Document:

<PAGE>

                                                                    EXHIBIT 10.2

                               CREDIT AGREEMENT

                          DATED AS OF AUGUST 10, 2001

                                    between

                                 BUY.COM, INC.

                                      and

                                 SCOTT A. BLUM
                            SEPARATE PROPERTY TRUST
                                 U/D/T 8/2/95
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
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                                                                          Pages
                                                                          -----
<S>                                                                       <C>
SECTION 1.  DEFINITIONS................................................      1

1.1    Certain Defined Terms...........................................      1

1.2    Accounting Terms................................................      6

1.3    Other Definitional Provisions...................................      6

SECTION 2.  AMOUNT AND TERMS OF COMMITMENTS, LOANS AND LETTERS OF
         CREDIT; REIMBURSEMENT OBLIGATIONS.............................      6

2.1    Loans and Note..................................................      6

2.2    Interest on the Loans...........................................      6

2.3    Commitment Fees.................................................      7

2.4    Repayments and Payments.........................................      7

2.5    Use of Proceeds.................................................      8

2.6    Letters of Credit...............................................      8

2.7    Liens, Permitted Liens..........................................      9

2.8    Usury Savings...................................................      9

2.9    Termination.....................................................      9

SECTION 3.  CONDITIONS TO LOANS AND LETTERS OF CREDIT..................     10

3.1    Conditions to Initial Loan and L/C..............................     10

3.2    Conditions to All Loans.........................................     11

3.3    Conditions to All Letters of Credit.............................     11

SECTION 4.  BORROWER'S REPRESENTATIONS AND WARRANTIES..................     11

4.1    Organization, Standing and Corporate Power......................     11

4.2    Loan Documents Authorized.......................................     12

4.3    No Conflict.....................................................     12

4.4    Litigation......................................................     12

4.5    Financial Condition.............................................     12

4.6    Deposit Accounts................................................     13

4.7    Disclosure......................................................     13

4.8    Environmental Matters...........................................     13

4.9    Title to Properties; Liens......................................     13

4.10   Payment of Taxes................................................     14

4.11.  Regulation U....................................................     14
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4.12.  Licenses, Permits, etc..........................................   14

SECTION 5.  BORROWER'S AFFIRMATIVE COVENANTS...........................   14

5.1    Corporate Existence, Etc........................................   15

5.2    Payment of Taxes and Claims.....................................   15

5.3    Maintenance of Properties; Insurance............................   15

5.4    Financial Information...........................................   15

5.5    Inspection......................................................   15

5.6    Compliance with Laws, Etc.......................................   16

5.7    Notice of Certain Events........................................   16

SECTION 6.  BORROWER'S NEGATIVE COVENANTS..............................   16

6.1    Regulation U....................................................   16

6.2    Intentionally Omitted...........................................   16

6.3    Liens...........................................................   16

6.4    Restricted Payments.............................................   17

6.5    Loans, Investments, Contingent Liabilities......................   17

6.6    Consolidation, Merger, Acquisition..............................   18

6.7    Asset Sales.....................................................   18

6.8    Agreements......................................................   19

6.9.   Remedies of Lender..............................................   19

SECTION 7.  EVENTS OF DEFAULT..........................................   19

7.1    Failure to Pay..................................................   19

7.2    Breach of Covenant..............................................   19

7.3    Breach of Representation or Warranty............................   19

7.4    Termination of Merger Agreement.................................   20

7.5    Bankruptcy or Insolvency........................................   20

7.6    Intentionally Omitted...........................................   20

7.7    Intentionally Omitted...........................................   20

7.8    Intentionally Omitted...........................................   20

7.9    Invalidity of Loan Documents....................................   20

SECTION 8.  MISCELLANEOUS..............................................   22

8.1    Survival of Warranties..........................................   22

8.2    Failure or Indulgence Not Waiver................................   22

8.3    Modification....................................................   22
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8.4    Notices.........................................................   22

8.5    Severability....................................................   23

8.6    Effectiveness; Binding Effect; Governing Law....................   23

8.7    Waiver of Jury Trial............................................   23

8.8    Consent to Jurisdiction.........................................   24

8.9    Assignability...................................................   24

8.10.  Costs and Expenses..............................................   24

8.12.  Counterparts....................................................   25

8.13   Headings........................................................   25
</TABLE>

SCHEDULE 3.1B
DISCLOSURE SCHEDULE

EXHIBIT I       FORM OF NOTE
EXHIBIT II      FORM OF NOTICE OF BORROWING
EXHIBIT III     FORM OF NOTICE OF LETTER OF CREDIT REQUEST
<PAGE>

                               BRIDGE FINANCING

                               CREDIT AGREEMENT

                          DATED AS OF AUGUST 10, 2001

          This Bridge Financing Credit Agreement (the "Agreement") is dated as
of August 10, 2001, and entered into between Buy.com, Inc., a Delaware
corporation (the "Borrower" or the "Company"), and the Scott A. Blum Separate
Property Trust u/d/t 8/2/95 (the "Lender").

                                   RECITALS
                                   --------

          WHEREAS, the Borrower and the Lender have entered into that certain
Agreement and Plan of Merger of even date herewith (the "Merger Agreement"),
pursuant to which the Lender shall form an entity for the purposes of merging
with the Borrower (such transaction, the "Merger");

          WHEREAS, the Borrower has an immediate need for additional funds to
continue to operate its business until the consummation of the Merger;

          WHEREAS, the Borrower has requested that the Lender, subject to the
terms and conditions contained herein, commit to provide a revolving loan in an
aggregate amount of up to $4,000,000 to fund working capital and general
operating expenses;

          WHEREAS, the Borrower has requested that the Lender, subject to the
terms and conditions contained herein, commit to arrange for the issuance of
standby letters of credit for the benefit of the Borrower in an aggregate amount
of up to $5,000,000 to support the Borrower's obligations; and

          WHEREAS, the Lender is willing to provide such loans and arrange for
such letters of credit only if the Obligations of the Borrower hereunder are
secured by a first priority Lien, superior to all other Liens (except Permitted
Liens) held by any other Person, on those assets of the Borrower and its
Subsidiaries in which the Lender is granted a security interest under the
Collateral Documents;

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the parties hereto agree as follows:

     SECTION 1.     DEFINITIONS

          1.1       Certain Defined Terms
                    ---------------------

          The following terms used in this Agreement shall have the following
meanings:
<PAGE>

                    "Agreement" means this Bridge Financing Credit Agreement
          dated as of August 10, 2001 and all schedules and exhibits hereto, as
          such may be amended or supplemented from time to time.

                    "Borrower" has the meaning assigned in the introductory
          clause of this Agreement.

                    "Business Day" means any day excluding Saturday, Sunday and
          any day on which the lending institutions located in the states of
          California or New York are authorized by law or other governmental
          action to close.

                    "Capital Lease" means any lease of any property (whether
          real, personal or mixed) by the Borrower or any of its Subsidiaries as
          lessee that is accounted for as a capital lease on the balance sheet
          of such entity in accordance with GAAP.

                    "Closing Date" means the date that the conditions to the
          Lender making the initial Loan or arranging the initial Letter of
          Credit have been satisfied or waived, including without limitation the
          conditions listed in subsection 3.1 herein.

                    "Collateral" means, collectively, all of the real, personal
          and mixed property (including capital stock) in which Liens are
          purported to be granted by the Loan Documents.

                    "Collateral Documents" means (i) the Security Agreement, and
          (ii) any other security agreements, pledge agreements, assignments,
          financing statements or other agreement, document, instrument or
          certificate executed or delivered by the Borrower or any of its
          Subsidiaries pursuant to this Agreement.

                    "Commitments" means, collectively, the Loan Commitment and
          the L/C Commitment.

                    "Commitment Expiration Date" means the earliest of (i)
          December 3, 2001, provided, however, that if the termination date of
                            --------
          the Merger Agreement is extended, the preceding date shall be adjusted
          correspondingly to occur on the Business Day immediately following
          such termination date, (ii) the Business Day immediately following the
          Merger Agreement Closing Date, and (iii) the date of termination in
          whole of the Loan Commitment and the L/C Commitment pursuant to
          Section 7 hereof.

                    "Company Disclosure Schedule" has the meaning given to that
          term in the Merger Agreement.

                    "Company SEC Documents" has the meaning given to that term
          in subsection 4.5 hereof.

                    "Dollars" or "$" means dollars in the lawful currency of the
          United States of America.

                                       2
<PAGE>

                    "Environmental Laws" means any and all current or future
          statutes, ordinances, orders, rules, regulations, guidance documents,
          judgments, governmental authorizations, or any other requirements of
          governmental authorities relating to (i) environmental matters, or
          (ii) occupational safety and health, industrial hygiene, land use or
          the protection of human, plant or animal health or welfare, in any
          manner applicable to the Borrower or its Subsidiaries or any of its or
          their facilities.

                    "Event of Default" means each of the events set forth in
          Section 7 hereof.

                    "Funding Date" means the date of funding of a Loan.

                    "GAAP" means generally accepted accounting principles set
          forth in the opinions and pronouncements of the Accounting Principles
          Board and the American Institute of Certified Public Accountants and
          statements and pronouncements of the Financial Accounting Standards
          Board or in such other statements by such other entity as may be
          approved by a significant segment of the accounting profession, that
          are applicable to the circumstances as of the date of determination.

                    "Governmental Authority" means any federal, state or local
          governmental authority, agency or court in the United States, or other
          comparable or similar governmental authority, agency or court in a
          jurisdiction outside of the United States, in each case applicable to
          the Borrower or its Subsidiaries.

                    "L/C Commitment" means the commitment of the Lender to
          arrange the Letters of Credit for the benefit of the Borrower as set
          forth in subsection 2.6A hereof.

                    "L/C Obligations" has the meaning given thereto in
          subsection 2.6C hereof.

                    "Lender" has the meaning assigned in the introductory clause
          of this Agreement.

                    "Letters of Credit" means those standby letters of credit to
          be obtained by the Lender for the benefit of the Borrower pursuant to
          subsection 2.6 hereof.

                    "Lien" means any lien, mortgage, pledge, security interest,
          charge, hypothecation or encumbrance of any kind, including any
          conditional sale or other title retention agreement, any lease in the
          nature thereof, and any agreement to give any security interest.

                    "Loan" or "Loans" means one or more of the revolving loans
          made by the Lender to the Borrower pursuant to subsection 2.1A hereof.

                    "Loan Commitment" means the commitment of the Lender to make
          the Loans as set forth in subsection 2.1A hereof.

                                       3
<PAGE>

                    "Loan Documents" means this Agreement, the Note, and the
          Collateral Documents.

                    "Margin Stock" has the meaning assigned to that term in
          Regulation U of the Board of Governors of the Federal Reserve System
          as in effect from time to time.

                    "Material Contract" has the meaning given to that term in
          the Merger Agreement.

                    "Material Adverse Effect" or "Material Adverse Change" have
          the meanings given to such terms in the Merger Agreement.

                    "Merger" has the meaning given to that term in the recitals.

                    "Merger Agreement" has the meaning given to that term in the
          recitals.

                    "Merger Agreement Closing Date" means the "Closing Date" as
          such term is defined in the Merger Agreement.

                    "Note" means the promissory note of the Borrower issued
          pursuant to subsection 2.1D hereof and substantially in the form of
          Exhibit I annexed hereto.

                    "Notice of Borrowing" means a notice substantially in the
          form of Exhibit II annexed hereto with respect to a proposed borrowing
          of a Loan.

                    "Notice of Letter of Credit Request" means a notice
          substantially in the form of Exhibit III annexed hereto with respect
          to a proposed Letter of Credit, including any exhibits or attachments
          thereto.

                    "Obligations" means all obligations of every nature of the
          Borrower under this Agreement and the other Loan Documents, including
          without limitation any obligations of the Borrower relating to drawn
          or outstanding Letters of Credit, whether or not such obligation is
          reduced to judgment, liquidated, unliquidated, fixed or contingent,
          matured, disputed, undisputed, legal, equitable, secured or unsecured,
          and whether or not such obligation is discharged, stayed or otherwise
          affected by any bankruptcy, insolvency, reorganization or other
          similar proceeding. Without limiting the generality of the foregoing,
          the Obligations of the Borrower include the obligations to pay
          principal, interest, charges, expenses, fees, reasonable attorneys'
          fees and disbursements and other amounts payable by the Borrower under
          this Agreement or any other Loan Document to which it is a party and
          to reimburse any amount in respect of any of the foregoing that the
          Lender, in its sole discretion, may elect to pay or advance on behalf
          of the Borrower in accordance with the Security Agreement.

                    "Parent" has the meaning given to that term in the Merger
          Agreement.

                                       4
<PAGE>

                    "Permitted Liens" means each of the encumbrances set forth
          in subsection 6.3 hereof.

                    "Person" means an individual, partnership, corporation,
          limited liability company, business trust, joint stock company, trust,
          unincorporated association, joint venture, governmental authority or
          other entity of whatever nature.

                    "Regulation D" means Regulation D of the Board of Governors
          of the Federal Reserve System as in effect from time to time.

                    "Restricted Payment" means (i) any dividend or other
          distribution, direct or indirect, in respect of or on account of any
          shares of any class of stock of the Borrower now or hereafter
          outstanding, (ii) any redemption, retirement, sinking fund or similar
          payment, purchase or other acquisition for value, direct or indirect,
          of any shares of any class of stock of the Borrower now or hereafter
          outstanding (iii) any payment made to retire, or to obtain the
          surrender of, any outstanding warrants, options or other rights to
          acquire shares of any class of stock of the Borrower now or hereafter
          outstanding; and (iv) any payment, discharge or satisfaction of any
          claims, liabilities or obligations (absolute, accrued, asserted or
          unasserted, contingent or otherwise), other than (A) the payment,
          discharge, settlement or satisfaction, in the ordinary course of
          business consistent with past practice or in accordance with their
          terms, of liabilities reflected or reserved against in, or
          contemplated by, the most recent consolidated financial statements (or
          the notes thereto) of the Borrower included in the Company SEC
          Documents or listed or referred to in the Company Disclosure
          Schedules, (B) the payment of any indebtedness, claims, liabilities or
          obligations incurred in the ordinary course of the Borrower's business
          consistent with past practice, (C) payments made with respect to the
          acquisition of assets under subsection 6.6 hereof; or (D) payments
          otherwise permitted or required by the terms of the Merger Agreement.

                    "Security Agreement" means each Security Agreement executed
          and delivered by the Borrower in favor of the Lender, as such Security
          Agreement may be amended or supplemented or otherwise modified from
          time to time, including without limitation the Security Agreement
          entered into by and between the Lender and the Borrower dated of even
          date herewith.

                    "Subsidiary" means a corporation, partnership, trust,
          limited liability company or other business entity of which more than
          50% of the shares of stock or other ownership interests having
          ordinary voting power (without regard to the occurrence of any
          contingency) to elect a majority of the board of directors or other
          managers of such entity are at the time owned, directly, or indirectly
          through one or more Subsidiaries, or both, by the Borrower.

                    "Termination Date" has the meaning given to that term in
          subsection 2.9 hereof.

                                       5
<PAGE>

               1.2    Accounting Terms
                      ----------------

               For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to them in conformity
with GAAP.

               1.3    Other Definitional Provisions
                      -----------------------------

               References to "Sections" and "subsections" shall be to
Sections and subsections, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 hereof may,
unless the context otherwise requires, be used in the singular or the plural
depending on the reference.

         SECTION 2.  AMOUNT AND TERMS OF COMMITMENTS, LOANS AND LETTERS OF
                     CREDIT; REIMBURSEMENT OBLIGATIONS

               2.1    Loans and Note
                      --------------

               A.     Commitment. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the
Borrower herein set forth, the Lender hereby agrees to lend to the Borrower from
time to time during the period from the Closing Date through and including the
Commitment Expiration Date one or more Loans in an amount not to exceed
$4,000,000 in the aggregate (such commitment to lend being referred to herein as
the "Loan Commitment"), solely for the purposes identified in subsection 2.5A
hereof. Loans may be repaid and, through the Commitment Expiration Date,
reborrowed by the Borrower, in whole or in part without penalty or premium;
provided that the Loan Commitment shall expire on the Commitment Expiration
--------
Date.

