Document:

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EXHIBIT 10.2

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 26,
2003, by and among P-Com,  Inc., a corporation  organized  under the laws of the
State of Delaware (the  "Company"),  and the  undersigned  (together  with their
respective affiliates, the "Initial Investors").

                                    WHEREAS:

         A. In connection with the Securities  Purchase  Agreement,  dated as of
March  26,  2003,  by and among  the  Company  and the  Initial  Investors  (the
"Securities  Purchase  Agreement"),  the Company has agreed,  upon the terms and
subject to the conditions  contained  therein,  to issue and sell to the Initial
Investors (i)  convertible  promissory  notes (the "Notes") that are convertible
into shares of the  Company's  common  stock,  par value  $0.0001 per share (the
"Common  Stock"),  upon the terms and subject to the  limitations and conditions
set forth in the Notes,  and (ii) warrants (the "Warrants") to acquire shares of
Common  Stock.  The  shares of  Common  Stock  issuable  upon  conversion  of or
otherwise  pursuant  to the Notes  are  referred  to  herein as the  "Conversion
Shares" and the shares of Common Stock  issuable  upon  exercise of or otherwise
pursuant to the Warrants are referred to herein as the "Warrant Shares."

         B.  To  induce  the  Initial  Investors  to  execute  and  deliver  the
Securities  Purchase  Agreement,  the  Company  has  agreed to  provide  certain
registration rights under the Securities Act of 1933, as amended,  and the rules
and regulations thereunder, or any similar successor statute (collectively,  the
"Securities Act"), and applicable state securities laws.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Initial Investors hereby agree as follows:

1.       DEFINITIONS.

         (a) As used in this  Agreement,  the  following  terms  shall  have the
following meanings:

                  (i)   "Investors"   means  the  Initial   Investors   and  any
         transferees or assignees who agree to become bound by the provisions of
         this Agreement in accordance with Section 9 hereof.

                  (ii) "register,"  "registered," and "registration"  refer to a
         registration effected by preparing and filing a Registration  Statement
         or  Statements in compliance  with the  Securities  Act and pursuant to
         Rule 415 under the  Securities  Act or any successor rule providing for
         offering  securities  on a  continuous  basis  ("Rule  415"),  and  the
         declaration or ordering of effectiveness of such Registration Statement
         by the United States Securities and Exchange Commission (the "SEC").

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                  (iii)  "Registrable   Securities"  means  (a)  the  Conversion
         Shares,  (b) the  Warrant  Shares  and (c) any other  shares of capital
         stock of the Company  issued or  issuable,  from time to time (with any
         adjustments),  as a dividend or distribution  on, or in exchange for or
         replacement of, or otherwise with respect to any of the foregoing.

                  (iv) "Registration  Statement" means a registration  statement
         of the Company under the Securities Act.

         (b)  Capitalized  terms used herein and not  otherwise  defined  herein
shall  have  the  respective  meanings  set  forth  in the  Securities  Purchase
Agreement.

2.       REGISTRATION.

         (a) Demand  Registration.  Subject to the  conditions  of this  Section
2(a),  if the  Company  receives  a  written  request  from  one or  more of the
Investors  (the  "Initiating  Investors")  that the Company file a  Registration
Statement  under the Securities Act  registering  the resale of the  Registrable
Securities,  then the  Company  shall,  (i) give  notice of such  request to all
Investors  as soon as  practicable,  but in no event later than the tenth (10th)
day following the date of such request,  and (ii) prepare promptly and file with
the SEC as soon as practicable,  but in no event later than the thirtieth (30th)
day following the date of such request,  and  thereafter use its best efforts to
cause to become  effective  as soon as  practicable,  a  Registration  Statement
registering  the  resale  of all  Registrable  Securities  that  the  Initiating
Investors  request to be registered and all Registrable  Securities owned by any
other  Investor that notifies the Company in writing,  within  fifteen (15) days
after receipt of the Company's notice  contemplated in clause (i) above, that it
intends to participate in such demand  registration,  which  notification  shall
include  the number of  Registrable  Securities  sought to be  included  by such
Investor and the intended method or methods of distribution of such  Registrable
Securities.  The Registration Statement filed hereunder, to the extent allowable
under  the  Securities  Act  (including   Rule  416),   shall  state  that  such
Registration  Statement  also covers  such  indeterminate  number of  additional
shares of Common Stock as may become  issuable upon  conversion of the Notes and
exercise of the Warrants to prevent dilution resulting from stock splits,  stock
dividends  or  similar  transactions.   The  Registration  Statement  (and  each
amendment  or  supplement   thereto,   and  each  request  for  acceleration  of
effectiveness thereof) shall be provided to (and subject to the approval of) the
Investors participating in such demand registration and their respective counsel
prior to its filing or other  submission.  Notwithstanding  the  foregoing,  the
Company shall not be required to effect a demand  registration  pursuant to this
Section 2(a): (1) prior to the 180th day following the date hereof, or (2) after
the Company has effected one  registration  pursuant to this Section  2(a),  and
such   registration  has  been  declared  or  ordered   effective  and  remained
continuously effective without interruption in accordance with the provisions of
Section 3 hereof for the  duration  of the  Registration  Period (as  defined in
Section 3(a) below).

         (b) Piggy-Back  Registrations.  If, at any time prior to the expiration
of the Registration  Period,  the Company shall file with the SEC a Registration
Statement  relating to an offering  for its own account or the account of others
under the Securities Act of any of its equity securities (other than on Form S-4
or Form S-8 or their then equivalents relating to equity securities to be issued
solely in connection  with any  acquisition  of any entity or business or equity
securities  issuable in connection  with stock option or other employee  benefit

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plans),  the  Company  shall  send  to  each  Investor  written  notice  of such
determination  and, if within  fifteen  (15) days after the date of such notice,
such  Investor  shall so request in writing,  the Company  shall include in such
Registration  Statement  all or any  part  of the  Registrable  Securities  such
Investor  requests  to be  registered,  except that if, in  connection  with any
underwritten public offering, the managing underwriter(s) thereof shall impose a
limitation  on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)'  judgment,  marketing or
other  factors  dictate  such  limitation  is  necessary  to  facilitate  public
distribution,  then,  subject to the other  provisions of this Section 2(b), the
Company shall be obligated to include in such  Registration  Statement only such
limited  portion  of the  Registrable  Securities  with  respect  to which  such
Investor has requested  inclusion hereunder as the underwriter shall permit. Any
exclusion of Registrable  Securities  shall be made pro rata among the Investors
seeking  to  include  Registrable  Securities,  in  proportion  to the number of
Registrable  Securities  sought  to be  included  by such  Investors;  provided,
however,  that the Company shall not exclude any Registrable  Securities  unless
the Company has first excluded all outstanding securities,  the holders of which
are  not  contractually  entitled  to  inclusion  of  such  securities  in  such
Registration  Statement or are not contractually  entitled to pro rata inclusion
with the Registrable  Securities;  and provided,  further,  however, that, after
giving effect to the immediately preceding proviso, any exclusion of Registrable
Securities  shall be made pro rata with holders of other  securities  having the
contractual right to include such securities in the Registration Statement other
than  holders  of  securities  contractually  entitled  to  inclusion  of  their
securities  in such  Registration  Statement  by reason  of demand  registration
rights. Notwithstanding the foregoing, no such reduction shall reduce the amount
of Registrable  Securities  included in the registration below twenty-five (25%)
of the total amount of  securities  included in such  registration.  No right to
registration  of  Registrable  Securities  under  this  Section  2(b)  shall  be
construed to limit any  registration  required under Section 2(a) hereof.  If an
offering in connection with which an Investor is entitled to registration  under
this  Section  2(b)  is an  underwritten  offering,  then  each  Investor  whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company,  offer and sell such Registrable  Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this  Agreement,  on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.

         (c) Eligibility for Form SB-2. The Company represents and warrants that
it meets  the  requirements  for the use of Form  SB-2 for  registration  of the
resale by the  Initial  Investors  and any  other  Investor  of the  Registrable
Securities.

3.       OBLIGATIONS OF THE COMPANY.

         In connection with the registration of the Registrable Securities,  the
Company shall have the following obligations:

         (a) The Company shall respond  promptly to any and all comments made by
the staff of the SEC to the Registration Statement required by Section 2(a), and
shall  submit to the SEC  before the close of  business  on or before the second
business day immediately  following the business day on which the Company learns
(either  by  telephone  or in  writing)  that no  review  of  such  Registration

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Statement  will be made by the SEC or that the  staff of the SEC has no  further
comments  on such  Registration  Statement,  as the case may be, a  request  for
acceleration of the effectiveness of such  Registration  Statement to a time and
date as soon as practicable.  The Company shall keep such Registration Statement
effective pursuant to Rule 415 at all times until such date as is the earlier of
(i) the date on which all of the Registrable  Securities have been sold and (ii)
the date on which all of the Registrable  Securities may be immediately  sold to
the public without registration or restriction pursuant to Rule 144(k) under the
Securities Act or any successor  provision (the  "Registration  Period"),  which
Registration  Statement  (including any  amendments or  supplements  thereto and
prospectuses  contained  therein and all  documents  incorporated  by  reference
therein) (i) shall comply in all material  respects with the requirements of the
Securities Act and the rules and regulations of the SEC  promulgated  thereunder
and (ii) shall not contain any untrue  statement  of a material  fact or omit to
state a material  fact required to be stated  therein,  or necessary to make the
statements  therein not  misleading.  The  financial  statements  of the Company
included in the Registration Statement or incorporated by reference therein will
comply  as to form in all  material  respects  with  the  applicable  accounting
requirements  and the published rules and regulations of the SEC applicable with
respect thereto.  Such financial  statements will be prepared in accordance with
U.S. generally accepted accounting principles,  consistently applied, during the
periods  involved  (except (i) as may be otherwise  indicated in such  financial
statements  or the  notes  thereto,  or (ii) in the  case of  unaudited  interim
statements,  to the extent they may not include footnotes or may be condensed on
summary  statements and fairly present in all material respects the consolidated
financial  position of the Company and its  consolidated  subsidiaries as of the
dates thereof and the  consolidated  results of their  operations and cash flows
for the periods then ended  (subject,  in the case of unaudited  statements,  to
immaterial year-end adjustments)).

