Document:

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                                                                    EXHIBIT 10.9

                       CONVERTIBLE SECURED LOAN AGREEMENT

         This CONVERTIBLE SECURED LOAN AGREEMENT (the "Agreement") dated as of
December 1, 1999, is made by and between SPATIALIGHT, INC., a New York
corporation (the "Company") and the parties listed on Exhibit A hereto (each, a
"Lender").

         WHEREAS, Lender together with other lenders have agreed to advance
funds to the Company in an aggregate amount not to exceed $2,875,000 (the
"Convertible Secured Loan") evidenced by certain Convertible Secured Notes of
even date herewith (the "Notes") made by the Company in favor of the lenders who
are participating in this Convertible Secured Loan (the lenders are hereinafter
referred to collectively as the "Lenders");

         WHEREAS, Lender's agreement to make such advances is conditioned upon
and subject to the provisions of this Agreement; and

         WHEREAS, the Company has reserved for issuance shares of its Common
Stock issuable upon the conversion of the Notes into Common Stock.

         NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:

                                    SECTION 1

                                   Definitions

         1.1 Defined Terms. The following terms are defined as follows:

         "Benefit Arrangement" means any benefit arrangement, obligation, custom
or practice, to provide benefits, other than salary, as compensation for
services rendered, other than any obligation, arrangement, custom or practice
that is a Company Benefit Plan, including, without limitation, employment or
change of control agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs and employee discounts, in each case with
respect to any present or former employees, directors or agents.

         "Business Day" means any day other than a Saturday or Sunday on which
commercial banks located in New York, New York are not required or authorized by
law or executive order to close or remain closed.

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         "Closing" is defined in Section 3 hereof.

         "Closing Date" is defined in Section 3 hereof.

         "Code" means the Internal Revenue Code of 1986 (or any successor
thereto), as amended from time to time.

         "Conversion Shares" is defined in Section 5.6 hereof.

         "Common Stock" is defined in Section 4.2(a) hereof.

         "Company Benefit Arrangement" means any Benefit Arrangement sponsored
or maintained by the Company or its Subsidiaries or with respect to which the
Company or a Subsidiary has or will have any liability (whether actual,
contingent, direct or indirect) as of the Closing Date, in each case with
respect to any present or former directors, employees, or agents of the Company
or the Subsidiaries.

         "Company Plan" means, as of the Closing Date, any Employee Benefit Plan
for which the Company or any Subsidiary has or will have any liability (whether
actual, contingent, direct or indirect).

         "Company's Knowledge" or derivations thereof means knowledge of the
executive officers and members of the board of directors of the Company.

         "Environmental Law" means any foreign, federal, state or local statute,
regulation, ordinance or rule of common law as now or hereafter in effect in any
way relating to the protection of the environment including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Sections 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. App. Sections 1801 et seq.), the Resource Conservation and Recovery Act
(42 U.S.C. Sections 6901 et seq.), the Clean Water Act (33 U.S.C. Sections 1251
et seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Sections 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sections 136 et seq.), and
the Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.) and the
regulations promulgated pursuant thereto.

         "Event of Default" shall have the meaning ascribed to it in Section 4
of the Notes.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Hazardous Material" means any substance, material or waste that is
regulated by the United States, the foreign jurisdictions in which the Company
or its Subsidiaries conduct business, or any state or local governmental
authority including, without limitation, petroleum and its by-products,
asbestos, and any material or substance that is defined as a "hazardous waste,"
"hazardous substance," "hazardous material," "restricted

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hazardous waste," "industrial waste," "solid waste," "contaminant,"
"pollutant," "toxic waste" or "toxic substance" under any provision of
Environmental Law.

         "Lien" means any lien, pledge, mortgage, deed of trust, security
interest, adverse claim, charge, right of first refusal, easement, transfer
restriction under any shareholder or similar agreement, encumbrance or any other
restriction or limitation whatsoever.

         "Loan Document" is defined in Section 4.5 hereof.

         "Material Adverse Effect" is defined in Section 4.1 hereof.

         "New Securities" means shares of Common Stock (as defined in Section
4.2 of this Agreement) of the Company and any securities or other rights
convertible or exchangeable into or exercisable for shares of Common Stock,
provided, however, "New Securities" does not include (i) Common Stock issued or
issuable upon conversion of the Notes or Non-transferable Warrants issued to
Lenders; (ii) securities issued by the Company as part of any public offering
pursuant to an effective registration statement under the Securities Act; (iii)
equity securities issued in connection with any stock split, stock dividend or
recapitalization of the Company; (iv) equity securities issued to management,
directors or employees of the Company pursuant to plans and options to purchase
equity securities issued in accordance with plans approved by the Board; (v)
securities issued in connection with any merger, acquisition or other business
combination by the Company; (vi) Common Stock issued upon the conversion of any
notes outstanding as of the date hereof to Argyle Capital Management
Corporation; (vii) any of the Excluded Shares (as defined in Section 4(f)(iii)
of the Notes; or (viii) Common Stock or warrants to purchase Common Stock in an
amount not to exceed 250,000 shares of Common Stock which may be issued by the
Company in satisfaction of outstanding accounts payable.

        "Non-transferable Warrants" is defined in Section 2.1 hereof.

        "Notes" is defined in Section 2.1 hereof.

         "Permits" means any approvals, authorizations, consents, licenses,
permits or certificates.

         "Person" means an individual, partnership, limited liability company,
corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.

         "Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal or leaching into the indoor
or outdoor environment, or into or out of any property;

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         "Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare of the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.

        "Securities Act" means the Securities Act of 1933, as amended.

         "Subsidiaries" means all material corporations in which the Company
owns or controls, directly or indirectly, capital stock or other equity
interests representing at least 50% of the outstanding voting stock or other
equity interests.

                                    SECTION 2

            Issuance and Terms of Notes and Non-transferable Warrants

         2.1 Notes and Non-transferable Warrants. At the Closing, the Company
will execute and deliver to each Lender (a) a Note, in the form attached hereto
as Exhibit B, (each a "Note", and collectively with the Notes given to the other
Lenders in the aggregate amount of $2,875,000, the "Notes",) and (b) a
Non-transferable Warrant, in the form attached hereto as Exhibit C, to purchase
one share of Common Stock for each share that the Note is convertible into,
assuming a $3.50 conversion price (so that if a Lender made a loan of $350,000,
such Lender would received a Non-transferable Warrant to purchase 100,000 shares
of Common Stock). The Non-transferable Warrant will be exercisable by the Lender
until June 30, 2002, at an exercise price of $3.50 per share of Common Stock.

         2.2 Funding of Convertible Secured Notes. Subject to the provisions of
this Agreement, including satisfaction of the conditions to Lender's obligations
specified in Section 2.7 hereof, the Lender agrees to release the principal
amount of the Note set forth on Exhibit A hereto according to the Funds Release
Schedule attached hereto as Exhibit D. Anything in this Agreement, the Note or
any other Loan Document to the contrary notwithstanding, the Lender shall not be
required to advance any funds hereunder at any time when an Event of Default
exists under this Agreement, the Note, or any other Loan Document, or an event
has occurred or a condition has arisen which, if not cured during any applicable
cure period, will constitute an Event of Default. The obligations of the Lender
to advance any funds hereunder shall forever cease and terminate, in the event
that any Event of Default occurs under this Agreement, the Note, or any other
Loan Document, which is not cured within any applicable cure period provided in
such instrument.

         2.3 Use of Proceeds. The Company agrees to use all of the funds
advanced hereunder to pay transaction costs and for working capital purposes.

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         2.4 Security Agreement. At the Closing (as defined in Section 3 of this
Agreement), the Company shall execute and deliver to Lender a Security Agreement
in the form attached hereto as Exhibit E (the "Security Agreement"). Lender may
record the executed Security Agreement in the U.S. Patent and Trademark Office,
the U.S. Copyright Office, with any Secretary of State, or as otherwise
appropriate to protect the interests of Lender.

         2.5 Intercreditor Agreement. This Agreement is being entered into by
the Lender together with the other Lenders in reliance upon that certain
Intercreditor Agreement (a copy of which is attached hereto as Exhibit F) among
the Lender, the Company, Argyle Capital Management Corporation and the
additional parties set forth on Schedule B to the Intercreditor Agreement. This
Agreement shall have no force or effect unless or until the said Intercreditor
Agreement is executed by Lender, the Company and Argyle Capital Management
Corporation.

         2.6 Registration Rights Agreement. At the Closing, the parties shall
enter into a Registration Rights Agreement in the form attached hereto as
Exhibit G.

         2.7 Conditions of Lender's Obligations. The obligation of Lender to
advance funds at the Closing and at any time thereafter under the terms of this
Agreement is subject to the fulfillment of the following conditions:

                  (a) No Misrepresentation. The representations and warranties
of the Company under this Agreement shall be deemed to have been made at the
Closing and on the date of any release of funds thereafter and shall then be
true and correct in all material respects.

                  (b) Compliance with Agreement. The Company shall have
performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it on
or before the Closing Date.

                  (c) No Default. There shall not exist an Event of Default or
any event or condition which, with the giving of notice or lapse of time or
both, would constitute an Event of Default.

                  (d) Qualification Under State Securities Laws. All
registrations, qualifications, permits and approvals required under applicable
state securities laws and required to be filed before the issuance of securities
shall have been obtained for the lawful execution, delivery and performance of
this Agreement, including without limitation the offer and sale of the Notes.

                  (e) Closing Documents Delivered by the Company. The Company
shall have delivered to each Lender all of the following documents:

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                           (i) an Officer's Certificate, dated the date of the
Closing, stating that the conditions specified in Subsections (a), (b) and (c)
of this Section 2.7 have been fully satisfied;

                           (ii) certified copies of the resolutions duly adopted
by the Company's Board of Directors authorizing the execution, delivery and
performance of this Agreement, the other Loan Documents, the issuance and sale
of the Notes and the consummation of all other transactions contemplated by this
Agreement; and

                           (iii) copies of the Company's Articles of
Incorporation, with all amendments thereto, and the Company's Bylaws, with all
amendments thereto, each as in effect at the Closing and each certified as a
complete and correct copy by an officer of the Company.

                  (f) Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions, shall be reasonably
satisfactory in form and substance to each Lender and its special counsel.

                  (g) Waiver. Any condition specified in this Section 2.7 may be
waived if consented to by each Lender; provided that no such waiver will be
effective against any Lender unless it is set forth in a writing executed by
such Lender.

                                    SECTION 3

                                     Closing

         The closing of the transactions contemplated in this Agreement (the
"Closing") shall be held at the Company's offices located at 9 Commercial
Boulevard, Suite 200, Novato, CA 94949 on the date which this Agreement is
executed by all parties, or on such other date or at such other place as Lender
and the Company shall mutually agree (the date of the Closing being referred to
herein as the "Closing Date").

                                    SECTION 4

                  Representations and Warranties of the Company

        The Company hereby represents and warrants as of the date hereof as
follows:

         4.1 Organization. Good Standing and Qualification. Each of the Company
and its Subsidiaries (i) is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (ii) has
all requisite power and authority to own its properties and carry on its
business, (iii) is duly qualified to transact business and is in good standing
in all jurisdictions where its ownership, lease or operation of property

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or the conduct of its business requires such qualification, except where the
failure to be so qualified would not, and reasonably could not be expected to,
have a material adverse effect on the business, operations, assets, financial
condition or results of operations of the Company and its Subsidiaries (a
"Material Adverse Effect"). The Company has the corporate power and authority
and is in possession of all material franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders to
(i) own, lease and operate its properties and to carry on its business as now
being conducted and (ii) execute and deliver this Agreement and the documents
and instruments contemplated hereby and to consummate the transactions
contemplated hereby.

         4.2 Capitalization.

                  (a) The authorized capital stock of the Company consists of
40,000,000 shares of common stock, par value $.01 per share ("Common Stock") of
which not more than 13,288,258 shares are issued and outstanding as of September
30, 1999. There are no shares of preferred stock authorized or outstanding. The
Company has reserved for issuance 1,650,000 shares of Common Stock upon
conversion of the Notes and exercise of the Non-transferable Warrants. Except as
set forth on Schedule 4.2 hereto, there are no outstanding securities of the
Company convertible into or evidencing the right to purchase or subscribe for
any shares of Common Stock, there are no outstanding or authorized options,
warrants, calls, subscriptions, rights, commitments or any other agreements of
any character obligating the Company to issue any shares of its Common Stock or
any securities convertible into or evidencing the right to purchase or subscribe
for any shares of such stock, and there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of Common
Stock of the Company. No outstanding options, warrants or other securities
exercisable for or convertible into shares of Common Stock require anti-dilution
adjustments by reason of the consummation of the transactions contemplated
hereby.