               B.     Notice of Borrowing. Whenever the Borrower desires to
borrow a Loan under this subsection 2.1, it shall deliver to the Lender a Notice
of Borrowing no later than 1:00 p.m. (California time) at least three Business
Days in advance of the proposed Funding Date. The Notice of Borrowing shall
specify (i) the proposed Funding Date (which shall be a Business Day) and (ii)
the amount of the proposed Loan.

               C.     Disbursement of Funds. The Lender shall make the proceeds
of each Loan available to the Borrower on such Funding Date by causing an amount
of same day funds equal to the amount of such Loan to be wire transferred to an
account specified in the Notice of Borrowing by the Borrower.

               D.     Note. The Borrower shall execute and deliver to the Lender
the Note payable to the Lender representing the Loans and the Borrower's
Obligations with respect thereto, in the principal amount of the Loan Commitment
and with other appropriate insertions.

               2.2    Interest on the Loans
                      ---------------------

               A.     Rate of Interest. The Loans shall bear interest on the
unpaid principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate equal to 10.5%.

                                       6
<PAGE>

               B.     Interest Payments. Subject to subsection 2.2C hereof,
interest shall be payable upon any prepayment of any Loan (to the extent accrued
on the amount being prepaid) and at maturity.

               C.     Post-Maturity Interest. Any principal payments on the
Loans not paid when due, whether at stated maturity, by acceleration or
otherwise, shall thereafter bear interest payable upon demand at a rate that is
equal to 2.5% per annum in excess of the rate of interest otherwise payable
under this Agreement.

               D.     Computation of Interest. Interest on the Loans shall be
computed on the basis of a 360-day year and the actual number of days elapsed in
the period during which it accrues.

               2.3    Commitment Fees
                      ---------------

               In consideration of the Loan Commitment, the Borrower agrees to
pay to the Lender a commitment fee of $140,000, due and payable on the
Commitment Expiration Date. Any amount of such commitment fee not paid when due,
whether at stated maturity, by acceleration or otherwise, shall thereafter bear
interest at a rate that is equal to the rate of interest that would apply to
unpaid principal under the Loans for the same period.

               2.4    Repayments and Payments
                      -----------------------

               A.     Mandatory Repayments. The aggregate principal amount of
all Loans outstanding on the Commitment Expiration Date, together with accrued
interest thereon, shall be due and payable in full on the Commitment Expiration
Date. All repayments of any Loan, on or before the maturity thereof, shall
include payment of accrued interest on the principal amount so repaid, and
amounts so received by the Lender shall be applied first to the payment of
interest before application to principal. Upon maturity or acceleration of the
Obligations, any payments or repayments of any Obligations hereunder received by
the Lender shall be applied first to the payments of amounts due under
subsection 8.10 hereof, then to the payment of interest accrued on such
Obligations, and finally to the principal amounts of any such Obligations.

               B.     Manner and Time of Payment. All payments of principal,
interest and fees hereunder and under the Note shall be made without defense,
set off and counterclaim and in same day funds and delivered to the Lender not
later than 3:00 (California time) on the date due at its office located at 65
Enterprise, Aliso Viejo, CA 92656, or at such other address as the Lender may
inform the Borrower by written notice; funds received by the Lender after that
time shall be deemed to have been paid by the Borrower on the next succeeding
Business Day.

               C.     Payments on Non-Business Days. Whenever any payment to be
made hereunder or under the Note shall be stated to be due on a day that is not
a Business Day, the payment shall be made on the next succeeding Business Day
and such extension of time shall be included in the computation of the payment
of interest hereunder or under the Note.

               D.     Notation of Payment. The Lender agrees that before
disposing of the Note held by it, or any part thereof, the Lender will make a
notation thereon of all Loans and principal payments previously made thereon and
of the date to which interest thereon has been paid and, if

                                       7
<PAGE>

applicable and otherwise allowed under this Agreement, will notify the Borrower
of the name and address of the permitted transferee of the Note; provided that
                                                                 --------
the failure to make a notation of any Loan made under the Note shall not limit
or otherwise affect the obligation of the Borrower hereunder or under the Note
with respect to any Loan and payments of principal or interest on the Note.

          2.5   Use of Proceeds
                ---------------

          A.    Loans. The proceeds of the Loans shall be applied by the
Borrower solely to working capital purposes or general operating purposes of the
Borrower.

          B.    Margin Regulations. No portion of the proceeds of any borrowing
under this Agreement shall be used by the Borrower in any manner that might
cause the borrowing or the application of such proceeds to violate Regulation G,
Regulation U, Regulation T, or Regulation X of the Board of Governors of the
Federal Reserve System or any other regulation of the Board or to violate the
Securities Exchange Act of 1934, in each case as in effect on the date or dates
of such borrowing and such use of proceeds.

          2.6   Letters of Credit
                -----------------

          A.    L/C Commitment. Subject to the terms and conditions of this
Agreement and reliance upon the representations and warranties of the Borrower
herein set forth, the Lender hereby agrees to arrange for the issuance of one or
more standby Letters of Credit in an amount not to exceed $5,000,000 in the
aggregate (the "L/C Commitment"), solely for the purpose of supporting the
Borrower's obligations incurred from time to time during the period from the
Closing Date through and including the Commitment Expiration Date; provided that
                                                                   --------
the Lender shall not be required to arrange for the issuance of a Letter of
Credit if after such issuance the aggregate amount of all outstanding Letters of
Credit plus all L/C Obligations would exceed the L/C Commitment. The L/C
Commitment shall expire on the Commitment Expiration Date, and on that date the
Borrower shall pay to the Lender an amount equal to the maximum amount that may
at any time be drawn under all outstanding Letters of Credit (whether or not any
beneficiary under any Letter of Credit shall have presented, or shall be
entitled at such time to present, the drafts or other documents or certificates
required to draw under the Letter of Credit) (unless the Borrower takes such
other actions allowed by subsection 2.9 to dispose of outstanding Letters of
Credit). Any such amounts when received by the Lender, shall be held by the
Lender in an interest bearing account and shall be applied to any draws under
the Letters of Credit, and promptly upon the expiration or other termination of
any Letter of Credit, the undrawn amount of such Letter of Credit (together with
accrued interest thereon) shall be returned to the Borrower from such account;
any such amounts not paid when due, whether at stated maturity, by acceleration
or otherwise, shall thereafter bear interest at a rate that is equal to the rate
of interest that would apply to unpaid principal under the Loans for the same
period.

          B.    Notice of Letter of Credit Request. Whenever the Borrower
desires to arrange for the issuance of a Letter of Credit under this subsection
2.6, it shall deliver to the Lender a Notice of Letter of Credit Request no
later than 1:00 p.m. (California time) at least three Business Days in advance
of the proposed date of issuance.

                                       8
<PAGE>

          C.    Reimbursement. The Lender shall notify the Borrower of each
request for draws under any Letter of Credit, and the Borrower hereby agrees to
reimburse the Lender for the amount of any such draws (the "L/C Obligations").
The L/C Obligations shall be due and payable on the Commitment Expiration Date;
provided, that from the date of incurrence the L/C Obligations shall thereafter
--------
bear interest at a rate that is equal to the rate of interest that would apply
to unpaid principal under the Loans for the same period.

          D.    L/C Fees. In consideration of the L/C Commitment, the Borrower
agrees to pay to the Lender a commitment fee of $175,000, due and payable on the
Commitment Expiration Date. Any amount of such commitment fee not paid when due,
whether at stated maturity, by acceleration or otherwise, shall thereafter bear
interest at a rate that is equal to the rate of interest that would apply to
unpaid principal under the Loans for the same period.

          2.7   Liens, Permitted Liens
                ----------------------

          All Obligations shall be secured by first priority and other Liens in
and security interests in and to all Collateral as contemplated by this
Agreement and the other Loan Documents, subject only to Permitted Liens.

          2.8   Usury Savings
                -------------

          Notwithstanding any provision of any Loan Document, the Borrower is
not and shall not be required to pay interest at a rate or any fee or charge in
an amount prohibited by applicable law. If interest or any fee or charge payable
on any date would be in a prohibited amount, then such interest, fee or charge
                                             ----
will be automatically reduced to the maximum amount that is not prohibited, and
                                                                            ---
any interest, fee or charge for subsequent periods (to the extent not prohibited
by applicable law) will be increased accordingly until the Lender receives
payment of the full amount of each such reduction. To the extent that any
prohibited amount is actually received by the Lender, then such amount will be
                                                      ----
automatically deemed to constitute a repayment of principal indebtedness
hereunder.

          2.9   Termination
                -----------

          On and as of the date (the "Termination Date") that (i) the Borrower
terminates in whole the Commitments by written notice to the Lender or the
Commitments have otherwise been irrevocably terminated pursuant to the terms of
this Agreement, (ii) all the Loans have been repaid in full, (iii) all other
Obligations under this Agreement and the other Loan Documents, including without
limitation those arising under subsection 8.10 herein, have been paid in full,
(iv) with respect to each and all outstanding Letters of Credit, (a) the
Borrower has deposited with the Lender the full amount of such outstanding
Letters of Credit (whether or not any beneficiary under any Letter of Credit
shall have presented, or shall be entitled at such time to present, the drafts
or other documents or certificates required to draw under the Letter of Credit),
(b) the Borrower has provided to the Lender alternate letters of credit in the
full amount of such outstanding Letters of Credit from a party reasonably
satisfactory to the Lender naming the Lender as beneficiary, or (c) the Letters
of Credit have been cancelled or have expired, and (v) the Borrower shall not
have any further right to borrow any monies or arrange for the issuance of any
Letters of Credit under this Agreement; then this Agreement shall terminate and
                                        ----

                                       9
<PAGE>

be of no further force or effect, and neither the Lender nor the Borrower shall
have any further rights, duties or obligations hereunder.

     SECTION 3. CONDITIONS TO LOANS AND LETTERS OF CREDIT

          The obligation of the Lender to make Loans and arrange for Letters of
Credit hereunder is subject to the satisfaction of all of the following
conditions:

          3.1   Conditions to Initial Loan and L/C
                ----------------------------------

          The obligation of the Lender to make its initial Loan and to arrange
for the issuance of the initial Letter of Credit, in addition to the conditions
precedent specified in subsection 3.2 hereof, is subject to prior or concurrent
satisfaction of the following conditions:

          A.    The Lender shall have received on or before the Closing Date:

          (i)   Resolutions of the Board of Directors of the Borrower approving
and authorizing the execution, delivery and performance of this Agreement and
the other Loan Documents to which it is a party, certified as of the Closing
Date by the Borrower's corporate secretary, an assistant secretary or other duly
authorized officer as being in full force and effect without modification or
amendment;

          (ii)  Executed and acknowledged (where applicable) originals of this
Agreement, the Note and the other Loan Documents to which the Borrower or any
its Subsidiaries are a party; and

          B.    The Lender shall have received properly authorized and executed
copies of the following: (i) the Security Agreement, (ii) the UCC-1 financing
statement(s) executed in connection with the Security Agreement, (iii) the Grant
of Patent Security Interest substantially in the form attached to the Security
Agreement, (iv) the Grant of Trademark Interest substantially in the form
attached to the Security Agreement, and (v) Control Agreements by and between
the Lender, the Borrower, and the depository institutions listed with more
specificity on Schedule 3.1B hereto. The Lender shall also have received the
stock certificates listed with more specificity on Schedule 3.1B hereto,
accompanied by stock powers duly endorsed in blank.

          C.    Representations and Warranties; Performance of Agreements. The
Borrower shall have delivered to the Lender an Officer's Certificate, in form
and substance satisfactory to Lender, to the effect that the representations and
warranties in Section 4 hereof are true, correct and complete in all material
respects on and as of the Closing Date to the same extent as though made on and
as of that date (or, to the extent such representations and warranties
specifically relate to an earlier date, that such representations and warranties
were true, correct and complete in all material respects on and as of such
earlier date) and that the Borrower shall have performed in all material
respects all agreements and satisfied all conditions which this Agreement
provides shall be performed or satisfied by it on or before the Closing Date
except as otherwise disclosed to and agreed to in writing by the Lender.

                                       10
<PAGE>

          3.2   Conditions to All Loans
                -----------------------

          The obligation of the Lender to make each Loan is subject to the
following further conditions precedent:

          A.    The Lender shall have received, in accordance with the
provisions of subsection 2.1B hereof, before any Funding Date, an originally
executed Notice of Borrowing.

          B.    As of that date, there exists no Event of Default and no
Material Adverse Effect that would not be cured or eliminated by the making of
the Loan.

          C.    As of that date, the Merger Agreement has not been terminated,
and no third party has contested or threatened in writing to contest to the
validity or priority of the Liens granted to the Lender or the validity or
priority of the Loan Documents in any material and significant respect.

          3.3   Conditions to All Letters of Credit
                -----------------------------------

          The obligation of the Lender to arrange for the issuance of each
Letter of Credit is subject to the following further conditions precedent:

          A.    The Lender shall have received, in accordance with the
provisions of subsection 2.6 hereof, before any date of issuance, an originally
executed Notice of Letter of Credit Request.

          B.    As of that date, there exists no Event of Default and no
Material Adverse Effect that would not be cured or eliminated by the issuance of
such Letter of Credit.

          C.    As of that date, the Merger Agreement has not been terminated,
and no third party has contested or threatened in writing to contest to the
validity or priority of the Liens granted to the Lender or the validity or
priority of the Loan Documents in any material and significant respect.

     SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES

          In order to induce the Lender to enter into this Agreement and to make
the Loans, the Borrower represents and warrants to the Lender that the following
statements are true, correct and complete, except as specifically disclosed on
the attached Disclosure Schedule:

          4.1   Organization, Standing and Corporate Power
                ------------------------------------------

          The Borrower is and each of its Subsidiaries is a corporation or
limited liability company duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is organized and has the
requisite corporate or limited liability company power and authority to carry on
its business as now being conducted. The Borrower and each of its Subsidiaries
is duly qualified or licensed to do business as a foreign corporation or limited
liability company and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary,

                                       11
<PAGE>

other than in such jurisdictions where the failure to be so qualified or
licensed would not have a Material Adverse Effect on the Borrower. The Borrower
has made available to the Lender complete and correct copies of its certificate
of incorporation and bylaws and the certificate of incorporation and bylaws or
other organizational documents of its Subsidiaries, in each case as amended to
the date of this Agreement.

          4.2   Loan Documents Authorized
                -------------------------

          As of the date hereof and at all times during the effectiveness of
this Agreement, the execution, delivery and performance of the Loan Documents
and the execution and delivery of the Note (i) have been duly authorized by all
necessary corporate action on the part of the Borrower and (ii) do not require
the consent or approval of any Governmental Authority or other regulatory
authority; are not in contravention of or conflict with any law or regulation or
any term or provision of any Material Contract, in each case that would result
in a Material Adverse Change; and this Agreement is, and the Note when delivered
for value received will be, duly executed and delivered by the Borrower and
constitute legally valid and binding obligations of the Borrower, enforceable in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally.

          4.3   No Conflict
                -----------

          As of the date hereof and at all times during the effectiveness of
this Agreement, the execution, delivery and performance of this Agreement, and
of the Note and the other Loan Documents will not breach or constitute a default
under any Material Contract; and such execution, delivery and performance will
not result in the creation or imposition of any lien, charge or encumbrance on,
or security interest in, any of its or any of its Subsidiaries' property
pursuant to the provisions of any of the foregoing, in each case that would
result in a Material Adverse Effect.

          4.4   Litigation
                ----------

          Except as disclosed in the Company SEC Documents filed prior to the
date of this Agreement and publicly available or as disclosed in Section 3.1(h)
of the Company Disclosure Schedule, there is no suit, action, investigation,
audit or proceeding pending or, to the knowledge of the Borrower, overtly
threatened against the Borrower or any of its Subsidiaries. There is no decree,
injunction, judgment, order, ruling, assessment or writ of any Governmental
Entity applicable to the Borrower or any of its Subsidiaries or to which any of
its or their respective assets may be bound, and there is no other decree,
injunction, judgment, order, ruling, assessment or writ applicable to the
Borrower or any of its Subsidiaries or to which any of its or their respective
assets may be bound that would create a Material Adverse Effect.