         (b) The Company shall use its best efforts to promptly prepare and file
with  the  SEC  such  amendments  (including   post-effective   amendments)  and
supplements to the Registration  Statement and the prospectus used in connection
with the  Registration  Statement as may be  necessary to keep the  Registration
Statement  effective at all times during the  Registration  Period,  and, during
such period,  comply with the  provisions of the  Securities Act with respect to
the  disposition  of all  Registrable  Securities of the Company  covered by the
Registration  Statement  until such time as all of such  Registrable  Securities
have been disposed of in accordance with the intended  methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement. In the
event the  number of  shares  available  under a  Registration  Statement  filed
pursuant to this Agreement is, for any three (3)  consecutive  trading days (the
last of such three (3)  trading  days being the  "Registration  Trigger  Date"),
insufficient to cover one hundred  percent (100%) of the Registrable  Securities
required to be included  thereunder (as a result of any adjustment to the number
of shares  issuable upon  conversion of the Notes or exercise of the Warrants or
the  occurrence of any other event not covered by Rule 416 under the  Securities
Act),  the  Company  shall  amend  the  Registration  Statement,  or  file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover one hundred  percent (100%) of the  Registrable  Securities
required to be included thereunder, in each case, as soon as practicable, but in
any event within  fifteen (15) days after the  Registration  Trigger  Date.  The
Company  shall  use its best  efforts  to cause  such  amendment(s)  and/or  new
Registration  Statement to become effective as soon as practicable following the
filing thereof.

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         (c) The  Company  shall  furnish  to each  Investor  whose  Registrable
Securities are included in the Registration  Statement and its legal counsel (i)
promptly  after the same is prepared  and publicly  distributed,  filed with the
SEC, or received by the Company, one copy of the Registration  Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto,  and, in the case of the Registration  Statement referred
to in Section  2(a),  each letter  written by or on behalf of the Company to the
SEC or the staff of the SEC  (including,  without  limitation,  any  request  to
accelerate  the  effectiveness  of  the  Registration   Statement  or  amendment
thereto),  and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to the Registration  Statement (other than any portion, if
any,  thereof  which  contains  information  for which the  Company  has  sought
confidential  treatment),  (ii) by the  next  business  day  after  the  date of
effectiveness of the Registration  Statement or any amendment  thereto, a notice
stating  that  the  Registration   Statement  or  amendment  has  been  declared
effective,  and  (iii)  such  number  of copies  of a  prospectus,  including  a
preliminary  prospectus,  and all  amendments and  supplements  thereto and such
other  documents as such Investor may reasonably  request in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

         (d) The Company  shall use its best efforts to (i) register and qualify
the  Registrable  Securities  covered by the  Registration  Statement under such
other  securities or "blue sky" laws of such  jurisdictions in the United States
as each  Investor who holds  Registrable  Securities  being  offered  reasonably
requests,   (ii)  prepare  and  file  in  those  jurisdictions  such  amendments
(including post-effective  amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness  thereof during
the  Registration  Period,  (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration  Period,  and (iv) take all other actions  reasonably  necessary or
advisable to qualify the Registrable  Securities for sale in such jurisdictions;
provided,  however,  that  the  Company  shall  not be  required  in  connection
therewith  or as a  condition  thereto  to (a)  qualify  to do  business  in any
jurisdiction  where it would not  otherwise  be required to qualify but for this
Section 3(d), (b) subject itself to general  taxation in any such  jurisdiction,
(c) file a general consent to service of process in any such  jurisdiction,  (d)
provide any undertakings  that cause the Company undue expense or burden, or (e)
make any  change  in its  charter  or  bylaws,  which in each  case the Board of
Directors of the Company  determines to be contrary to the best interests of the
Company and its stockholders.

         (e) As promptly as practicable  after becoming aware of such event, the
Company  shall notify each  Investor by telephone and facsimile of the happening
of any  event,  of which the  Company  has  knowledge,  as a result of which the
prospectus included in the Registration  Statement,  as then in effect, includes
an untrue  statement  of a material  fact or omission  to state a material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading,  and,  use its best  efforts  promptly  to prepare a  supplement  or
amendment to the  Registration  Statement  to correct  such untrue  statement or
omission,  and deliver such number of copies of such  supplement or amendment to
each Investor as such Investor may reasonably request.

         (f) The Company  shall use its best efforts (i) to prevent the issuance
of any  stop  order or  other  suspension  of  effectiveness  of a  Registration
Statement (other than as permitted herein),  and, if such an order is issued, to
obtain  the  withdrawal  of  such  order  at  the  earliest  practicable  moment
(including  in  each  case  by  amending  or  supplementing   such  Registration

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Statement)  and (ii) to notify each  Investor who holds  Registrable  Securities
being  sold  (or,  in  the  event  of an  underwritten  offering,  the  managing
underwriters)  of the issuance of such order and the resolution  thereof (and if
such Registration  Statement is supplemented or amended,  deliver such number of
copies of such  supplement  or amendment to each  Investor as such  Investor may
reasonably request).

         (g) The Company shall permit a single firm of counsel designated by the
Investors  to  review  the   Registration   Statement  and  all  amendments  and
supplements  thereto a  reasonable  period of time prior to its filing  with the
SEC,  and not  file any  document  in a form to which  such  counsel  reasonably
objects.

         (h) The Company shall make generally  available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period  covered  thereby,  an earnings  statement  (in form  complying  with the
provisions of Rule 158 under the Securities Act) covering a twelve-month  period
beginning  not later than the first day of the  Company's  fiscal  quarter  next
following the effective date of the Registration Statement which compliance will
be met through the Company's  filing,  on an appropriate  form, the  appropriate
report of the Company as required by the  Securities  Exchange  Act of 1934,  as
amended,  and the rules and  regulations  thereunder,  or any similar  successor
statute (collectively, the "Exchange Act").

         (i) The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such  information  is necessary  to comply with  federal or state  securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement  or omission in any  Registration  Statement,  (iii) the release of
such  information is ordered  pursuant to a subpoena or other order from a court
or governmental body of competent  jurisdiction,  (iv) such information has been
made generally  available to the public other than by disclosure in violation of
this or any  other  agreement,  or (v) such  Investor  consents  to the form and
content of any such disclosure.  The Company agrees that it shall, upon learning
that disclosure of such information  concerning an Investor is sought in or by a
court or  governmental  body of competent  jurisdiction  or through other means,
give prompt notice to such Investor prior to making such  disclosure,  and allow
the  Investor,  at its  expense,  to  undertake  appropriate  action to  prevent
disclosure of, or to obtain a protective order for, such information.

         (j) The Company shall use its best efforts to promptly either (i) cause
all of the Registrable  Securities  covered by the Registration  Statement to be
listed on each  national  securities  exchange on which  securities  of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registrable  Securities is then permitted under the rules of such exchange,
or  (ii)  secure  the  designation  and  quotation  of all  of  the  Registrable
Securities  covered by the  Registration  Statement on each automated  quotation
system on which securities of the same class or series issued by the Company are
then  quoted,  if any, if the  designation  and  quotation  of such  Registrable
Securities is then permitted under the rules of such automated quotation system,

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and,  without  limiting  the  generality  of the  foregoing,  to arrange  for or
maintain at least two market makers to register with the National Association of
Securities Dealers, Inc. as such with respect to such Registrable Securities.

         (k) The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable  Securities not later than the effective
date of the Registration Statement.

         (l) The Company shall cooperate with the Investors who hold Registrable
Securities  being offered to facilitate the timely  preparation  and delivery of
certificates (not bearing any restrictive legends to the extent permitted by the
Securities Purchase Agreement) representing Registrable Securities to be offered
pursuant to the  Registration  Statement and enable such  certificates  to be in
such  denominations  or  amounts,  as the  case  may be,  as the  Investors  may
reasonably request and registered in such names as the Investors may request.

         (m) At the request of any Investor,  the Company shall prepare and file
with  the  SEC  such  amendments  (including   post-effective   amendments)  and
supplements  to a Registration  Statement and the prospectus  used in connection
with such Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.

         (n) The Company  shall  comply with all  applicable  laws  related to a
Registration  Statement and offering and sale of securities  and all  applicable
rules and  regulations  of  governmental  authorities  in  connection  therewith
(including, without limitation, the Securities Act and the Exchange Act).

         (o) From and after the date of this  Agreement,  the Company shall not,
and shall not agree to,  allow the holders of any  securities  of the Company to
include any of their  securities  which are not  Registrable  Securities  in the
Registration  Statement under Section 2(a) hereof or any amendment or supplement
thereto  under  Section  3(b)  hereof  without  the  consent of the holders of a
majority in interest of the Registrable Securities.

         4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:

         (a) It shall be a condition precedent to the obligations of the Company
to complete  the  registration  pursuant to this  Agreement  with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information  regarding  itself,  the Registrable  Securities
held by it and the intended method of disposition of the Registrable  Securities
held by it as shall be reasonably  required to effect the  registration  of such
Registrable  Securities and shall execute such documents in connection with such
registration as the Company may reasonably  request.  At least five trading days
prior to the first anticipated  filing date of the Registration  Statement,  the
Company shall notify each Investor of the information the Company  requires from
each such Investor.

         (b) Each Investor,  by such  Investor's  acceptance of the  Registrable
Securities,  agrees to cooperate with the Company as reasonably requested by the
Company  in  connection  with the  preparation  and  filing of any  Registration

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Statement  pursuant to this  Agreement  under which such Investor has elected to
include any of such Investor's Registrable Securities.

         (c) Each  Investor  agrees  that,  upon  receipt of any notice from the
Company of the  happening of any event of the kind  described  in Section  3(e),
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the  Registration  Statement  covering such  Registrable  Securities
until  such  Investor's  receipt of the  copies of the  supplemented  or amended
prospectus contemplated by Section 3(e) and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a  certificate  of  destruction)  all copies in such
Investor's  possession,  of the prospectus covering such Registrable  Securities
current at the time of receipt of such notice.  Notwithstanding  anything to the
contrary,  subject to compliance with  applicable  laws, the Company shall cause
the transfer agent for the Registrable  Securities to deliver  unlegended shares
of Common Stock to a transferee of an Investor in  accordance  with the terms of
the Notes and Warrants in  connection  with any sale of  Registrable  Securities
with  respect to which such  Investor has entered into a contract for sale prior
to receipt of such notice and for which such Investor has not yet settled.