                  (b) The issued and outstanding shares of Common Stock are duly
authorized, validly issued, fully paid and nonassessable. The shares of Common
Stock issuable upon conversion of the Notes of the Company and exercise of the
Non-transferable Warrants, when issued (i) will be validly issued, fully paid
and nonassessable, (ii) will be free and clear of all Liens and (iii) assuming
that the representations of Lender in Section 5 hereof are true and correct,
will be issued in compliance with all applicable federal and state securities
laws.

         4.3 Subsidiaries. Schedule 4.3 sets forth a complete and accurate list
of all Subsidiaries of the Company, showing (as to each such Subsidiary) the
date of its incorporation and the jurisdiction of its incorporation. The Company
is the sole stockholder of each Subsidiary. The outstanding shares of capital
stock of each Subsidiary are validly issued, fully paid, and nonassessable and
all such shares represented as being owned by the Company are owned by it, free
and clear of all Liens, other than Liens held by Argyle Capital Management
Corporation and the Lenders. There are no outstanding securities of any
Subsidiary convertible into or evidencing the right to

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purchase or subscribe for any shares of capital stock of any Subsidiary, there
are no outstanding or authorized options, warrants, calls, subscriptions,
rights, commitments or any other agreements of any character obligating any
Subsidiary to issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or subscribe for any shares
of such stock, and there are no agreements or understanding with respect to the
voting, sale, transfer or registration of any shares of capital stock of any
Subsidiary.

         4.4 Partnerships and LLCs. The Company is not a party to, and does not
hold, any equity interests in any partnership, limited partnership or limited
liability company of any kind.

         4.5 Authorization. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and each agreement, document or
instrument adopted, entered into or delivered in connection herewith (the "Loan
Documents") and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of the Agreement and the transactions
contemplated hereby and thereby and the issuance and sale of the Notes and the
Non-transferable Warrants have been duly authorized by all necessary corporate
action on the part of the Company. Each Loan Document has been duly and validly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity) and except to the extent that rights to indemnification and
contribution under this Agreement may be limited by federal or state laws or
public policy relating thereto.

         4.6 Consents. Except as set forth in Schedule 4.6, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority or other Person on the part of the Company is required in
connection with the valid execution and delivery by the Company of the Loan
Documents to which it is a party, or the consummation by the Company of the
transactions contemplated by the Loan Documents to which it is a party.

         4.7 Absence of Litigation. Except for outstanding accounts payable or
as set forth in Schedule 4.7, there are no claims, actions, suits, proceedings
or investigations pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries, or any properties or rights of
the Company or its Subsidiaries, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, that could
reasonably be expected to have a Material Adverse Effect. The Company has no
knowledge of any unasserted claim, the assertion of which is likely and which,
if asserted, would be reasonably likely to have a Material Adverse Effect.

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         4.8 Insurance. The Company and its Subsidiaries maintain adequate
insurance with respect to their respective businesses and such policies of
insurance are in full force and effect. The Company and its Subsidiaries are not
in violation of, and to the Company's knowledge, are in compliance with all
material requirements and provisions of such insurance. The Company and its
Subsidiaries have not been refused any insurance coverage sought or applied for,
and the Company has no reason to believe that it will be unable to renew its
existing insurance coverage upon terms at least as favorable as those presently
in effect, other than possible increases in premiums that do not result from any
act or omission of the Company or its Subsidiaries.

         4.9 Patents and Trademarks. The Company and its Subsidiaries have
sufficient title and ownership of (or rights under license agreements to use)
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
proprietary rights and processes ("Intellectual Property") necessary for the
conduct of their businesses in the ordinary course. Other than the security
interest granted to Argyle Capital Management Corporation in all of the
Corporation's Collateral (as such term is defined in the Security Agreement and
the security interest granted to the Lenders), there are no outstanding options,
licenses or agreements of any kind relating to the foregoing, nor is the Company
or any of its Subsidiaries bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, proprietary rights or processes of any
other Person. A list of all patents, trademarks, service marks, trade names and
copyrights owned by the Company or any of its Subsidiaries is set forth on
Schedule 4.9(a). Except as set forth on Schedule 4.9(b), since January 1, 1998,
the Company has not received any written or oral communications alleging that
the Company or any of its Subsidiaries has violated or, by conducting its
business as proposed, would violate any of the patents (including pending patent
applications), trademarks, service marks, trade names, copyrights, trade
secrets, proprietary rights or processes of any other Person, nor is the Company
aware of any such violations. The Company is not aware of any infringements or
threatened infringements of the Intellectual Property.

         4.10 Compliance with Other Instruments and Legal Requirements.

                  (a) None of the Company or any of its Subsidiaries is in
violation or default of any provisions of its certificate of incorporation,
by-laws, or comparable organizational documents. None of the Company or its
Subsidiaries is in violation or default in any material respect under any
provision, instrument, judgment, order, writ, decree, contract or agreement to
which it is a party or by which it is bound or of any provision of any federal,
state or local statute, rule or regulation applicable to the Company or any of
its Subsidiaries (including, without limitation, any law, rule or regulation
relating to protection of the environment and the maintenance of safe and
sanitary premises). The execution, delivery and performance of each Loan
Document and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment,

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order, writ, decree, contract or agreement, or require any consent, waiver or
approval thereunder, or constitute an event that results in the creation of any
Lien upon any assets of the Company or any of its Subsidiaries except as created
by the Loan Documents.

                  (b) The Company and its Subsidiaries have all Permits of all
governmental entities required to conduct their respective businesses as
proposed to be conducted, except to the extent that the failure to have such
Permits would not, and reasonably could not be expected to, have a Material
Adverse Effect.

         4.11 Material Agreements; Action. Except as set forth on Schedule 4.11,
there are no material contracts, agreements, commitments, understandings or
proposed transactions to which the Company or any of its Subsidiaries is a party
or by which it is bound regarding: (i) any of their respective officers,
directors, stockholders or partners; (ii) the sale of any of the assets of the
Company or any of its Subsidiaries other than in the ordinary course of
business; (iii) covenants of the Company or any of its Subsidiaries not to
compete in any line of business or with any Person in any geographical area or
covenants of any other Person not to compete with the Company or any of its
Subsidiaries in any line of business or in any geographical area; (iv) the
acquisition by the Company or any of its Subsidiaries of any operating business
or the capital stock of any other Person; (v) the borrowing of money; or (vi)
the license or grant of any interest in any of the Intellectual Property or
other material proprietary right to or from the Company or any of its
Subsidiaries, except as created by the Loan Documents. To the Company's
knowledge, all such agreements are in full force and effect and are the legal,
valid and binding obligation of the Company or its Subsidiaries, enforceable
against them in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).

        4.12 Disclosure. To the best of the Company's knowledge, neither this
Agreement nor any of the Loan Documents nor any exhibit hereto, nor any
certificate, or instrument furnished to Lender or its counsel in connection with
the transactions contemplated by this Agreement, when read together, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they are made, not
misleading.

         4.13 Registration Rights. Except as set forth in Schedule 4.13, the
Company has not granted or agreed to grant any registration rights, including
piggyback registration rights, to any Person.

         4.14 Property. None of the Company or its Subsidiaries owns real
property or interest in real property. The Company and its Subsidiaries have
good and marketable title to all material properties and assets, and the Company
and its Subsidiaries have good

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title to all of its leasehold interests in each case subject to no Liens other
than those set forth in Schedule 4.14.

         4.15 Environmental Matters.

                  (a) the operations of each of the Company and its Subsidiaries
are in compliance in all material respects with all applicable Environmental
Laws and all Permits issued pursuant to Environmental Laws or otherwise;

                  (b) each of the Company and its Subsidiaries has obtained all
material Permits required under all applicable Environmental Laws necessary to
operate its business;

                  (c) neither the Company nor any of its Subsidiaries is the
subject of any outstanding written order, agreement or arrangement with any
governmental authority or Person respecting (i) Environmental Laws, (ii)
Remedial Action or (iii) any Release or threatened Release of a Hazardous
Material;

                  (d) none of the Company or any of its Subsidiaries has
received any written communication alleging that the Company or any of its
Subsidiaries may be in violation of any Environmental Law, or any Permit issued
pursuant to Environmental Law, or may have any liability under any Environmental
Law;

                  (e) none of the Company or any of its Subsidiaries has any
known current contingent liability in connection with any Release of any
Hazardous Materials into the indoor or outdoor environment;

                  (f) there are no investigations of the business, operations,
or currently or previously owned, operated or leased property of the Company or
any of its Subsidiaries pending or, to the Company's Knowledge, threatened that
could lead to the imposition of any liability pursuant to Environmental Law; and

                  (g) there is not located at any property leased or operated by
the Company or any of its Subsidiaries any (i) underground storage tanks, (ii)
asbestos containing material in a friable condition or (iii) equipment
containing polychlorinated biphenyls.

         4.16 Company SEC Reports and Financial Statements.

                  (a) Lender has received true and complete copies of all
periodic reports, statements and other documents that the Company has filed with
the Securities and Exchange Commission (the "SEC") under the Exchange Act since
January 1, 1998 (collectively, the "Company SEC Reports"), each in the form
(including exhibits and any amendments thereto) required to be filed with the
SEC. As of their respective dates, each of the Company's SEC Reports (i)
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and regulations

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promulgated thereunder, respectively, (ii) were filed in a timely manner, and
(iii) to the best of the Company's knowledge, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
Subsidiaries is required to file any forms, reports or other documents with the
SEC.

                  (b) Each of the audited consolidated financial statements of
the Company (including any related notes and schedules thereto) included (or
incorporated by reference) in its Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1998, and, to the best of the Company's knowledge, each
of the unaudited consolidated financial statements of the Company in its Forms
10-Q for the periods ending March 31, 1999, June 30, 1999, and September 30,
1999, are accurate and complete and fairly present, and in conformity with the
SEC's Regulation S-B, the consolidated financial position of the Company and its
consolidated subsidiaries as of its date and the consolidated results of
operations and changes in financial position for the period then ended.

         4.17 Changes. Except as set forth on Schedule 4.17, since September 30,
1999:

                  (a) to the best of the Company's knowledge, there have not
been any events or circumstances that could reasonably be expected to have a
Material Adverse Effect;

                  (b) none of the Company nor its Subsidiaries has (i) declared
or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock or equity interests, (ii)
incurred any indebtedness for money in excess of $100,000, (iii) made any loans
or advances to any Person, other than ordinary advances for travel expenses not
exceeding $5,000, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights for consideration in excess of $5,000 in any one transaction or
series of related transactions; and

                  (c) Company has not issued any options, warrants or other
securities convertible into shares of Common Stock.

         4.18 Indebtedness. Neither the Company nor any of its Subsidiaries has
any outstanding indebtedness or is a guarantor or is otherwise contingently
liable for any indebtedness except as disclosed on the balance sheet of the
Company dated September 30, 1999 in the Company's Form 10-Q (the "Balance
Sheet"). There exists no material default under the provisions of any instrument
evidencing any Senior Secured Obligations or Subordinate Secured Obligations, as
each such term is defined in that certain Intercreditor Agreement dated even
herewith) or of any agreement relating thereto. The current outstanding
principal balance due to Argyle Capital Management Corporation is no more than
$1,188,000, and interest accrued and unpaid on such debt as of September 30,
1999 is not more than $10,000.

                                       12
<PAGE>   13
         4.19 Employee Benefit Plans.

                  (a) Schedule 4.19(a) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements. Schedule 4.19(a)
specifically identifies all Company Plans (if any) that are Qualified Plans.

                  (b) Schedule 4.19(b) hereto sets forth an accurate list, as of
the date hereof, of all officers, directors, and key employees of the Company
and lists all employment agreements with such officers, directors, and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus, and other compensation respectively) of each such Person as of
the date hereof.

                  (c) The Company has not declared or paid any bonus
compensation in contemplation of the transactions contemplated by this
Agreement.

         4.20 Taxes. All federal, state, local and foreign tax returns, reports
and statements, or extensions required by law to be filed by the Company and its
Subsidiaries have been filed with the appropriate governmental agencies in all
jurisdictions in which such returns, reports and statements are required to be
filed and all such returns, reports and statements or extensions are true,
complete and correct in all respects. All taxes, charges and other impositions
due and payable by the Company and its Subsidiaries have been paid in full on a
timely basis except where contested in good faith and by appropriate proceedings
and after adequate reserves therefor have been established on the books and
records of the Company or Subsidiary in accordance with generally accepted
accounting principles ("GAAP") consistently applied. The Company has not
received notice of any audit or of any proposed deficiencies from any
governmental authority, and no controversy with respect to taxes of any type is
pending or threatened. Except for routine filing extensions granted as a matter
of right under applicable law, none of the Company or any of its Subsidiaries
has executed or filed with the Internal Revenue Service or any other
governmental authority any agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any taxes,
charges or other impositions.