          4.5   Financial Condition
                -------------------

          Since February 8, 2000, the Borrower has timely filed with the SEC all
required reports and forms and other documents (the "Company SEC Documents"). As
of their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and

                                       12
<PAGE>

regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents and none of the Company SEC Documents, when filed, contained any
untrue statement of a material fact or omitted 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. The
financial statements of the Borrower included in the Company SEC Documents
complied as to form, when filed, in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present,
in all material respects, the financial position of the Borrower as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of the unaudited statements to normal year-end audit
adjustments). Except as set forth in the Company SEC Documents filed prior to
the date of this Agreement and publicly available and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the most recent balance sheet included in the Company
SEC Documents, neither the Borrower nor any of its Subsidiaries has any material
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by generally accepted accounting principles to be set
forth on a balance sheet of the Borrower and its consolidated Subsidiaries or in
the notes thereto.

          4.6   Deposit Accounts.
                ----------------

          The Grantor shall maintain the accounts with the depository
institutions listed with particularity on Schedule 3.1B hereto as its primary
cash accounts.

          4.7   Disclosure
                ----------

          No information, exhibit or report furnished to the Lender by or on
behalf of the Borrower or any of its Subsidiaries for use in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact (known to the Borrower, in the
case of any document not furnished by it) necessary in order to make the
statements contained therein not misleading in light of the circumstances in
which the same were made.

          4.8   Environmental Matters.
                ---------------------

          The Borrower has reasonably concluded that no event or condition has
occurred or is occurring with respect to the Borrower or any of its Subsidiaries
relating to any Environmental Law, except as disclosed on Disclosure Schedule
hereto, which individually or in the aggregate has had or could reasonably be
expected to have a Material Adverse Effect.

          4.9   Title to Properties; Liens.
                --------------------------

          Section 3.1(k) of the Company Disclosure Schedule sets forth a list of
each real property lease to which the Borrower or any of its Subsidiaries is a
party. True and correct copies of each such real property lease, including all
amendments thereto, have been made available to the Lender. Neither the Borrower
nor any of its Subsidiaries owns any real property.

                                       13
<PAGE>

The Borrower and its Subsidiaries have good and marketable title to, or valid
leasehold interests in, all their properties and assets except where such
failure would not have a Material Adverse Effect on the Borrower. The tangible
assets of the Borrower and each of its Subsidiaries are in a good state of
maintenance and repair and are not materially defective except for ordinary wear
and tear and are adequate for their current uses.

          4.10  Payment of Taxes.
                ----------------

          Each of the Borrower and its Subsidiaries has timely filed all
material federal, state, local and foreign tax returns, declarations, estimates,
information returns, statements and reports ("Returns") required to be filed by
it through the date hereof and shall timely file all such Returns required to be
filed on or before the Commitment Expiration Date. All such Returns are and will
be true, complete and correct in all material respects. The Borrower and each of
its Subsidiaries has paid and discharged (or the Borrower has paid and
discharged on such Subsidiary's behalf) all material taxes due from them, other
than such taxes as are adequately reserved for on the most recent financial
statements contained in the SEC Documents filed prior to the date of this
Agreement and publicly available.

          4.11. Regulation U
                ------------

          The Borrower and each of its Subsidiaries is not engaged, principally
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying any "margin stock" (as defined in
Regulation U of the Board of Governors of the Federal Reserve System).

          4.12. Licenses, Permits, etc.
                -----------------------

          Except as disclosed on the Company Disclosure Schedule, (a) to the
best knowledge of the Borrower, the Borrower owns and possesses all material
licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, necessary for the
operation of its business, without known conflict with the rights of others, in
each case the failure of which would result in a Material Adverse Effect; and
(b) to the best knowledge of the Borrower, there is no material violation by any
person of any right of the Borrower with respect to any patent, copyright,
service mark, trademark, trade name or other right owned or used by the
Borrower, in each case the failure of which would result in a Material Adverse
Effect.

     SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS
                --------------------------------

          The Borrower covenants and agrees that (i) so long as the Lender has
any Commitments hereunder, any Letters of Credit are outstanding or any amounts
or Obligations are owing or remain outstanding hereunder and unless this
Agreement has been terminated pursuant to subsection 2.9 hereof and (ii) until
payment in full of the Note, unless the Lender shall otherwise consent in
writing or unless otherwise permitted under the Merger Agreement, the Borrower
shall do, and shall cause each of its Subsidiaries to do, all of the following:

                                       14
<PAGE>

          5.1   Corporate Existence, Etc.
                ------------------------

          At all times preserve and keep in full force and effect its and its
Subsidiaries' corporate existence, rights, franchises and licenses material to
its business and those of each of its Subsidiaries; provided, however, that the
                                                    --------  -------
corporate existence of any such Subsidiary may be terminated if such termination
is in the best interest of the Borrower and is not materially disadvantageous to
the holder of the Note.

          5.2   Payment of Taxes and Claims.
                ---------------------------

          Make or rescind any express or deemed election relating to taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of its federal income tax return
for the taxable year ending December 31, 1999, except as may be required by
applicable law; provided, however, nothing herein shall be deemed to prohibit
the filing of the Borrower's federal income tax return for the taxable year
ended December 31, 2000.

          5.3   Maintenance of Properties; Insurance.
                ------------------------------------

          Maintain or cause to be maintained in good repair, working order and
condition all material properties used in the business of the Borrower and its
Subsidiaries and from time to time will make or cause to be made all appropriate
repairs, renewals and replacements thereof. The Borrower and each of its
Subsidiaries will maintain or cause to be maintained, with financially sound and
reputable insurers, insurance with respect to its properties and business and
the properties and business of its Subsidiaries against loss or damage of the
kinds customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such types
and in such amounts as are customarily carried under similar circumstances by
such other corporations. The Borrower and each of its Subsidiaries will comply
with any other insurance requirement set forth in any other Loan Document.

          5.4   Financial Information.
                ---------------------

          The Borrower shall, and shall cause each of its Subsidiaries to,
furnish promptly to the Lender, (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (b) all
other information concerning its business, properties and personnel as the
Lender may reasonably request.

          5.5   Inspection.
                ----------

          Subject to Section 5.2(c) of the Merger Agreement, upon reasonable
prior written notice, permit any authorized representatives designated by the
Lender to visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, including its and their financial and accounting records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and accounts with its and their officers and independent public
accountants, all

                                       15
<PAGE>

at such reasonable times during normal business hours and as often as may be
reasonably requested.

          5.6   Compliance with Laws, Etc.
                -------------------------

          Exercise, and cause each of its Subsidiaries to exercise, all due
diligence in order to comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, including, without
limitation, all Environmental Laws, noncompliance with which could reasonably be
expected to cause, either individually or in the aggregate, a Material Adverse
Effect.

          5.7   Notice of Certain Events
                ------------------------

          The Borrower shall give prompt written notice to the Lender, and the
Lender shall give prompt written notice to the Borrower, of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement or (iii) the occurrence of
any change or event having, or which insofar as can reasonably be foreseen to
have, a Material Adverse Effect on the Borrower; provided, however, that no such
                                                 --------  -------
notification shall (A) affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement or (B) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.

     SECTION 6. BORROWER'S NEGATIVE COVENANTS

          The Borrower covenants and agrees that (i) so long as the Lender has
any Commitments hereunder, any Letters of Credit are outstanding or any amounts
are owing hereunder and (ii) until payment in full of the Note, the Borrower
shall not do, nor shall it allow any of its Subsidiaries to do, any of the
following without the written consent of the Lender:

          6.1   Regulation U
                ------------

          Use the proceeds of any Loan hereunder, directly or indirectly, to
purchase or carry any Margin Stock or extend credit to others for the purpose of
purchasing or carrying, directly or indirectly, any Margin Stock.

          6.2   Intentionally Omitted
                ---------------------

          6.3   Liens
                -----

          Directly or indirectly, create, incur, assume or permit to exist any
Lien on or with respect to the Collateral, except the following (collectively,
the "Permitted Liens"):

                (i)    Liens for taxes, assessments or governmental charges or
     claims the payment of which is not at the time required by subsection 4.10
     hereof;

                                       16
<PAGE>

                (ii)   Statutory Liens of landlords and Liens of carriers,
     warehousemen, mechanics, materialmen, landlords and customs agents and
     authorities and other Liens imposed by law incurred in the ordinary course
     of business, if such reserve or other appropriate provision, if any, as
     shall be required by sound accounting principles shall have been made
     therefor;

                (iii)  Liens arising from judgments, decrees and attachments not
     constituting an event of default;

                (iv)   Liens in favor of financial institutions arising in
     connection with Borrower's deposit accounts held at such institutions;

                (v)     Liens (other than any Lien imposed by ERISA) incurred or
     deposits made in the ordinary course of business in connection with
     workers' compensation, unemployment insurance and other types of social
     security, or to secure the performance of tenders, statutory obligations,
     surety and appeal bonds, bids, leases, government contracts, performance
     and return-of-money bonds and other similar obligations (exclusive of
     obligations for the payment of borrowed money);

                (vi)   Leases or subleases granted to others not interfering
     with the ordinary conduct of the business of the Borrower or of its
     Subsidiaries;

                (vii)  Easements, rights-of-way, restrictions and other similar
     charges or encumbrances not interfering with the ordinary conduct of the
     business of the Borrower or of its Subsidiaries;

                (viii) purchase money Liens upon or in any property acquired or
     held by the Borrower or any Subsidiary in the ordinary course of business
     to secure the purchase price of such property or to secure indebtedness
     incurred solely for the purpose of financing the acquisition of such
     property;

                (ix)   Liens in existence on the date hereof;

                (x)    Liens securing the Obligations; and

                (xi)   Other Liens arising in the ordinary course that do not
     create a Material Adverse Effect.

          6.4   Restricted Payments
                -------------------

          The Borrower and each of its Subsidiaries shall not, directly or
indirectly declare, order, pay, make or set apart any sum for any Restricted
Payments.

          6.5   Loans, Investments, Contingent Liabilities.
                ------------------------------------------

          A.    Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, except under this Agreement, issue or sell any
debt securities or warrants or other rights to acquire any debt securities of
the Borrower or any of its Subsidiaries,

                                       17
<PAGE>

guarantee any debt securities of another Person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing; or

          B.    make any loans, advances or capital contributions to, or
investments in, any other Person, other than (1) to the Borrower or any direct
or indirect wholly owned subsidiary of the Borrower or (2) loans or advances to
employees of the Borrower or any of its Subsidiaries for travel or business
expenses in the ordinary course of business;

          except that the Borrower may:

                (i)    own, purchase or acquire commercial paper rated Standard
          & Poor's A-1 or Moody's P-1, direct obligations of the United States
          of America or its agencies, and obligations guaranteed by the United
          States of America;

                (ii)   acquire and own stock, obligations or securities received
          from customers in connection with debts created in the ordinary course
          of business owing to the Borrower or any of its Subsidiaries;

                (iii)  continue to own the existing capital stock of the
          Borrower's and each of its Subsidiaries' subsidiaries (including stock
          in its minority interests); and

                (iv)   endorse negotiable instruments for deposit or collection
          or similar transactions in the ordinary course of business.

          6.6   Consolidation, Merger, Acquisition.
                ----------------------------------

          Consolidate with or merge into any other corporation or entity other
than pursuant to, or as permitted by, the Merger Agreement, including upon the
exercise of the Borrower's rights under subsection 7.1(h) thereof, or acquire or
agree to acquire (for cash or shares of stock or otherwise) (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association or other business organization or
division thereof or (B) any assets with a fair market value in excess of $50,000
except purchases of inventory in the ordinary course of business consistent with
past practice or as otherwise permitted by the Merger Agreement, including upon
the exercise of the Borrower's rights under subsection 7.1(h) thereof.

          6.7   Asset Sales.
                -----------

          Sell, lease, exchange or otherwise dispose of any of, its or any of
its Subsidiaries' business, properties or assets, except for sales of its or
their properties or assets in the ordinary course of business consistent with
past practice or as otherwise permitted by the Merger Agreement, including upon
the exercise of the Borrower's rights under subsection 7.1(h) thereof.

                                       18
<PAGE>

          6.8   Agreements
                ----------

          Except in the ordinary course of business consistent with past
practice, modify, or amend in any material respect, or, to the extent within the
Company's control, renew, fail to renew or terminate, any Material Contract to
which the Company or any subsidiary is a party or waive, release or assign any
material rights or claims.

          6.9.  Remedies of Lender
                ------------------

          The Borrower and each of its Subsidiaries shall not seek to obtain any
stay on the exercise of the remedies available to the Lender under this
Agreement.

     SECTION 7. EVENTS OF DEFAULT

          The occurrence of any one or more of the following conditions or
events, regardless of the reason therefore, shall constitute an "Event of
Default" hereunder:

          7.1   Failure to Pay
                --------------

          Failure to pay any installment of principal when due, whether at
stated maturity or by acceleration; failure to pay when due any L/C Obligations;
failure to pay interest on the Note when due; or failure to pay any amounts
required by subsection 8.10 hereof as and when due.

          7.2   Breach of Covenant
                ------------------

          Failure of the Borrower to perform or observe any other term or
condition of this Agreement or other Loan Document which failure results in a
Material Adverse Effect, unless such failure has been cured by the Borrower on
or before the Commitment Expiration Date; provided that any such Material
                                          --------
Adverse Effect that is incapable of cure under the terms of the Merger Agreement
shall constitute an Event of Default hereunder on and as of the date the Lender
exercises its right to terminate the Merger Agreement pursuant to subsection
7.1(b) thereof.

          7.3   Breach of Representation or Warranty
                ------------------------------------

          Any of the Borrower's representations or warranties made herein, in
any Loan Document or in any statement or certificate at any time given in
writing pursuant hereto or thereto or in connection herewith or therewith, shall
be false or misleading on any date to which such representation or warranty is
applicable in any respect that results in a Material Adverse Effect and that has
not been cured by the Borrower on or before the Commitment Expiration Date;
provided that any Material Adverse Effect that is incapable of cure under the
--------
terms of the Merger Agreement shall constitute an Event of Default hereunder on
and as of the date that the Lender exercises its right to terminate the Merger
Agreement pursuant to subsection 7.1(b) thereof.

                                       19
<PAGE>

          7.4   Termination of Merger Agreement
                -------------------------------

                A.     The passage of thirty days after the termination of the
          Merger Agreement if and only if such termination is solely pursuant to
          the terms of subsection 7.1(d) of the Merger Agreement; provided that
                                                                  --------
          no other uncured Event of Default shall have occurred hereunder; or

                B.     termination of the Merger Agreement under any other
          circumstances than those enumerated in the preceding subsection 7.4A,
          unless this Agreement has been terminated pursuant to subsection 2.9.

          7.5   Bankruptcy or Insolvency
                ------------------------

          A.    The Borrower or any of its Subsidiaries shall commence any case,
     proceeding or other action (A) under any existing or future law of any
     jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
     reorganization or relief of debtors, seeking to have an order for relief
     entered with respect to it, or seeking to adjudicate it a bankrupt or
     insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
     liquidation, dissolution, composition or other relief with respect to it or
     its debts, or (B) seeking appointment of a receiver, trustee, custodian or
     other similar official for it or for all or any substantial part of its
     assets, or the Borrower or any of its Subsidiaries shall make a general
     assignment for the benefit of its creditors; or

          B.   there shall be commenced against the Borrower or any of its
     Subsidiaries any case, proceeding or other action of a nature referred to
     in clause (i) above which (A) results in the entry of an order for relief
     or any such adjudication or appointment or (B) remains undismissed or
     undischarged for a period of sixty (60) days.

