and cause each issuer of any of the
Collateral contemplated to be sold and the directors and officers thereof to
execute and deliver, all such agreements, documents and instruments, and do or
cause to be done all such other acts and things, as may be necessary or, in the
opinion of the Secured Party, advisable to register such Collateral under the
provisions of the Securities Act (as hereinafter defined) and to cause the
registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be furnished
and to make all amendments and supplements thereto and to the related prospectus
which, in the opinion of the Secured Party, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;

          (ii)   use its best efforts to qualify such Collateral under all
applicable state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of such Collateral, as requested by the
Secured Party;

          (iii)  cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement which will satisfy the
provisions of Section 11(a) of the Securities Act;

          (iv)   do or cause to be done all such other acts and things as may be
reasonably necessary to make such sale of the Collateral or any part thereof
valid and binding and in compliance with applicable law; and

          (v)    bear all reasonable costs and expenses, including reasonable
attorneys' fees, of carrying out its obligations under this Section 6.02.
                                                            ------------

     (b)  The Debtor recognizes that the Secured Party may be unable to effect a
public sale of any or all of the Collateral by reason of certain prohibitions
contained in the laws of any jurisdiction outside the United States or in the
Securities Act of 1933, as amended from time to time (the "Securities Act"), and
                                                           --------------
applicable state securities laws but may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers who will be obliged to
agree, among other things, to acquire such Collateral for their own account for
investment and not with a view to the distribution or resale thereof. The Debtor
acknowledges and agrees that any such private sale may result in prices and
other terms less favorable to the seller than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such private sale
shall, to the extent permitted by law, be deemed to have been made in a
commercially reasonable manner.

SECURITY AGREEMENT - Page 24
------------------
<PAGE>

The Secured Party shall not be under any obligation to delay a sale of any of
the Collateral for the period of time necessary to permit the issuer of such
securities to register such securities under the laws of any jurisdiction
outside the United States, under the Securities Act or under any applicable
state securities laws, even if such issuer would agree to do so.

     (c)  The Debtor further agrees to do or cause to be done, to the extent
that the Debtor may do so under applicable law, all such other acts and things
as may be necessary to make such sales or resales of any portion or all of the
Collateral valid and binding and in compliance with any and all applicable laws,
regulations, orders, writs, injunctions, decrees or awards of any and all
courts, arbitrators or governmental instrumentalities, domestic or foreign,
having jurisdiction over any such sale or sales, all at the Debtor's expense.
The Debtor further agrees that a breach of any of the covenants contained in
this Section 6.02 will cause irreparable injury to the Secured Party and that
     ------------
the Secured Party has no adequate remedy at law in respect of such breach and,
as a consequence, agrees that each and every covenant contained in this Section
                                                                        -------
6.02 shall be specifically enforceable against the Debtor, and the Debtor hereby
----
waives and agrees, to the fullest extent permitted by law, not to assert as a
defense against an action for specific performance of such covenants that (i)
the Debtor's failure to perform such covenants will not cause irreparable injury
to the Secured Party or (ii) the Secured Party has an adequate remedy at law in
respect of such breach. The Debtor further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by the Secured Party
by reason of a breach of any of the covenants contained in this Section 6.02
                                                                ------------
and, consequently, agrees that, if the Debtor shall breach any of such covenants
and the Secured Party shall sue for damages for such breach, the Debtor shall
pay to the Secured Party, as liquidated damages and not as a penalty, an
aggregate amount equal to the value of the Collateral on the date the Secured
Party shall demand compliance with this Section 6.02.
                                        ------------

     (d)  THE DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS THE
SECURED PARTY AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS, COSTS
AND EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE
SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY
APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER
APPLICABLE LAW IN CONNECTION WITH THE AFORESAID REGISTRATION, INSOFAR AS SUCH
LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON,
ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN
ANY REGISTRATION STATEMENT RELATING TO ANY PART OF THE COLLATERAL, OR SUCH
REGISTRATION STATEMENT AS AMENDED OR SUPPLEMENTED, OR ARISES OUT OF, OR IS BASED
UPON, THE OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT REQUIRED
TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING;
PROVIDED, HOWEVER, THAT THE DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE
EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT
OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR
OMISSION OR ALLEGED OMISSION MADE IN THE AFORESAID

SECURITY AGREEMENT - Page 25
------------------
<PAGE>

REGISTRATION STATEMENT OR THE AFORESAID REGISTRATION STATEMENT AS AMENDED OR
SUPPLEMENTED, IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION
FURNISHED TO THE DEBTOR BY THE SECURED PARTY SPECIFICALLY FOR INCLUSION THEREIN.
THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY
OR OBLIGATION THAT THE DEBTOR MAY OTHERWISE HAVE TO THE SECURED PARTY OR ANY
SUCH CONTROLLING PERSON.