         4.21 No Brokers or Finders. Except as set forth in Schedule 4.21, no
Person has, or as a result of the transactions contemplated herein will have,
any right or valid claim against the Company for any commission, fee or other
compensation as a finder or broker or in any similar capacity.

         4.22 Interested Party Transactions. Except as disclosed on Schedule
4.22, no officer, director or shareholder of the Company or any affiliate or
"associate" (as such term is defined in Rule 405 of the Commission promulgated
under the Securities Act) of any such Person or the Company has or has had,
either directly or indirectly, (a) an interest in any Person which (i) furnishes
or sells services or products which are furnished or sold or are proposed to be
furnished or sold by the Company, or (ii) purchases from or sells or furnishes
to, or proposes to purchase from, sell to or furnish to, the Company any

                                       13
<PAGE>   14
goods or services, or (b) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected.

         4.23 Securities Laws. Assuming the accuracy and completeness of the
representations and warranties of the Lenders under the Agreement, the offer and
sale of the Notes are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration or qualification requirements of all applicable state securities
laws.

         4.24 Absence of Undisclosed Liabilities. Neither the Company nor any of
its Subsidiaries has any obligation or liability (whether accrued, absolute,
contingent, liquidated or otherwise, including without limitation any tax
liabilities due or to become due), which are not fully disclosed and adequately
provided for in the Balance Sheet, or fully disclosed on Schedules to this
Agreement, except current liabilities incurred and obligations under agreements
entered into in the usual and ordinary course of business since the date of the
Balance Sheet, none of which (individually or in the aggregate) is material to
the business, properties, financial condition or results of operations of the
Company and its Subsidiaries, and contingent liabilities that are not
(individually or in the aggregate) material to the business, properties,
financial condition or results of operations of the Company and its
Subsidiaries.

         4.25 Employees. To the Company's knowledge, no officer or key employee
of the Company or any Subsidiary has any plans to terminate his or her
employment with the Company or such Subsidiary and no employee of the Company or
any Subsidiary is in violation of any term of any employment contract, or
nondisclosure agreement, non-competition agreement, or any other obligation,
contract or agreement or any restrictive covenant relating to the right of any
such employee to be employed by the Company or such Subsidiary or relating to
the use of trade secrets or proprietary information of others, and the
employment of the employees of the Company or any Subsidiary does not subject
the Company or any Subsidiary to any liability arising by reason of any such
contract, agreement or restrictive covenant or by reason of trade secret or
unfair competition laws. The Company and each Subsidiary has complied in all
material respects with all laws relating to employment or labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and payment of Social Security and other taxes.

                                    SECTION 5

             Representations, Warranties and Covenants of the Lender

         Each Lender severally hereby represents and warrants to and agrees with
the Company, as to itself only, as follows:

         5.1 Accredited Investor; Investment. Lender is an accredited investor
within the definition of Regulation D promulgated under the Securities Act.
Lender has such

                                       14
<PAGE>   15
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the transactions contemplated herein. Lender
is acquiring its respective Note for investment purposes only, for its own
account and not with a view to, or for resale in connection with, any
distribution thereof in violation of applicable law.

        5.2 Risk. Lender acknowledges that it, he or she is aware that the
Company is currently insolvent and has not had any revenues and has sustained
losses for the past several years. The Lender further acknowledges that (x)
there can be no assurance that the Company will have sufficient funds to repay
all or any portion of the loan being borrowed hereunder, (y) that the collateral
securing the loan will have sufficient value to repay the loan or (z) that the
securities into which the loan may be converted will have any value. Lender
further confirms that the Company has made available to the Lender the
opportunity to ask questions of and receive answers from the Company concerning
the Company and the activities of the Company.

         5.3 Authorization. Lender represents that it has all requisite power
and authority to enter into and perform its obligations under the Loan Documents
to which it is a party. Assuming the due authorization, execution and delivery
of the Loan Documents by each other party thereto, each Loan Document to which
Lender is a party constitutes a valid and binding obligation of Lender,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity) and except to the
extent that rights to indemnification and contribution under this Agreement may
be limited by federal or state securities laws or public policy relating
thereto.

         5.4 Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority or other Person on the part of
Lender is required in connection with the valid execution and delivery by Lender
of the Loan Documents to which it is a party, or the consummation by Lender of
the transactions contemplated by the Loan Documents to which it is a party,
except for such filings as have been made prior to the Closing. Lenders are
residents of the states listed on Schedule 5.4.

         5.5 Brokers' Fees. No broker, finder, investment banker or other Person
is entitled to any brokerage fee, finder's fee or other commission in connection
with the transactions contemplated by this Agreement and based upon arrangements
made by Lender.

         5.6 Restrictive Legends. Lender understands that the common shares to
be issued upon conversion of the Note (the "Conversion Shares"), shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer

                                       15
<PAGE>   16
of such stock certificates) until such time as the sale of the Conversion Shares
have been registered under the Securities Act as contemplated hereunder:

         THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT",) OR ANY STATE
         OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED
         EXCEPT IN COMPLIANCE THEREWITH.

If Lender desires to sell or otherwise dispose of all or any part of such common
shares under an exemption from registration under the Securities Act, and if
requested by the Company, such Lender shall deliver to the Company an opinion of
counsel, which may be counsel for the Company, that such exemption is available.

        5.7 Receipt of Information. Lender has reviewed all periodic reports,
statements and other documents that the Company and its principal shareholders
have filed with the Securities and Exchange Commission (the "SEC") under the
Exchange Act since January 1, 1998, which filings are incorporated by reference
into the information provided by the Company to Lender.

                                    SECTION 6

                            Covenants of the Company

         6.1 Information. After the Closing Date and until the later to occur of
the date (the "Cessation Date") on which the Notes are fully repaid or converted
into equity of the Company, the Company will send each Lender the information
specified in this Section 6.1:

                  (a) Shareholders Information. Any and all materials which the
Company sends to the holders of its Common Shares shall be sent to each Lender
on the same date on which it is sent to such shareholders.

                  (b) Quarterly Financial Statements. As soon as available, but
in any event no later than forty-five (45) days after the end of each fiscal
quarter (other than the fourth fiscal quarter of the Company), the unaudited
consolidated balance sheet of the Company and its Subsidiaries as at the end of
each such quarter and the related unaudited consolidated statements of income
and cash flows of the Company and its Subsidiaries for such quarter and for the
elapsed period in such fiscal year, all in reasonable detail and stating in
comparative form the figures as of the end of and for the comparable periods of
the preceding fiscal year. All such financial statements shall be prepared in
accordance with GAAP on a consistent basis throughout the periods reflected
therein except as stated therein and shall be accompanied by a certificate of
the Company's president or chief financial officer to such effect.

                                       16
<PAGE>   17
                  (c) Other Reports and Statements. Promptly (but in any event
within ten (10) days after any distribution to its stockholders generally, to
its directors or to the financial community of an annual report, definitive
proxy statement, registration statement or other similar report or
communication, and promptly (but in any event within ten (10) days) after any
filing by the Company with the SEC or with any national securities exchange or
market system, of any publicly available annual or periodic or special report or
proxy statement or registration statement, a copy of such report or statement
and copies of all press releases and other statements made available generally
by the Company to the public concerning material developments in the Company's
business, shall be sent to each Lender.

         6.2 Preemptive Rights. If at any time after the Closing Date and prior
to the Cessation Date, the Company shall propose to issue or sell New Securities
or enters into any contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance or sale of any New Securities,
then each Lender shall have the right to purchase that number of New Securities
at the same price and on the same terms proposed to be issued or sold by the
Company so that such Lender would after the issuance and sale of all such New
Securities, hold the same proportional interest of the then outstanding shares
of Common Stock (assuming that any outstanding securities or other rights,
including the Notes, convertible or exchangeable into Common Stock have been
converted or exchanged) as was held by such Lender immediately prior to such
issuance and sale (the "Proportionate Percentage").

        The Company shall give each Lender written notice of its intention to
issue and sell New Securities, describing the type of New Securities, the price
and the general terms and conditions upon which the Company proposes to issue
the same. Each Lender shall have ten (10) Business Days from the giving of such
notice to agree to purchase all (or any part) of its Proportionate Percentage of
New Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.

         If Lenders fail to exercise in full such right within ten (10) Business
Days, the Company shall have one hundred twenty-five (125) days thereafter to
sell the New Securities in respect of which Lenders' rights were not exercised,
at a price and upon general terms and conditions no more favorable to the buyers
thereof than specified in the Company's notice to Lenders pursuant to this
Section. If the Company has not sold the New Securities within such one hundred
twenty-five (125) day period, the Company shall not thereafter issue or sell any
New Securities, except by giving Lenders the right to purchase their
Proportionate Percentage in the manner provided above.

         6.3 Negative Covenants. (a) Prior to the date on which the Notes are
paid in full, the Company shall not, without the prior written consent of each
Lender:

                                       17
<PAGE>   18
                  (i) Incur any debt for borrowed money, or grant any security
interest which is senior to, or pari passu with, the Note;

                  (ii) Declare or pay any dividend on its Common Stock;

                  (iii) Redeem for cash any securities issued by the Company;

                  (iv) Directly or indirectly, consummate any merger,
consolidation or other reorganization (other than a reorganization or merger
solely for the purpose of a change in the state of incorporation of the Company
and a merger of Spatialight of California, Inc. with and into the Company), or
the sale, lease or other transfer of all or substantially all of its assets;

                  (v) Issue any options, warrants, or other securities to any
officer or director of the Company, except for an issuance under the 1991 Stock
Option Plan, the 1993 Employee Stock Option Plan, as amended, the 1993 Directors
Stock Option Plan, and the 1999 Stock Option Plan; or

                  (vi) Incur any indebtedness in excess of currently outstanding
debt, the $2,875,000 loan contemplated hereby and $2,125,000 in financing on
terms substantially similar to the loan contemplated hereby, without the prior
written consent of the Lenders representing more than 75% of the outstanding
debt.

                  (b) Prior to the Cessation Date, the Company shall not,
without the prior written consent of each Lender:

                  (i) issue any security which is preferred in dividends or in
liquidation to the Common Stock, which is not convertible into Common Stock; or

                  (ii) issue any preferred stock, convertible debenture or other
security which is preferred in dividends to the Common Stock, which is intended
to, or can reasonably be expected to pay the purchaser of such security an
annual preferred yield of greater than ten percent per annum, on the issue price
of such security.

         6.4 Loss, Theft or Destruction of Notes. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note and, in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation, upon surrender and cancellation of any Note, the Company
will make and deliver, in lieu of such lost, stolen, destroyed or mutilated
Note, a new Note of like tenor and unpaid principal amount and dated as of the
date to which interest has been paid on the unpaid principal amount of the Note
so lost, stolen, destroyed or mutilated, or, if no interest shall have been paid
thereon, then dated as of the date of the Note so lost, stolen, destroyed or
mutilated.

                                       18
<PAGE>   19
                                    SECTION 7

                                 Indemnification

         7.1 Indemnification by Company. The Company agrees to indemnify and
hold harmless each Lender and its respective partners, co-investors, officers,
directors, employees, agents, consultants, attorneys and advisers (each, a
"Lender Indemnified Party"), from and against any and all actual losses, claims,
damages, liabilities, costs and expenses (including, without limitation,
environmental liabilities, costs and expenses and all reasonable fees, expenses
and disbursements of counsel), joint or several (hereinafter collectively
referred to as a "Loss" or "Losses"), which may be incurred by or asserted or
awarded against any Lender Indemnified Party in connection with or in any manner
arising out of or relating to any investigation, litigation or proceeding or the
preparation of any defense with respect thereto, arising out of or in connection
with or relating to this Agreement, the other Loan Documents or the transactions
contemplated hereby or thereby, any breach of any representation, warranty or
covenant made by the Company in this Agreement, any use made or proposed to be
made with the proceeds of Lender's respective Note pursuant to this Agreement,
whether or not such investigation, litigation or proceeding is brought by the
Company, any of its Subsidiaries, shareholders or creditors, but excluding
therefrom any Losses arising out of resulting from (i) the gross negligence or
willful misconduct of an Lender Indemnified Party, (ii) any violation by an
Lender Indemnified Party of any law, governmental regulation or court order
applicable to it or (iii) the breach by an Lender Indemnified Party of any
provision of this Agreement or any of the other Loan Documents.