          7.6   Intentionally Omitted
                ---------------------

          7.7   Intentionally Omitted
                ---------------------

          7.8   Intentionally Omitted
                ---------------------

          7.9   Invalidity of Loan Documents
                ----------------------------

          The Borrower denies that it has any further liability, other than as a
result of or based upon the fraud or material misrepresentation of the Lender,
including without limitation with respect to future advances by the Lender,
under any Loan Document to which it is a party, or gives notice to such effect;
or the Lender, through no action or fault on the part of the Lender, shall not
have or shall cease to have a valid and perfected security interest in any
material and significant portion of the Collateral of the same nature and
priority (relative to any other Liens in the Collateral) as the security
interest purported to be granted in such Collateral pursuant to the Loan
Documents on the date thereof; or any Loan Document or any Lien granted to the
Secured Party thereunder shall be determined to be invalid or unenforceable in a
material and significant respect; or any treaty, law, regulation, communique,
decree, ordinance or policy of any Governmental Authority shall render any
material provision of any Loan Document invalid or

                                       20
<PAGE>

unenforceable in a material and significant respect; or the Borrower shall fail
to comply with its obligations under Section 5 of the Security Agreement.

THEN immediately and automatically upon the occurrence of any Event of Default
described in subsections 7.1 or 7.5 hereof, and immediately and automatically on
the Commitment Expiration Date with respect to any other Event of Default that
remains uncured on such date: (i) (a) all Loans hereunder with accrued interest
thereon, (b) an amount equal to the maximum amount that may at any time be drawn
under the outstanding Letters of Credit (whether or not any beneficiary under
any Letter of Credit shall have presented, or shall be entitled at such time to
present, the drafts or other documents or certificates required to draw under
such Letter of Credit) (unless the Borrower takes such other actions allowed by
subsection 2.9 to dispose of outstanding Letters of Credit), and (c) all other
Obligations under this Agreement, the Note and the other Loan Documents, shall
all automatically become immediately due and payable, without notice,
presentment, demand, protest or other requirements of any kind, all of which are
hereby expressly waived by the Borrower, and (ii) the Loan Commitment, the L/C
Commitment and any other obligation of the Lender to make any Loan hereunder or
to arrange for a Letter of Credit shall thereupon terminate.

          Any amounts described in clause (i)(b) in the preceding paragraph,
when received by the Lender, shall be held by the Lender in an interest bearing
account and shall be applied to any draws under the Letters of Credit, and
promptly upon the expiration or other termination of any Letter of Credit, the
undrawn amount of such Letter of Credit (together with accrued interest thereon)
shall be returned to the Borrower from such account; any such amounts not paid
when due, whether at stated maturity, by acceleration or otherwise, shall
thereafter bear interest at a rate that is equal to the rate of interest that
would apply to unpaid principal under the Loans for the same period.

          Further, upon the occurrence and during the continuance of any Event
of Default, the Lender may exercise all rights and remedies of the Lender set
forth in any of the Loan Documents, in addition to all rights and remedies
allowed by, the United States and of any state thereof, including but not
limited to the UCC. The Lender shall have no obligation of any kind to make any
presentment, demand, protest or other notice or action of any kind. The
enumeration of the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any right or remedy shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative and
not alternative.

          The Borrower hereby waives (i) presentment, demand and protest and
notice of presentment, dishonor, notice of intent to accelerate, notice of
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties or other
property at any time held by the Lender on which the Borrower and any of its
Subsidiaries may in any way be liable and hereby ratify and confirm whatever the
Lender may lawfully do in this regard, (ii) all rights to notice and hearing
prior to the Lender's taking possession or control of, or to the Lender's
attachment or levy upon, the Collateral, or any bond or security which might be
required by any court prior to allowing the Lender to exercise any of its
remedies, and (iii) the benefit of all valuation, appraisal and exemption laws.
The Borrower and each of its Subsidiaries acknowledges that it has been advised
by counsel of its choice with

                                       21
<PAGE>

respect to the effect of the foregoing waivers and this Agreement, the other
Loan Documents and the transactions evidenced by this Agreement and the other
Loan Documents.

     SECTION 8. MISCELLANEOUS

          8.1   Survival of Warranties
                ----------------------

          All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the making of the Loans
hereunder and the execution and delivery of the Note, and shall terminate on the
fulfillment of the conditions set forth in subsection 2.9 herein.

          8.2   Failure or Indulgence Not Waiver
                --------------------------------

          No failure or delay on the part of the Lender or any holder of the
Note in the exercise of any power, right or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege. All rights and remedies existing under this Agreement
or the Note are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

          8.3   Modification
                ------------

          This Agreement and the Note provided for herein may be not be amended,
waived or modified without the written consent of the Lender and the Borrower.

          8.4   Notices
                -------

          Except as otherwise expressly provided herein, any notice herein
required or permitted to be given shall be in writing and may be personally
served or sent by United States mail or by telegram, telex or facsimile
transmission and shall be deemed to have been given on the earlier of the date
of receipt or two (2) days after deposit in the United States mail, registered,
with postage prepaid and properly addressed, provided that notices under Section
2 hereof shall not be effective until actually received by the recipient
thereof. For the purposes hereof, the addresses of the parties hereto (until
notice of a change thereof served as provided in this Section 8.4) shall be as
follows:

     The Borrower:

                       Buy.com Inc.
                       85 Enterprise
                       Aliso Viejo, California 92656
                       Facsimile:  (949) 389-2840
                       Attention:  Keven F. Baxter, Esq.

     with a copy to:

                       Cooley Godward LLP

                                       22
<PAGE>

                       4365 Executive Drive, Suite 1100
                       San Diego, California 92121
                       Facsimile:  (858) 453-3555
                       Attention:  Frederick T. Muto, Esq.

     The Lender:

                       SB Acquisition, Inc.
                       65 Enterprise
                       Aliso Viejo, California 92656
                       Facsimile:  (949) 330-6013
                       Attention:  Neel Grover, Esq.

     with a copy to:

                       O'Melveny & Myers LLP
                       610 Newport Center Drive, Suite 1700
                       Newport Beach, California 92660
                       Facsimile:  (949) 823-6994
                       Attention:  David Krinsky, Esq.

          8.5   Severability
                ------------

          In case any provision in this Agreement or in the Note shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remainder of such contract and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

          8.6   Effectiveness; Binding Effect; Governing Law.
                --------------------------------------------

          This Agreement shall become effective when it shall have been executed
by the Borrower and the Lender and thereafter shall be binding upon and inure to
the benefit of the Borrower, the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lender. THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO
ITS CHOICE OF LAW PRINCIPLES WHICH WOULD RESULT IN THE APPLICATION OF THE LAW OF
ANOTHER JURISDICTION.

          8.7   Waiver of Jury Trial.
                --------------------

          EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO

                                       23
<PAGE>

THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP
THAT IS BEING ESTABLISHED.

          8.8   Consent to Jurisdiction.
                -----------------------

          All judicial proceedings brought against the Borrower and each of its
Subsidiaries with respect to this Agreement and the Loan Documents may be
brought in any state or federal court of competent jurisdiction in the State of
California, and by execution and delivery of this Agreement, the Borrower
accepts for itself and for its Subsidiaries and in connection with its and their
properties, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement. The Borrower for itself and on behalf
of its Subsidiaries irrevocably waives any right it may have to assert the
doctrine of forum non conveniens or to object to venue to the extent any
            ----- --- ----------
proceeding is brought in accordance with this Section.

          8.9   Assignability
                -------------

          This Agreement and the Note shall be binding upon the parties hereto
and their respective successors and assigns, and shall inure to the benefit of
the parties hereto and the successors and assigns of each party hereto, provided
that neither party hereto may assign its rights under this Agreement or the Note
without the prior written consent of the other party hereto; except that the
Lender may assign, delegate or otherwise transfer all of the Lender's interest
in or rights or obligations under this Agreement and the Note (i) at any time to
any Person controlling, controlled by, or under common control with, the Lender,
with the consent of the Borrower and (ii) after an Event of Default to any
Person with a net worth of not less than $50,000,000, without the consent of the
Borrower.

          8.10. Costs and Expenses.
                ------------------

          The Borrower agrees to pay on the Commitment Expiration Date all costs
and expenses of the Lender (including attorney's fees and the reasonable
estimate of the allocated cost of in-house counsel and staff) in connection with
the preparation, amendment, modification, enforcement (including, without
limitation, in appellate, bankruptcy, insolvency, liquidation, reorganization,
moratorium or other similar proceedings) or restructuring of the Loan Documents,
including without limitation the costs and expenses referenced in Section 19 of
the Security Agreement; provided that the Lender agrees to and shall waive the
                        --------
right to receive any of the foregoing costs of preparation, amendment and
modification of the Loan Documents in each case incurred prior to the date
hereof upon the payment in full of (i) all amounts due the Parent under
subsection 7.5 of the Merger Agreement and (ii) all other Obligations (exclusive
of such costs of preparation, amendment and modification of the Loan Documents
incurred prior to the date hereof). Any amount of any costs and expenses under
this paragraph not paid when due, whether at stated maturity, by acceleration or
otherwise, shall thereafter bear interest at a rate that is equal to the rate of
interest that would apply to unpaid principal under the Loans for the same
period. Upon four days written request of the Borrower, such requests to be made
no more often than is necessary and reasonable, the Lender agrees to deliver to
the Borrower a payoff letter setting forth the then-present amount of the
Obligations owed under this subsection 8.10.

                                       24
<PAGE>

          8.12. Counterparts
                ------------

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

          8.13  Headings
                --------

          The various headings used in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretations of this
Agreement or any provision hereof.

                                       25
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their properly and duly authorized individuals
as of the day and year first above written.

                                        SCOTT A. BLUM
                                        SEPARATE PROPERTY TRUST
                                        U/D/T 8/2/95

                                        By __________________________
                                        Title _______________________

                                        BUY.COM, INC.

                                        By __________________________
                                        Title _______________________

                                       26
<PAGE>

SCHEDULE 3.1B

                       ADDITIONAL PERFECTION INFORMATION

                                       27
<PAGE>

DISCLOSURE SCHEDULE

                       ADDITIONAL DISCLOSURE RELEVANT TO
                        REPRESENTATIONS AND WARRANTIES

                                       28
<PAGE>

EXHIBIT I

                                [FORM OF NOTE]

                                 BUY.COM, INC.

                                PROMISSORY NOTE

$4,000,000                                               Aliso Viejo, California
                                                                 August 10, 2001

          FOR VALUE RECEIVED, BUY.COM, INC., a Delaware corporation (the
"Borrower"), promises to pay to the order of THE SCOTT A. BLUM SEPARATE PROPERTY
TRUST U/D/T 8/2/95 (the "Payee"), on or before the Commitment Expiration Date,
the lesser of (x) FOUR MILLION DOLLARS ($4,000,000) or (y) the unpaid principal
amount of all advances made by the Payee to the Borrower as Loans under the
Credit Agreement referred to below.

          The Borrower also promises to pay interest on the unpaid principal
amount hereof from the date hereof until paid at the rates and at the times
which shall be determined in accordance with the provisions of the Credit
Agreement dated as of August 10, 2001 between the Borrower and the Payee (the
"Credit Agreement").

          This Note is the Borrower's "Note" and is issued pursuant to and
entitled to the benefits of the Credit Agreement to which reference is hereby
made for a more complete statement of the terms and conditions under which the
Loans evidenced hereby are made and are to be repaid. Capitalized terms used
herein without definition shall have the meanings set forth in the Credit
Agreement. The Obligations under this Note are secured under the Loan Documents,
as defined in the Credit Agreement.

          All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America in same day funds at the
office of the Payee located at 85 Enterprise, Aliso Viejo, CA 92656, or at such
other place as shall be designated in writing for such purpose in accordance
with the terms of the Credit Agreement. Until notified in writing of the
transfer of this Note, the Borrower shall be entitled to deem the Payee or such
person who has been so identified by the transferor in writing to the Borrower
as the holder of this Note, as the owner and holder of this Note. Each of the
Payee and any subsequent holder of this Note agrees that before disposing of
this Note or any part hereof it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid; provided, however, that the failure to make a notation of any payment
           --------  -------
made on this Note shall not limit or otherwise affect the obligation of the
Borrower hereunder with respect to payments of principal or interest on this
Note.

          Whenever any payment on this Note shall be stated to be due on a day
that is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.

                                       29
<PAGE>

          The Credit Agreement and this Note shall be governed by, and shall be
construed and enforced in accordance with the laws of the State of California.
The Lender and the Borrower intend in the execution of this Note that the
transaction evidenced by this Note be in strict compliance with the usury laws
of the State of California. The Lender and the Borrower stipulate and agree that
none of the terms and provisions contained in this Note or any of the other
instruments executed in connection with the transaction evidenced by this Note
shall ever be construed to create a contract for the use, forbearance or
detention of money requiring payment of interest at a rate in excess of the
maximum interest rate permitted to be charged by the laws of the State of
California. If the Lender shall collect monies which are deemed to constitute
interest which would otherwise increase the effective interest rate on this Note
to a rate in excess of the maximum rate permitted to be charged by the usury
laws of the State of California, if applicable, all such sums deemed to
constitute interest in excess of such maximum rate shall, at the option of the
Lender, be credited to the payment of the sums due under this Note or returned
to the Borrower.

          Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note may become, or may be declared to be, due and
payable in the manner, upon the conditions of and with the effect provided in
the Credit Agreement.

          The terms of this Note are subject to amendment only in the manner
provided in the Credit Agreement.

          No reference herein to the Credit Agreement and no provision of this
Note or the Credit Agreement shall alter or impair the obligation of the
Borrower which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.

          The Borrower promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred in the collection and enforcement of this
Note. The Borrower and endorsers of this Note hereby consent to renewals and
extensions of time at or after the maturity hereof, without notice, and hereby
waive diligence, presentment, protest, demand and notice of every kind and, to
the full extent permitted by law, the right to plead any statute of limitations
as a defense to any demand hereunder.

                                       30
<PAGE>

          IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
and delivered as of the day and year and the place first above written.

                                        BUY.COM, INC.

                                        By __________________________

                                        Title _______________________

                                       31
<PAGE>

TRANSACTIONS
                                      ON
                                     NOTE

                                                         Outstanding
         Type of        Amount of      Amount of         Principal
         Loan Made      Loan Made      Principal Paid    Balance       Notation
Date     This Date      This Date      This Date         This Date     Made by
----     ---------      ---------      --------------    -----------   --------

                                       32
<PAGE>

EXHIBIT II

                         [FORM OF NOTICE OF BORROWING]

                              NOTICE OF BORROWING

          Pursuant to that certain Bridge Financing Credit Agreement dated as of
August 10, 2001 (the "Credit Agreement") between Buy.Com, Inc. (the "Borrower")
and the Scott A. Blum Separate Property Trust u/d/t 8/2/95 (the "Lender"), this
represents the Borrower's request to borrow on ______________ (the "Funding
Date," which date shall be not less than three (3) Business Days from the date
of this Notice of Borrowing) from the Lender $________________ (the "Loan"). The
proceeds of such Loan are to be [wire transferred to the Borrower's account
number ________ with ________ at _________].

          The Borrower hereby certifies that, as of the date referenced above,
(a) there exists no Event of Default and no Material Adverse Effect that would
not be cured or eliminated by the making of the Loan; and (b) the Merger
Agreement has not been terminated, and no third party has contested or
threatened in writing to contest to the validity or priority of the Liens
granted to the Lender or the validity or priority of the Loan Documents in any
material and significant respect.

DATED:   _________________________

                                        BUY.COM, INC.

                                        By _______________________

                                        Title ____________________

                                       33
<PAGE>

EXHIBIT III

                 [FORM OF NOTICE OF LETTER OF CREDIT REQUEST]

                      NOTICE OF LETTER OF CREDIT REQUEST

          Pursuant to that certain Bridge Financing Credit Agreement dated as of
August 10, 2001 (the "Credit Agreement") between Buy.Com, Inc. (the "Borrower")
and the Scott A. Blum Separate Property Trust u/d/t 8/2/95 (the "Lender"), this
represents the Borrower's request (the "Notice") that the Lender arrange for the
issuance of a standby Letter of Credit on ______________ (which date shall be
not less than five (5) Business Days from the date of this Notice), in the
amount of $______________, naming ______________ as beneficiary (the
"Beneficiary"). The Borrower represents and warrants, and it is a condition
precedent to the effectiveness of this Notice, that the language to be contained
in the Letter of Credit[, as set forth in more detail on the attached Exhibit
A,] shall be and is approved by the Beneficiary as of the date hereof.

