Document:

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                                                                   Exhibit 10.1

                                K2 DIGITAL, INC.
                                 SENIOR SECURED
                             DEMAND PROMISSORY NOTE

$250,000                                                            May 15, 2001

            FOR VALUE RECEIVED, the undersigned, K2 DIGITAL, INC., a
Delaware corporation (the "Company"), hereby promises to pay to K2 HOLDINGS LLC,
a Delaware limited liability company, or its assigns (the "Payee"), the
principal sum of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) within ninety
(90) calendar days of DEMAND made at any time on or after the date hereof, with
interest (computed on the basis of a 360-day year for the actual number of days
elapsed) on the unpaid principal balance at a rate of ten percent (10%) per
annum.

            1. Payment. Payment of both principal and interest on this Note
shall be in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts and
shall be payable at the principal office of the Payee or at such other address
designated in writing by the Payee to the Company.

            2. Pre-Payment. The Company may prepay, without penalty or premium,
all or any portion of the unpaid principal amount of this Note, together with
accrued interest on the amount prepaid.

            3. Secured Obligation. The loan evidenced by this Note is secured by
a first priority security interest in all of the assets of the Company, pursuant
to that certain Security Agreement, dated as of the date hereof (as such
agreement may be amended, the "Security Agreement"), by and between the Company
and the Payee.

            4. Compliance with Laws. It is expressly stipulated and agreed to by
the Company and the Payee at all times that it is their intent to comply with
applicable state law or applicable United States federal law (to the extent it
permits the Payee to contract for, charge, take, reserve or receive a greater
amount of interest than under state law) and that this section shall control
every other covenant and agreement in this Note and the related Security
Agreement. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under this Note, or
contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note, then it is the Company's and the Payee's
express intent that all excess amounts theretofore collected by the Payee be
credited on the principal balance of this Note (or, if this Note has been or
would thereby be paid in full, refunded to the Company), and the provisions of
this Note and the Security Agreement immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder and thereunder.
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            5. Waiver of Presentment, etc. The Company and all endorsers of this
Note hereby waive presentment, demand, protest and notice. The Payee shall,
promptly upon full payment by the Company of the principal of and interest on
this Note, together with all costs and expenses, if any, due hereon, surrender
this Note to the Company for retirement and cancellation; provided, however,
that to the extent the Company makes a payment or payments to the Payee, which
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside, and/or required to be repaid to a
trustee, receiver, or any other party under the United States Bankruptcy Code,
as amended, any state or federal law, common law, or equitable causes (a
"Voidable Transfer") and the Payee is required to repay or restore any such
Voidable Transfer or the amount or any portion thereof, or upon the advice of
its counsel is advised to do so, then as to any such Voidable Transfer or the
amount repaid or restored (including all reasonable costs, expenses and
attorneys' fees of the Payee related thereto), the liability of the Company
shall automatically be revived, reinstated and restored and shall exist in full
force and effect as though such Voidable Transfer had never been made.

            6. Collection Costs. Should the indebtedness evidenced by this Note
or any part thereof be collected in any proceeding at law, or this Note be
placed in the hands of attorneys for collection after default by the Company in
making due and punctual payment of principal at maturity and interest hereunder,
the Company agrees to pay all costs of collecting this Note, including
reasonable attorneys' fees and expenses and court costs, if any.

            7. Protective Covenants. For so long as any amounts remain
outstanding under this Note, the prior approval of the Payee shall be required
for the Company to:

                  (a) authorize or issue any equity security, other than shares
of Common Stock underlying options granted and outstanding as of the date of
this Note;

                  (b) increase the aggregate authorized number of shares of
Common Stock or any other series of common stock or preferred stock;

                  (c) enter into any agreement with any holder of any securities
of the Company giving such holder the right to require the Company to initiate
any registration of the Company's securities under the Securities Act of 1933,
as amended;

                  (d) repurchase or redeem any of its securities;

                  (e) (i) merge, combine or consolidate with, or agree to merge,
combine or consolidate with, or purchase, or agree to purchase, all or
substantially all of the securities of, any Person or (ii) purchase, or agree to
purchase, all or substantially all of the assets and properties of, or otherwise
acquire, or agree to acquire, all or any portion of, any Person;

                  (f) sell all or substantially all of the Company's assets;