         7.2 Indemnification by Lender. Each Lender severally agrees to
indemnify and hold harmless the Company and its respective officers, directors,
employees, agents, consultants, attorneys and advisers (each, a "Company
Indemnified Party"), from and against any and all Losses, which may be incurred
by or asserted or awarded against any Company Indemnified Party in connection
with or in any manner arising out of or relating to any investigation,
litigation or proceeding or the preparation of any defense with respect thereto,
arising out of or in connection with or relating to any breach of any
representation, warranty or covenant made by such Lender in this Agreement.
Notwithstanding the foregoing, no Lender shall be liable under this Section 7.2
for an amount in excess of that Lender's principal as set forth on Exhibit A.

         7.3 Notice of Claim. An indemnified party shall give written notice to
the indemnifying party of any claim with respect to which it seeks
indemnification within ten (10) days after the discovery by such parties of any
matters giving arise to a claim for indemnification pursuant to this Section 7,
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 7, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action or claim is
brought against any indemnified party, the indemnifying party shall be entitled
to

                                       19
<PAGE>   20
participate in and, unless in the reasonable good faith judgment of the
indemnified party a conflict of interest between such indemnified party and the
indemnifying party may exist in respect of such action or claim, to assume that
defense thereof, with counsel satisfactory to the indemnified party and after
notice from the indemnifying party to the indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. In any event, unless and until the indemnifying party elects in
writing to assume and does so assume the defense of any such action or claim the
indemnified party's costs and expenses arising out of the defense, settlement or
compromise of any such action or claim shall be Losses subject to
indemnification hereunder. If the indemnifying party elects to defend any such
action or claim, then the indemnified party shall be entitled to participate in
such defense with counsel of its choice at its sole cost and expense. The
indemnifying party shall not be liable for any settlement of any action or claim
effected without its written consent. Anything in this Section 7 to the contrary
notwithstanding, the indemnifying party shall not, without the indemnified
party's prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof that imposes any future obligation on
the indemnified party or that does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party, a
release from all liability in respect of such claim.

                                    SECTION 8

                                  Miscellaneous

         8.1 Amendment: Waiver. Neither this Agreement nor any provision hereof
may be amended, modified, supplemented or waived, except by a written instrument
executed by (i) the Company and (ii) Lenders representing more than half of the
outstanding debt, provided however, that no amendment, modification, supplement
or waiver adverse to a Lender will be binding upon a Lender that has not agreed
to such provision.

        8.2 Notice. Any notice or communication given under this Agreement will
be in writing and be hand delivered, mailed by registered or certified mail,
postage prepaid, delivered by facsimile or electronic mail (with a telephonic
confirmation or confirmation) or by overnight courier as follows:

                  (i) If to Lender, as set forth next to such Lender's name on
Exhibit A hereto;

                  (ii) If to the Company to:

                           Spatialight, Inc.
                           9 Commercial Boulevard, Suite 200
                           Novato, CA   94949-5759
                           Attn:  Michael H. Burney

                                       20
<PAGE>   21
                           Facsimile:  (415) 883-3363

or at such other address as hereafter will be furnished in writing by the
addressed party to the other party. Delivery by hand will be deemed given when
personally delivered; delivery by registered or certified mail will be deemed
given three (3) business days after the same is posted; delivery by facsimile or
electronic mail will be deemed given when received; and delivery by overnight
courier will be deemed given the first business day following the date of timely
deposit with such courier.

         8.3 Survival of Representations and Warranties. All representations and
warranties made in, pursuant to or in connection with this Agreement shall
survive the execution, delivery and closing of this Agreement, and the issuance
of the Note for a period of two (2) years; provided, however, that the
representations and warranties made in Section 4.15 (Environmental) and 4.20
(Taxes) shall survive the applicable statutory period of limitations with
respect to any liabilities covered thereby.

         8.4 Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

         8.5 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and assigns of the parties hereto, including, without limitation,
each transferee of all or any portion of the Note. The Company may not assign
its rights or delegate its obligations under this Agreement without the prior
written consent of the other parties hereto. A Lender may assign its rights and
delegate its obligations under this Agreement upon the Company's prior written
consent which consent will not be unreasonably withheld. The Parties agree that,
among other reasons, it will be reasonable for the Company to withhold such
consent if the proposed assignee is a competitor to the Company.

         8.6 Entire Agreement. This Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subject matter hereof and thereof and
supersede and cancel all prior representations, alleged warranties, statements,
negotiations, undertakings, letters, acceptances, understandings, contracts and
communications, whether verbal or written, among the parties hereto and thereto
or their respective agents with respect to or in connection with the subject
matter hereof.

         8.7 Choice of Law. This Agreement will be deemed to be a contract made
under the laws of the State of New York, and for all purposes will be construed
in accordance with the laws of said state, without regard to principles of
conflicts of law.

                                       21
<PAGE>   22
         8.8 Headings. The headings in this Agreement are for the convenience of
reference only and will not affect the construction of this Agreement.

         8.9 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument. Execution and delivery by facsimile
shall constitute good and valid execution and delivery unless and until replaced
or substituted by an original executed instrument.

         8.10 No Third-Party Beneficiaries. Nothing in this Agreement will
confer any third party beneficiary or other rights upon any Person (specifically
including any employees of the Company and its Subsidiaries) or entity that is
not a party to this Agreement.

                     (Signatures to follow on the next page)

                                       22
<PAGE>   23
         IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.

SpatiaLight, Inc., a New York corporation

By: /s/ MICHAEL H. BURNEY
   ---------------------------
Name:  Michael H. Burney
Its:   Chief Executive Officer

<PAGE>   24
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ JIMMIE H. HARVEY, M.D.
--------------------------
Jimmie H. Harvey, M.D.

BIRMINGHAM HEMATOLOGY AND ONCOLOGY ASSOCIATES,
SLB FLEX PROTOTYPE P/S PLAN DTD 10-17-85

By: /s/ JIMMIE H. HARVEY, M.D.
   ----------------------------
     Jimmie H. Harvey, M.D.

<PAGE>   25
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

HILLIARD LIMITED PARTNERSHIP

By: /s/ NEAL MARCOUX
   ------------------------
    GENERAL PARTNER

<PAGE>   26
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ DAVID A. TWIFORD
------------------------
David A. Twiford

<PAGE>   27
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ PAUL KLISTER
------------------------
Paul Klister

<PAGE>   28
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ MARCIA K. TRIPP
---------------------------
Marcia K. Tripp

WAYNE P. TRIPP TRUST

By: /s/ MARCIA K. TRIPP, TTE
   -------------------------
   Marcia K. Tripp, Trustee

STEVEN F. TRIPP TRUST

By: /s/ MARCIA K. TRIPP, TTE
   -------------------------
   Marcia K. Tripp, Trustee

LISA MARIE TRIPP TRUST

By: /s/ MARCIA K. TRIPP, TTE
   -------------------------
   Marcia K. Tripp, Trustee

<PAGE>   29
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ ROBERT E. WOODS
-------------------
Robert E. Woods

<PAGE>   30
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ ROBERT J. WEYERS
------------------------------------
Robert J. Weyers

/s/ JEFFREY J. WEYERS
------------------------------------
Jeffrey J. Weyers

/s/ RONALD A. WEYERS
------------------------------------
Ronald A. Weyers

WEYERS FAMILY LIMITED
 PARTNERSHIP

By: /s/ RONALD A. WEYERS
   ---------------------------------
   RONALD A. WEYERS, GENERAL PARTNER

<PAGE>   31
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ LLEW ANN KING
------------------------------------
Llew Ann King

MATTHEW A. KING CHARITABLE REMAINDER
UNITRUST, DTD 5/29/97

By: /s/ MATTHEW A. KING, TRUSTEE
   ---------------------------------

AGT C.T. WILLIAMS, TUA 11/1/76 FBO MATTHEW A. KING

By: /s/ EQUITABLE TRUST COMPANY
   ---------------------------------

<PAGE>   32
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ ROBERT O. ROLFE
-----------------------
Robert O. Rolfe

<PAGE>   33
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ JOHN W. EAKIN
-----------------------
John W. Eakin

<PAGE>   34
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

/s/ JEFFERSON R. COBB
-----------------------
Jefferson R. Cobb

<PAGE>   35
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

BRYAN B. STARR, SR.

By:  /s/ BRYAN B. STARR
   --------------------------
<PAGE>   36
                         [COUNTERPART SIGNATURE PAGE TO
                       CONVERTIBLE SECURED LOAN AGREEMENT]

PERFORMANCE FUTURES PSP DTD 1-1-93

By: /s/  BRYAN B. STARR, JR., TRUSTEE
   ----------------------------------

<PAGE>   37
                                                                       EXHIBIT A
                                     LENDERS

<TABLE>
<CAPTION>
         Name                           Loan Amount                   Address
         ----                           -----------                   -------
<S>                                     <C>                   <C>
Jimmie H. Harvey, M.D.                    $250,000            3741 E. Fairway Drive
                                                              Birmingham, AL  35213
                                                              Fax: 205-599-3408

Hilliard Limited Partnership              $100,000            Attn:  Dan Hilliard
                                                              2555 S. Trillium
                                                              Green Bay, WI  54313
                                                              Fax: 920-490-2710

David A. Twiford                          $75,000             871 Ridgeway Loop, #107
                                                              Memphis, TN  38120
                                                              Fax: 901-684-1237

Paul Klister                              $50,000             1308 East Shade Tree Lane
                                                              Appleton, WI  54915
                                                              Fax: 920-830-6640

Marcia K. Tripp                           $225,000            35 Indian Forest Road
                                                              Indian Springs, AL  35124
                                                              Fax: 205-402-0873

Wayne P. Tripp Trust, Marcia              $250,000            35 Indian Forest Road
K. Tripp, Trustee                                             Indian Springs, AL  35124
                                                              Fax: 205-402-0873

Steven F. Tripp Trust, Marcia             $250,000            35 Indian Forest Road
K. Tripp, Trustee                                             Indian Springs, AL  35124
                                                              Fax: 205-402-0873

Lisa Marie Tripp Trust,                   $175,000            35 Indian Forest Road
Marcia K. Tripp, Trustee                                      Indian Springs, AL  35124
                                                              Fax: 205-402-0873

Robert E. Woods                           $250,000            922 10th Street SW
                                                              Alabaster, AL  35007

Weyers Family Limited                     $100,000            500 AMS Court
Partnership                                                   Green Bay, WI  54313
                                                              Fax: 920-434-5811

Robert J. Weyers                          $100,000            500 AMS Court
                                                              Green Bay, WI  54313
                                                              Fax: 920-434-5811

Jeffrey J. Weyers                         $100,000            500 AMS Court
                                                              Green Bay, WI  54313
                                                              Fax: 920-434-5811

Ronald A. Weyers                          $100,000            500 AMS Court
                                                              Green Bay, WI  54313
                                                              Fax: 920-434-5811
</TABLE>

<PAGE>   38
<TABLE>
<S>                                     <C>                   <C>
Llew Ann King                             $100,000            6600 Murray Lane
                                                              Brentwood, TN
                                                              37027 Fax:
                                                              615-376-4127

Matthew A. King Charitable                $37,500             Agent:  Jack Nuismer
Remainder Unitrust DTD 5/29/97                                Raymond James Financial
                                                              Services
                                                              2103 Crestmoor Road
                                                              Nashville, TN  37215
                                                              Fax: 615-292-7317

Agt. C.T. Williams,                       $37,500             Agent: Kirk Scobey
TUA 11/1/76                                                   SunTrust Equitable Trust
FBO Matthew A. King                                           Co.
Account 10830                                                 800 Nashville City Center
                                                              Nashville, TN
                                                              37219 Fax:
                                                              615-780-9327

Robert O. Rolfe                           $150,000            J.C. Bradford Company
                                                              330 Commerce Street
                                                              Nashville, TN  37201
                                                              Fax: 615-271-1422

John W. Eakin                             $175,000            520 Jackson Boulevard
                                                              Nashville, TN  37205
                                                              Fax: 615-298-6609

Jefferson R. Cobb                         $100,000            204 Aspen Meadow Drive
                                                              Edwards, CO  81632
                                                              Fax: 970-926-0474

Bryan B. Starr, Sr.                       $50,000             c/o Healthcare Realty Mgmt
                                                              1400 Urban Center Dr.#400
                                                              Birmingham, AL  35242
                                                              Fax: 205-969-0104

Performance Futures PSP                   $50,000             1400 Urban Center Dr.#415
DTD 1/1/93 FBO Bryan B.                                       Birmingham, AL  35242
Starr, Jr.                                                    Fax: 205-969-0104

Birmingham Hematology and                 $150,000            790 Montclair Road
Oncology Associates, SLB Flex                                 Suite 100
Prototype P/S Plan DTD                                        Birmingham, AL  35213
10/27/85 FBO Jimmie H.
Harvey, M.D.
</TABLE>

<PAGE>   39
                                                                       EXHIBIT B

                                 Promissory Note

<PAGE>   40
                                                                       EXHIBIT C

                                     Warrant

<PAGE>   41
                                                                       EXHIBIT D

                             Funds Release Schedule

<TABLE>
<CAPTION>
                                                                      Percentage of
    Event                                                            Funds Released
    -----                                                            --------------
<S>                                                                  <C>
        -  Closing                                                          50%

        -  Binding purchase orders for the Company's
           1280DV and/or 1280 BC products exceeding 50,000 units
           for delivery over the succeeding twelve (12) month period.       50%
</TABLE>

<PAGE>   42
                                                                       EXHIBIT E

                               Security Agreement

<PAGE>   43
                                                                       EXHIBIT F

                             Intercreditor Agreement

<PAGE>   44
                                                                       EXHIBIT G

                          Registration Rights Agreement
<PAGE>   45
                                  Schedule 4.2

                                 Capitalization

                              Outstanding Warrants

1. Amended and Restated Warrant to purchase 792,500 shares of Common Stock of
the Company, par value $.01 per share (hereinafter "Common Shares") dated June
19, 1997, registered in the name of Sabotini Limited.