          The Borrower hereby certifies that, as of the date referenced above,
(a) there exists no Event of Default and no Material Adverse Effect that would
not be cured or eliminated by the making of the Loan; and (b) the Merger
Agreement has not been terminated, and no third party has contested or
threatened in writing to contest to the validity or priority of the Liens
granted to the Lender or the validity or priority of the Loan Documents in any
material and significant respect.

DATED:   _________________________

                                        BUY.COM, INC.

                                        By _______________________

                                        Title ____________________

                                       34
<PAGE>

[Exhibit A to Notice of Letter of Credit Request]

                     [Requested Form of Letter of Credit]

                                       35<PAGE>

                                                                    Exhibit 10.3

                              SECURITY AGREEMENT

          This SECURITY AGREEMENT (this "Agreement") is dated as of August 10,
2001 and entered into by and between BUY.COM, INC., a Delaware corporation (the
"Borrower" or the "Grantor") and the Scott A. Blum Separate Property Trust u/d/t
8/2/95 (the "Secured Party").

                            PRELIMINARY STATEMENTS

          A.   Pursuant to that certain Bridge Financing Credit Agreement of
even date herewith (said Bridge Financing Credit Agreement, as it may hereafter
amended, restated, supplemented or otherwise modified from time to time, being
the "Credit Agreement"; the terms defined therein and not otherwise defined
herein being used herein as therein defined), by and between the Borrower and
the Secured Party pursuant to which the Secured Party has agreed to make Loans
to and arrange for the issuance of Letters of Credit for the benefit of the
Borrower, the Secured Party has made certain commitments, subject to the terms
and conditions set forth in the Credit Agreement, to extend certain Loans to and
make other financial accommodations for the Borrower. Capitalized terms not
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.

          B.   It is a condition precedent to the commitments of the Secured
Party under the Credit Agreement that the Grantor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.

          NOW, THEREFORE, in consideration of the premises and in order to
induce the Secured Party to make Loans and other extensions of credit under the
Credit Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Grantor hereby agrees with the
Secured Party as follows:

          Section 1.     Grant of Security.
                         -----------------

          Except as specifically excepted below, the Grantor hereby assigns to
the Secured Party, and hereby grants to the Secured Party a security interest
in, all property, property interests, assets and other rights and interests of
such Grantor, whether now or hereafter existing, whether tangible or intangible,
or in which such Grantor now has or hereafter acquires an interest and wherever
the same may be located, including without limitation all of the Grantor's
right, title and interest in and to the following, in each case whether now or
hereafter existing, whether tangible or intangible, or in which the Grantor now
has or hereafter acquires an interest and wherever the same may be located (the
"Collateral"):

          (a)  all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being the
"Equipment");

          (b)  all inventory in all of its forms, including but not limited to
(i) all goods held by the Grantor for sale or lease or to be furnished under
contracts of service or so leased or furnished, (ii) all raw materials, work in
process, finished goods, and materials used or consumed

                                       1
<PAGE>

in the manufacture, packing, shipping, advertising, selling, leasing, furnishing
or production of such inventory or otherwise used or consumed in the Grantor's
business, (iii) all goods in which the Grantor has an interest in mass or a
joint or other interest or right of any kind, and (iv) all goods which are
returned to or repossessed by the Grantor and all accessions thereto and
products thereof (collectively the "Inventory") and all negotiable and non-
negotiable documents of title (including without limitation warehouse receipts,
dock receipts and bills of lading) issued by any Person covering any Inventory
(any such negotiable document of title being a "Negotiable Document of Title");

          (c)  all accounts, contract rights, chattel paper, documents,
instruments, letter-of-credit rights and other rights and obligations of any
kind owned by or owing to the Grantor and all rights in, to and under all
security agreements, leases and other contracts securing or otherwise relating
to any such accounts, contract rights, chattel paper, documents, instruments,
letter-of-credit rights or other rights and obligations (any and all such
accounts, contract rights, chattel paper, documents, instruments, letter-of-
credit rights and other rights and obligations being the "Accounts", and any and
all such security agreements, leases and other contracts being the "Related
Contracts");

          (d)  all deposit accounts, together with (i) all amounts on deposit
from time to time in such deposit accounts and (ii) all interest, cash,
instruments, securities and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the foregoing ("Deposit Accounts");

          (e)  all "Securities Collateral", which term means investment or
similar property (including without limitation and in each case whether
certificated or uncertificated all (A) securities, (B) security entitlements,
(C) securities accounts, (D) commodity contracts, (E) commodity accounts, (F)
any and all other debt interests issued by any other Person, and (G) any other
equity or ownership interests in or of any other Person, including without
limitation any shares of stock, partnership interests, interests in joint
ventures, limited liability company interests and all other equity interests
owned by any Grantor in its respective Subsidiaries) in which the Grantor has
now, or acquires from time to time hereafter, any right, title or interest in
any manner, including without limitation any right to receive any of the
foregoing in the future, whether such right be contingent or uncontingent,
matured or unmatured, receivable upon conversion or substitution of any other
right, or otherwise), as well as (1) the certificates, instruments or other
documents, if any, representing or evidencing such investment property, and (2)
all dividends, interest, distributions, value, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such investment property.

          (f)  all "Intellectual Property Collateral", which term means:

                    (i)    all rights, title and interest (including rights
     acquired pursuant to a license or otherwise) in and to all trademarks,
     service marks, designs, logos, indicia, tradenames, trade dress, corporate
     names, company names, business names, fictitious business names, trade
     styles and/or other source and/or business identifiers and applications
     pertaining thereto, owned by the Grantor, or hereafter adopted and used, in
     its business (including, without limitation, the trademarks specifically
     identified in

                                       2
<PAGE>

     section 4(e) of the Disclosure Schedule hereto, as the same may be amended
     pursuant hereto from time to time) (collectively, the "Trademarks"), all
     registrations that have been or may hereafter be issued or applied for
     thereon in the United States and any state thereof and in foreign countries
     (including, without limitation, the registrations and applications
     specifically identified in section 4(e) of the Disclosure Schedule hereto,
     as the same may be amended pursuant hereto from time to time) (the
     "Trademark Registrations"), all common law and other rights in and to the
     Trademarks in the United States and any state thereof and in foreign
     countries (the "Trademark Rights"), and all goodwill of the Grantor's
     business symbolized by the Trademarks and associated therewith (the
     "Associated Goodwill"):

                    (ii)   all rights, title and interest (including rights
     acquired pursuant to a license or otherwise) in and to all patents and
     patent applications and rights and interests in patents and patent
     applications under any domestic or foreign law that are presently, or in
     the future may be, owned or held by the Grantor and all patents and patent
     applications and rights, title and interests in patents and patent
     applications under any domestic or foreign law that are presently, or in
     the future may be, owned by the Grantor in whole or in part (including,
     without limitation, the patents and patent applications listed in section
     4(e) of the Disclosure Schedule hereto, as the same may be amended pursuant
     hereto from time to time), all rights corresponding thereto (including,
     without limitation, the right, exercisable only upon the occurrence and
     during the continuation of an Event of Default, to sue for past, present
     and future infringements in the name of the Grantor or in the name of the
     Secured Party), and all re-issues, divisions, continuations, renewals,
     extensions and continuations-in-part thereof (all of the foregoing being
     collectively referred to as the "Patents"); it being understood that the
     rights and interests included in the Intellectual Property Collateral
     hereby shall include, without limitation, all rights and interests pursuant
     to licensing or other contracts in favor of the Grantor pertaining to
     patent applications and patents presently or in the future owned or used by
     third parties but, in the case of third parties which are not Affiliates of
     the Grantor, only to the extent permitted by such licensing or other
     contracts and, if not so permitted, only with the consent of such third
     parties; and

                    (iii)  all rights, title and interest (including rights
     acquired pursuant to a license or otherwise) under copyright in various
     published and unpublished works of authorship including, without
     limitation, computer programs, computer data bases, other computer
     software, layouts, trade dress, drawings, designs, writings, and formulas
     owned by the Grantor (including, without limitation, the works listed on
     section 4(e) of the Disclosure Schedule hereto, as the same may be amended
     pursuant hereto from time to time) (collectively, the "Copyrights"), all
     copyright registrations issued to the Grantor and applications for
     copyright registration that have been or may hereafter be issued or applied
     for thereon by the Grantor in the United States and any state thereof and
     in foreign countries (including, without limitation, the registrations
     listed on section 4(e) of the Disclosure Schedule hereto, as the same may
     be amended pursuant hereto from time to time) (collectively, the "Copyright
     Registrations"), all common law and other rights in and to the Copyrights
     in the United States and any state thereof and in foreign countries
     including all copyright licenses (but with respect to such copyright
     licenses, only to the extent permitted by such licensing arrangements) (the
     "Copyright Rights"),

                                       3
<PAGE>

     including, without limitation, each of the Copyrights, rights, titles and
     interests in and to the Copyrights, all derivative works and other works
     protectable by copyright, which are presently, or in the future may be,
     owned, created (as a work for hire for the benefit of the Grantor),
     authored (as a work for hire for the benefit of the Grantor), or acquired
     by the Grantor, in whole or in part, and all Copyright Rights with respect
     thereto and all Copyright Registrations therefor, heretofore or hereafter
     granted or applied for, and all renewals and extensions thereof, throughout
     the world, including all proceeds thereof (such as, by way of example and
     not by limitation, license royalties and proceeds of infringement suits),
     the right to renew and extend such Copyright Registrations and Copyright
     Rights and to register works protectable by copyright and the right to sue
     for past, present and future infringements of the Copyrights and Copyright
     Rights;

          (g)  all information used or useful or arising from the business
including all goodwill, trade secrets, trade secret rights, know-how, customer
lists, processes of production, ideas, confidential business information,
techniques, processes, formulas, and all other proprietary information;

          (h)  all agreements of the Grantor, as each such agreement may be
amended, restated, supplemented or otherwise modified from time to time (said
agreements, as so amended, restated, supplemented or otherwise modified, being
referred to herein individually as an "Assigned Agreement" and collectively as
the "Assigned Agreements"), including, without limitation, (i) all rights of the
Grantor to receive moneys due or to become due under or pursuant to the Assigned
Agreements, (ii) all rights of the Grantor to receive proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii)
all claims of the Grantor for damages arising out of any breach of or default
under the Assigned Agreements, and (iv) all rights of the Grantor to terminate,
amend, supplement, modify or exercise rights or options under the Assigned
Agreements, to perform thereunder and to compel performance and otherwise
exercise all remedies thereunder;

          (i)  to the extent not included in any other paragraph of this Section
1, all general intangibles, including, without limitation, tax refunds, payment
intangibles, other rights to payment or performance, choses in action, software
and judgments taken on any rights or claims included in the Collateral);

          (j)  all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and products thereof;

          (k)  all books, papers, documents, certificates, records, ledger
cards, files, correspondence, computer programs, tapes, disks or related data
processing or storage hardware or software, and any other data wherever located
and however processed, that at any time evidence or contain information relating
to any of the Collateral or are otherwise necessary or helpful in the monitoring
or collection thereof or the realization thereupon; and

          (l)  all proceeds, products, rents and profits of or from any and all
of the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not the 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. For

                                       4
<PAGE>

purposes of this Agreement, the term "proceeds" includes whatever is receivable
or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary.

          Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and the Grantor shall not be deemed to have granted a
security interest in (i) any of the Grantor's rights or interests in any
account, license, contract, agreement or other general intangibles to which the
Grantor is a party or any of its rights or interests thereunder, or any permits,
instruments, or chattel paper of the Grantor, to the extent, but only to the
extent, that such a grant would, under the terms of such account, license,
contract, agreement, general intangible, permit, instrument or chattel paper or
otherwise, result in a breach of the terms of, or constitute a default under
such license, contract or agreement to which the Grantor is a party (other than
to the extent that any such term would be rendered ineffective pursuant to the
Uniform Commercial Code, as it exists on the date of this Agreement or as it may
hereafter be amended, in the State of California (the "UCC") or any other
applicable law (including the Bankruptcy Code) or principles of equity);
provided, that immediately upon the ineffectiveness, lapse, termination or
--------
waiver of any such provision, the Collateral shall include, and the Grantor
shall be deemed to have granted a security interest in, all such rights and
interests, effective as of the date hereof as if such provision had never been
in effect; (ii) any real property leasehold of the Grantor as lessee or
sublessee; (iii) motor vehicles and other vehicles owned or leased by the
Grantor which are subject to state licensing statutes and on such basis excluded
from the scope of Article 9 of the UCC; (iv) any intent to use application at
the U.S. Patent and Trademark Office with respect to intellectual property to
the extent an assignment for security purposes would void the same; or (v) any
governmental permit or franchise that prohibits Liens on or collateral
assignments of such permit or franchise.

          In the event that any asset of the Grantor is excluded from the
Collateral by virtue of the foregoing paragraph, the Grantor agrees to seek, to
the extent required by Section 5 herein, requisite waivers to enable the Grantor
to provide a security interest in such asset.

          Each item of Collateral listed in this Section 1 that is defined in
Articles 8 or 9 of the UCC shall have the meaning set forth in the UCC, it being
the intention of the Grantor that the description of the Collateral set forth
above be construed to include the broadest possible range of assets, except for
assets expressly excluded as set forth above.

          Section 2.     Security for Obligations.
                         ------------------------

          This Agreement secures, and the Collateral assigned by the Grantor is
collateral security for, the prompt payment or performance in full when due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including without limitation the payment of amounts that
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code), of all Secured Obligations of the Grantor.
"Secured Obligations" means with respect to the Borrower, all obligations and
liabilities of every nature of the Borrower now or hereafter existing under or
arising out of or in connection with the Credit Agreement and the other Loan
Documents, together with all extensions or renewals thereof, whether for
principal, interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to the Borrower, would accrue on
such

                                       5
<PAGE>

obligations, whether or not a claim is allowed against the Borrower for such
interest in the related bankruptcy proceeding), reimbursement of amounts drawn
under Letters of Credit, fees, expenses or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from the Secured Party as a preference, fraudulent transfer or
otherwise, and all obligations of every nature of the Grantor now or hereafter
existing under this Agreement. Notwithstanding anything to the contrary in this
Agreement, to the extent that any payments, proceeds or remuneration of any kind
at any time received by the Secured Party on account of the Secured Obligations
shall be subsequently avoided or recovered directly or indirectly from the
Secured Party as a preference, fraudulent transfer or otherwise, then such
portion of the Secured Obligations, and all liens, rights and remedies therefor,
shall be revived and continued in full force and effect, as if such payment,
proceeds or remuneration had never been received, and the provisions of Section
20(b) shall be ineffective to the extent of such revived obligations.

          Section 3.     Grantor Remains Liable.
                         ----------------------

          Anything contained herein to the contrary notwithstanding, (a) the
Grantor shall remain liable under any contracts and agreements included in the
Collateral, to the extent set forth therein, to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Secured Party of any of its rights hereunder
shall not release the Grantor from any of its duties or obligations under the
contracts and agreements included in the Collateral, and (c) the Secured Party
shall not have any obligation or liability under any contracts, licenses, and
agreements included in the Collateral by reason of this Agreement, nor shall the
Secured Party be obligated to perform any of the obligations or duties of the
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.

          Section 4.     Representations and Warranties.
                         ------------------------------

          The Grantor represents and warrants, except as specifically excepted
on the attached Disclosure Schedule, as follows:

          (a)  Ownership of Collateral. Except as expressly permitted by the
Credit Agreement and for the security interest created by this Agreement, the
Grantor owns the Collateral owned by the Grantor free and clear of any Lien,
except for Permitted Liens (as defined in the Credit Agreement). Except as
expressly permitted by the Credit Agreement, the Permitted Liens and such Liens
as may have been filed in favor of the Secured Party relating to this Agreement,
no effective financing statement or other instrument similar in effect covering
all or any part of the Collateral is on file in any filing or recording office.