                  (g) alter or change materially or adversely, the rights of the
Common Stock;
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                  (h) make any capital expenditures in excess of $50,000 in any
fiscal year;

                  (i) incur debt or guarantees (other than trade payables
incurred by the Company in the ordinary course of business) in excess of
$100,000;

                  (j) make any loan or advance, other than travel advances to
employees in the ordinary course of business;

                  (k) adopt any employee benefit, bonus or stock plan;

                  (l) engage in any transaction with any Affiliate or officer,
director or stockholder (or their relatives), other than in the ordinary course
of business and at arms-length;

                  (m) amend or propose to amend the Company's certificate of
incorporation or by-laws;

                  (n) liquidate or dissolve, effect any recapitalization or
reorganization, or any stock split, reverse stock split, or, in each case,
obligate the Company to do so; or

                  (o) engage in any other business other than that business
currently engaged in by the Company.

            8. Information Rights. For so long as any amounts remain outstanding
under this Note, the Company shall be required to provide the Payee with the
following:

                  (a) annual audited financial statements within 90 days of
fiscal year end;

                  (b) (i) monthly unaudited statements with comparisons to
budget and prior year within 30 days of month-end and (ii) quarterly unaudited
statements with comparisons to budget and prior year within 45 days of the end
of each fiscal year's first three fiscal quarters;

                  (c) not later than 45 days prior to each fiscal year-end, an
operating budget for the next fiscal period which has been approved by the
Board;

                  (d) copies of all reports filed with the SEC;

                  (e) copies of all correspondence to and from the Nasdaq Stock
Market;

                  (f) the right of the Payee, on reasonably prior notice to the
Company, to inspect the Company's books and records as well as visit and inspect
any of the properties of the Company;

                  (g) prompt notice of events of default under any material
agreement, including, without limitation, any Event of Default under this Note.
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            9. Assignment. Neither this Note nor the rights and obligations of
the Company may be assigned by the Company without the prior written consent of
the Payee and any attempted assignment in contravention of this Note shall be
null and void and of no effect. The Payee may assign its rights or obligations
hereunder to any Affiliate of the Payee; provided that, in the event that any
such assignment is in violation of any federal securities laws or any rules or
regulations of the National Association of Securities Dealers, Inc. or would
result in the delisting of the Company's securities from the NASDAQ SmallCap
Market, such assignment shall be null and void and of no force or effect. This
Note when surrendered for assignment or transfer by the Payee shall be
accompanied by the Assignment Form attached hereto duly executed by the Payee.
Effective upon any such assignment, the Person to whom such rights, interests
and obligations were assigned shall have and exercise all of the Payee's rights,
interest and obligations hereunder as if such Person were the original Payee of
this Note.

            10. No Rights as Stockholder; Note is Debt. This Note does not
entitle the Payee hereof to any voting rights or other rights as a stockholder
of the Company. The Company shall treat, account and report this Note as debt
and not equity for accounting and tax purposes.

            11. Event of Default. In the case of an Event of Default (as defined
below), the principal of and accrued and unpaid interest on the Note shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of any holder. For purposes hereof, "Event of Default" means the
occurrence of any of the following:

                  (i) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Company or any subsidiary
of the Company in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar laws, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Company or any such subsidiary or for any substantial part of their
property, or ordering the winding-up or liquidation of any of their affairs and
the continuance of any such decree or order unstayed and in effect for a period
of 60 consecutive days;

                  (ii) the commencement by the Company or any subsidiary of the
Company of a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar laws, or the consent by any of them to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or any
such subsidiary or for any substantial part of their property, or the making by
any of them of any assignment for the benefit of creditors, or the failure by
the Company or any such subsidiary generally to pay its debts as such debts
become due, or the taking of corporate action by the Company or any such
subsidiary in furtherance of or which might reasonably be expected to result in
any of the foregoing; or