     5.  EXPENSES  OF  REGISTRATION.  All  reasonable  expenses  incurred by the
Company or the Investors (but only for reasonable attorney's fees of one counsel
for the Investors) in connection with  registrations,  filings or qualifications
pursuant  to  Sections  2  and  3  above,  including,  without  limitation,  all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, the fees and disbursements of
one counsel  selected  by the  Investors,  and the  underwriting  discounts  and
commissions,  shall be borne by the Company. In addition,  the Company shall pay
all of the  Investors'  reasonable  costs and  expenses  (including  legal fees)
incurred  in  connection  with the  enforcement  of the rights of the  Investors
hereunder.

     6. INDEMNIFICATION. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:

         (a) To the extent  permitted by law, the Company will  indemnify,  hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors,  officers,  partners,  members, employees and agents of such
Investor and each person who controls any Investor within the meaning of Section
15 of the  Securities Act or Section 20 of the Exchange Act, if any,  (each,  an
"Investor  Indemnified  Person"),  against any joint or several losses,  claims,
damages,   liabilities  or  expenses   (collectively,   together  with  actions,
proceedings  or inquiries by any  regulatory  or  self-regulatory  organization,
whether commenced or threatened,  in respect thereof,  "Claims") to which any of
them may become  subject  insofar as such Claims arise out of or are based upon:
(i) any untrue  statement or alleged  untrue  statement of a material  fact in a
Registration  Statement or the omission or alleged  omission to state  therein a
material fact required to be stated or necessary to make the statements  therein
not  misleading,  (ii) any untrue  statement  or alleged  untrue  statement of a
material  fact  contained  in any  preliminary  prospectus  if used prior to the
effective  date  of such  Registration  Statement,  or  contained  in the  final
prospectus  (as  amended or  supplemented,  if the Company  files any  amendment
thereof or supplement  thereto with the SEC) or the omission or alleged omission
to state  therein  any  material  fact  necessary  to make the  statements  made
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therein,  in light of the circumstances  under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the  Securities  Act, the Exchange  Act,  any other law,  including,  without
limitation,  any state  securities  law,  or any rule or  regulation  thereunder
relating to the offer or sale of the Registrable  Securities (the matters in the
foregoing  clauses (i) through  (iii) being  collectively  referred to herein as
"Violations").  Subject  to the  restrictions  set  forth in  Section  6(c) with
respect  to the  number  of legal  counsel,  the  Company  shall  reimburse  the
Investors and each other Investor Indemnified Person,  promptly as such expenses
are  incurred and are due and payable,  for any  reasonable  legal fees or other
reasonable  expenses  incurred  by  them in  connection  with  investigating  or
defending  any such Claim.  Notwithstanding  anything to the contrary  contained
herein, the indemnification  agreement contained in this Section 6(a): (i) shall
not apply to a Claim  arising out of or based upon a Violation  which  occurs in
reliance upon and in  conformity  with  information  furnished in writing to the
Company  by  such  Investor   Indemnified   Person  expressly  for  use  in  the
Registration Statement or any such amendment thereof or supplement thereto; (ii)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected  without the prior written consent of the Company,  which consent shall
not be  unreasonably  withheld;  and  (iii)  with  respect  to  any  preliminary
prospectus, shall not inure to the benefit of any Investor Indemnified Person if
the untrue  statement or omission of material fact contained in the  preliminary
prospectus was corrected on a timely basis in the prospectus, as then amended or
supplemented,  if such  corrected  prospectus  was timely made  available by the
Company pursuant to Section 3(c) hereof, and the Investor Indemnified Person was
promptly advised in writing not to use the incorrect prospectus prior to the use
giving rise to a Violation and such Investor Indemnified Person, notwithstanding
such  advice,  used it.  Such  indemnity  shall  remain in full force and effect
regardless of any investigation made by or on behalf of the Investor Indemnified
Person and shall  survive the  transfer  of the  Registrable  Securities  by the
Investors pursuant to Section 9 hereof.

         (b) In connection with any Registration  Statement in which an Investor
is  participating,  each such  Investor  agrees  severally  and not  jointly  to
indemnify,  hold harmless and defend,  to the same extent and in the same manner
set forth in Section  6(a),  the  Company,  each of its  directors,  each of its
officers who signs the Registration  Statement,  its employees,  agents and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities  Act or Section 20 of the  Exchange  Act,  and any other  stockholder
selling  securities  pursuant  to  the  Registration  Statement  or  any  of its
directors or officers or any person who  controls  such  stockholder  within the
meaning of the Securities Act or the Exchange Act (each, a "Company  Indemnified
Person"),  against any Claims to which any of them may become subject insofar as
such Claims  arise out of or are based upon any  Violation,  in each case to the
extent (and only to the extent) that such Violation  occurs in reliance upon and
in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses  (promptly
as such  expenses are incurred and are due and payable)  reasonably  incurred by
them in connection  with  investigating  or defending any such Claim;  provided,
however,  that the indemnity  agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such  settlement is effected
without the prior written  consent of such Investor,  which consent shall not be
unreasonably withheld;  provided,  further,  however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that  amount as does not  exceed  the net  proceeds  actually  received  by such
                                      -9-
<PAGE>

Investor  as a result of the sale of  Registrable  Securities  pursuant  to such
Registration  Statement.  Such  indemnity  shall remain in full force and effect
regardless of any investigation made by or on behalf of such Company Indemnified
Person and shall  survive the  transfer  of the  Registrable  Securities  by the
Investors pursuant to Section 9 hereof. Notwithstanding anything to the contrary
contained herein, the  indemnification  agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Company  Indemnified Person if the untrue statement or omission of material fact
contained in the  preliminary  prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.

         (c) Promptly  after  receipt by any party  entitled to  indemnification
under this Section 6 of notice of the commencement of any action  (including any
governmental  action),  such  indemnified  party  shall,  if a Claim in  respect
thereof is to made against any indemnifying  party under this Section 6, deliver
to the indemnifying party a written notice of the commencement  thereof, and the
indemnifying  party shall have the right to  participate  in, and, to the extent
the indemnifying  party so desires,  jointly with any other  indemnifying  party
similarly  noticed,  to assume  control  of the  defense  thereof  with  counsel
mutually  satisfactory  to the  indemnifying  party and the  indemnified  party;
provided,  however, that such indemnifying party shall not be entitled to assume
such  defense  and an  indemnified  party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying  party, if, in
the  reasonable  opinion of counsel  retained  by the  indemnifying  party,  the
representation  by such counsel of the  indemnified  party and the  indemnifying
party would be  inappropriate  due to actual or potential  conflicts of interest
between such indemnified  party and any other party  represented by such counsel
in such proceeding or the actual or potential  defendants in, or targets of, any
such action include both the indemnified  party and the  indemnifying  party and
any  such  indemnified  party  reasonably  determines  that  there  may be legal
defenses  available to such  indemnified  party which are in conflict with those
available to such indemnifying  party. The indemnifying party shall pay for only
one separate legal counsel for the indemnified  parties,  and such legal counsel
shall be selected by Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim relates (if
the parties  entitled to  indemnification  hereunder  are  Investor  Indemnified
Persons) or by the Company (if the parties entitled to indemnification hereunder
are Company Indemnified  Persons).  The failure to deliver written notice to the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action  shall  not  relieve  such  indemnifying  party of any  liability  to the
indemnified  party  under  this  Section  6,  except  to  the  extent  that  the
indemnifying party is actually  prejudiced in its ability to defend such action.
The  indemnification  required  by  this  Section  6 shall  be made by  periodic
payments  of the  amount  thereof  during  the  course of the  investigation  or
defense,  as such expense,  loss, damage or liability is incurred and is due and
payable.

     7. CONTRIBUTION. To the extent any indemnification by an indemnifying party
is  prohibited  or limited by law,  the  indemnifying  party  agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent  permitted by law as is appropriate
to reflect the relative fault of the  indemnifying  party,  on the one hand, and
the indemnified  party, on the other hand, with respect to the Violation  giving
rise to the applicable Claim; provided,  however, that (i) no contribution shall
be made  under  circumstances  where the maker  would not have been  liable  for
indemnification under the fault standards set forth in Section 6, (ii) no person
                                      -10-
<PAGE>

guilty of fraudulent  misrepresentation  (within the meaning of Section 12(f) of
the  Securities  Act)  shall be  entitled  to  contribution  from any  seller of
Registrable Securities who was not guilty of such fraudulent  misrepresentation,
and (iii) contribution  (together with any  indemnification or other obligations
under this Agreement) by any seller of Registrable  Securities  shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.

     8. REPORTS UNDER THE EXCHANGE  ACT. With a view to making  available to the
Investors the benefits of Rule 144  promulgated  under the Securities Act or any
other  similar  rule or  regulation  of the SEC that may at any time  permit the
Investors to sell  securities of the Company to the public without  registration
("Rule 144"), the Company agrees to:

         (a) file with the SEC in a timely  manner  and make and keep  available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the Company remains subject to such requirements
(it being  understood that nothing herein shall limit the Company's  obligations
under  Section 4(c) of the  Securities  Purchase  Agreement)  and the filing and
availability  of such reports and other documents is required for the applicable
provisions of Rule 144; and

         (b)  furnish to each  Investor  so long as such  Investor  owns  Notes,
Warrants  or  Registrable  Securities,  promptly  upon  request,  (i) a  written
statement by the Company that it has complied with the reporting requirements of
Rule 144,  the  Securities  Act and the  Exchange  Act,  (ii) a copy of the most
recent  annual or  quarterly  report of the Company  and such other  reports and
documents so filed by the Company,  and (iii) such other  information  as may be
reasonably  requested to permit the Investors to sell such securities under Rule
144 without registration.

                                      -11-
<PAGE>

     9.  ASSIGNMENT  OF  REGISTRATION   RIGHTS.  The  rights  of  the  Investors
hereunder,  including  the  right  to  have  the  Company  register  Registrable
Securities pursuant to this Agreement, shall be automatically assignable by each
Investor to any  transferee of all or any portion of the Notes,  the Warrants or
the  Registrable  Securities  if: (a) the  Investor  agrees in writing  with the
transferee  or assignee to assign such rights,  and a copy of such  agreement is
furnished  to the Company  after such  assignment;  (b) the Company is furnished
with written notice of (i) the name and address of such  transferee or assignee,
and (ii) the securities with respect to which such registration rights are being
transferred or assigned; (c) following such transfer or assignment,  the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable  state  securities laws; (d) the transferee or
assignee  agrees in writing for the benefit of the Company to be bound by all of
the provisions  contained herein;  and (e) such transfer shall have been made in
accordance  with  the  applicable   requirements  of  the  Securities   Purchase
Agreement,  the  Notes  and  the  Warrants,  as  applicable.  In  addition,  and
notwithstanding anything to the contrary contained in this Agreement, the Notes,
the Warrants and the  Registrable  Securities may be pledged,  and all rights of
the Investors under this Agreement or any other agreement or document related to
the transactions contemplated hereby may be assigned, without further consent of
the Company,  to a bona fide pledgee in connection with an Investor's  margin or
brokerage account.