          (b)  Locations of Equipment and Inventory. All of the Equipment and
Inventory is, as of the date hereof, located at the places specified in section
4(b) of the Disclosure Schedule hereto, except for Inventory and Equipment
comprising of mobile goods which, in the ordinary course of business, is in
transit either (i) from a supplier to the Grantor, (ii) between the

                                       6
<PAGE>

locations specified in section 4(b) of the Disclosure Schedule hereto, or (iii)
to customers of the Grantor, and except for Inventory held by Ingram Micro, Inc.
or Grantor's other distributor or vendor partners.

          (c)  Office Locations; Type and Jurisdiction of Organization. The
chief place of business, the chief executive office and the office where the
Grantor keeps its records regarding the Accounts and all originals of all
chattel paper that evidence Accounts are, as of the date hereof, and , except as
set forth on section 4(c) of the Disclosure Schedule hereto, have been for the
four month period preceding the date hereof, located at the locations set forth
on section 4(c) of the Disclosure Schedule hereto.

          (d)  Delivery of Certain Collateral. All certificates or instruments
(excluding checks) evidencing, comprising or representing the Collateral
(including, without limitation, the Securities Collateral) have been delivered,
or shall be delivered prior to the making of the initial Loan or the issuance of
the initial Letter of Credit, to the Secured Party duly endorsed or accompanied
by duly executed instruments of transfer or assignment in blank, except as set
forth in section 4(d) of the Disclosure Schedule hereto.

          (e)  Intellectual Property Collateral.

                    (i)    a true and complete list of all Trademark
     Registrations and Trademark applications registered or filed with the
     United States Patent and Trademark Office and owned, held (whether pursuant
     to a license or otherwise) or used by the Grantor, in whole or in part, is
     set forth in section 4(e) of the Disclosure Schedule hereto;

                    (ii)   a true and complete list of all Patents owned, held
     (whether pursuant to a license or otherwise) or used by the Grantor, in
     whole or in part, is set forth in section 4(e) of the Disclosure Schedule
     hereto;

                    (iii)  a true and complete list of all Copyright
     Registrations and applications for Copyright Registrations registered or
     filed with the United States Copyright Office and held (whether pursuant to
     a license or otherwise) by the Grantor, in whole or in part, is set forth
     in section 4(e) of the Disclosure Schedule hereto;

                    (iv)   after reasonable inquiry, the Grantor is not aware of
     any pending or overtly threatened claim by any third party that any of the
     Intellectual Property Collateral owned, held or used by the Grantor is
     invalid or unenforceable, except as set forth in section 4(e) of the
     Disclosure Schedule; and

                    (v)    no effective security interest or other Lien covering
     all or any part of the Intellectual Property Collateral is on file in the
     United States Patent and Trademark Office or the United States Copyright
     Office.

          (f)  Perfection. The security interests in the Collateral granted to
the Secured Party hereunder constitute valid security interests in the
Collateral, securing the payment of the Secured Obligations. Upon (i) the filing
of UCC financing statements naming the Grantor as "debtor", naming the Secured
Party as "secured party" and describing the Collateral in the filing offices set
forth on section 4(f) of the Disclosure Schedule hereto, (ii) in the case of the

                                       7
<PAGE>

Securities Collateral consisting of certificated securities or evidenced by
instruments, delivery of the certificates representing such certificated
securities and delivery of such instruments to the Secured Party, in each case
duly endorsed or accompanied by duly executed instruments of assignment or
transfer in blank, or delivery of a control agreement duly executed by the
applicable securities intermediary, the Secured Party and the Grantor, (iii) in
the case of the Intellectual Property Collateral, in addition to the filing of
such UCC financing statements, the filing of a Grant of Trademark Security
Interest, substantially in the form of Exhibit I, and a Grant of Patent Security
Interest, substantially in the form of Exhibit II, with the United States Patent
and Trademark Office and the filing of a Grant of Copyright Security Interest,
substantially in the form of Exhibit III, with the United States Copyright
Office (each such Grant of Trademark Security Interest, Grant of Patent Security
Interest and Grant of Copyright Security Interest being referred to herein as a
"Grant"), (iv) in the case of foreign Intellectual Property, the filings
necessary to perfect assignments of Intellectual Property Collateral in any
applicable office or agency in any foreign country or any political subdivisions
thereof, (v) in the case of Inventory, the receipt of a bailee letter duly
acknowledged by the applicable bailee, (vi) receipt of any necessary consents of
third parties to the assignment and perfection of a security interest in the
Collateral, and (vii) in the case of Deposit Accounts, receipt of control
agreements duly executed by each depository of Deposit Accounts of the Grantor,
the security interests in the Collateral granted to the Secured Party will
constitute perfected security interests therein prior to all other Liens (except
for Permitted Liens).

          (g)  Maintain Accounts. The Grantor shall maintain the accounts with
the depository institutions listed with particularity on Schedule 3.1B to the
Credit Agreement as its primary cash accounts.

          Section 5.     Further Assurances.
                         ------------------

          At the reasonable request of the Secured Party, the Grantor will, in
each case with respect to all Collateral, whether the same be now or hereafter
existing or in which the Grantor now has or hereafter acquires an interest: (i)
mark conspicuously each item of chattel paper included in the Accounts, each
Related Contract and, at the request of the Secured Party, each of its records
pertaining to the Collateral, with a legend, in form and substance reasonably
satisfactory to the Secured Party, indicating that such Collateral is subject to
the security interest granted hereby, (ii) (A) execute such financing or
continuation statements, or amendments thereto prepared by the Secured Party,
(B) at the reasonable request of the Secured Party, execute and deliver, and
cause to be executed and delivered, agreements prepared by the Secured Party
establishing that the Secured Party has control of specified items of Collateral
and (C) execute and deliver such other instruments or notices prepared by the
Secured Party, in each case as may be reasonably necessary, or as the Secured
Party may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby, (iii) furnish to the
Secured Party from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Secured Party may reasonably request and promptly notify the
Secured Party of any material change in the Collateral or the Grantor's rights
therein (including without limitation the acquisition of any Securities
Collateral or the acquisition of new or altered rights in any Intellectual
Property Collateral), all in reasonable detail, (iv) at any reasonable time,
upon request by the Secured Party, exhibit the Collateral to and allow
inspection of the Collateral by the Secured Party, or

                                       8
<PAGE>

persons designated by the Secured Party, all in accordance with the terms of the
Credit Agreement and (v) use commercially reasonable efforts to seek any
necessary consents of third parties to the assignment and perfection of a
security interest to the Secured Party with respect to any portion of the
Collateral believed by the Secured Party in good faith to be material that would
otherwise be excluded from the Collateral by operation of the penultimate
paragraph of Section 1. The Grantor hereby authorizes the Secured Party to file
one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral without the signature of the
Grantor. The Grantor agrees that a carbon, photographic or other reproduction of
this Agreement or of a financing statement signed by the Grantor shall be
sufficient as a financing statement and may be filed as a financing statement in
any and all jurisdictions. Notwithstanding anything to the contrary in this
Section 5, the Grantor shall be under no obligation to prepare, file or record
any documents or instruments required to perfect the Collateral by the methods
described in (iv), (v), (vi) and (vii) of subsection 4(f), but upon the
reasonable request of the Secured Party, shall execute and deliver such
documents or instruments prepared by the Secured Party, and shall take
commercially reasonable efforts to seek execution and delivery of such documents
or instruments from any necessary third parties.

          Section 6.     Certain Covenants of the Grantor.
                         --------------------------------

          The Grantor shall:

          (a)  not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;

          (b)  notify the Secured Party of any change in the Grantor's name,
identity or corporate structure within 15 days of such change;

          (c)  give the Secured Party 30 days' prior written notice of any
change in the Grantor's chief place of business, chief executive office or
residence or the office where the Grantor keeps its records regarding the
Accounts and all originals of all chattel paper that evidence Accounts or a
reincorporation, reorganization or other action that results in a change of the
jurisdiction of organization of the Grantor;

          (d)  if the Secured Party gives value to enable the Grantor to acquire
rights in or the use of any Collateral, use such value for such purposes; and

          (e)  except as expressly permitted by the Credit Agreement, pay
promptly when due all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims (including claims for labor,
services, materials and supplies) against, the Collateral, except to the extent
the validity thereof is being contested in good faith; provided that the Grantor
shall in any event pay such taxes, assessments, charges, levies or claims not
later than five days prior to the date of any proposed sale under any judgment,
writ or warrant of attachment entered or filed against the Grantor or any of the
Collateral as a result of the failure to make such payment.

                                       9
<PAGE>

          Section 7.     Special Covenants With Respect to Equipment and
                         -----------------------------------------------
Inventory.
---------

          The Grantor shall:

          (a)  keep the Equipment and Inventory owned by the Grantor at the
places therefor specified on section 4(b) of the Disclosure Schedule hereto or
permitted in Section 4(b) hereof or, upon 10 days' prior written notice to the
Secured Party, at such other places in jurisdictions where all action that may
be reasonably necessary, or that Secured Party may reasonably request, in order
to perfect and protect any security interest granted or purported to be granted
hereby, or to enable Secured Party to exercise and enforce its rights and
remedies hereunder, with respect to such Equipment and Inventory shall have been
taken;

          (b)  except for Equipment which has become obsolete or in the
Grantor's business judgment, commercially unreasonable to maintain, cause the
Equipment owned by the Grantor to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with the Grantor's past practices, and shall
forthwith make or cause to be made all repairs, replacements and other
improvements in connection therewith that are necessary or desirable to such
end. The Grantor shall promptly furnish to the Secured Party a statement
respecting any material loss or damage to any of the Equipment owned by the
Grantor;

          (c)  keep correct and accurate records of Inventory owned by the
Grantor; and

          (d)  the Grantor shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory in accordance with the terms of the
Credit Agreement.

          Section 8.     Special Covenants with respect to Accounts and Related
                         ------------------------------------------------------
Contracts.
---------

          (a)  The Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts and Related Contracts, and all originals of all chattel paper that
evidence Accounts, at the locations therefor set forth on section 4(c) of the
Disclosure Schedule hereto, upon 10 days' prior written notice to the Secured
Party, at such other location in a jurisdiction where all action that may be
reasonably necessary. The Grantor will hold and preserve such records and
chattel paper and will permit representatives of the Secured Party at any time
during normal business hours upon 24 hours prior written notice to inspect and
make abstracts from such records and chattel paper after an Event of Default,
and the Grantor agrees to render to the Secured Party, at Grantor's cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto.

          (b)  The Grantor shall maintain complete records of such Account.

          (c)  Except as otherwise provided in this Section (c), the Grantor
shall continue to collect, at its own expense, all amounts due or to become due
to the Grantor under the Accounts and Related Contracts. In connection with such
collections, the Grantor may take such action as the Grantor may deem necessary
or advisable to enforce collection of amounts due or to become due under the
Accounts; provided, however, that the Secured Party shall have the right at any
time, upon the occurrence and during the continuation of an Event of Default and
upon written

                                       10
<PAGE>

notice to the Grantor of its intention to do so, to notify the account debtors
or obligors under any Accounts of the assignment of such Accounts to the Secured
Party and to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Secured
Party, to notify each Person maintaining a lockbox or similar arrangement to
which account debtors or obligors under any Accounts have been directed to make
payment to remit all amounts representing collections on checks and other
payment items from time to time sent to or deposited in such lockbox or other
arrangement directly to the Secured Party and, upon such notification and at the
expense of the Grantor, to enforce collection of any such Accounts and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the Grantor might have done. After receipt by the
Grantor of the notice from the Secured Party referred to in the proviso to the
preceding sentence, (i) all amounts and proceeds (including checks and other
instruments) received by the Grantor in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of the Secured Party
hereunder, shall be segregated from other funds of the Grantor and shall be
forthwith paid over or delivered to the Secured Party in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section 18, and (ii) the Grantor shall not adjust, settle
or compromise the amount or payment of any Account, or release wholly or partly
any account debtor or obligor thereof, or allow any credit or discount thereon.

          Section 9.     Special Covenants With Respect to the Securities
                         ------------------------------------------------
Collateral.
----------

          (a)  The Grantor agrees that upon the execution of and as a condition
precedent to the effectiveness of this Agreement all certificates or instruments
representing or evidencing the Securities Collateral shall be delivered to and
held by or on behalf of the Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery or, as applicable, shall be accompanied
by such Grantor's endorsement, where necessary, or duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Secured Party.

          Section 10.    Special Covenants With Respect to the Intellectual
                         --------------------------------------------------
Property Collateral.
-------------------

          (a)  The Grantor shall:

                    (i)  keep reasonable records respecting the Intellectual
     Property Collateral and at all times keep; and

                    (ii) furnish to the Secured Party from time to time at the
     Secured Party's reasonable request statements and schedules further
     identifying and describing any Intellectual Property Collateral and such
     other reports in connection with such Collateral, all in reasonable detail.

          (b)  Except as otherwise provided in this Section 10, the Grantor
shall continue to collect, at its own expense, all amounts due or to become due
to the Grantor in respect of the Intellectual Property Collateral or any portion
thereof. In connection with such collections, the Grantor may take such action
as the Grantor may deem reasonably necessary or advisable to enforce collection
of such amounts; provided, the Secured Party shall have the right at any time,

                                       11
<PAGE>

upon the occurrence and during the continuation of an Event of Default, and upon
written notice to the Grantor of its intention to do so, to notify the obligors
with respect to any such amounts of the existence of the security interest
created hereby and to direct such obligors to make payment of all such amounts
directly to the Secured Party, and, upon such notification and at the expense of
the Grantor, to enforce collection of any such amounts and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as the Grantor might have done. After receipt by the Grantor of the
notice from the Secured Party referred to in the proviso to the preceding
sentence and during the continuation of an Event of Default, (i) all amounts and
proceeds (including checks and other instruments) received by the Grantor in
respect of amounts due to the Grantor in respect of the Intellectual Property
Collateral or any portion thereof shall be received in trust for the benefit of
the Secured Party hereunder, shall be segregated from other funds of the Grantor
and shall be forthwith paid over or delivered to the Secured Party in the same
form as so received (with any necessary endorsement) to be held as cash
Collateral and applied as provided by Section 18, and (ii) the Grantor shall not
adjust, settle or compromise the amount or payment of any such amount or release
wholly or partly any obligor with respect thereto or allow any credit or
discount thereon.

          (c)  The Grantor shall do any and all acts which are necessary or
desirable to preserve and maintain all rights in all Intellectual Property
Collateral unless the Grantor determines that any Intellectual Property
Collateral is of negligible economic value or is no longer necessary for its
operations. Any expenses incurred in connection therewith shall be borne solely
by the Grantor. Subject to the foregoing, the Grantor shall give the Secured
Party prior written notice of any abandonment of any Intellectual Property
Collateral or any pending patent application or any Patent.

          (d)  Except as provided herein, the Grantor shall have the right to
commence and prosecute in its own name, as real party in interest, for its own
benefit and at its own expense, such suits, proceedings or other actions for
infringement, unfair competition, dilution, misappropriation or other damage, or
reexamination or reissue proceedings as are necessary to protect the
Intellectual Property Collateral. The Secured Party shall provide, at the
Grantor's expense, all reasonable and necessary cooperation in connection with
any such suit, proceeding or action including, without limitation, joining as a
necessary party. The Grantor shall promptly, following its becoming aware
thereof, notify the Secured Party of the institution of, or of any adverse
determination in, any proceeding (whether in the United States Patent and
Trademark Office, the United States Copyright Office or any federal, state,
local or foreign court) or regarding the Grantor's ownership, right to use, or
interest in any Intellectual Property Collateral. The Grantor shall provide to
the Secured Party any information with respect thereto reasonably requested by
the Secured Party.