                  (iii) the breach of the restrictions contained in Section 12
of this Note.
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            12. Exclusivity; Liquidated Damages. Commencing on the date hereof
and until the earliest of (i) closing of the Equity Commitment (as such term is
defined under the Letter of Intent), (ii) termination of the Letter of Intent by
the Payee, or (iii) July 9, 2001, the Company shall not directly or indirectly
solicit, initiate or participate in (other than to reject unsolicited offers),
discussions or negotiations with any third Person relating to any transactions,
the consummation of which would require the approval of the Payee under Sections
7(a), (e), (f) and (l) of this Note. Breach by the Company of this Section 12
shall (i) constitute an Event of Default under the Note and (ii) in addition to
any other rights and remedies of the Payee under the Note or at law or equity,
obligate the Company to pay the Payee, as liquidated damages and not as a
penalty, one million dollars ($1,000,000). The Parties acknowledge and agree
that (i) the actual harm suffered by the Payee in the event of any breach of
this Section 12 would be difficult to accurately ascertain and (ii) the
foregoing amount is a reasonable estimate of the actual damages that the Payee
would suffer in the event of any breach of this Section 12.

            13. Loss, Theft or Destruction of Note. Upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft or destruction of
this Note and of indemnity or security reasonably satisfactory to it, the
Company will make and deliver a new Note which shall carry the same rights to
interest (unpaid and to accrue) carried by this Note, stating that such Note is
issued in replacement of this Note, making reference to the original date of
issuance of this Note (and any successors hereto) and dated as of such
cancellation, in lieu of this Note.

            14. Seniority. To the fullest extent permitted by law, all principal
and interest on this Note shall be senior to any and all other indebtedness of
the Company and the Company covenants and agrees that it shall incur no
indebtedness to rank senior to the indebtedness evidenced by this Note without
the prior written approval of the Payee and a tri-party subordination agreement
with terms and conditions satisfactory to the Payee.

            15. Definitions. As used in this Note, the following terms shall
have the following meanings:

                  (a) "Affiliate" has the meaning specified in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

                  (b) "Board" means the board of directors of the Company.

                  (c) "Business Day" means any day other than a Saturday, Sunday
or other day on which banks in the City of New York are required or authorized
to be closed.

                  (d) "Common Stock" means the Company's common stock, par value
$.01 per share.

                  (e) "Company" has the meaning set forth in the preamble.

                  (f) "Event of Default" has the meaning set forth in Section
11.
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                                                                               6

                  (g) "Letter of Intent" means the non-binding Letter of Intent
dated as of May 15, 2001 between the Company and the Payee, as the same may be
amended, restated, supplemented or otherwise modified from time to time and
including all attachments, exhibits and schedules thereto.

                  (h) "Note" means this 10% Senior Secured Demand Note, as may
be adjusted as provided herein.

                  (i) "Payee" has the meaning set forth in the preamble.

                  (j) "Person" means any natural person, firm, corporation,
propriety, public or private company, partnership, limited liability company,
public liability company, trust or other entity, and shall include any successor
(by merger or otherwise) of such entity.

                  (k) "SEC" means the Securities and Exchange Commission.

                  (l) "Security Agreement" means the Security Agreement, dated
as of the date hereof, between the Company and the Payee, as the same may be
amended, restated, supplemented or otherwise modified from time to time and
including all attachments, exhibits and schedules thereto.

                  (m) "Voidable Transfer" has the meaning set forth in Section
5.

            16. Miscellaneous.

                  (a) Notices. Any notice, request or other communications
required or permitted hereunder shall be given upon personal delivery or upon
the seventh day following mailing by registered airmail (or certified first
class mail if both the addresser and addressee are located in the United
States), postage prepaid and addressed to the parties as follows:

            To the Company:

                        K2 Digital, Inc.
                        30 Broad Street, 16th Floor
                        New York, NY 10004
                        Attn: Gary Brown, Chief Operating Officer

            with a copy to:

                        David M. Warburg, Esq.
                        Brown Raysman Millstein Felder & Steiner LLP
                        120 West 45th Street
                        New York, NY  10036

            To the Payee:

                        At the address listed below the Payee's signature to the
                        Security Agreement.
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            with a copy to:

                        Thomas J. Freed, Esq.
                        Cummings & Lockwood
                        Four Stamford Plaza
                        107 Elm Street
                        Stamford, CT 06904-0120

or to such other single place as any single addressee shall designate by written
notice to the other addressees.

                  (b) Enforcement. The Company shall pay all reasonable fees and
expenses, including reasonable attorney's fees, incurred by the Payee in the
enforcement in any of the Company's obligations hereunder not performed when
due.