2. Warrant to purchase 200,000 Common Shares dated June 19, 1997, registered in
the name of Sabotini Limited.

3. Warrant to purchase 200,000 Common Shares dated June 19, 1997, registered in
the name of Jalcanto Limited.

4. Warrant to purchase 425,000 Common Shares dated May 5, 1999, in the name of
Jalcanto Limited.

5. Warrant to purchase 375,000 Common Shares dated November 30, 1998, registered
in the name of Dr. Lawrence Jaeger.

6. Warrant to purchase 3,000 Common Shares dated March 29, 1999, in the name of
Rebecca T. Loomis.

7. Warrant to purchase 6,500 Common Shares dated September 15, 1997, in the name
of James R. Gaddis.

8. Warrant to purchase 8,000 Common Shares dated December 17, 1998, in the name
of James R. Gaddis.

9. Warrant to purchase 42,500 Common Shares dated November 30, 1998, registered
in the name of 721192 Alberta Ltd.

10. Warrant to purchase 300,000 Common Shares to dated May 13, 1999, in the name
of Hartwell Davis.

11. Warrant to purchase 40,000 Common Shares dated October 22, 1999, in the name
of Jonathan Brooks.

12. Warrant to purchase 300,000 Common Shares dated August 5, 1999, in the name
of Jonathan Brooks.
<PAGE>   46
13. Warrant to purchase 30,000 Common Shares dated July 9, 1999, in the name of
Thomas Wedige.

14. Warrant to purchase 230,165 Common Shares dated September 15, 1999, in the
name of Third Point Partners L.P.

15. Warrant to purchase 103,440 Common Shares to be dated September 15, 1999, in
the name of Third Point Offshore Fund Ltd.

16. Warrant to purchase 84,215 Common Shares dated September 15, 1999, in the
name of Point West International Investments Ltd.

17. Warrant to purchase 50,065 Common Shares dated September 15, 1999, in the
name of Banzai Partners L.P.

18. Warrant to purchase 46,130 Common Shares dated September 15, 1999, in the
name of Protection II.

19. Warrant to purchase 20,000 Common Shares dated October 31, 1998, in the name
of Gray Cary Ware & Freidenrich LLP.

20. Warrant to purchase 100,000 Class A, 100,000 Class B, and 100,000 Class C
shares of Common Stock dated November 1, 1998 in the name of JRT Investments,
Inc. Class B warrants are not exercisable until Class A warrants are exercised.
Class C warrants are not exercisable until Class B warrants are exercised.

21. Warrant to purchase 100,000 Class A, 100,000 Class B, and 100,000 Class C
shares of Common Stock dated March 1, 1999 in the name of JRT Investments, Inc.
Class B warrants are not exercisable until Class A warrants are exercised. Class
C warrants are not exercisable until Class B warrants are exercised.

22. Warrant to purchase 100,000 Class A, 100,000 Class B, and 100,000 Class C
shares of Common Stock dated June 1, 1999 in the name of JRT Investments, Inc.
Class B warrants are not exercisable until Class A warrants are exercised. Class
C warrants are not exercisable until Class B warrants are exercised.

23. Warrant to purchase 100,000 Class A, 100,000 Class B, and 100,000 Class C
shares of Common Stock dated July 1, 1999 in the name of JRT Investments, Inc.
Class B warrants are not exercisable until Class A warrants are exercised. Class
C warrants are not exercisable until Class B warrants are exercised.

24. Warrant to purchase 120,000 Class A, 120,000 Class B, and 120,000 Class C
shares of Common Stock dated August 17, 1998 in the name of Farhad Azima. Class
B warrants are not exercisable until Class A warrants are exercised. Class C
warrants are not exercisable until Class B warrants are exercised.

<PAGE>   47
25. Warrant to purchase 60,000 shares of Common Stock in the name of Lawrence
Jaeger.

26. Contractual commitment to issue a warrant to purchase 746,268 shares of
Common Stock in the name of Jalcanto Limited.

27. Warrant granted to address the contractual claim described in Schedule 4.21
below.

Options

1. As of September 30, 1999, options to purchase 1,821,300 Common Shares have
been granted to employees under the 1991 Stock Option Plan, 1993
Employee/Director Stock Option Plan, and the 1999 Stock Option Plan.

                                Convertible Debt

As of September 30, 1999, the Company's notes payable to Argyle Capital
Management Corporation in the aggregate principal amount of $1,188,000 are
convertible into 2,376,000 Common Shares at a conversion price of fifty cents
($.50) per Common Share.

                               Registration Rights

Certain holders of the equity listed above have registration rights. The Company
filed two registration statements on Form S-3, one for holders with registration
rights, and one voluntarily, to be effective in December 1999.

                                Additional Shares

2,917,051 shares have been issued between September 30, 1999 and December 2,
1999.

<PAGE>   48
                                  Schedule 4.3

                                  Subsidiaries
<TABLE>
<CAPTION>
                                                                    Jurisdiction of
    Name of Subsidiary                Date of Incorporation          Incorporation
    ------------------                ---------------------         ---------------
<S>                                   <C>                           <C>
Spatialight of California, Inc.         December 4, 1992              California
</TABLE>

<PAGE>   49
                                  Schedule 4.9

                             Patents and Trademarks

                                     PATENTS

<TABLE>
<CAPTION>
    PATENT                                            FILING
     NO.                       TITLE                   DATE       INVENTOR          ASSIGNEE
     ---                       -----                   ----       --------          --------
<S>             <C>                                  <C>        <C>                <C>
5,396,261       Polysilicon Gate Bus With            03/07/95   W.A. Hastings      Spatialight of
                Interspersed Buffers For Driving a              III(1)             California,
                Row of Pixels in an Active Matrix                                  Inc.
                Liquid Crystal Display

5,396,262       Polysilicon Gate Bus with            03/07/95   W.A. Hastings      Spatialight of
                Interspersed Buffers for Driving a              III(1)             California,
                Row of Pixels in an Active Matrix                                  Inc.
                Liquid Crystal Display

5,365,355       Light Blocking Pixel Enhancement     11/15/94   W.A. Hastings      Spatialight of
                and Photocurrent Reduction in                   III(1)             California,
                Active Matrix Liquid Crystal                                       Inc.
                Displays

5,784,038       Color Projection System Employing    07/21/98   Dean Irwin(1)      Spatialight of
                Dual Monochrome Liquid Crystal                                     California,
                Displays with Misalignment                                         Inc.
                Correction

5,903,248       Active Matrix Display Having Pixel   05/11/99   Dean Irwin         SpatiaLight,
                Driving Circuits With Integrated                                   Inc.
                Charge Pumps
</TABLE>

PATENT APPLICATIONS

<TABLE>
<CAPTION>
    APPLICATION                                           FILING
     SERIAL NO.                    TITLE                   DATE         INVENTOR
<S>                 <C>                                  <C>        <C>
  08/734,230        Technique for Driving Dot-Matrix     10/21/96   Dean Irwin
                    Liquid Crystal Displays by Phase
                    Shifting a Front Electrode Voltage
                    One-Half a Refresh Cycle
</TABLE>

TRADEMARKS

--------
(1) Assigned to Spatialight of California, Inc. (formerly WAH-III Technology
Corporation)

<PAGE>   50
<TABLE>
<CAPTION>
                                                             ISSUE            OWNER OF
      NO.                         TITLE                       DATE             RECORD
      ---                         -----                       ----             ------
<S>               <C>                                     <C>            <C>
2,041,178         Liquid Crystal Displays and Liquid      02/25/97         SpatiaLight of
                  Crystal Light Modulations                               California, Inc.

2,006,653         Remote Controllers in the Audio         10/08/96       Sayett Group, Inc.
                  Visual Field

2,018,018         Video or Computer Controlled            11/19/96       Sayett Group, Inc.
                  Projectors
</TABLE>

TRADEMARK APPLICATIONS

<TABLE>
<CAPTION>
   TRADEMARK
  APPLICATION                                       FILING           OWNER OF
      NO.               TITLE                        DATE             RECORD
  -----------           -----                       ------           ---------
<S>               <C>                              <C>            <C>
75/625,235        SPATIALIGHT IMAGENGINE           01/21/99       SpatiaLight, Inc.

75/716,246        DISPLASIC                        05/27/99       SpatiaLight, Inc.
</TABLE>

<PAGE>   51
                                  Schedule 4.11

                               Material Agreements

(i) Notes in the aggregate principal amount of $1,188,000 are outstanding and
payable to Argyle Capital Management Corporation whose President is a director
of the Company and a lender.

(iii) Non-competition agreements with William E. Hollis, L. John Loomis and Dean
Irwin, all former officers and directors of the Company.

(v) As of December 2, 1999, the Company has the following outstanding debt:

<TABLE>
<CAPTION>
        Payee                                      Amount
        -----                                      ------
<S>                                                <C>
        Argyle Capital Management Corporation      $1,188,000
</TABLE>

(vi) A perfected security interest and lien on all of the Company's assets,
including but not limited to Accounts, Chattel Paper, Contacts, Deposit
Accounts, Equipment, Financial Assets, Fixtures, General Intangibles, including
Copyrights, Patents and Trademarks, Licenses, Instruments and Investment
Property was granted to Argyle Capital Management Corporation ("Argyle") to
secure the Company's debt to Argyle.

(vii) The agreements referenced on Schedule 4.22 below.

<PAGE>   52
                                  Schedule 4.13

                               Registration Rights

        Registration Rights were granted to Jalcanto Limited, Sabotini Limited,
Lawrence Jaeger and 721192 Alberta Ltd. covering the Common Shares into which
the Warrants held by them may be exercised.

        Registration Rights were granted to Argyle Capital Management
Corporation covering the Common Shares into which the Company's debt may be
converted.

        The Company filed two registration statements on Form S-3, to be
effective December 1999, covering an aggregate of 814,015 and 1,729,500 shares
of Common Stock issuable upon exercise of warrants, respectively.

<PAGE>   53
                                  Schedule 4.14

                                    Property

        A perfected security interest and lien on all of the Company's assets,
including but not limited to Accounts, Chattel Paper, Contacts, Deposit
Accounts, Equipment, Financial Assets, Fixtures, General Intangibles, including
Copyrights, Patents and Trademarks, Licenses, Instruments and Investment
Property was granted to Argyle Capital Management Corporation ("Argyle") to
secure the Company's debt to Argyle.

<PAGE>   54
                                  Schedule 4.17

                                     Changes

        For Section 4.17(b)(ii), please see debt already scheduled on Schedule
4.11 (v). For Section 4.17(c), please see Schedule 4.2.

<PAGE>   55
                                  Schedule 4.19

                             Employee Benefit Plans

(a)     1991 Stock Option Plan
        1993 Employee Stock Option Plan, as amended 1993 Directors Stock Option
        Plan, as amended 1999 Stock Option Plan Delta Dental Blue Shield of
        California - CPIC Life Insurance Blue Shield of California - Major
        Medical Merrill Lynch - 401k standardized Profit Sharing Plan Hartfort
        Insurance Travel Plan

(b)

<TABLE>
<CAPTION>
                 Name                   Title                  Compensation Arrangement
                 ----                   -----                  ------------------------
<S>                              <C>                   <C>
          Michael H. Burney      Director and CEO,     No employment agreement, compensation
                                 Treas. & Secretary    at the rate of $200,000 per annum

           Fred R. Hammett       President             No employment agreement, compensation
                                                       at the rate of $200,000 per annum

            Miles L. Scott       Vice President,       No employment agreement, compensation
                                 Engineering/          at the rate of $100,000 per annum
                                 Manufacturing
           Steven F. Tripp       Director              Outside director fee of $500 per meeting

         Lawrence J. Matteson    Director

           Robert A. Olins       Director              Outside director fee waived
</TABLE>

In addition to the compensation arrangements listed above all of the Company's
officers and directors hold options to acquire Common Stock of the Company
issued under stock option plans adopted by the Company.