          (e)  In addition to, and not by way of limitation of, the granting of
a security interest in the Collateral pursuant hereto, the Grantor, effective
upon the occurrence and during the continuation of an Event of Default, hereby
assigns, transfers and conveys to the Secured Party the nonexclusive right and
license to use all trademarks, trade names, copyrights, patents or technical
processes (including, without limitation, the Intellectual Property Collateral)
owned or used (to the extent the Grantor may grant such right or license) by the
Grantor that relate to the Collateral and any other collateral granted by the
Grantor as security for the Secured Obligations, together with any goodwill
associated therewith, all to the extent reasonably necessary to enable

                                       12
<PAGE>

the Secured Party to realize on the Collateral in accordance with this Agreement
and to enable any transferee or assignee of the Collateral to enjoy the benefits
of the Collateral. This right shall inure to the benefit of all successors,
assigns and transferees of the Secured Party and its successors, assigns and
transferees, whether by voluntary conveyance, operation of law, assignment,
transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and
license shall be granted free of charge, without requirement that any monetary
payment whatsoever be made to the Grantor.

          Section  11.    Special Provisions With Respect to the Assigned
                          -----------------------------------------------
Agreements.
----------

          (a)  The Grantor shall at its expense:

                    (i)   if consistent with sound business practices, perform
     and observe the material terms and provisions of the Assigned Agreements to
     be performed or observed by it, maintain the Assigned Agreements in full
     force and effect, enforce the Assigned Agreements in accordance with their
     terms, and take all such action to such end as may be from time to time
     reasonably requested by the Secured Party; and

                    (ii)  upon the reasonable request of the Secured Party,
     furnish to the Secured Party, promptly upon receipt thereof, copies of all
     notices, requests and other documents received by the Grantor under or
     pursuant to the Assigned Agreements, and from time to time (A) furnish to
     the Secured Party such information and reports regarding the Assigned
     Agreements as the Secured Party may reasonably request and (B) upon request
     of the Secured Party make to the parties to such Assigned Agreements such
     demands and requests for information and reports or for action as the
     Grantor is entitled to make under the Assigned Agreements.

          (b)  Upon the occurrence and during the continuance of an Event of
Default, the Grantor shall not:

                    (i)   cancel or terminate any of the Assigned Agreements or
     consent to or accept any cancellation or termination thereof except as
     provided therein; or

                    (ii)  amend or otherwise modify the Assigned Agreements or
     give any consent, waiver or approval thereunder except as provided therein;

                    (iii) take any other action in connection with the Assigned
     Agreements that would reasonably be expected to materially impair the value
     of the interest or rights of the Grantor thereunder or that would
     reasonably be expected to materially impair the interest or rights of the
     Secured Party.

          Section 12.     Intentionally Deleted.
                          ---------------------

          Section 13.     Secured Party Appointed Attorney-in-Fact.
                          ----------------------------------------

          The Grantor hereby irrevocably appoints the Secured Party as the
Grantor's attorney-in-fact, with full authority in the place and stead of the
Grantor and in the name of the Grantor, the Secured Party or otherwise, from
time to time in the Secured Party's reasonable

                                       13
<PAGE>

discretion to take any action and to execute any instrument that the Secured
Party may deem reasonably necessary or advisable to accomplish the purposes of
this Agreement, including without limitation:

          (a)  upon the occurrence and during the continuance of an Event of
Default, to ask for, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;

          (b)  upon the occurrence and during the continuance of an Event of
Default, to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;

          (c)  upon the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any proceedings that
the 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;

          (d)  to pay or discharge taxes or Liens (other than Liens permitted
under this Agreement or the Credit Agreement) levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by the Secured Party in
its sole discretion, any such payments made by the Secured Party to become
obligations of the Grantor to the Secured Party, due and payable immediately
without demand;

          (e)  upon the occurrence and during the continuance of an Event of
Default, to sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and

          (f)  upon the occurrence and during the continuance of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
the Secured Party were the absolute owner thereof for all purposes, and to do,
at the Secured Party's option and the Grantor's expense, at any time or from
time to time, all acts and things that the Secured Party deems necessary to
protect, preserve or realize upon the Collateral and the Secured Party's
security interest therein in order to effect the intent of this Agreement, all
as fully and effectively as the Grantor might do.

          Section 14.    Secured Party May Perform.

          If the Grantor fails to perform any agreement contained herein, the
Secured Party may itself perform, or cause performance of, such agreement, and
the expenses of the Secured Party incurred in connection therewith shall be
payable by the Grantor under Section 19.

          Section 15.    Standard of Care.
                         ----------------

          The powers conferred on the Secured Party hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and

                                       14
<PAGE>

the accounting for moneys actually received by it hereunder, the Secured Party
shall have no duty as to any Collateral or as to the taking of any necessary
steps to preserve rights against prior parties or any other rights pertaining to
any Collateral. The Secured Party shall be deemed to have exercised reasonable
care in the custody and preservation of Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which the Secured
Party accords its own property.

          Section 16.    Remedies.
                         --------

          (a)  Generally. If an Event of Default shall have occurred and be
continuing, the Secured Party may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the UCC (whether or not the UCC applies to the affected Collateral), and also
may (i) require the Grantor to, and the Grantor hereby agrees that it will at
its expense and upon request of the Secured Party forthwith, assemble all or
part of the Collateral as directed by the Secured Party and make it available to
the Secured Party at a place to be designated by the Secured Party that is
reasonably convenient to both parties, (ii) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process in accordance with applicable laws, (iii) prior to the disposition of
the Collateral, store, process, repair or recondition the Collateral or
otherwise prepare the Collateral for disposition in any manner to the extent the
Secured Party deems reasonably appropriate, (iv) take possession of the
Grantor's premises or place custodians in exclusive control thereof, remain on
such premises and use the same and any of the Grantor's equipment for the
purpose of completing any work in process, taking any actions described in the
preceding clause (iii) and collecting any Secured Obligation, (v) without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as the Secured Party may deem
commercially reasonable, (vi) exercise dominion and control over and refuse to
permit further withdrawals from any Deposit Account maintained by Secured Party
constituting a part of the Collateral, and (vii) without notice to the Grantor
but subject to the Securities Act of 1933 and or such state securities laws,
transfer to or to register in the name of the Secured Party or any of its
nominees any or all of the Securities Collateral. The Secured Party may be the
purchaser of any or all of the Collateral at any such sale and the Secured Party
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply any of the Secured Obligations as a credit on
account of the purchase price for any Collateral payable by the Secured Party at
such sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of the Grantor, and the
Grantor hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
The Grantor agrees that, to the extent notice of sale shall be required by law,
at least ten days' notice to the Grantor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification. The Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. The Grantor

                                       15
<PAGE>

hereby waives any claims against the Secured Party arising by reason of the fact
that the price at which any Collateral may have been sold at such a private sale
was less than the price which might have been obtained at a public sale, even if
the Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, the Grantor shall be jointly and severally liable for the
deficiency and the reasonable fees of any attorneys employed by the Secured
Party to collect such deficiency. The Grantor further agrees that a breach of
any of the covenants contained in this Section will cause irreparable injury to
the Secured Party, that the Secured Party has no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant
contained in this Section shall be specifically enforceable against the Grantor,
and the Grantor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense that no
default has occurred giving rise to the Secured Obligations becoming due and
payable prior to their stated maturities.

          (b)  Securities Collateral.

                    (i)  The Grantor recognizes that, by reason of certain
     prohibitions contained in the Securities Act and applicable state
     securities laws, the Secured Party may be compelled, with respect to any
     sale of all or any part of the Securities Collateral conducted without
     prior registration or qualification of such Securities Collateral under the
     Securities Act and/or such state securities laws, to limit purchasers to
     those who will agree, among other things, to acquire the Securities
     Collateral for their own account, for investment and not with a view to the
     distribution or resale thereof. The Grantor acknowledges that any such
     private sales may be at prices and on terms less favorable than those
     obtainable through a public sale without such restrictions (including a
     public offering made pursuant to a registration statement under the
     Securities Act) and, notwithstanding such circumstances and the
     registration rights granted to the Secured Party by the Grantor pursuant
     hereto, the Grantor agrees that any such private sale shall be deemed to
     have been made in a commercially reasonable manner and that the Secured
     Party shall have no obligation to engage in public sales and no obligation
     to delay the sale of any Securities Collateral for the period of time
     necessary to permit the issuer thereof to register it for a form of public
     sale requiring registration under the Securities Act or under applicable
     state securities laws, even if such issuer would, or should, agree to so
     register it.

                    (ii) If the Secured Party shall determine to exercise its
     right to sell all or any of the Securities Collateral pursuant to this
     Section after an Event of Default, the Grantor agrees that, upon request of
     the Secured Party (which request may be made by the Secured Party in its
     sole discretion), the Grantor will, at its own expense (A) execute and
     deliver, and cause each issuer of the Securities Collateral contemplated to
     be sold and the directors and officers thereof to execute and deliver, all
     such instruments and documents, and do or cause to be done all such other
     acts and things, as may be necessary or, in the opinion of the Secured
     Party, advisable to register such Securities Collateral under the
     provisions of the Securities Act and to cause the registration statement
     relating thereto to become effective and to remain effective for such
     period as prospectuses are required by law to be furnished, and to make all
     amendments and supplements thereto

                                       16
<PAGE>

     and to the related prospectus which, in the opinion of the Secured Party,
     are necessary or advisable, all in conformity with the requirements of the
     Securities Act and the rules and regulations of the Securities and Exchange
     Commission applicable thereto; (B) do or cause to be done all such other
     acts and things as may be necessary to make such sale of the Securities
     Collateral or any part thereof valid and binding and in compliance with
     applicable law; and (C) bear all costs and expenses, including reasonable
     attorneys' fees, of carrying out its obligations under this Section.

          Section 17.    Additional Remedies for Intellectual Property
                         ---------------------------------------------
Collateral.
----------

          (a)  Anything contained herein to the contrary notwithstanding, upon
the occurrence and during the continuation of an Event of Default, (i) the
Secured Party shall have the right (but not the obligation) to bring suit, in
the name of the Grantor, the Secured Party or otherwise, to enforce any
Intellectual Property Collateral, in which event the Grantor shall, at the
request of the Secured Party, do any and all lawful reasonable acts and execute
any and all documents required by the Secured Party in aid of such enforcement
and, to the extent that the Secured Party shall elect not to bring suit to
enforce any Intellectual Property Collateral as provided in this Section, the
Grantor agrees to use all reasonable measures, whether by action, suit,
proceeding or otherwise, to prevent the infringement of any of the Intellectual
Property Collateral by others and for that purpose agrees to use its
commercially reasonable judgement in maintaining any action, suit or proceeding
against any Person so infringing reasonably necessary to prevent such
infringement; (ii) upon written demand from the Secured Party, the Grantor shall
execute and deliver to the Secured Party an assignment or assignments of the
Intellectual Property Collateral and such other documents as are necessary or
appropriate to carry out the intent and purposes of this Agreement; and (iii)
the Grantor agrees that such an assignment and/or recording shall be applied to
reduce the Secured Obligations outstanding only to the extent that the Secured
Party receives cash proceeds in respect of the sale of, or other realization
upon, the Intellectual Property Collateral.

          Section 18.    Application of Proceeds.
                         -----------------------

          Except as expressly provided elsewhere in this Agreement, all proceeds
received by the Secured Party in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral shall be applied in the
following order of priority:

     FIRST:    To the payment of all costs and expenses of such sale, collection
     or other realization, including reasonable compensation to the Secured
     Party and its agents and reasonable fees of counsel, and all other
     expenses, liabilities and advances made or incurred by the Secured Party in
     connection therewith, and all advances made by the Secured Party hereunder
     for the account of the Grantor, and to the payment of all costs and
     expenses paid or incurred by the Secured Party in connection with the
     exercise of any right or remedy hereunder;

     SECOND:   To the payment of all other Secured Obligations and, as to
     obligations arising under the Credit Agreement, as provided in the Credit
     Agreement; and

     THIRD:    To the payment to or upon the order of the Borrower, or to
     whosoever

                                       17
<PAGE>

     may be lawfully entitled to receive the same or as a court of competent
     jurisdiction may direct, of any surplus then remaining from such proceeds.

          Section 19.    Expenses.
                         --------

          The Grantor hereby agrees to pay to the Secured Party upon the
Commitment Expiration Date the amount of any and all reasonable costs and
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, that the Secured Party may incur in connection with (i) the
exercise or enforcement of any of the rights of the Secured Party hereunder,
(ii) the failure by the Grantor to perform or observe any of the provisions
hereof, or (iii) the preparation, filing or recording of any documents or
instruments referenced in the last sentence of Section 5.

          Section 20.    Continuing Security Interest; Transfer of Loans;
                         ------------------------------------------------
Termination and Release.
-----------------------

          (a)  This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the payment in
full of the Secured Obligations, the cancellation or termination of the
Commitments, and the cancellation or expiration of all outstanding Letters of
Credit (or alternate disposition of such outstanding Letters of Credit permitted
by subsection 2.9 of the Credit Agreement), (ii) be binding upon the Grantors
and their respective successors and assigns, and (iii) inure, together with the
rights and remedies of the Secured Party hereunder, to the benefit of the
Secured Party and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), but subject to the provisions of
subsection 2.4D of the Credit Agreement, the Secured Party may assign or
otherwise transfer any Loans held by it to any other Person in accordance with
the Credit Agreement, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to the Secured Party herein or
otherwise.

          (b)  Upon the payment in full of the Secured Obligations, the
cancellation or termination of the Commitments, and the cancellation or
expiration of all outstanding Letters of Credit (or alternate disposition of
such outstanding Letters of Credit permitted by subsection 2.9 of the Credit
Agreement), the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to the Grantor. Upon any such termination the
Secured Party will, at the Grantor's expense, promptly execute and deliver to
the Grantor such documents as the Grantor shall reasonably request to evidence
such termination. In addition, upon the proposed sale, transfer or other
disposition of any Collateral by the Grantor in accordance with the Credit
Agreement for which the Grantor desires to obtain a security interest release
from the Secured Party, the Grantor shall deliver an Officer's Certificate (x)
stating that the Collateral subject to such disposition is being sold,
transferred or otherwise disposed of in compliance with the terms of the Credit
Agreement and (y) specifying the Collateral being sold, transferred or otherwise
disposed of in the proposed transaction. Upon the receipt of such Officer's
Certificate, the Secured Party shall, at the Grantor's expense, promptly execute
and deliver such releases of its security interest in such Collateral which is
to be so sold, transferred or disposed of, as may be reasonably requested by the
Grantor.

                                       18
<PAGE>

          Section 21.    Secured Party as Lender.
                         -----------------------

          (a)  The Secured Party shall have the right hereunder, to make
demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking any action (including without limitation the
release or substitution of Collateral), in accordance with this Agreement, the
Credit Agreement and all applicable law, including without limitation the
Uniform Commercial Code as such is in effect from time to time.

          (b)  The Secured Party shall at all times be the same Person that is
Lender under the Credit Agreement, and any assignment, delegation or other
transfer of the rights of the Lender under the Security Agreement shall also
constitute an assignment, delegation or transfer of the rights of the Secured
Party hereunder. Upon the transfer to a successor Lender of any Loan or other
Obligation under the Credit Agreement, that successor Lender shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the transferring Secured Party under this Agreement, and the transferring
Secured Party under this Agreement shall promptly (i) transfer to such successor
Secured Party all sums, securities and other items of Collateral held hereunder,
together with all records and other documents necessary or appropriate in
connection with the performance of the duties of the successor Secured Party
under this Agreement, and (ii) execute and deliver to such successor Secured
Party such amendments to financing statements, and take such other actions, as
may be necessary or appropriate in connection with the assignment to such
successor Secured Party of the security interests created hereunder, whereupon
such assigning Secured Party shall be discharged from its duties and obligations
under this Agreement. After any such transfer by a Secured Party hereunder, the
provisions of this Agreement shall inure to its benefit as to any actions taken
or omitted to be taken by it under this Agreement while it was the Secured Party
hereunder.

          Section 22.    Intentionally Deleted.
                         ---------------------

          Section 23.    Amendments; Etc.
                         ---------------

          No amendment, modification, termination or waiver of any provision of
this Agreement, and no consent to any departure by the Grantor therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Secured Party and, in the case of any such amendment or modification, by the
Grantor. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.