                  (c) Survival of Agreement. All covenants, agreements,
representations and warranties made by the Company herein shall be considered to
have been relied upon by the Payee and shall survive the making of the loan and
the execution and delivery to the Payee of this Note, regardless of any
investigation made by the Payee or on its behalf; and shall continue in full
force and effect until this Note shall terminate.

                  (d) Binding Effect; Several Agreement; Successors and Assigns.
This Note shall become effective as to the Company when executed by the Company
and delivered to the Payee, and thereafter shall be binding upon the Company and
the Payee and their respective successors and permitted assigns, and shall inure
to the benefit of each and their respective successors and permitted assigns.

                  (e) Governing Law. This Note shall be construed in accordance
with and governed by the laws of the State of New York without regard to its
conflicts of laws principles.

                  (f) Waivers. No failure or delay of the Payee 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 Payee hereunder are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provisions
of this Note or consent to any departure by the Company herefrom shall in any
event be effective unless the same shall be permitted by the last sentence of
this paragraph (f), 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 the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances. Neither this Note
nor any provision hereof may be waived except pursuant to an agreement or
agreements, in writing entered into by the Company and the Payee.

                  (g) Severability. In the event any one or more of the
provisions contained in this Note should be held invalid, illegal or
unenforceable in any respect, the
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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.
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            IN WITNESS WHEREOF, K2 DIGITAL, INC. had caused this Senior
Secured Demand Promissory Note to be executed by its officer thereunto duly
authorized.

                                    COMPANY:

                                    K2 DIGITAL, INC.

                                    By:___________________________________
                                       Gary Brown
                                       Chief Operating Officer
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      ASSIGNMENT FORM (To Assign the foregoing Note, execute this form and
      supply required information.)

            FOR VALUE RECEIVED, an interest corresponding to the unpaid
principal amount of the foregoing Note and all rights evidenced thereby are
hereby assigned to

_______________________________________________________________________________
                                 (Please Print)

whose address is

_______________________________________________________________________________

Date: _________________________________________________________________________

Payee's Signature:    _________________________________________________________

Payee's Address:      _________________________________________________________

                      _________________________________________________________

                      _________________________________________________________

                      _________________________________________________________

Signature Guaranteed: _________________________________________________________

NOTE:   The signature to this Assignment Form must correspond with the name as
        it appears on the face of the Note, without alteration or enlargement or
        any change whatever, and must be guaranteed by a bank or trust company.
        Officers of corporations and those acting in a fiduciary or other
        representative capacity should file proper evidence of authority to
        assign the foregoing Note.<PAGE>   1
                                                                   Exhibit 10.2

                               SECURITY AGREEMENT

      SECURITY AGREEMENT, dated as of May 15, 2001, between K2 DIGITAL, INC., a
Delaware corporation ("Grantor") and K2 HOLDINGS LLC, a Delaware limited
liability company ("SGI").

      WHEREAS, Grantor entered into a Senior Secured Demand Promissory Note
dated of even date herewith (as amended and in effect from time to time, the
"Note"), with SGI, pursuant to which SGI, subject to the terms and conditions
contained therein, has loaned $250,000 to Grantor; and

      WHEREAS, it is a condition precedent to SGI's making the loan evidenced by
the Note to Grantor that Grantor execute and deliver to SGI a security agreement
in substantially the form hereof to secure all Obligations (hereinafter
defined);

      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 Note. 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 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 Grantor
possesses, uses or has authority to possess or use property (whether tangible or
intangible) of others or others possess, use or have authority to possess or use
property (whether tangible or intangible) of 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.
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      "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 Note.

      "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.

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

      "Obligations" means all indebtedness, liabilities, obligations, covenants
and duties of Grantor to SGI 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 Note or this
Agreement.

      "Registered Organization" means an entity formed by filing a registration
document with a United States Governmental Authority, such as a corporation,
limited partnership or limited liability company.

      "Revised Article 9" has the meaning specified in Section 7.14.

      "Security Interest" has the meaning assigned to such term in Section 2.1.

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

                         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, Grantor hereby bargains,
sells, conveys, assigns, sets over, mortgages, pledges, hypothecates and
transfers to SGI, and hereby grants to SGI, its successors and assigns, a
security interest in, all of Grantor's right, title and interest in, to and
under the Collateral (the "Security Interest").
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      Section 2.2. No Assumption of Liability. The Security Interest is granted
as security only and shall not subject SGI to, or in any way alter or modify,
any obligation or liability of Grantor with respect to or arising out of the
Collateral.