<PAGE>   56
                                  Schedule 4.21

                               Brokers or Finders

Capital Strategies Advisors, Inc. will be granted a warrant to purchase 50,000
shares of Common Stock of the Company upon the closing of the transactions
contemplated hereby.

Another party who knows both the Company and the Lenders has claimed the right
to a finder's fee or warrant from the Company relating to the transactions
contemplated hereby. The Company is working to address this potential claim.

<PAGE>   57
                                  Schedule 4.22

                          Interested Party Transactions

        Chronomotion Imaging Applications, Inc. ("Chronomotion"), a California
corporation controlled by the Company's Chief Executive Officer, has entered
into discussions with the Company to license the Company's technology for use in
Chronomotion's electronic holography products and to utilize the Company's
expertise to held develop a liquid crystal display optimized for Chronomotion's
electronic holography products. Any agreement would be subject to the approval
of the respective Boards of Chronomotion and the Company.

        Robert Olins and Steven Tripp, directors of the Company, individually or
through affiliates, hold convertible debt or equity in the Company. Further
information regarding these holdings is available through publicly available
Schedule 13D filings.<PAGE>   1
                                                                   EXHIBIT 10.10

                               SECURITY AGREEMENT

         THIS SECURITY AGREEMENT dated as of December 1, 1999 ("Security
Agreement"), is made by SPATIALIGHT, INC., a New York corporation, and by
SPATIALIGHT OF CALIFORNIA, INC., a California corporation (Spatialight, Inc.,
and Spatialight of California, Inc. are hereinafter referred to collectively as
"Grantor") for Jimmie H. Harvey, as collateral agent (Jimmie H. Harvey in his
capacity as collateral agent hereunder, and together with his successors and
assigns in such capacity, is hereinafter referred to as "Secured Party") in
favor of the lenders listed on Schedule A annexed hereto, as now existing and as
hereafter amended from time to time (the "Lenders").

                                    RECITALS

         WHEREAS, Grantor and the Lenders have entered into one or more
Convertible Secured Loan Agreements, dated of even date herewith (as the same
may be amended, modified, supplemented or renewed from time to time herein
individually and collectively called the "Loan Agreements"), pursuant to which
the Lenders have severally agreed to lend to Grantor an aggregate principal sum
of up to $2,875,000, and Grantor, to evidence its indebtedness to the Lenders
under the Loan Agreements, has executed and delivered to the Lenders its
Convertible Secured Notes, dated of even date herewith (herein collectively
called the "Notes"), in the aggregate principal amount of $2,875,000 to mature
on or before June 30, 2001 said Notes being payable to the order of the
respective Lenders, bearing interest at the rate provided for therein and
containing provisions for payment of attorney's fees and acceleration of
maturity in the event of default, as therein set forth;

         WHEREAS, as a condition precedent to the making of the loans under the
Loan Agreements, Grantor is required to execute and deliver this Security
Agreement; and

         WHEREAS, Grantor has duly authorized the execution, delivery and
performance of this Security Agreement.

         NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be legally bound,
Grantor hereby represents, warrants, covenants and agrees as follows:

         1. Defined Terms. When used in this Security Agreement the following
terms shall have the following meanings (such meanings being equally applicable
to both the singular and plural forms of the terms defined):

         "Collateral" shall have the meaning assigned to such term in Section 2
of this Security Agreement.

<PAGE>   2
         "Contracts" means all contracts, undertakings, franchise agreements or
other agreements in or under which Grantor now holds or hereafter acquires any
right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof.

         "Copyright License" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right in or to any
Copyright or Copyright registration (whether Grantor is the licensee or the
licensor thereunder) including, without limitation, licenses pursuant to which
Grantor has obtained the exclusive right to use a copyright owned by a third
party.

         "Copyrights" means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof
or any other country; (b) registrations, applications, recordings and
proceedings in the United States Copyright Office or in any similar office or
agency of the United States, any State thereof or any other country; (c) any
continuations, renewals or extensions thereof; (d) any registrations to be
issued in any pending applications; (e) prior versions of works covered by
copyright and all works based upon, derived from or incorporating such works;
(f) income, royalties, damages, claims and payments now and hereafter due and/or
payable with respect to copyrights, including, without limitation, damages,
claims and recoveries for past, present or future infringement; (g) rights to
sue for past, present and future infringements of any copyright; and (h) any
other rights corresponding to any of the foregoing rights throughout the world.

         "Event of Default" means any "Event of Default" as defined in the
Notes;

         "License" means any Copyright License, Patent License, Trademark
License or other license of intellectual property rights or interests now held
or hereafter acquired by Grantor.

         "Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.

         "Patent License" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right with respect to any
invention on which a Patent is in existence (whether Grantor is the licensee or
the licensor thereunder).

         "Patents" means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
any other country, all registrations and recordings thereof and all applications
for letters patent of the United States or any other country, 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
Sates, any State thereof or any other country; (b) all reissues, divisions,
continuations, renewals, continuations-in-part or extensions thereof; (c) all

                                       2
<PAGE>   3
petty patents, divisionals and patents of addition; and (d) all patents to issue
in any such applications; (e) income, royalties, damages, claims and payments
now and hereafter due and/or payable with respect to patents, including, without
limitation, damages, claims and recoveries for past, present or future
infringement; and (f) rights to sue for past, present and future infringements
of any patent.

         "Secured Obligations" means (a) the obligation of Grantor to repay the
Lenders all of the unpaid principal amount of, and accrued interest on
(including any interest that accrues after the commencement of bankruptcy), any
amounts due pursuant to the Notes; (b) the obligations of Grantor to pay any
fees, costs and expenses of the Lenders under the Notes, and under Section 6.2
hereof; and (c) all other indebtedness, liabilities and obligations of Grantor
to the Lenders, whether now existing or hereafter incurred, and whether created
under, arising out of or in connection with any written agreement or otherwise.

         "Trademark License" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right in and to any
Trademark or Trademark registration (whether Grantor is the licensee or the
licensor thereunder).

         "Trademarks" means any of the following in which Grantor now holds or
hereafter acquires any interest: (a) any trademarks, trade names, corporate
names, company names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof and any applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United Sates
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country (collectively, the "Marks"); (b)
any reissues, extensions or renewals thereof; (c) the goodwill of the business
symbolized by or associated with the Marks; (d) income, royalties, damages,
claims and payments now and hereafter due and/or payable with respect to the
Marks, including, without limitation, damages, claims and recoveries for past,
present or future infringement; and (e) rights to sue for past, present and
future infringements of the Marks.

         "UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

         In addition, the following terms shall be defined terms having the
meaning set forth for such terms in the UCC: "Account Debtor"; "Accounts";
"Chattel Paper"; "Deposit

                                       3
<PAGE>   4
Accounts"; "Documents"; "Equipment"; "Financial Assets"; "Fixtures"; "General
Intangibles"; "Instruments"; "Inventory"; "Investment Property"; "Proceeds".
Each of the foregoing defined terms shall include all of such items now owned,
or hereafter acquired, by Grantor.

         Unless otherwise defined herein, in the Loan Agreements or in the
Notes, all capitalized terms used herein shall have the respective meanings
given to them in the UCC.

         2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all the Secured Obligations, Grantor hereby
assigns, conveys, mortgages, pledges, hypothecates and transfers to Secured
Party for the ratable benefit of the holders of the Secured Obligations, and
hereby grants to Secured Party for the ratable benefit of the holders of the
Secured Obligations, a security interest in all of Grantor's right, title and
interest in, to and under the following, whether now owned or hereafter acquired
(all of which being collectively referred to herein as the "Collateral"):

                  (a) All Accounts of Grantor;

                  (b) All Chattel Paper of Grantor,

                  (c) All Contracts of Grantor,

                  (d) All Deposit Accounts of Grantor,

                  (e) All Documents of Grantor,

                  (f) All Equipment of Grantor;

                  (g) All Financial Assets of Grantor;

                  (h) All Fixtures of Grantor;

                  (i) All General Intangibles of Grantor, including, without
limitation, all Copyrights, Patents, Trademarks, Licenses, designs, drawings,
technical information, marketing plans, customer lists, trade secrets,
proprietary or confidential information, inventions (whether or not patentable),
procedures, know-how, models and data;

                  (j) All Instruments of Grantor;

                  (k) All Inventory of Grantor;

                  (1) All Investment Property of Grantor,

                                       4
<PAGE>   5
                  (m) All property of Grantor held by Secured Party, or any
other party for whom Secured Party is acting as agent hereunder, including,
without limitation, all property of every description now or hereafter in the
possession or custody of or in transit to Secured Party or such other party for
any purpose, including, without limitation, safekeeping, collection or pledge,
for the account of Grantor, or as to which Grantor may have any right or power;

                  (n) All other goods and personal property of Grantor, wherever
located, whether tangible or intangible, and whether now owned or hereafter
acquired, existing, leased or consigned by or to Grantor; and

                  (o) To the extent not otherwise included, all Proceeds of each
of the foregoing and all accessions to, substitutions and replacements for and
rents, profits and products of each of the foregoing, as well as all payments
under insurance (whether or not Secured Party is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral.

         3. Rights of Secured Party; Collection of Accounts.

                  3.1 Performance of Contracts and Licenses. Notwithstanding
anything contained in this Security Agreement to the contrary, Grantor expressly
agrees that it shall remain liable under each of its Contracts and each of its
Licenses to observe and perform all the conditions and obligations to be
observed and performed by it thereunder and that it shall perform all of its
duties and obligations thereunder, all in accordance with and pursuant to the
terms and provisions of each such Contract or License. Secured Party shall not
have any obligation or liability under any Contract or License by reason of or
arising out of this Security Agreement or the granting to Secured Party of a
lien therein or the receipt by Secured Party of any payment relating to any
Contract or License pursuant hereto, nor shall Secured Party be required or
obligated in any manner to perform or fulfill any of the obligations of Grantor
under or pursuant to any Contract or License, or to make any payment, or to make
any inquiry as to the nature or the sufficiency of any payment received by it or
the sufficiency of any performance by any party under any Contract or License,
or to present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.

                  3.2 Collection of Accounts. Secured Party authorizes Grantor
to collect its Accounts, provided that such collection is performed in a prudent
and businesslike manner, and Secured Party may, upon the occurrence and during
the continuation of any Event of Default and without notice, limit or terminate
said authority at any time. Upon the occurrence and during the continuance of
any Event of Default, at the request of Secured Party, Grantor shall deliver all
original and other documents evidencing and

                                       5
<PAGE>   6
relating to the performance of labor or service which created such Accounts,
including, without limitation, all original orders, invoices and shipping
receipts.

                  3.3 Notification to Third Parties. Secured Party may at any
time, upon the occurrence and during the continuance of any Event of Default,
after due notice to Grantor of its intention to do so, notify Account Debtors of
Grantor, parties to the Contracts of Grantor, obligors in respect of Instruments
of Grantor and obligors in respect of Chattel Paper of Grantor that the Accounts
and the right, title and interest of Grantor in and under such Contracts,
Instruments and Chattel Paper have been assigned to Secured Party and that
payments shall be made directly to Secured Party. Upon the request of Secured
Party, Grantor shall so notify such Account Debtors, parties to such Contracts,
obligors of such Instruments and obligors in respect of such Chattel Paper. Upon
the occurrence and during the continuance of any Event of Default, Secured Party
may, in its name or in the name of others, communicate with such Account
Debtors, parties to such Contracts, obligors in respect of such Instruments and
obligors in respect of such Chattel Paper to verify with such parties, to
Secured Party's satisfaction, the existence, amount and terms of any such
Accounts, Contracts, Instruments or Chattel Paper.

         4. Representations and Warranties. Grantor, to its knowledge, hereby
represents and warrants as of the date hereof that:

                  4.1 Title. Except for the security interest granted to Secured
Party under this Security Agreement, and except as set forth on Schedule 4.1
hereto: (a) Grantor is the sole legal and equitable Owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto, free and clear of any and all Liens; and (b)
no effective security agreement, financing statement, equivalent security or
lien instrument or continuation statement covering all or any part of the
Collateral exists, except such as may have been filed by Grantor in favor of
Secured Party pursuant to this Security Agreement.