          Section 24.    Notices.
                         -------

          Any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served or sent by telefacsimile
or United States mail or courier service and shall be deemed to have been given
when delivered in person or by courier service, upon receipt of telefacsimile,
or three Business Days after depositing it in the United States mail with
postage prepaid and properly addressed; provided that notices to the Secured
                                        --------
Party shall not be effective until received. For the purposes hereof, the
address of each party hereto shall be as provided in Section 8.4 of the Credit
Agreement or such other address as shall be designated by such party in a
written notice delivered to the other parties hereto.

                                       19
<PAGE>

          Section 25.    Failure or Indulgence Not Waiver; Remedies Cumulative.
                         -----------------------------------------------------

          No failure or delay on the part of the Secured Party in the exercise
of any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.

          Section 26.    Severability.
                         ------------

          In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

          Section 27.    Headings.
                         --------

          Section and Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.

          Section 28.    Governing Law; Terms; Rules of Construction.
                         -------------------------------------------

          THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (INCLUDING WITHOUT LIMITATION
SECTION 1646.5 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA), WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UCC PROVIDES THAT
THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF CALIFORNIA. Unless otherwise defined herein or in the
Credit Agreement, terms used in Articles 8 and 9 of the UCC are used herein as
therein defined. The rules of construction set forth in Section 1.3 of the
Credit Agreement shall be applicable to this Agreement mutatis mutandis.

          Section 29.    Consent to Jurisdiction and Service of Process.
                         ----------------------------------------------

          ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE GRANTOR ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA. BY
EXECUTING AND DELIVERING THIS AGREEMENT, THE GRANTOR, FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND
UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II)
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT

                                       20
<PAGE>

MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE
GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 24; (IV) AGREES THAT
SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL
JURISDICTION OVER THE GRANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND
OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES
THAT THE SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST THE GRANTOR IN THE COURTS OF
ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 29
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE
FULLEST EXTENT PERMISSIBLE UNDER CALIFORNIA CODE OF CIVIL PROCEDURE SECTION
410.40 OR OTHERWISE.

          Section 30.    Waiver of Jury Trial.
                         --------------------

          THE GRANTOR AND THE SECURED PARTY HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-
encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. The Grantor and the Secured Party acknowledge that this
waiver is a material inducement for the Grantor and the Secured Party to enter
into a business relationship, that the Grantor and the Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. The Grantor
and the Secured Party further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 30
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.

          Section 31.    Counterparts.
                         ------------

          This Agreement may be executed in one or more counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.

                 [Remainder of page intentionally left blank]

                                       21
<PAGE>

          IN WITNESS WHEREOF, the Grantor and the Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.

                                        BUY.COM, INC.,
                                        as Borrower and Grantor

                                        By:_____________________________
                                        Name:___________________________
                                        Title:__________________________

                                        SCOTT A. BLUM
                                        SEPARATE PROPERTY TRUST
                                        U/D/T 8/2/95,
                                        as the Secured Party

                                        By:_____________________________
                                        Name:___________________________
                                        Title:__________________________
<PAGE>

                            DISCLOSURE SCHEDULE TO
                              SECURITY AGREEMENT

                                     DS-1
<PAGE>

                                                                    EXHIBIT I TO
                                                              SECURITY AGREEMENT
                                                              ------------------

                [FORM OF] GRANT OF TRADEMARK SECURITY INTEREST

          WHEREAS, BUY.COM, INC., a Delaware corporation (the "Grantor"), owns
and uses in its business, and will in the future adopt and so use, various
intangible assets, including the Trademark Collateral (as defined below); and

          WHEREAS, the Grantor has entered into a Bridge Financing Credit
Agreement dated as of August 10, 2001 (said Credit Agreement, as it may
heretofore have been and as it may hereafter be amended, supplemented, restated
or otherwise modified from time to time, being the "Credit Agreement") with the
Scott A. Blum Separate Property Trust u/d/t 8/2/95 (the "Secured Party")
pursuant to which the Secured Party has made certain commitments, subject to the
terms and conditions set forth in the Credit Agreement, to extend certain Loans
to and make other financial accommodations for the Grantor;

          WHEREAS, pursuant to the terms of a Security Agreement dated as of
August 10, 2001 (as amended, restated, supplemented or otherwise modified from
time to time, the "Security Agreement"; capitalized terms used herein not
otherwise defined herein shall have the meanings ascribed therein), among the
Grantor and the Secured Party, the Grantor has agreed to create in favor of the
Secured Party a secured and protected interest in, and the Secured Party has
agreed to become a secured creditor with respect to, the Trademark Collateral;

          NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, subject to the terms and conditions
of the Security Agreement, the Grantor hereby grants to the Secured Party a
security interest in all of the Grantor's right, title and interest in and to
the following, in each case whether now or hereafter existing or in which the
Grantor now has or hereafter acquires an interest and wherever the same may be
located (the "Trademark Collateral"):

          1.   all rights, title and interest (including rights acquired
     pursuant to a license or otherwise but only to the extent permitted by
     agreements governing such license or other use) in and to all trademarks,
     service marks, designs, logos, indicia, tradenames, trade dress, corporate
     names, company names, business names, fictitious business names, trade
     styles and/or other source and/or business identifiers and applications
     pertaining thereto, owned by the Grantor, or hereafter adopted and used, in
     its business (including, without limitation, the trademarks specifically
     identified in Schedule A) (collectively, the "Trademarks"), all
                   ----------
     registrations that have been or may hereafter be issued or applied for
     thereon in the United States and any state thereof and in foreign countries
     (including, without limitation, the registrations and applications
     specifically identified in Schedule A) (the "Trademark Registrations"), all
     common law and other rights (but in no event any of the obligations) in and
     to the Trademarks in the United States and any state thereof and in foreign
     countries (the "Trademark Rights"), and all goodwill of the

                                      I-1
<PAGE>

     Grantor's business symbolized by the Trademarks and associated therewith
     (the "Associated Goodwill"); and

          2.   all proceeds, products, rents and profits of or from any and all
     of the foregoing Trademark Collateral and, to the extent not otherwise
     included, all payments under insurance (whether or not the 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 Trademark Collateral. For purposes of this Grant of Trademark
     Security Interest, the term "proceeds" includes whatever is receivable or
     received when Trademark Collateral or proceeds are sold, exchanged,
     collected or otherwise disposed of, whether such disposition is voluntary
     or involuntary.

          the Grantor does hereby further acknowledge and affirm that the rights
and remedies of the Secured Party with respect to the security interest in the
Trademark Collateral granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.

           [The remainder of this page is intentionally left blank.]

                                      I-2
<PAGE>

          IN WITNESS WHEREOF, the Grantor has caused this Grant of Trademark
Security Interest to be duly executed and delivered by its officer thereunto
duly authorized as of the __ day of _______, _____.

                                        BUY.COM, INC.

                                        By:____________________________
                                        Name:__________________________
                                        Title:_________________________

                                      I-3
<PAGE>

                                  SCHEDULE A

                                      TO

                     GRANT OF TRADEMARK SECURITY INTEREST

                      United States
Registered Owner        Trademark         Registration         Registration
----------------       Description           Number                Date
                       -----------           ------                ----

                                      A-1
<PAGE>

                                                                   EXHIBIT II TO
                                                              SECURITY AGREEMENT
                                                              ------------------

                  [FORM OF] GRANT OF PATENT SECURITY INTEREST

          WHEREAS, BUY.COM, INC., a Delaware corporation (the "Grantor"), owns
and uses in its business, and will in the future adopt and so use, various
intangible assets, including the Patent Collateral (as defined below); and

          WHEREAS, the Grantor has entered into a Bridge Financing Credit
Agreement dated as of August 10, 2001 (said Credit Agreement, as it may
heretofore have been and as it may hereafter be amended, supplemented, restated
or otherwise modified from time to time, being the "Credit Agreement") with the
Scott A. Blum Separate Property Trust u/d/t 8/2/95 (the "Secured Party")
pursuant to which the Secured Party has made certain commitments, subject to the
terms and conditions set forth in the Credit Agreement, to extend certain Loans
to and make other financial accommodations for the Grantor;

          WHEREAS, pursuant to the terms of a Security Agreement dated as of
August 10, 2001 (as amended, restated, supplemented or otherwise modified from
time to time, the "Security Agreement"; capitalized terms used herein not
otherwise defined herein shall have the meanings ascribed therein), among the
Grantor and the Secured Party, the Grantor has agreed to create in favor of the
Secured Party a secured and protected interest in, and the Secured Party has
agreed to become a secured creditor with respect to, the Patent Collateral;

          NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, subject to the terms and conditions
of the Security Agreement, the Grantor hereby grants to the Secured Party a
security interest in all of the Grantor's right, title and interest in and to
the following, in each case whether now or hereafter existing or in which the
Grantor now has or hereafter acquires an interest and wherever the same may be
located (the "Patent Collateral"):

          (i)  all rights, title and interest (including rights acquired
     pursuant to a license or otherwise but only to the extent permitted by
     agreements governing such license or other use) in and to all patents and
     patent applications and rights and interests in patents and patent
     applications under any domestic or foreign law that are presently, or in
     the future may be, owned or held by the Grantor and all patents and patent
     applications and rights, title and interests in patents and patent
     applications under any domestic or foreign law that are presently, or in
     the future may be, owned by the Grantor in whole or in part (including,
     without limitation, the patents and patent applications listed in Schedule
                                                                       --------
     A), all rights (but not obligations) corresponding thereto to sue for past,
     -
     present and future infringements and all re-issues, divisions,
     continuations, renewals, extensions and continuations-in-part thereof (all
     of the foregoing being collectively referred to as the "Patents"); and

          (ii) all proceeds, products, rents and profits of or from any and all
     of the foregoing Patent Collateral and, to the extent not otherwise
     included, all payments under insurance (whether or not the Secured Party is
     the loss payee thereof), or any indemnity,

                                     II-1
<PAGE>

     warranty or guaranty, payable by reason of loss or damage to or otherwise
     with respect to any of the foregoing Patent Collateral. For purposes of
     this Grant of Patent Security Interest, the term "proceeds" includes
     whatever is receivable or received when Patent Collateral or proceeds are
     sold, exchanged, collected or otherwise disposed of, whether such
     disposition is voluntary or involuntary.

          the Grantor does hereby further acknowledge and affirm that the rights
and remedies of the Secured Party with respect to the security interest in the
Patent Collateral granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.

            [The remainder of this page intentionally left blank.]

                                     II-2
<PAGE>

          IN WITNESS WHEREOF, the Grantor has caused this Grant of Patent
Security Interest to be duly executed and delivered by its officer thereunto
duly authorized as of the ___ day of ____________, _____.

                                        BUY.COM, INC.

                                        By:____________________________
                                         Name:_________________________
                                         Title:________________________

                                      S-1
<PAGE>

                                  SCHEDULE A

                                      TO

                       GRANT OF PATENT SECURITY INTEREST

Patents Issued:
--------------

     Patent No.               Issue Date
     ----------               ----------

Patents Pending:
---------------

     Applicant's      Date        Application
        Name          Filed          Number
        ----          -----          ------

                                      A-1
<PAGE>

                                                                  EXHIBIT III TO
                                                              SECURITY AGREEMENT
                                                              ------------------

                [FORM OF] GRANT OF COPYRIGHT SECURITY INTEREST

          WHEREAS, BUY.COM, INC., a Delaware corporation (the "Grantor"), owns
and uses in its business, and will in the future adopt and so use, various
intangible assets, including the Copyright Collateral (as defined below); and

          WHEREAS, the Grantor has entered into a Bridge Financing Credit
Agreement dated as of August 10, 2001 (said Credit Agreement, as it may
heretofore have been and as it may hereafter be amended, supplemented, restated
or otherwise modified from time to time, being the "Credit Agreement") with the
Scott A. Blum Separate Property Trust u/d/t 8/2/95 (the "Secured Party")
pursuant to which the Secured Party has made certain commitments, subject to the
terms and conditions set forth in the Credit Agreement, to extend certain Loans
to and make other financial accommodations for the Grantor;

          WHEREAS, pursuant to the terms of a Security Agreement dated as of
August 10, 2001 (as amended, restated, supplemented or otherwise modified from
time to time, the "Security Agreement"; capitalized terms used herein not
otherwise defined herein shall have the meanings ascribed therein), among the
Grantor and the Secured Party, the Grantor has agreed to create in favor of the
Secured Party a secured and protected interest in, and the Secured Party has
agreed to become a secured creditor with respect to, the Copyright Collateral;

          NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, subject to the terms and conditions
of the Security Agreement, the Grantor hereby grants to the Secured Party a
security interest in all of the Grantor's right, title and interest in and to
the following, in each case whether now or hereafter existing or in which the
Grantor now has or hereafter acquires an interest and wherever the same may be
located (the "Copyright Collateral"):

          (i)  all rights, title and interest (including rights acquired
     pursuant to a license or otherwise but only to the extent permitted by
     agreements governing such license or other use) under copyright in various
     published and unpublished works of authorship including, without
     limitation, computer programs, computer data bases, other computer software
     layouts, trade dress, drawings, designs, writings, and formulas (including,
     without limitation, the works listed on Schedule A, as the same may be
                                             ----------
     amended pursuant hereto from time to time) (collectively, the
     "Copyrights"), all copyright registrations issued to the Grantor and
     applications for copyright registration that have been or may hereafter be
     issued or applied for thereon in the United States and any state thereof
     and in foreign countries (including, without limitation, the registrations
     listed on Schedule A, as the same may be amended pursuant hereto from time
               ----------
     to time) (collectively, the "Copyright Registrations"), all common law and
     other rights in and to the Copyrights in the United States and any state
     thereof and in foreign countries including all copyright licenses (but with
     respect to such copyright licenses, only to the extent permitted by such
     licensing arrangements) (the "Copyright Rights"), including, without
     limitation, each of

                                     III-1
<PAGE>

     the Copyrights, rights, titles and interests in and to the Copyrights, all
     derivative works and other works protectable by copyright, which are
     presently, or in the future may be, owned, created (as a work for hire for
     the benefit of the Grantor), authored (as a work for hire for the benefit
     of the Grantor), or acquired by the Grantor, in whole or in part, and all
     Copyright Rights with respect thereto and all Copyright Registrations
     therefor, heretofore or hereafter granted or applied for, and all renewals
     and extensions thereof, throughout the world, including all proceeds
     thereof (such as, by way of example and not by limitation, license
     royalties and proceeds of infringement suits), the right (but not the
     obligation) to renew and extend such Copyright Registrations and Copyright
     Rights and to register works protectable by copyright and the right (but
     not the obligation) to sue in the name of the Grantor or in the name of the
     Secured Party for past, present and future infringements of the Copyrights
     and Copyright Rights; and

          (ii) all proceeds, products, rents and profits of or from any and all
     of the foregoing Copyright Collateral and, to the extent not otherwise
     included, all payments under insurance (whether or not the 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 Copyright Collateral. For purposes of this Grant of Copyright
     Security Interest, the term "proceeds" includes whatever is receivable or
     received when Copyright Collateral or proceeds are sold, exchanged,
     collected or otherwise disposed of, whether such disposition is voluntary
     or involuntary.

          the Grantor does hereby further acknowledge and affirm that the rights
and remedies of the Secured Party with respect to the security interest in the
Copyright Collateral granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.

                                     III-2
<PAGE>

          IN WITNESS WHEREOF, the Grantor has caused this Grant of Copyright
Security Interest to be duly executed and delivered by its officer thereunto
duly authorized as of the ___ day of ___________, _____.

                                        BUY.COM, INC.

                                        By:____________________________
                                         Name:_________________________
                                         Title:________________________

                                      S-1
<PAGE>

                                  SCHEDULE A

                                      TO

                     GRANT OF COPYRIGHT SECURITY INTEREST

U.S. Copyrights:
---------------
Title          Registration No.    Date of Issue    Registered Owner
-----          ----------------    -------------    ----------------

Pending U.S. Copyright Registrations & Applications:
---------------------------------------------------
Title    Reference No.     Date of Application       Copyright Claimant
-----    -------------     -------------------       --------- ---------

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