                  ARTICLE III. REPRESENTATIONS AND WARRANTIES

      Grantor represents and warrants to SGI that:

      Section 3.1. Title and Authority. 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 SGI 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.

Fully executed Uniform Commercial Code financing statements (including fixture
filings, as applicable) or other appropriate filings, recordings or
registrations containing a description of the Collateral have been delivered to
SGI for filing in each United States governmental, municipal or other office
specified in Schedule A, which 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 SGI 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
Grantor's name, location, identity or corporate structure. The Debtor'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, 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 prior to any other Lien on any of the Collateral.

      Section 3.4. Absence of Other Liens. Grantor's Collateral is owned by
Grantor free and clear of any Lien. Without limiting the foregoing, Grantor has
not filed or consented to any filing described in Section 3.2 in favor of any
Person other than SGI, 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 SGI.
<PAGE>   4
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                             ARTICLE IV. COVENANTS

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

            (a) Grantor shall notify SGI 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, 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 SGI to
      continue at all times following such change to have a valid, legal and
      perfected first priority security interest in all the Collateral.

            (b) Without limiting Section 4.1(a), without the prior written
      consent of SGI in each instance, Grantor shall not change its (i)
      principal residence, if it is an individual, (ii) place of business, if it
      has only one place of business and is not a Registered Organization, (iii)
      principal place of business, if it has more than one place of business and
      is not a Registered Organization, or (iv) state of incorporation,
      formation or organization, if it is a Registered Organization.

      Section 4.2. Records. 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 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 SGI may reasonably request,
promptly to prepare and deliver to SGI a duly certified schedule or schedules in
form and detail satisfactory to SGI 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, Grantor shall immediately notify SGI in writing of such change (this
notice requirement shall be in extension of and shall not limit or relieve
Grantor of any other covenants hereunder).

      Section 4.4. Protection of Security. 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 SGI in the Collateral
and the priority thereof against any Lien.

      Section 4.5. Inspection and Verification. SGI and such persons as SGI may
reasonably designate shall have the right to inspect the Collateral, all records
related thereto (and to make
<PAGE>   5
                                                                               5

extracts and copies from such records) and the premises upon which any of the
Collateral is located, to discuss Grantor's affairs with the officers of 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, 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
SGI shall be paid by (a) Grantor with respect to any inspection during the
continuance of a Default or an Event of Default or in which a Default or an
Event of Default is discovered or (b) SGI in any other case.

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

      Section 4.7. Use and Disposition of Collateral. Grantor shall not make or
permit to be made an assignment, pledge or hypothecation of the Collateral or
shall grant any other Lien in respect of the Collateral. Grantor shall not make
or permit to be made any transfer of the Collateral and Grantor shall remain at
all times in possession of the Collateral owned by it.

      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
the Collateral. In extension of the foregoing and without limitation, such
insurance shall be payable to SGI as loss payee under a "standard" loss payee
clause, and SGI 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 SGI at least 30 days prior written notice. Grantor
irrevocably makes, constitutes and appoints SGI (and all officers, employees or
agents designated by SGI) as its true and lawful agent and attorney-in-fact for
the purpose, during the continuance of an Event of Default, 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, SGI may, without waiving or releasing any obligation or liability of
Grantor hereunder or any Event of Default, in its sole discretion, obtain and
maintain such policies of insurance and pay such premium and take any other
actions with respect thereto as SGI deems advisable. All sums disbursed by SGI
in connection and in accordance with this Section, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto, shall
be payable, jointly and severally upon demand, by Grantor to SGI and shall be
additional Obligations secured hereby. Grantor shall promptly notify SGI if any
material portion of the Collateral owned or
<PAGE>   6
                                                                               6

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 no
Default or Event of Default has occurred and is continuing, 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 SGI as cash collateral for the Obligations. SGI may, at its 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 SGI may reasonably prescribe,
for direct application by SGI 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 SGI, 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 SGI and that SGI has a security interest therein.

                ARTICLE V. POWER OF ATTORNEY; FURTHER ASSURANCES

      Section 5.1. Further Assurances. 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 SGI 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 Collateral shall be or become evidenced by any promissory note
or other instrument, such note or instrument shall be immediately pledged and
delivered to SGI, duly endorsed in a manner satisfactory to SGI.