     10. AMENDMENT OF REGISTRATION  RIGHTS.  Provisions of this Agreement may be
amended and the  observance  thereof  may be waived  (either  generally  or in a
particular  instance and either  retroactively or  prospectively)  only with the
written  consent of the  Company and  Investors  who hold at least a majority in
interest of the  Registrable  Securities  or, in the case of a waiver,  with the
written consent of the party charged with the enforcement of any such provision;
provided,  however,  that no  consideration  shall be paid to an Investor by the
Company in connection  with an amendment  hereto unless each Investor  similarly
affected by such amendment  receives a pro-rata amount of consideration from the
Company.  Any amendment or waiver  effected in  accordance  with this Section 10
shall be binding upon each Investor and the Company.

     11. MISCELLANEOUS.

         (a) A  person  or  entity  is  deemed  to be a  holder  of  Registrable
Securities  whenever  such  person or entity  owns of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or more  persons  or  entities  with  respect  to the  same
Registrable  Securities,  the Company shall act upon the basis of  instructions,
notice  or  election  received  from the  registered  owner of such  Registrable
Securities.

         (b) Any notices  required or  permitted  to be given under the terms of
this  Agreement  shall be sent by certified or registered  mail (return  receipt
requested),  or  by a  nationally  recognized  overnight  delivery  service,  or
delivered  personally  or by  courier  or by  confirmed  telecopy,  and shall be
effective  five (5) days after being placed in the mail, if mailed  certified or
registered  mailed,  or one (1) day  after  being  delivered  to the  nationally
recognized  overnight  delivery  service,  if delivered in such manner,  or upon
receipt  or  refusal  of  receipt,  if  delivered  personally  or by  courier or
confirmed  telecopy,  in each case addressed to a party.  The addresses for such
communications shall be:

                                      -12-
<PAGE>

                  (i) if to the Company:

                                    P-Com, Inc.
                                    3175 South Winchester Blvd.
                                    Campbell, CA 95008
                                    Telephone: (408) 866-3666
                                    Facsimile:  (408) 874-4461
                                    Attention:  Chief Executive Officer

                                    with a copy simultaneously transmitted by
                                    like means to:

                                    Sheppard Mullin Richter & Hampton LLP
                                    800 Anacapa Street
                                    Santa Barbara, CA  93101
                                    Telephone: (805) 879-1812
                                    Facsimile:  (805) 568-1955
                                    Attention:  Theodore R. Maloney, Esq.

                  (ii) if to any  Investor,  at such  address  as such  Investor
         shall have provided in writing to the Company, or at such other address
         as each such party  furnishes by notice given in  accordance  with this
         Section 11(b).

         (c)  Failure of any party to  exercise  any right or remedy  under this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

         (d) This  Agreement  shall be governed by and  construed in  accordance
with the laws of the State of Delaware  applicable  to contracts  made and to be
performed  in the State of  Delaware.  The Company  irrevocably  consents to the
jurisdiction of the United States federal courts and the state courts located in
the State of Delaware in any suit or  proceeding  based on or arising under this
Agreement  and  irrevocably  agrees  that all  claims in respect of such suit or
proceeding may be determined in such courts. The Company  irrevocably waives the
defense of an inconvenient  forum to the maintenance of such suit or proceeding.
The Company  further agrees that service of process upon the Company,  mailed by
first class mail shall be deemed in every respect  effective  service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
Investors'  right to serve  process in any other  manner  permitted  by law. The
Company  agrees  that a  final  non-appealable  judgment  in any  such  suit  or
proceeding  shall be conclusive  and may be enforced in other  jurisdictions  by
suit on such judgment or in any other lawful manner.

         (e) This Agreement,  the Securities  Purchase Agreement  (including all
schedules  and  exhibits  thereto),  the  Notes,  the  Warrants  and  the  other
Transaction  Documents  constitute the entire agreement among the parties hereto
with  respect  to  the  subject   matter  hereof  and  thereof.   There  are  no
restrictions,  promises, warranties or undertakings,  other than those set forth
                                      -13-
<PAGE>

or referred to herein and  therein.  This  Agreement,  the  Securities  Purchase
Agreement, the Notes, the Warrants and the other Transaction Documents supersede
all prior agreements and understandings among the parties hereto with respect to
the subject matter hereof and thereof.

         (f) Subject to the  requirements  of Section 9 hereof,  this  Agreement
shall inure to the benefit of and be binding upon the  successors and assigns of
each of the parties hereto.

         (g) The headings in this  Agreement  are for  convenience  of reference
only and shall not limit or otherwise affect the meaning hereof.

         (h) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall  constitute one and the
same agreement.  This Agreement,  once executed by a party,  may be delivered to
the other party hereto by  facsimile  transmission  of a copy of this  Agreement
bearing the signature of the party so delivering this Agreement.

         (i) Each party shall do and perform, or cause to be done and performed,
all such further acts and things,  and shall  execute and deliver all such other
agreements,  certificates,  instruments  and  documents,  as the other party may
reasonably  request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

         (j) All consents,  approvals and other determinations to be made by the
Investors  pursuant to this Agreement  shall be made by the Investors  holding a
majority in interest of the Registrable  Securities  (determined as if Notes and
Warrants then  outstanding  had been converted into or exercised for Registrable
Securities) held by all Investors.

         (k) The  initial  number  of  Registrable  Securities  included  on any
Registration Statement and each increase to the number of Registrable Securities
included  thereon shall be allocated  pro rata among the Investors  based on the
number  of  Registrable  Securities  held by each  Investor  at the time of such
establishment  or  increase,  as the case may be (except as to any  Investor who
does  not  elect  to  include  any of  such  Investor's  Registrable  Securities
thereunder).  In the event an Investor  shall sell or otherwise  transfer any of
such holder's Registrable  Securities,  each transferee shall be allocated a pro
rata portion of the number of Registrable  Securities included on a Registration
Statement  for such  transferor.  Any  shares  of  Common  Stock  included  on a
Registration  Statement and which remain allocated to any person or entity which
does not hold any  Registrable  Securities  shall be allocated to the  remaining
Investors, pro rata based on the number of shares of Registrable Securities then
held by such  Investors.  For the avoidance of doubt,  the number of Registrable
Securities held by any Investor shall be determined as if all Notes and Warrants
then outstanding were converted into or exercised for Registrable Securities.

         (l) Each party to this Agreement has  participated  in the  negotiation
and  drafting of this  Agreement.  As such,  the  language  used herein shall be
deemed to be the language  chosen by the parties  hereto to express their mutual
intent, and no rule of strict  construction will be applied against any party to
this Agreement.

                                      -14-
<PAGE>

         (m) For purposes of this  Agreement,  the term "business day" means any
day other than a Saturday or Sunday or a day on which  banking  institutions  in
the  State  of New  York are  authorized  or  obligated  by law,  regulation  or
executive order to close,  and the term "trading day" means any day on which the
principal  securities  exchange or trading market where the Common Stock is then
listed or traded, is open for trading.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -15-
<PAGE>
         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed as of the date first above written.

P-COM, INC.

By:        /s/ George Roberts
------------------------------------
Name:    George Roberts
Title:   Chief Executive Officer

INITIAL INVESTOR:

DMG LEGACY FUND LLC

By:         /s/ Andrew Wilder
------------------------------------
Name:    Andrew Wilder
Title:   Chief Financial Officer

<PAGE>

         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed as of the date first above written.

P-COM, INC.

By:         /s/ George Roberts
-------------------------------------
Name:    George Roberts
Title:   Chief Executive Officer

INITIAL INVESTOR:

DMG LEGACY INSTITUTIONAL FUND LLC

By:         /s/ Andrew Wilder
-------------------------------------
Name:    Andrew Wilder
Title:   Chief Financial Officer

<PAGE>
         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed as of the date first above written.

P-COM, INC.

By:        /s/ George Roberts
------------------------------------
Name:    George Roberts
Title:   Chief Executive Officer

INITIAL INVESTOR:

DMG LEGACY INTERNATIONAL LTD.

By:         /s/ Andrew Wilder
-------------------------------------
Name:    Andrew Wilder
Title:   Chief Financial Officer

<PAGE><PAGE>
                               SECURITY AGREEMENT

         SECURITY  AGREEMENT (as amended,  restated,  supplemented  or otherwise
modified from time to time in accordance herewith and including all attachments,
exhibits and schedules  hereto,  the  "Agreement"),  dated as of March 26, 2003,
made by P-COM,  INC., a Delaware  corporation (the  "Grantor"),  in favor of DMG
Legacy Institutional Fund LLC (the "Agent"), as collateral agent for each of the
Secured Parties whose names are set forth on Exhibit A hereto (collectively, the
"Secured Parties").

         WHEREAS, the Grantor has issued separate secured convertible promissory
notes to the Secured Parties (the "Notes") in the aggregate  principal amount of
$1,500,000  pursuant to a Securities Purchase Agreement by and among the Grantor
and the Secured Parties dated the date hereof (the "Purchase Agreement"); and

         WHEREAS,  it is a condition precedent to the Secured Parties making the
loan evidenced by the Notes to the Grantor that the Grantor  execute and deliver
to the  Secured  Parties a  security  agreement  providing  for the grant to the
Secured Parties of a continuing  security  interest in all personal property and
assets of the  Grantor,  all in  substantially  the form  hereof  to secure  all
Obligations (hereinafter defined); and

         WHEREAS,  all rights,  remedies and  obligations of the parties to this
Agreement  are  subject  to (i) the  provisions  of that  certain  Subordination
Agreement by and among the Secured  Parties and Silicon  Valley Bank dated as of
March 26,  2003,  and (ii) the rights of Silicon  Valley Bank under the SVB Loan
Agreements.