                  4.2 Security Interest. This Security Agreement creates a legal
and valid security interest on and in all of the Collateral in which Grantor now
has rights. Upon the making of the required filings, Secured Party will have a
fully perfected security interest for the ratable benefit of the holders of the
Secured Obligations in all of the Collateral in which Grantor now has rights.
This Security Agreement will create a legal and valid and fully perfected
security interest in the Collateral in which Grantor later acquires rights, when
Grantor acquires those rights and makes additional filings to be made with the
United States Copyright and/or Patent and Trademark Office as are necessary to
perfect Secured Party's security interest in subsequent ownership rights and
interests of Grantor in Copyrights, Patents, Trademarks and Licenses.

                  4.3 Location of Collateral. Grantor's chief executive office,
principal place of business and the place where the Grantor maintains its
records concerning the Collateral are presently located at the address set forth
on the signature page hereof. The

                                       6
<PAGE>   7
Collateral is presently located at such address and at such additional addresses
set forth on Schedule 4.3 attached hereto.

                  4.4 List of Intellectual Property. All Copyrights, Copyright
Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses now owned,
held or in which Grantor otherwise has any interest are listed on Schedule 4.4
attached hereto.

                  4.5 Intellectual Property Collateral. With respect to the
Copyrights, Patents, Trademarks and Licenses granted to Secured Party hereunder
(the "Intellectual Property Collateral"), the loss, impairment or infringement
of which might have a materially adverse effect on the financial condition,
operation, assets, business, properties or prospects of the Grantor, except as
set forth on Schedule 4.5:

                           (a) such Intellectual Property Collateral is
subsisting and has not been adjudged invalid or unenforceable, in whole or in
part;

                           (b) Grantor has made all necessary filings and
recordations to protect its interest in such Intellectual Property Collateral;

                           (c) Grantor is the Owner of the entire and
unencumbered right, title and interest in and to such Intellectual Property
Collateral and no claim has been made that the use of such Intellectual Property
Collateral does or may violate the asserted rights of any third party;

                           (d) Grantor has performed and will continue to
perform acts and has paid and will continue to pay all required fees and taxes
to maintain each and every item of Intellectual Property Collateral in full
force and effect throughout the world, as applicable.

                           (e) There are in full force and effect
confidentiality and noncompetition agreements between Grantor and its current
and former employees prohibiting the unauthorized disclosure or dissemination of
any information relating to the Intellectual Property Collateral, as well as
enforceable intellectual property ownership agreements between Grantor and its
current employees.

                           (f) Grantor will continue to take all reasonable
measures to protect against any unauthorized disclosure or dissemination of
information relating to the Intellectual Property Collateral by its current and
future employees.

                  4.6 Authorization, Approval, Etc. Except as set forth on
Schedule 4.6 hereto, no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (a) for the grant by the Grantor of the security interest
granted hereby or for the execution, delivery, and performance of this Security
Agreement by the Grantor, or (b) for the perfection of or the exercise by the
Secured Party of its rights and remedies hereunder.

                                       7
<PAGE>   8
                  4.7 Compliance with Laws. Except as set forth on Schedule 4.7
hereto, the Grantor is in compliance with the requirements of all applicable
laws (including, without limitation, the provisions of the Fair Labor Standards
Act), rules, regulations and orders of every governmental authority, the
non-compliance with which might materially adversely affect the business,
properties, assets, operations, condition (financial or otherwise) or prospects
of the Grantor or the value of the Collateral or the worth of the Collateral as
collateral security.

                  4.8 List of Investment Property. All investment property now
owned, held or in which Grantor otherwise has any interest exceeding $10,000 is
listed on Schedule 4.8 attached hereto.

                  4.9 No Conditions Precedent. There are no conditions precedent
to the effectiveness of this Security Agreement that have not been satisfied or
waived.

         5. Covenants. Grantor covenants and agrees with Secured Party that from
and after the date of this Security Agreement and until the Secured Obligations
have been performed and paid in full:

                  5.1 Disposition of Collateral. Grantor shall not sell, lease,
transfer or otherwise dispose of any of the Collateral, or attempt to contract
to do so without the consent of the Secured Party, other than (a) the sale of
Inventory, (b) the granting of nonexclusive Licenses, (c) the disposal of
worn-out or obsolete Equipment, all in the ordinary course of Grantor's business
and (d) the granting of a security interest of equal priority to the security
interest granted hereunder to one or more lenders loaning Grantor an aggregate
of $2,125,000.

                  5.2 Relocation of Business or Collateral. Grantor shall not
relocate its chief executive office, principal place of business or its records,
or allow the relocation of any Collateral (except as allowed pursuant to Section
5.1 immediately above) from such address(es) provided to Secured Party pursuant
to Section 4.3 above without twenty (20) days prior written notice to Secured
Party.

                  5.3 No Liens on Collateral. Grantor shall not, directly or
indirectly, create, permit or suffer to exist, and shall defend the Collateral
against and take such other action as is necessary to remove, any Lien on the
Collateral, except (i) the Lien granted to Secured Party under this Security
Agreement, and (ii) the Liens described on Schedule 4.1 hereto.

                  5.4 Insurance. Grantor shall maintain insurance policies
insuring the Collateral against loss or damage from such risks and in such
amounts and forms and with such companies as are customarily maintained by
businesses similar to Grantor.

                                       8
<PAGE>   9
                  5.5 Taxes, Assessments, Etc. Grantor shall pay promptly when
due all property and other taxes, assessments and government charges or levies
imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Equipment, Fixtures, or Inventory, except to the extent
the validity thereof is being contested in good faith and adequate reserves are
being maintained in connection therewith.

                  5.6 Maintenance of Records. Grantor shall keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral.

                  5.7 Registration of Intellectual Property Rights. Grantor
shall promptly register or cause to be registered (to the extent not already
registered) the most recent version of any Copyright and any Copyright License
and any Patent, Patent License, Trademark or Trademark License, which,
individually or in the aggregate, is material to the conduct of Grantor's
business, with the United States Copyright Office or Patent and Trademark
Office, applicable, including, without limitation, in all such cases the filing
of applications for renewal, affidavits of use, affidavits of noncontestability
and opposition and interference and cancellation proceedings. Grantor shall
register or cause to be registered with the United States Copyright Office or
Patent and Trademark Office, as applicable, those additional rights and
interests developed or acquired by Grantor, after the date of this Security
Agreement, including, without limitation, any additions to the rights and
interests of Grantor listed on Schedule 4.4 hereto, prior to the sale or
licensing of any product containing such rights and interests. Grantor may take
into account the factors set forth on Schedule 5.7 hereto in assessing the
materiality of intellectual property for purposes of this Section 5.7.

                  5.8 Notification Regarding Changes in Intellectual Property.
Grantor shall promptly advise Secured Party of any subsequent ownership right or
interest of the Grantor in or to any Copyright, Patent, Trademark or License not
specified on Schedule 4.4 hereto and hereby authorizes and appoints Secured
Party as Grantor's attorney-in-fact to modify or amend such Schedule, as
necessary, to reflect any addition or deletion to such ownership rights.

                  5.9 Defense of Intellectual Property. Grantor shall (a)
protect, defend, and maintain the validity and enforceability of the Copyrights,
Patents and Trademarks, (b) use its best efforts to detect infringements of the
Copyrights, Patents and Trademarks and promptly advise Secured Party in writing
of material infringements detected and (c) not allow any Copyrights, Patents, or
Trademarks to be abandoned, forfeited, or dedicated to the public without the
written consent of Secured Party.

                  5.10 Further Assurances; Reimbursement. At any time and from
time to time, upon the written request of Secured Party, and at the sole expense
of Grantor, Grantor shall promptly and duly execute and deliver any and all such
further instruments and documents and take such action as Secured Party may
reasonably deem necessary or desirable to obtain the full benefits of this
Security Agreement, including, without limitation, facilitating the filing of
UCC-1 Financing Statements in all applicable

                                       9
<PAGE>   10
jurisdictions and this Security Agreement (and any amendment hereto) with the
United States Copyright Office and/or Patent and Trademark Office, as
applicable. Grantor agrees to reimburse Secured Party, upon demand, for any
payment made or any expense incurred by Secured Party in making any such filings
or for the discharge of any taxes, liens, or other encumbrances at any time
levied or placed on the Collateral or any part thereof or any other payment made
by Secured Party for the maintenance and preservation of the Collateral. Grantor
agrees that a carbon or photostatic copy of this Security Agreement may be filed
as a financing statement in any public office.

         6. Rights and Remedies Upon Default.

                  6.1 General. Upon the occurrence of any Event of Default and
while such Event of Default is continuing, Secured Party may exercise in
addition to all other rights and remedies granted to it under this Security
Agreement, all rights and remedies of a secured party under the UCC.

                  6.2 Right to Fees, Costs and Expenses. Grantor also agrees to
pay all reasonable fees, costs and expenses of Secured Party, including, without
limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder, including, without
limitation, in any litigation, bankruptcy, or insolvency proceedings.

                  6.3 Priorities Upon Disposition of Collateral. The proceeds of
any sale, disposition or other realization upon all or any part of the
Collateral shall be distributed by Secured Party in the following order of
priorities:

                           (a) First, to Secured Party in an amount sufficient
to pay in full the reasonable costs of Secured Party in connection with such
sale, disposition or other realization, including all fees, costs, expenses,
liabilities and advances incurred or made by Secured Party in connection
therewith, including, without limitation, reasonable attorneys' fees;

                           (b) Second, to the Lenders in an amount equal to the
then unpaid Secured Obligations; and

                           (c) Finally, upon payment in full of the Secured
Obligations, to Grantor or its representatives, in accordance with the UCC or as
a court of competent jurisdiction may direct.

         7. Secured Party Appointed Attorney-in-fact. Grantor hereby appoints
Secured Party the Grantor's attorney-in-fact, with full authority in the place
and stead of the Grantor and in the name of the Grantor or otherwise, from time
to time in the Secured Party's discretion, upon the occurrence and during the
continuance of an Event of Default, to take any action and to execute any
instrument which the Secured Party may deem

                                       10
<PAGE>   11
necessary or advisable to accomplish the purposes of this Security Agreement,
including, without limitation:

                  (a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in connection with the Collateral;

                  (b) to receive, indorse, and collect any drafts or other
instruments, documents and chattel paper, in connection therewith; and

                  (c) to file any claims or take any action or institute any
proceedings which Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of the
Secured Party with respect to any of the Collateral.

         8. Indemnity. Grantor agrees to defend, indemnify and hold harmless
Secured Party, and its officers, employees, attorney, agents, members, and each
person who controls any of the foregoing against (a) all obligations, demands,
claims and liabilities claimed or asserted by any other party in connection with
the transactions contemplated by this Security Agreement and (b) all losses or
expenses in any way suffered, incurred or paid by Secured Party as a result of
or in any way arising out of, following or consequential to transactions between
Secured Party and Grantor, whether under this Security Agreement or otherwise
(including, without limitation, reasonable attorneys' fees and expenses), except
for losses arising from or out of Secured Party's gross negligence or willful
misconduct.

         9. Limitation on Secured Party's Duty in Respect of Collateral. Secured
Party shall be deemed to have acted reasonably in the custody, preservation, and
disposition of any of the Collateral if it takes such action as Grantor requests
in writing, but failure to comply with any such request shall not in itself be
deemed a failure to act reasonably and no failure of Secured Party to do any act
not so requested shall be deemed a failure to act reasonably.

         10. Reinstatement. This Security Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of creditors or should a trustee
or receiver be appointed for all or any significant part of Grantor's property
and assets and shall continue to be effective or be reinstated, as the case may
be, if at any time payment and performance of the Secured Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount or
must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference," "fraudulent conveyance" or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured

                                       11
<PAGE>   12
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.

         11. Miscellaneous.

                  11.1 No Waiver; Cumulative Remedies. Secured Party shall not
by any act, delay, omission or otherwise be deemed to have waived any of its
respective rights or remedies hereunder, nor shall any single or partial
exercise of any right or remedy hereunder on any one occasion preclude the
further exercise thereof or the exercise of any other right or remedy. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently and are not exclusive of any rights and remedies provided
by law.

                  11.2 Entire Agreement. This Security Agreement and the
Intercreditor Agreement of even date herewith constitute the entire agreement
between the parties relating to the subject matter hereof. None of the terms or
provisions of this Security Agreement may be waived, altered, modified or
amended except by an instrument in writing, duly executed by Grantor and Secured
Party.