      Section 5.2. Power of Attorney.

            (a) Grantor hereby irrevocably (as a power coupled with an interest)
constitutes and appoints SGI (and all officers, employees or agents designated
by SGI), its attorney-in-fact with full power of substitution,

                  (i) to take all appropriate action and to execute all
      documents and instruments that may be necessary or desirable to accomplish
      the purposes of this Agreement, and without limiting the generality of the
      foregoing, Grantor hereby grants the power to file one or more financing
      statements (including fixture filings), continuation statements, filings
      with the United States Patent and Trademark Office or United States
      Copyright Office (or any successor office or any similar office in any
      other country) or other documents for the purpose of perfecting,
      confirming, continuing, enforcing or protecting the Security Interest
      granted by Grantor, without the signature of Grantor, and naming Grantor
      as debtor and SGI as secured party; and

                  (ii) upon the occurrence and during the continuance of an
      Event of Default (i) to receive, endorse, assign and/or deliver any and
      all notes, acceptances,
<PAGE>   7
                                                                               7

      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 SGI were the
      absolute owner of the Collateral for all purposes; provided, however, that
      nothing herein contained shall be construed as requiring or obligating SGI
      to make any commitment or to make any inquiry as to the nature or
      sufficiency of any payment received by SGI, 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 SGI 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 SGI.

            (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 SGI to proceed in any particular manner with
respect to the Collateral or any part thereof, or in any way limit the exercise
by SGI 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 SGI on
      demand, and it is agreed that SGI shall have the right to take any of or
      all the following actions at the same or different times: 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 secured party under the Uniform
      Commercial Code or other applicable law. Without limiting the generality
      of the foregoing, Grantor agrees that SGI 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 SGI shall deem appropriate. SGI 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
<PAGE>   8
                                                                               8

      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 SGI 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) SGI 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 SGI's 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 SGI 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 SGI may (in its sole and absolute discretion) determine. SGI
      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. SGI 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 SGI until the sale price is paid by the purchaser
      or purchasers thereof, but SGI 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, SGI 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 SGI
      from Grantor as a credit against the purchase price, and SGI may, upon
      compliance with the terms of sale, hold, retain and dispose of such
      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; SGI 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 SGI shall have entered into such an
      agreement all Events of Default shall have been remedied and the
      Obligations paid in full. As an alternative to exercising the power of
      sale herein conferred upon it, SGI 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
<PAGE>   9
                                                                               9

      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. SGI 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 SGI
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 or
under the Note;

            (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, SGI 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 SGI (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 SGI 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 SGI 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 SGI to exercise rights and remedies under this Article at
such time as SGI shall be lawfully entitled to exercise such rights and
remedies, Grantor hereby grants to SGI 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 SGI may be exercised, at the option of SGI, only upon the
occurrence and during the continuation of an Event of Default (after giving
effect to any applicable cure periods).

                           ARTICLE VII. MISCELLANEOUS

      Section 7.1. Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in the Note. All communications and notices hereunder to SGI and to
Grantor shall be given to it at such party's address or telecopy number set
forth below its signature line at the end of this Agreement.
<PAGE>   10
                                                                              10

      Section 7.2. Security Interest Absolute. All rights of SGI 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
Note, 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 Note 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 SGI and shall survive
the making of the loan and the execution and delivery to SGI of the Note,
regardless of any investigation made by SGI or on their behalf; and shall
continue in full force and effect until this Agreement shall terminate.

      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 SGI and a counterpart
hereof shall have been executed on behalf of SGI, and thereafter shall be
binding upon Grantor and SGI and their respective successors and assigns, and
shall inure to the benefit of Grantor, SGI 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 or the Note.

      Section 7.5. SGI Fees and Expense; Indemnification.

            (a) Grantor agrees to pay upon demand to SGI 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 SGI may
      incur in connection with (i) the administration of this Agreement
      (including the customary fees and charges of SGI for any audits conducted
      by it or on its 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 SGI hereunder or (iv) the failure of
      Grantor to perform or observe any of the provisions hereof.

            (b) Without limitation of its indemnification obligations under the
      Note, Grantor agrees to indemnify SGI and the agent, contractors and
      employees of each of the foregoing (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
<PAGE>   11
                                                                              11

      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 or the Note, 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 or the Note, or any investigation made by or on behalf of SGI.
      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 NEW YORK.