         NOW, THEREFORE, the parties agree as follows:

                             ARTICLE I. Definitions

         Section 1.1.  Definition of Terms Used Herein.  All  capitalized  terms
used  herein  and not  defined  herein  have the  respective  meanings  provided
therefor in the Purchase Agreement.  All terms defined in the Uniform Commercial
Code  (hereinafter  defined)  as in effect from time to time and used herein and
not otherwise  defined herein (whether or not such terms are  capitalized)  have
the same definitions herein as specified therein.

         Section 1.2.  Definition of Certain Terms Used Herein.  As used herein,
the following terms have the following meanings:

         "Collateral"  means all  accounts  receivable  of the  Grantor  and all
personal  and  fixture  property of every kind and  nature,  including,  without
limitation,  all furniture,  fixtures,  equipment, raw materials,  inventory, or
other  goods,  accounts,  contract  rights,  rights  to the  payment  of  money,
insurance  refund  claims  and all other  insurance  claims and  proceeds,  tort
claims, chattel paper, documents,  instruments,  securities and other investment
property,  deposit  accounts,  rights to  proceeds  of letters of credit and all
general  intangibles  including,  without  limitation,  all tax  refund  claims,
license  fees,  patents,  patent  licenses,  patent  applications,   trademarks,
trademark licenses, trademark applications,  trade names, copyrights,  copyright
licenses,   copyright   applications,   rights  to  sue  and  recover  for  past
infringement of patents, trademarks and copyrights,  computer programs, computer
software, engineering drawings, service marks, customer lists, goodwill, and all
licenses,  permits,  agreements  of any kind or  nature  pursuant  to which  the
Grantor  possesses,  uses or has  authority to possess or use property  (whether

<PAGE>

tangible or  intangible) of others or others  possess,  use or have authority to
possess or use property (whether tangible or intangible) of the Grantor, and all
recorded  data of any kind or  nature,  regardless  of the  medium of  recording
including, without limitation, all books and records, software, writings, plans,
specifications  and  schematics;  and all  proceeds  and products of each of the
foregoing.

         "Default"  means any event or  circumstance  which,  with the giving of
notice,  the lapse of time, or both, would (if not cured,  waived,  or otherwise
remedied during such time) constitute an Event of Default.

         "Event of Default" has the meaning specified in the Notes.

         "Indemnitees" has the meaning specified in Section 7.5(b).

         "Lien" means: (i) any interest in property  securing an obligation owed
to, or a claim by, a Person other than the owner of the  property,  whether such
interest is based on the common  law,  statute,  or  contract,  and  including a
security  interest,  charge,  claim,  or lien arising  from a mortgage,  deed of
trust,  encumbrance,  pledge,  hypothecation,  assignment,  deposit arrangement,
agreement,  security  agreement,  conditional  sale or trust receipt or a lease,
consignment or bailment for security  purposes;  (ii) to the extent not included
under  clause  (i),  any   reservation,   exception,   encroachment,   easement,
right-of-way,  covenant, condition,  restriction, lease or other title exception
or encumbrance  affecting property;  and (iii) any contingent or other agreement
to provide any of the foregoing.

         "Notes" has the meaning  assigned to such term in the first  recital of
this Agreement.

         "Permitted  Lien" has the meaning set forth in the SVB Loan  Agreements
(as in effect on the date hereof),  except that,  with respect to clause (iv) of
such  definition,  such  additional  security  interests  and liens must also be
consented to in writing by the Collateral  Agent,  which consent may be withheld
in its good faith business judgment.

         "Obligations"   means  all  indebtedness,   liabilities,   obligations,
covenants and duties of the Grantor to the Secured Parties of every kind, nature
and  description,  direct or indirect,  absolute or contingent,  due or not due,
contractual or tortious, liquidated or unliquidated, arising by operation of law
or otherwise,  now existing of hereafter arising under or in connection with the
Notes,  the  Purchase  Agreement,   this  Agreement  or  the  other  Transaction
Documents.

         "Security  Interest"  has the meaning  specified in Section 2.1 of this
Agreement.

         "SVB Loan Agreements" means that certain Loan and Security Agreement by
and among the Grantor,  P-Com Network  Services,  Inc. and Silicon  Valley Bank,
dated  September 20, 2002,  and that certain Loan and Security  Agreement  (EXIM
Program) by and among the  Grantor,  P-Com  Network  Services,  Inc. and Silicon
Valley Bank, dated September 20, 2002.

         "Uniform  Commercial Code" means the Uniform  Commercial Code from time
to time in effect in the State of Delaware.

                                        2
<PAGE>

                         ARTICLE II. Security Interest

         Section  2.1.  Security  Interest.  As  security  for the  payment  and
performance,  in  full  of  the  Obligations,  and  any  extensions,   renewals,
modifications or refinancings of the  Obligations,  the Grantor hereby bargains,
sells,  conveys,  assigns,  sets  over,  mortgages,  pledges,  hypothecates  and
transfers  to the Secured  Parties,  and hereby  grants to the Secured  Parties,
their  successors  and assigns,  a security  interest in, all of such  Grantor's
right,  title  and  interest  in, to and under  the  Collateral  (the  "Security
Interest").

         Section 2.2. No  Assumption  of  Liability.  The  Security  Interest is
granted as security only and shall not subject the Secured Parties to, or in any
way alter or modify,  any obligation or liability of the Grantor with respect to
or arising out of the Collateral.

                  ARTICLE III. Representations and Warranties

         The Grantor represents and warrants to the Secured Parties that:

         Section 3.1. Title and Authority. The Grantor has good and valid rights
in and title to the Collateral with respect to which it has purported to grant a
security  interest  hereunder  and has full power and  authority to grant to the
Secured  Parties the Security  Interest and to execute,  deliver and perform its
obligations in accordance with the terms of this Agreement,  without the consent
or approval  of any other  Person  other than any consent or approval  which has
been obtained.

         Section 3.2.  Filings;  Actions to Achieve  Perfection.  Upon filing in
each United States governmental, municipal or other office specified in Schedule
A, properly  completed Uniform Commercial Code financing  statements  (including
fixture filings,  as applicable)  containing a description of the Collateral are
all the filings,  recordings  and  registrations  that are  necessary to publish
notice of and  protect  the  validity  of and to  establish  a legal,  valid and
perfected  security  interest in favor of the Secured  Parties in respect of all
Collateral in which the Security Interest may be perfected by filing,  recording
or registration in the United States (or any political  subdivision thereof) and
its territories and possessions,  and no further or subsequent filing, refiling,
recording, rerecording,  registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of  continuation  statements  or with respect to the filing of amendments or new
filings to reflect  the change of the  Grantor's  name,  location,  identity  or
corporate  structure.  The  Grantor's  name is  listed in the  preamble  of this
Agreement  identically to how it appears on its certificate of  incorporation or
other organizational documents.

         Section 3.3. Validity and Priority of Security  Interest.  The Security
Interest  constitutes  (a) a  legal  and  valid  security  interest  in all  the
Collateral securing the payment and performance of the Obligations,  (b) subject
only to the  filings  described  in  Section  3.2  above  and  other  previously
perfected  security  interests in the Collateral  listed on Schedule 3.3 to this
Agreement  ("Existing Liens") and Permitted Liens, a perfected security interest
in all  Collateral  in which a security  interest  may be  perfected  by filing,
recording  or  registration  in  the  United  States  pursuant  to  the  Uniform
Commercial  Code or other  applicable law in the United States (or any political
subdivision  thereof) and its  territories and possessions or any other country,
state or nation (or any political subdivision thereof). The Security Interest is
and shall be subordinate to any other Existing Lien on any of the Collateral.

                                        3
<PAGE>

         Section 3.4.  Absence of Other Liens.  The  Collateral  is owned by the
Grantor  free and clear of any Lien  other  than  Existing  Liens and  Permitted
Liens. Without limiting the foregoing and except as set forth on Schedule 3.4 to
this Agreement,  the Grantor has not filed or consented to any filing  described
in  Section  3.2 in favor of any  Person  other than the  Secured  Parties,  nor
permitted  the  granting  or  assignment  of a security  interest  or  permitted
perfection  of any security  interest in the  Collateral  in favor of any Person
other than the Secured Parties.  The Secured  Parties' having  possession of all
instruments and cash constituting Collateral from time to time and the filing of
financing  statements in the offices referred to in Schedule A hereto results in
the perfection of such security  interest.  Such security interest is, or in the
case of  Collateral  in which the Grantor  obtain  rights after the date hereof,
will be, a perfected  security  interest.  Such  notices,  filings and all other
action necessary or desirable to perfect and protect such security interest have
been duly taken.

         Section 3.5. Valid and Binding Obligation.  This Agreement  constitutes
the legal, valid and binding obligation of the Grantor,  enforceable against the
Grantor  in  accordance  with its terms,  except  (i) as  limited by  applicable
bankruptcy,  insolvency,  reorganization,  moratorium, and other laws of general
application  affecting  enforcement  of  creditors'  rights  generally,  (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief,  or other  equitable  remedies,  (iii) as limited  by the  Subordination
Agreement by and between the Secured Party and Silicon  Valley Bank, and (iv) to
the extent the  indemnification  provisions  contained in this  Agreement may be
limited by applicable federal or state securities laws.

                             ARTICLE IV. Covenants

         Section 4.1. Change of Name; Location of Collateral; Place of Business,
State of Formation or Organization.

                  (a) The Grantor shall notify the Agent in writing  promptly of
         any  change  (i) in its  corporate  name or in any  trade  name used to
         identify it in the conduct of its  business or in the  ownership of its
         properties,  (ii) in the location of its chief  executive  office,  its
         principal place of business,  any office in which it maintains books or
         records relating to Collateral owned by it (including the establishment
         of any such new office or facility), (iii) in its identity or corporate
         structure  such that a filed  filing made under the Uniform  Commercial
         Code becomes misleading or (iv) in its Federal Taxpayer  Identification
         Number. In extension of the foregoing,  the Grantor shall not effect or
         permit any change  referred  to in the  preceding  sentence  unless all
         filings have been made under the Uniform  Commercial  Code or otherwise
         that are  required in order for the Secured  Parties to continue at all
         times  following  such  change  to have a valid,  legal  and  perfected
         security interest in all the Collateral.

                  (b) Without limiting Section 4.1(a), without the prior written
         consent of the Agent in each instance, the Grantor shall not change its
         state of incorporation, formation or organization.