                  11.3 Termination of this Security Agreement. Subject to
Section 10 hereof, this Security Agreement shall terminate upon the payment and
performance in full of the Secured Obligations, at which time all rights to the
Collateral shall revert to Grantor and to any other secured parties with rights
to the Collateral equal or subordinate to the rights of Secured Party. Upon such
a termination, the Secured Party shall, at Grantor's sole expense, execute and
deliver to Grantor such documents as the Grantor shall reasonably request to
evidence such termination.

                  11.4 Successors and Assigns. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, any future holder of any
of the indebtedness and their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other dispositions of any
agreement governing or instrument evidencing the Secured Obligations or any
portion thereof or interest therein shall in any manner affect the Lien granted
to Secured Party hereunder.

                  11.5 Headings. The headings in this Security Agreement are for
the convenience of reference only and will not affect the construction of this
Security Agreement.

                  11.6 Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

                                       12
<PAGE>   13
                  11.7 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
with the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument. Execution and delivery by facsimile
shall constitute good and valid execution and delivery unless and until replaced
or substituted by an original executed instrument.

                  11.8 Governing Law. In all respects, including all matters of
construction, validity and performance, this Security Agreement and the Secured
Obligations arising hereunder shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York, excluding conflicts of
laws principles.

                  11.9 Collateral Agent. Pursuant to the terms of a Note
Holders' Representative Agreement by and among the Lenders dated of even date
herewith, the Lenders have designated Jimmie H. Harvey to act as their
collateral agent hereunder, and the Lenders have reserved the right to designate
or elect a successor person or entity to serve as their collateral agent and as
Secured Party under this Security Agreement. Upon the appointment or designation
of a successor to serve as collateral agent for the Lenders hereunder, such
successor shall thereupon succeed to and become vested with all the rights,
powers and privileges of the Secured Party hereunder as collateral agent for the
Lenders. Lenders or the Secured Party shall notify Grantor of the designation or
election of any such person or entity to serve as the successor of the Secured
Party hereunder.

                     (Signatures to follow on the next page)

                                       13
<PAGE>   14
         IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.

Spatialight, Inc., a New York corporation     Address of Spatialight, Inc., a
                                              Grantor:

By:  /s/ MICHAEL H. BURNEY                    Spatialight, Inc.
    -----------------------------             9 Commercial Blvd., Suite 200
        Michael H. Burney                     Novato, CA  94949
        Chief Executive Officer

Spatialight of California, Inc.,              Address of Spatialight of
California, a California corporation          Inc., a Grantor:

By:  /s/ MICHAEL H. BURNEY                    Spatialight of California, Inc.
    -----------------------------             9 Commercial Blvd., Suite 200
        Michael H. Burney                     Novato, CA  94949
        Chief Executive Officer

<PAGE>   15
FOR THE LENDERS:

/s/ JIMMIE H. HARVEY
------------------------
Jimmie H. Harvey, as Collateral Agent

<PAGE>   16
                                   SCHEDULE A

                                    LENDERS

<TABLE>
<CAPTION>
             Name                       Loan Amount                    Address
             ----                       -----------                    -------
<S>                                     <C>                   <C>
Jimmie H. Harvey, M.D.                    $250,000            3741 E. Fairway Drive
                                                              Birmingham, AL  35213
                                                              Fax: 205-599-3408

Hilliard Limited Partnership              $100,000            Attn:  Dan Hilliard
                                                              2555 S. Trillium
                                                              Green Bay, WI  54313
                                                              Fax: 920-490-2710

David A. Twiford                          $75,000             871 Ridgeway Loop, #107
                                                              Memphis, TN  38120
                                                              Fax: 901-684-1237

Paul Klister                              $50,000             1308 East Shade Tree Lane
                                                              Appleton, WI  54915
                                                              Fax: 920-830-6640

Marcia K. Tripp                           $225,000            35 Indian Forest Road
                                                              Indian Springs, AL  35124
                                                              Fax: 205-402-0873

Wayne P. Tripp Trust,                     $250,000            35 Indian Forest Road
Marcia K. Tripp, Trustee                                      Indian Springs, AL  35124
                                                              Fax: 205-402-0873

Steven F. Tripp Trust,                    $250,000            35 Indian Forest Road
Marcia K. Tripp, Trustee                                      Indian Springs, AL  35124
                                                              Fax: 205-402-0873

Lisa Marie Tripp Trust,                   $175,000            35 Indian Forest Road
Marcia K. Tripp, Trustee                                      Indian Springs, AL  35124
                                                              Fax: 205-402-0873

Robert E. Woods                           $250,000            922 10th Street SW
                                                              Alabaster, AL  35007

Weyers Family Limited                     $100,000            500 AMS Court
Partnership                                                   Green Bay, WI  54313
                                                              Fax: 920-434-5811

Robert J. Weyers                          $100,000            500 AMS Court
                                                              Green Bay, WI  54313
                                                              Fax: 920-434-5811

Jeffrey J. Weyers                         $100,000            500 AMS Court
                                                              Green Bay, WI  54313
                                                              Fax: 920-434-5811
</TABLE>

                                       16
<PAGE>   17
<TABLE>
<S>                                     <C>                   <C>
Ronald A. Weyers                          $100,000            500 AMS Court
                                                              Green Bay, WI  54313
                                                              Fax: 920-434-5811

Llew Ann King                             $100,000            6600 Murray Lane
                                                              Brentwood, TN  37027
                                                              Fax: 615-376-4127

Matthew A. King                           $37,500             Agent:  Jack Nuismer
Charitable Remainder                                          Raymond James Financial
Unitrust DTD 5/29/97                                          Services
                                                              2103 Crestmoor Road
                                                              Nashville, TN  37215
                                                              Fax: 615-292-7317

Agt. C.T. Williams,                       $37,500             Agent: Kirk Scobey
TUA 11/1/76                                                   SunTrust Equitable Trust
FBO Matthew A. King                                           Co.
Account 10830                                                 800 Nashville City Center
                                                              Nashville, TN
                                                              37219 Fax:
                                                              615-780-9327

Robert O. Rolfe                           $150,000            J.C. Bradford Company
                                                              330 Commerce Street
                                                              Nashville, TN  37201
                                                              Fax: 615-271-1422

John W. Eakin                             $175,000            520 Jackson Boulevard
                                                              Nashville, TN  37205
                                                              Fax: 615-298-6609

Jefferson R. Cobb                         $100,000            204 Aspen Meadow Drive
                                                              Edwards, CO  81632
                                                              Fax: 970-926-0474

Bryan B. Starr, Sr. SEP IRA               $50,000             c/o Healthcare Realty Mgmt
                                                              1400 Urban Center Dr.#400
                                                              Birmingham, AL  35242
                                                              Fax: 205-969-0104

Performance Futures PSP                   $50,000             1400 Urban Center Dr.#415
DTD 1/1/93 FBO Bryan B.                                       Birmingham, AL  35242
Starr, Jr.                                                    Fax: 205-969-0104

Birmingham Hematology and                 $150,000            790 Montclair Road
Oncology Associates, SLB Flex                                 Suite 100
Prototype P/S Plan DTD                                        Birmingham, AL  35213
10/27/85 FBO Jimmie H.
Harvey, M.D.
</TABLE>

                                       17
<PAGE>   18

                                  Schedule 4.1

                                 Existing Liens

<TABLE>
<CAPTION>
             SECURED PARTY                             DESCRIPTION
             -------------                             -----------
<S>                                               <C>
Newcourt Leasing (formerly AT&T Capital)          Office Furniture

Colonial Pacific Leasing                          Fluke Combiscope

Colonial Pacific Leasing                          Office Furniture

GF Funding (formerly Granite Financial)           Office Furniture

Hewlett Packard                                   HP logic analyzer

Hewlett Packard                                   HP 750 Plotter

Hewlett Packard                                   Training on logic analyzer

Hewlett Packard                                   HP logic scope

Hewlett Packard                                   HP timing logic card & pattern generator

Argyle Capital Management Corporation             Security interest covering all of the
                                                  assets of the Company
</TABLE>

                                       18
<PAGE>   19
                                  Schedule 4.3

                             Location of Collateral

SpatiaLight, Inc.
9 Commercial Blvd., Suite 200
Novato, CA  94949

                                       19
<PAGE>   20
                                  Schedule 4.4

                        List of All Intellectual Property

                                     PATENTS

<TABLE>
<CAPTION>
  PATENT                                              FILING
    NO.                      TITLE                     DATE         INVENTOR          ASSIGNEE
  ------                     -----                    ------        --------          --------
<S>          <C>                                     <C>        <C>                <C>
5,396,261    Polysilicon Gate Bus With               03/07/95   W.A. Hastings      Spatialight of
             Interspersed Buffers For Driving a                 III(1)             California,
             Row of Pixels in an Active Matrix                                     Inc.
             Liquid Crystal Display

5,396,262    Polysilicon Gate Bus with               03/07/95   W.A. Hastings      Spatialight of
             Interspersed Buffers for Driving a                 III(1)             California,
             Row of Pixels in an Active Matrix                                     Inc.
             Liquid Crystal Display

5,365,355    Light Blocking Pixel Enhancement and    11/15/94   W.A. Hastings      Spatialight of
             Photocurrent Reduction in Active                   III(1)             California,
             Matrix Liquid Crystal Displays                                        Inc.

5,784,038    Color Projection System Employing       07/21/98   Dean Irwin(1)      Spatialight of
             Dual Monochrome Liquid Crystal                                        California,
             Displays with Misalignment Correction                                 Inc.

5,903,248    Active Matrix Display Having Pixel      05/11/99   Dean Irwin         SpatiaLight,
             Driving Circuits With Integrated                                      Inc.
             Charge Pumps
</TABLE>

                               PATENT APPLICATIONS

<TABLE>
<CAPTION>
   APPLICATION                                            FILING
    SERIAL NO.                    TITLE                    DATE       INVENTOR
   -----------                    -----                   ------      --------
<S>               <C>                                    <C>        <C>
  08/734,230      Technique for Driving Dot-Matrix       10/21/96   Dean Irwin
                  Liquid Crystal Displays by Phase
                  Shifting a Front Electrode Voltage
                  One-Half a Refresh Cycle
</TABLE>

                                   TRADEMARKS

<TABLE>
<CAPTION>
 TRADEMARK                                                 ISSUE            OWNER OF
    NO.                         TITLE                       DATE             RECORD
 ---------                      -----                       ----             ------
<S>               <C>                                     <C>            <C>
2,041,178         Liquid Crystal Displays and Liquid      02/25/97         SpatiaLight of
                  Crystal Light Modulations                               California, Inc.

2,006,653         Remote Controllers in the Audio         10/08/96       Sayett Group, Inc.
                  Visual Field

2,018,018         Video or Computer Controlled            11/19/96       Sayett Group, Inc.
                  Projectors
</TABLE>

--------

(1) Assigned to Spatialight of California, Inc. (formerly WAH-III Technology
Corporation)

                                       20
<PAGE>   21
                              Schedule 4.4 (cont.)

                             TRADEMARK APPLICATIONS

<TABLE>
<CAPTION>
   TRADEMARK
  APPLICATION                                                FILING           OWNER OF
      NO.                       TITLE                         DATE             RECORD
  -----------                   -----                        ------            -------
<S>               <C>                                     <C>            <C>
75/625,235        SPATIALIGHT IMAGENGINE                  01/21/99       SpatiaLight, Inc.

75/716,246        DISPLASIC                               05/27/99       SpatiaLight, Inc.
</TABLE>

                                       21
<PAGE>   22
                                  Schedule 4.5

                        Intellectual Property Collateral

Although the Company has noncompetition agreements in place, these agreements
may not be enforceable under California law.

At any time the Company may have intellectual property which could be
copyrighted, for which it does not have registered copyrights and which it is
not taking steps to register throughout the world.

The Company makes a determination whether to patent its intellectual property
from time to time based upon cost-benefit analyses, taking into account factors
such as cost and the length of time a patent is anticipated to give it a
competitive advantage and does not patent all intellectual property which
theoretically could be patented.

                                       22
<PAGE>   23
                                  Schedule 4.7

                              Compliance with Laws

                                      None

                                       23
<PAGE>   24
                                  Schedule 4.8

                               Investment Property

                                      None

                                       24
<PAGE>   25
                                  Schedule 5.7

                      Registration of Intellectual Property

The Company makes a determination whether and where to file patents, trademarks
or copyrights upon its intellectual property from time to time based upon
cost-benefit analyses, taking into account factors such as cost and the
anticipated competitive advantage generated by a filing and does not file
patents, trademarks or copyrights for all intellectual property which
theoretically could be protected.

At any time the Company may have intellectual property which could be
copyrighted, for which it does not have registered copyrights and which it is
not taking steps to register throughout the world.

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