                                  ARTICLE VII

                                 Miscellaneous
                                 -------------

     Section 7.01. No Waiver; Cumulative Remedies. No failure on the part of the
                   ------------------------------
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.

     Section 7.02. Successors and Assigns. This Agreement shall be binding upon
                   ----------------------
and inure to the benefit of the Debtor and the Secured Party and their
respective heirs, successors and assigns, except that the Debtor may not assign
any of its rights or obligations under this Agreement without the prior written
consent of the Secured Party.

     Section 7.03.  Amendment; Entire Agreement.  This Agreement embodies the
                    ---------------------------
final, entire agreement among the parties hereto and supersedes any and all
prior commitments, agreements, representations and understandings, whether
written or oral, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto.  There are no unwritten oral
agreements among the parties hereto.  The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto,
except as provided in Section 4.15(g).
                      ---------------

     Section 7.04. Notices. All notices and other communications provided for in
                   -------
this Agreement shall be given or made by telecopy or in writing and telecopied,
mailed by certified mail return receipt requested, or delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof, or, as to any party, at such other address as shall be designated
by such party in a notice to the other party given in accordance with this
Section 7.04. Except as otherwise provided in this Agreement, all such
------------
communications shall be deemed to have been duly given when transmitted by
telecopy or when personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid; provided, however, that
                                                       -----------------
notices to the Secured Party shall be deemed given when received by the Secured
Party.

     Section 7.05. Governing Law; Submission to Jurisdiction; Service of
                   -----------------------------------------------------

Process. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
-------

SECURITY AGREEMENT - Page 26
------------------
<PAGE>

THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES)
AND APPLICABLE LAWS OF THE UNITED STATES.

     Section 7.06.  Headings.  The headings, captions, and arrangements used in
                    --------
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.

     Section 7.07.  Survival of Representations and Warranties.  All
                    ------------------------------------------
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by the Secured Party shall affect the
representations and warranties or the right of the Secured Party to rely upon
them.

     Section 7.08. Counterparts. This Agreement may be executed in any number of
                   ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     Section 7.09. Waiver of Bond. In the event the Secured Party seeks to take
                   --------------
possession of any or all of the Collateral by judicial process, the Debtor
hereby irrevocably waives any bonds and any surety or security relating thereto
that may be required by applicable law as an incident to such possession, and
waives any demand for possession prior to the commencement of any such suit or
action

     Section 7.10.  Severability.  Any provision of this Agreement which is
                    ------------
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     Section 7.11.  Construction.  The Debtor and the Secured Party acknowledge
                    ------------
that each of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review this Agreement with its legal counsel and
that this Agreement shall be construed as if jointly drafted by the Debtor and
the Secured Party.

     Section 7.12.  Termination.  If all of the Obligations shall have been paid
                    -----------
and performed in full, the Secured Party shall, upon the written request of the
Debtor, execute and deliver to the Debtor a proper instrument or instruments
acknowledging the release and termination of the security interests created by
this Agreement, and shall duly assign and deliver to the Debtor (without
recourse and without any representation or warranty) such of the Collateral as
may be in the possession of the Secured Party and has not previously been sold
or otherwise applied pursuant to this Agreement.

     Section 7.13.  Waiver of Jury Trial.  TO THE FULLEST EXTENT PERMITTED BY
                    --------------------
APPLICABLE LAW, THE DEBTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE

SECURITY AGREEMENT - Page 27
------------------
<PAGE>

TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE SECURED PARTY IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.

                           (Signature page follows)

SECURITY AGREEMENT - Page 28
------------------
<PAGE>

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first written above.

                                  DEBTOR:

                                  EDGE TECHNOLOGY GROUP, INC.

                                  By:  /s/ Pierre Koshakji
                                       -------------------
                                  Name:  Pierre Koshakji
                                  Title: President

                                  Address for Notices:
                                  901 Yamato Road, Suite 175
                                  Boca Raton, Florida 33431
                                  Fax No.: (561) 750-7299
                                  Telephone No.: (561) 750-7559
                                  Attention:   Pierre Koshakji
                                               President

                                  SECURED PARTY:

                                  CATALYST MASTER FUND, L.P.

                                  By:  Catalyst GP, Ltd., its General Partner

                                       By:  /s/ J. Keith Benedict
                                            ---------------------
                                            J. Keith Benedict
                                            Vice President

                                  Address for Notices:
                                  Catalyst GP, Ltd.
                                  1601 Elm Street
                                  4000 Renaissance Tower
                                  Dallas, Texas 75201
                                  Fax No.: (214) 720-1662
                                  Telephone No.: (214) 720-1660
                                  Attention: J. Keith Benedict

SECURITY AGREEMENT - Page 29
------------------
<PAGE>

                         Schedules and Exhibits Omitted

SECURITY AGREEMENT - Page 30
------------------

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