         Section 4.2. Records.  The Grantor shall maintain,  at its own cost and
expense, such complete and accurate records with respect to the Collateral owned
by it as is consistent  with its current  practices and in accordance  with such
prudent  and  standard  practices  used in  industries  that  are the same as or
similar to those in which the  Grantor is  engaged,  but in any event to include
complete  accounting  records indicating all payments and proceeds received with
respect to any part of the  Collateral,  and, at such time or times as the Agent
may  reasonably  request,  promptly  to prepare  and deliver to the Agent a duly

                                        4
<PAGE>

certified  schedule or  schedules in form and detail  satisfactory  to the Agent
showing the identity, amount and location of any and all Collateral.

         Section 4.3. Periodic  Certification;  Notice of Changes.  In the event
there  should  at any time be any  change  in the  information  represented  and
warranted  herein or in the documents and instruments  executed and delivered in
connection  herewith,  the Grantor shall immediately notify the Agent in writing
of such change (this notice  requirement  shall be in extension of and shall not
limit or relieve the Grantor of any other covenants hereunder).

         Section 4.4. Protection of Security. The Grantor shall, at its own cost
and  expense,  take  any  and all  actions  necessary  to  defend  title  to the
Collateral  against  all  persons  and to defend the  Security  Interest  of the
Secured  Parties in the  Collateral  and the priority  thereof  against any Lien
other than Existing Liens and Permitted Liens.

         Section 4.5. Inspection and Verification. The Agent and such persons as
the  Agent  may  reasonably  designate  shall  have  the  right to  inspect  the
Collateral,  all records  related  thereto (and to make extracts and copies from
such records) and the premises upon which any of the  Collateral is located,  to
discuss  the  Grantor's  affairs  with  the  officers  of the  Grantor  and  its
independent  accountants and to verify under reasonable procedures the validity,
amount, quality,  quantity,  value, condition and status of, or any other matter
relating  to,  the  Collateral,  including,  in the  case of  collateral  in the
possession of any third Person and upon an Event of Default,  by contacting  any
account  debtor or third Person  possessing  such  Collateral for the purpose of
making  such a  verification.  Out-of-pocket  expenses  in  connection  with any
inspections by  representatives of the Agent shall be (a) the obligations of the
Grantor with respect to any inspection after the Secured Parties' demand payment
of the Notes or (b) the obligation of the Secured Parties in any other case.

         Section 4.6.  Taxes;  Encumbrances.  At its option,  the Agent (for the
benefit of the Secured Parties) may discharge  Liens,  other than Existing Liens
and Permitted  Liens, at any time levied or placed on the Collateral and may pay
for the maintenance and preservation of the Collateral to the extent the Grantor
fails to do so and the Grantor  shall  reimburse the Agent Parties on demand for
any payment made or any expense  incurred by the Agent pursuant to the foregoing
authorization;  provided,  however,  that  nothing  in  this  Section  shall  be
interpreted  as excusing  the Grantor from the  performance  of, or imposing any
obligation on the Agent to cure or perform, any covenants or other obligation of
the  Grantor  with  respect  to any  Lien  or  maintenance  or  preservation  of
Collateral as set forth herein.

         Section 4.7. Use and  Disposition of Collateral.  The Grantor shall not
make  or  permit  to be made  an  assignment,  pledge  or  hypothecation  of any
Collateral or shall grant any other Lien in respect of the Collateral other than
Existing  Liens and Permitted  Liens  without the prior  written  consent of the
Secured Parties. The Grantor shall not make or permit to be made any transfer of
any  Collateral  and the Grantor  shall remain at all times in possession of the
Collateral  owned by it,  other than with  respect to  Existing  Liens and other
liens approved by the Secured Parties.

         Section 4.8.  Insurance/Notice  of Loss.  Within a reasonable period of
time following the date of this Agreement,  Grantor,  at its own expense,  shall
maintain or cause to be maintained insurance covering physical loss or damage to

                                        5
<PAGE>

the  Collateral.  In  extension of the  foregoing  and without  limitation,  the
Secured Parties shall be listed as an "additional  insured" on Grantor's general
liability  insurance.  Such insurance shall not be terminated,  cancelled or not
renewed for any reason, including non-payment of insurance premiums,  unless the
insurer shall have  provided the Secured  Parties at least 30 days prior written
notice. Grantor irrevocably makes,  constitutes and appoints the Secured Parties
(and all officers, employees or agents designated by the Secured Parties) as its
true  and  lawful  agent  and  attorney-in-fact  for the  purpose,  at any  time
following  the  Secured  Parties'  demand for  payment of the Notes,  of making,
settling  and  adjusting  claims in  respect of  Collateral  under  policies  of
insurance,  endorsing  the name of Grantor on any check,  draft,  instrument  or
other item of payment for the  proceeds of such  policies of  insurance  and for
making all determinations and decisions with respect thereto.  In the event that
Grantor  at any  time or times  shall  fail to  obtain  or  maintain  any of the
policies  of  insurance  required  hereby or to pay any premium in whole or part
relating  thereto,  the Secured  Parties may,  without  waiving or releasing any
obligation or liability of Grantor hereunder,  in their sole discretion,  obtain
and maintain  such policies of insurance and pay such premium and take any other
actions with respect  thereto as the Secured  Parties deem  advisable.  All sums
disbursed  by the Secured  Parties in  connection  and in  accordance  with this
Section,  including reasonable  attorneys' fees, court costs, expenses and other
charges  relating  thereto,  shall be  payable  upon  demand,  by Grantor to the
Secured  Parties and shall be additional  Obligations  secured  hereby.  Grantor
shall  promptly  notify  the  Secured  Parties  if any  material  portion of the
Collateral owned or held by Grantor is damaged or destroyed. The proceeds of any
casualty  insurance  in respect of any  casualty  loss of any of the  Collateral
shall (i) so long as the Secured Parties have not demanded payment of the Notes,
be disbursed to Grantor for direct  application  by Grantor solely to the repair
or  replacement of Grantor's  property so damaged or destroyed,  and (ii) in all
other  circumstances,  be held by the Secured Parties as cash collateral for the
Obligations.  The Secured Parties may, at their sole option,  disburse from time
to time all or any part of such proceeds so held as cash  collateral,  upon such
terms and conditions as the Secured Parties may reasonably prescribe, for direct
application  by the  Secured  Parties  solely to the  repair or  replacement  of
Grantor's property so damaged or destroyed, or Grantor may apply all or any part
of such proceeds to the Obligations.

         Section  4.9.  Legend.   Grantor  shall  legend,  in  form  and  manner
satisfactory  to the Secured  Parties,  its accounts and its books,  records and
documents evidencing or pertaining thereto with an appropriate  reference to the
fact that such accounts  have been assigned to the Secured  Parties and that the
Secured Parties have a security interest therein.

                ARTICLE V. Further Assurances; Power of Attorney

         Section 5.1. Further Assurances. The Agent is hereby authorized to file
Uniform  Commercial  Code  financing  statements  and/or  any other  appropriate
filings,  recording or registrations  evidencing the security  interests granted
herein.  Grantor shall, at its own expense,  execute,  acknowledge,  deliver and
cause to be duly filed all such further  instruments  and documents and take all
such actions as the Secured Parties may from time to time reasonably  request to
better  assure,  preserve,  protect and perfect the  Security  Interest  and the
rights and remedies created hereby,  including the payment of any fees and taxes
required in connection  with the execution and delivery of this  Agreement,  the
granting of the  Security  Interest and the filing of any  financing  statements
(including  fixture  filings)  or other  documents  in  connection  herewith  or
therewith.  If  any  amount  payable  under  or in  connection  with  any of the
                                        6
<PAGE>

Collateral  shall  be or  become  evidenced  by any  promissory  note  or  other
instrument,  such note or instrument shall be immediately  pledged and delivered
to the Secured  Parties,  duly endorsed in a manner  satisfactory to the Secured
Parties.

         Section 5.2. Power of Attorney.

                  (a) Grantor  hereby  irrevocably  (as a power  coupled with an
interest)  constitutes  and appoints the Agent (and all  officers,  employees or
agents  designated  by the  Agent),  its  attorney-in-fact  with  full  power of
substitution,  for the benefit of the Secured Parties, at any time following the
Secured Parties' demand for payment of the Notes (i) to receive, endorse, assign
and/or deliver any and all notes,  acceptances,  checks, drafts, money orders or
other evidences of payment relating to the Collateral or any part thereof;  (ii)
to demand, collect, receive payment of, give receipt for and give discharges and
releases of all or any of the  Collateral;  (iii) to sign the name of Grantor on
any invoice or bill of lading  relating to any of the  Collateral;  (iv) to send
verifications  of accounts to any account  debtor or any other Person liable for
an  account;  (v) to  commence  and  prosecute  any and all  suits,  actions  or
proceedings  at law or in  equity  in any  court of  competent  jurisdiction  to
collect or otherwise  realize on all or any of the  Collateral or to enforce any
rights in  respect of any  Collateral;  (vi) to  settle,  compromise,  compound,
adjust or defend any actions,  suits or proceeding relating to all or any of the
Collateral; and (vii) to use, sell, assign, transfer, pledge, make any agreement
with respect to or otherwise deal with all or any of the  Collateral,  and to do
all other acts and things necessary to carry out the purposes of this Agreement,
as fully and completely as though the Secured Parties were the absolute owner of
the  Collateral  for  all  purposes;  provided,  however,  that  nothing  herein
contained  shall be construed as requiring or obligating the Secured  Parties to
make any  commitment or to make any inquiry as to the nature or  sufficiency  of
any payment received by the Secured Parties,  or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part thereof
or the moneys due or to become due in respect  thereof or any  property  covered
thereby,  and no action taken or omitted to be taken by the Secured Parties with
respect to the  Collateral  or any part thereof  shall give rise to any defense,
counterclaim or offset in favor of Grantor or to any claim or action against the
Secured Parties.

                  (b) The  provisions  of this Article shall in no event relieve
Grantor of any of its  obligations  hereunder  with respect to the Collateral or
any part thereof or impose any  obligation on the Secured  Parties to proceed in
any particular manner with respect to the Collateral or any part thereof,  or in
any way limit the exercise by the Secured  Parties of any other or further right
which it may have on the date of this Agreement or hereafter, whether hereunder,
by law or otherwise.

                              ARTICLE VI. Remedies

         Section 6.1. Remedies upon Default.

                  (a) Upon the occurrence and during the continuance of an Event
of Default, Grantor agrees to deliver each item of its Collateral to the Secured
Parties on demand,  and it is agreed  that the  Secured  Parties  shall have the
right to take any of or all the following actions at the same or different times
(but at all times subject to any Existing Liens):  with or without legal process
and with or without prior notice or demand for  performance,  to take possession
of the Collateral and without liability for trespass to enter any premises where
the  Collateral  may be  located  for the  purpose  of taking  possession  of or
removing the  Collateral,  exercise  Grantor's right to bill and receive payment
for completed work and, generally,  to exercise any and all rights afforded to a
                                        7
<PAGE>

secured party under the Uniform Commercial Code or other applicable law. Without
limiting  the  generality  of the  foregoing,  Grantor  agrees  that the Secured
Parties  shall  have  the  right,  subject  to  the  mandatory  requirements  of
applicable  law,  to  sell  or  otherwise  dispose  of all or  any  part  of the
Collateral,  at  public  or  private  sale or at any  broker's  board  or on any
securities exchange, for cash, upon credit or for future delivery as the Secured
Parties shall deem  appropriate.  The Secured Parties shall be authorized at any
such  sale (if it deems  it  advisable  to do so) to  restrict  the  prospective
bidders or  purchasers  to persons  who will  represent  and agree that they are
purchasing  the  Collateral  for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
the Secured Parties shall have the right to assign,  transfer and deliver to the
purchaser or purchasers  thereof the Collateral so sold.  Each such purchaser at
any such sale shall hold the property  sold  absolutely,  free from any claim or
right on the part of Grantor, and Grantor hereby waives (to the extent permitted
by law) all rights of  redemption,  stay and appraisal  which Grantor now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted.

                  (b) The  Secured  Parties  shall give  Grantor  ten (10) days'
written notice (which Grantor agrees is reasonable  notice within the meaning of
Section  9-504(3)  of the  Uniform  Commercial  Code)  of the  Secured  Parties'
intention to make any sale of Collateral.  Such notice,  in the case of a public
sale, shall state the time and place for such sale and, in the case of a sale at
a broker's board or on a securities exchange,  shall state the board or exchange
at which such sale is to be made and the day on which the Collateral, or portion
thereof,  will first be offered  for sale at such  board or  exchange.  Any such
public sale shall be held at such time or times within  ordinary  business hours
and at such  place or places  as the  Secured  Parties  may fix and state in the
notice  (if any) of such  sale.  At any such sale,  the  Collateral,  or portion
thereof,  to be  sold  may be  sold in one  lot as an  entirety  or in  separate
parcels,  as the  Secured  Parties may (in their sole and  absolute  discretion)
determine.  The Secured  Parties  shall not be obligated to make any sale of any
Collateral  if it shall  determine  not to do so,  regardless  of the fact  that
notice of sale of such  Collateral  shall have been given.  The Secured  Parties
may, without notice or publication,  adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may,  without further notice,  be made at the time
and  place to which  the same was so  adjourned.  In case any sale of all or any
part of the Collateral is made on credit or for future delivery,  the Collateral
so sold may be retained by the Secured  Parties  until the sale price is paid by
the purchaser or purchasers thereof, but the Secured Parties shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like  notice.  At any public (or, to the extent  permitted by
law,  private) sale made pursuant to this Section,  the Secured  Parties may bid
for or  purchase,  free (to the  extent  permitted  by law)  from  any  right of
redemption, stay, valuation or appraisal on the part of Grantor (all said rights
being also hereby  waived and  released  to the extent  permitted  by law),  the
Collateral or any part thereof  offered for sale and may make payment on account
thereof by using any claim  then due and  payable to the  Secured  Parties  from
Grantor as a credit  against the purchase  price,  and the Secured  Parties may,
upon  compliance  with the  terms of sale,  hold,  retain  and  dispose  of such

                                        8
<PAGE>

property  without  further  accountability  to Grantor  therefor.  For  purposes
hereof,  a written  agreement to purchase the Collateral or any portion  thereof
shall be treated as a sale thereof;  the Secured  Parties shall be free to carry
out such sale  pursuant to such  agreement  and Grantor shall not be entitled to
the  return  of  the  Collateral  or  any  portion  thereof   subject   thereto,
notwithstanding  the fact that after the Secured Parties shall have entered into
such an agreement all  Obligations  have been paid in full. As an alternative to
exercising the power of sale herein  conferred upon it, the Secured  Parties may
proceed by a suit or suits at law or in equity to foreclose  this  Agreement and
to sell the Collateral or any portion  thereof  pursuant to a judgment or decree
of a court or courts having  competent  jurisdiction or pursuant to a proceeding
by a court-appointed receiver.

         Section 6.2.  Application of Proceeds.  The Secured Parties shall apply
the  proceeds  of any  collection  or  sale  of the  Collateral,  as well as any
Collateral consisting of cash, as follows:

                  (a) FIRST,  to the payment of all costs and expenses  incurred
by the Secured  Parties in connection  with such collection or sale or otherwise
in connection with this Agreement or any of the Obligations, including all court
costs and the fees and expenses of its agents and legal  counsel,  and any other
costs or  expenses  incurred  in  connection  with the  exercise of any right or
remedy  hereunder,  under  the  Purchase  Agreement,  the  Notes  and the  other
Transaction Documents;

                  (b) SECOND, to the payment in full of the Obligations; and

                  (c) THIRD,  to  Grantor,  its  successors  or  assigns,  or to
whomsoever  may be  lawfully  entitled  to  receive  the same,  or as a court of
competent jurisdiction may otherwise direct.

                  Subject  to the  foregoing,  the  Secured  Parties  shall have
absolute  discretion as to the time of application  of such proceeds,  moneys or
balances in accordance with this  Agreement.  Upon any sale of the Collateral by
the Secured Parties (including pursuant to a power of sale granted by statute or
under a  judicial  proceeding),  the  receipt  of any such  proceeds,  moneys or
balances  by the Secured  Parties or of the  officer  making the sale shall be a
sufficient  discharge to the purchaser or  purchasers of the  Collateral so sold
and  such  purchaser  or  purchasers  shall  not  be  obligated  to  see  to the
application of any part of the purchase  money paid over to the Secured  Parties
or such officer or be answerable in any way for the misapplication thereof.

         Section 6.3.  Grant of License to Use  Intellectual  Property.  For the
purpose of enabling the Secured  Parties to exercise  rights and remedies  under
this Article at such time as the Secured  Parties shall be lawfully  entitled to
exercise  such  rights  and  remedies,  to  the  extent  not  prohibited  by any
intellectual  property license,  Grantor hereby grants to the Secured Parties an
irrevocable,  non-exclusive  license  (exercisable without payment of royalty or
other  compensation  to  Grantor)  to use,  license  or  sub-license  any of the
Collateral  consisting of intellectual  property now owned or hereafter acquired
by Grantor,  and wherever the same may be located, and including in such license
reasonable  access  to all  media  in which  any of the  licensed  items  may be
recorded  or stored  and to all  computer  software  and  programs  used for the
compilation or printout thereof.  The use of such license by the Secured Parties
may be  exercised,  at the option of the Secured  Parties,  only  following  the
Secured Parties' demand for payment of the Notes.

                                        9
<PAGE>

                           ARTICLE VII. Miscellaneous

         Section 7.1. Notices.  All  communications and notices hereunder to the
Grantor  and to  the  Secured  Parties  shall  (except  as  otherwise  expressly
permitted  herein) be in writing  and  delivered  to the  Grantor or the Secured
Parties, as the case may be, as provided in the Purchase Agreement.

         Section  7.2.  Security  Interest  Absolute.  All rights of the Secured
Parties  hereunder,  the  Security  Interest  and  all  obligations  of  Grantor
hereunder  shall be absolute and  unconditional  irrespective of (a) any lack of
validity  or  enforceability  of the  Purchase  Agreement,  the Notes,  any Loan
Document or any agreement  with respect to any of the  Obligations  or any other
agreement or instrument relating to any of the foregoing,  (b) any change in the
time,  manner or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Purchase Agreement, the Notes, any Loan Document or any other agreement
or instrument,  (c) any exchange, release or non-perfection of any Lien on other
collateral,  or any  release  or  amendment  or  waiver of or  consent  under or
departure  from  any  guarantee,  securing  or  guaranteeing  all  or any of the
Obligations,  or (d) any other  circumstance  that might otherwise  constitute a
defense  available to, or a discharge of, Grantor in respect of the  Obligations
or this Agreement.

         Section  7.3.  Survival  of  Agreement.   All  covenants,   agreements,
representations and warranties made by Grantor herein and in the certificates or
other  instruments  prepared or delivered in connection with or pursuant to this
Agreement  shall be considered  to have been relied upon by the Secured  Parties
and shall  survive the making of the loan and the  execution and delivery to the
Secured  Parties  of the  Notes,  regardless  of any  investigation  made by the
Secured Parties or on their behalf;  and shall continue in full force and effect
until this Agreement shall terminate. The provisions of Section 7.5 hereof shall
survive termination of this Agreement.

         Section 7.4. Binding Effect; Several Agreement; Successors and Assigns.
This Agreement  shall become  effective as to Grantor when a counterpart  hereof
executed on behalf of Grantor shall have been  delivered to the Secured  Parties
and a  counterpart  hereof  shall have been  executed  on behalf of the  Secured
Parties,  and thereafter  shall be binding upon Grantor and the Secured  Parties
and their respective  successors and assigns,  and shall inure to the benefit of
Grantor, the Secured Parties and their respective successors and assigns, except
that  Grantor  shall  not have the right to assign  or  transfer  its  rights or
obligations  hereunder or any interest herein or in the Collateral (and any such
assignment or transfer shall be void) except as expressly  contemplated  by this
Agreement, the Purchase Agreement, the Notes or the other Transaction Documents.

         Section 7.5. Secured Parties' Fees and Expense; Indemnification.

                  (a) Grantor  agrees to pay upon demand,  and to save the Agent
and  each of the  Secured  Parties  harmless  from,  the  amount  of any and all
reasonable  expenses,  including all reasonable  fees,  disbursements  and other
charges of its counsel and of any experts or agents,  which the Secured  Parties
may incur in connection with (i) the administration of this Agreement (including
the customary fees and charges of the Secured  Parties for any audits  conducted
by them or on their  behalf with respect to the  accounts  inventory),  (ii) the
custody or preservation of, or the sale of, collection from or other realization
upon any of the Collateral, (iii) the exercise, enforcement or protection of any
of the rights of the Secured Parties hereunder or (iv) the failure of Grantor to
perform or observe any of the provisions hereof.

                                       10
<PAGE>

                  (b)  Grantor  agrees  to  indemnify  the Agent and each of the
Secured Parties and any agents, contractors and employees of the Secured Parties
(collectively,  the "Indemnitees") against, and hold each of them harmless from,
any and all losses, claims, damages, liabilities and related expenses, including
reasonable  fees,  disbursements  and other  charges of counsel,  incurred by or
asserted  against any of them arising out of, in any way connected with, or as a
result of, the  execution,  delivery,  or  performance  of this Agreement or any
agreement  or  instrument   contemplated   hereby  or  any  claim,   litigation,
investigation or proceeding relating hereto or to the Collateral, whether or not
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
any Indemnitee,  be available to the extent that such losses,  claims,  damages,
liabilities  or  related  expenses  are  determined  by  a  court  of  competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee.

                  (c) Any such amounts  payable as provided  hereunder  shall be
additional  Obligations  secured  hereby.  The  provisions of this Section shall
remain  operative and in full force and effect  regardless of the termination of
this  Agreement,  the  Purchase  Agreement,  the Notes or the other  Transaction
Documents,  the  consummation  of  the  transactions  contemplated  hereby,  the
repayment of any of the Obligations,  the invalidity or  unenforceability of any
term or provision of this Agreement,  the Purchase  Agreement,  the Notes or the
other Transaction  Documents,  or any investigation  made by or on behalf of the
Secured Parties.  All amounts due under this Section shall be payable on written
demand therefor.

         Section  7.6.  GOVERNING  LAW.  THIS  AGREEMENT  SHALL BE  CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.

         Section 7.7. Waivers; Amendment.

                  (a) No failure or delay of the Secured  Parties in  exercising
any power or right hereunder  shall operate as a waiver  thereof,  nor shall any
single or partial  exercise of any such right or power,  or any  abandonment  or
discontinuance of steps to enforce such a right or power,  preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Secured Parties  hereunder and under the Purchase  Agreement
are  cumulative  and are not exclusive of any rights or remedies that they would
otherwise  have.  No waiver of any  provisions of this  Agreement,  the Purchase
Agreement,  the Notes or the  other  Transaction  Documents  or  consent  to any
departure by Grantor  therefrom shall in any event be effective  unless the same
shall be permitted by paragraph (b) below, and then such waiver or consent shall
be effective only in the specific  instance and for the purpose for which given.
No notice to or demand on Grantor in any case shall entitle Grantor to any other
or further notice or demand in similar or other circumstances.

                  (b) Neither this  Agreement  nor any  provision  hereof may be
waived,  amended or modified except  pursuant to an agreement or agreements,  in
writing entered into by the Secured Parties and Grantor.

                                       11
<PAGE>

         Section 7.8. WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY  LITIGATION  DIRECTLY  OR  INDIRECTLY  ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE PURCHASE AGREEMENT OR THE NOTES.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF  LITIGATION,  SEEK TO ENFORCE THE FOREGOING  WAIVER AND (B)
ACKNOWLEDGES  THAT IT AND THE OTHER  PARTIES  HERETO HAVE BEEN  INDUCED TO ENTER
INTO THIS AGREEMENT,  THE PURCHASE  AGREEMENT AND THE NOTES, AS APPLICABLE,  BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

         Section  7.9.  Severability.  In  the  event  any  one or  more  of the
provisions  contained  in this  Agreement  should be held  invalid,  illegal  or
unenforceable in any respect,  the validity,  legality and enforceability of the
remaining  provisions  contained  herein  shall  not in any way be  affected  or
impaired  thereby  (it being  understood  that the  invalidity  of a  particular
provision in a  particular  jurisdiction  shall not in and of itself  affect the
validity  of such  provision  in any  other  jurisdiction).  The  parties  shall
endeavor  in  good-faith  negotiations  to  replace  the  invalid,   illegal  or
unenforceable  provisions  with valid  provisions  the economic  effect of which
comes as close as  possible  to that of the  invalid,  illegal or  unenforceable
provisions.

         Section 7.10.  Counterparts.  This  Agreement may be executed in two or
more  counterparts,  each of which shall constitute an original but all of which
when taken  together  shall  constitute  but one  contract.  Each party shall be
entitled to rely on a facsimile  signature of any other party hereunder as if it
were an original.

         Section 7.11. Jurisdiction; Consent to Service of Process.

                  (a) Grantor hereby  irrevocably and  unconditionally  submits,
for itself and its property,  to the  nonexclusive  jurisdiction of any Delaware
State  court or  Federal  court of the  United  States  of  America  sitting  in
Delaware,  and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this  Agreement,  the  Purchase  Agreement  or the
Notes,  or for  recognition  or  enforcement  of any  judgment,  and each of the
parties hereto hereby irrevocably and unconditionally  agrees that all claims in
respect of any such action or  proceeding  may be heard and  determined  in such
Delaware State or, to the extent  permitted by law, in such Federal court.  Each
of the  parties  hereto  agrees  that a final  judgment  in any such  action  or
proceeding  shall be conclusive  and may be enforced in other  jurisdictions  by
suit on the  judgment or in any other  manner  provided by law.  Nothing in this
Agreement  shall affect any right that the Secured Parties may otherwise have to
bring  any  action  or  proceeding  relating  to this  Agreement,  the  Purchase
Agreement,  the Notes or the other Transaction  Documents against Grantor or its
properties in the courts of any jurisdiction.

                  (b) Grantor hereby irrevocably and unconditionally  waives, to
the fullest extent it may legally and  effectively do so, any objection which it
may now or  hereafter  have to the  laying  of  venue  of any  suit,  action  or
proceeding arising out of or relating to this Agreement, the Purchase Agreement,
the Notes or the other  Transaction  Documents in any Delaware  State or Federal
court.  Each of the parties  hereto hereby  irrevocably  waives,  to the fullest

                                       12
<PAGE>

extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.

                  (c)  Each  party to this  Agreement  irrevocably  consents  to
service of process in the manner provided for notices in Section 7.1. Nothing in
this  Agreement  will affect the right of any party to this Agreement to process
in any other manner permitted by law.

         Section 7.12.  Termination.  This  Agreement and the Security  Interest
shall terminate when all the  Obligations  have been paid in full, at which time
the Secured Parties shall execute and deliver to Grantor,  at Grantor's expense,
all Uniform  Commercial Code termination  statements and similar documents which
Grantor shall reasonably request to evidence such termination. Any execution and
delivery of termination  statements or documents  pursuant to this Section shall
be without recourse to or warranty by the Secured Parties.

         Section 7.13. Prejudgment Remedy Waiver. Grantor acknowledges that this
Agreement, the Purchase Agreement, the Notes and the other Transaction Documents
evidence a commercial transaction and that it could, under certain circumstances
have the right,  to notice of and hearing on the right of the Secured Parties to
obtain a prejudgment  remedy,  such as attachment,  garnishment and/or replevin,
upon commencing any litigation against Grantor. Notwithstanding,  Grantor hereby
waives all rights to notice,  judicial  hearing or prior court order to which it
might   otherwise  have  the  right  under  any  state  or  federal  statute  or
constitution  in  connection  with the  obtaining by the Secured  Parties of any
prejudgment  remedy by reason of this  Agreement,  the Purchase  Agreement,  the
Notes,  the other  Transaction  Documents or by reason of the Obligations or any
renewals or  extensions  of the same.  Grantor also waives any and all objection
which it might otherwise assert, now or in the future, to the exercise or use by
the  Secured  Parties of any right of setoff,  repossession  or self help as may
presently exist under statute or common law.

                            [Signature page follows]

                                       13
<PAGE>

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

                       P-COM, INC.

                       By:   /s/ George Roberts
                             --------------------------------
                             Name:  George Roberts
                             Title:  Chief Executive Officer

DMG LEGACY INSTITUTIONAL FUND LLC, as Agent

By:      /s/ Andrew Wilder
-----------------------------------
Name:    Andrew Wilder
Title:   Chief Financial Officer

<PAGE>

                                    EXHIBIT A
                                 Secured Parties

DMG Legacy Fund LLC
c/o DMG Advisors LLC
53 Forest Avenue, Second Floor
Old Greenwich, CT 06870
Attention: Andrew Wilder
Fax No.: (203) 967-5851

DMG Legacy Institutional Fund LLC
c/o DMG Advisors LLC
53 Forest Avenue, Second Floor
Old Greenwich, CT 06870
Attention: Andrew Wilder
Fax No.: (203) 967-5851

DMG Legacy International Ltd.
c/o DMG Advisors LLC
53 Forest Avenue, Second Floor
Old Greenwich, CT 06870
Attention: Andrew Wilder
Fax No.: (203) 967-5851

<PAGE>
                                   SCHEDULE A

          Places of Business; Chief Executive Office; Filing Locations

State of Incorporation:
-------------------------
Delaware

Chief Executive Office:
--------------------------
3175 South Winchester Blvd.
Campbell, CA 95008

Filing Locations:
----------------
Secretary of State of the State of Delaware

<PAGE>
                                  SCHEDULE 3.3
                                 Existing Liens

Silicon  Valley Bank holds a blanket  security  interest in all of the Grantor's
assets  pursuant to that certain  Loan and  Security  Agreement by and among the
Grantor,  P-Com Network Services,  Inc. and Silicon Valley Bank, dated September
20, 2002,  and that certain Loan and Security  Agreement  (EXIM  Program) by and
among the Grantor,  P-Com Network Services,  Inc. and Silicon Valley Bank, dated
September 20, 2002.

<PAGE>
                                  SCHEDULE 3.4
                             Absence of Other Liens

Silicon  Valley Bank holds a blanket  security  interest in all of the Grantor's
assets  pursuant to that certain  Loan and  Security  Agreement by and among the
Grantor,  P-Com Network Services,  Inc. and Silicon Valley Bank, dated September
20, 2002,  and that certain Loan and Security  Agreement  (EXIM  Program) by and
among the Grantor,  P-Com Network Services,  Inc. and Silicon Valley Bank, dated
September 20, 2002.

The Grantor has executed and delivered that certain Senior Subordinated  Secured
Promissory Note, dated November 1, 2002, in favor of BBT Fund LP in the original
principal amount $201,875.

<PAGE>

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