      Section 7.7. Waivers; Amendment.

            (a) No failure or delay of SGI 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
SGI hereunder and under the Note are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provisions
of this Agreement or the Note 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 SGI and Grantor.

      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 OR THE NOTE. 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
<PAGE>   12
                                                                              12

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 AND THE NOTE, 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 New York
      State court or Federal court of the United States of America sitting in
      New York City, and any appellate court from any thereof, in any action or
      proceeding arising out of or relating to this Agreement or the Note, 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 New York 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 SGI may
      otherwise have to bring any action or proceeding relating to this
      Agreement or the Note 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 or the Note in any
      New York State or Federal court. Each of the parties hereto hereby
      irrevocably waives, to the fullest 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.
<PAGE>   13
                                                                              13

      Section 7.12. Termination. This Agreement and the Security Interest shall
terminate when all the Obligations have been paid in full, at which time SGI
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 SGI.

      Section 7.13. Prejudgment Remedy Waiver. Grantor acknowledges that this
Agreement and the Note evidence a commercial transaction and that it could,
under certain circumstances have the right, to notice of and hearing on the
right of SGI 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 SGI of any
prejudgment remedy by reason of this Agreement, the Note 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 SGI of any right of setoff, repossession or self help as may
presently exist under statute or common law.

      Section 7.14. Concerning Revised Article 9 of the Uniform Commercial Code.
The parties acknowledge and agree to the following provisions of this Agreement
in anticipation of the possible application, in one or more jurisdictions to the
transactions contemplated hereby, of the revised Article 9 of the Uniform
Commercial Code in the form or substantially in the form approved in 1998 by the
American Law Institute and the National Conference of Commissioners on Uniform
State Law ("Revised Article 9").

            (a) In applying the law of any jurisdiction in which Revised Article
9 is in effect, the Collateral is all assets of Grantor, whether or not within
the scope of Revised Article 9. The Collateral shall also include, without
limitation, the following categories of assets as defined in Revised Article 9:
goods (including inventory, equipment and any accessions thereto), instruments
(including promissory notes), documents, accounts (including
health-care-insurance receivables), chattel paper (whether tangible or
electronic), deposit accounts, letter-of-credit rights (whether or not the
letter of credit is evidenced by a writing), commercial tort claims, securities
and all other investment property, general intangibles (including payment
intangibles and software), supporting obligations and any and all proceeds of
any thereof, wherever located, whether now owned and hereafter acquired. If
Grantor shall at any time, whether or not Revised Article 9 is in effect in any
particular jurisdiction, acquire a commercial tort claim, as defined in Revised
Article 9, Grantor shall immediately notify SGI in a writing signed by Grantor
of the brief details thereof and grant to SGI in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory to SGI.
SGI may at any time and from time to time, pursuant to the provisions of Article
V, file financing statements, continuation statements and amendments thereto
that describe the Collateral as all assets of Grantor or words of similar effect
and which contain any other information required by Part 5 of Revised Article 9
for the sufficiency or filing office acceptance of any financing statement,
continuation statement or amendment, including whether Grantor is an
organization, the type of organization and any organization identification
<PAGE>   14
                                                                              14

number issued to Grantor. Grantor shall furnish any such information to SGI
promptly upon request. Any such financing statements, continuation statements or
amendments may be signed by SGI on behalf of Grantor, as provided in Article V,
and may be filed at any time in any jurisdiction whether or not Revised Article
9 is then in effect in that jurisdiction.

            (b) Grantor shall at any time and from time to time, whether or not
Revised Article 9 is in effect in any particular jurisdiction, take such steps
as SGI may reasonably request for SGI (i) to obtain an acknowledgement, in form
and substance satisfactory to SGI, of any bailee having possession of any of the
Collateral that the bailee holds such Collateral for SGI, (ii) to obtain
"control" of any investment property, deposit accounts, letter-of-credit rights
or electronic chattel paper (as such terms are defined in Revised Article 9 with
corresponding provisions in Sections 9-104, 9-105, 9-106 and 9-107
relating to what constitutes "control" for such items of Collateral), with any
agreements establishing control to be in form and substance satisfactory to SGI,
and (iii) otherwise to insure the continued perfection and priority of SGI's
security interest in any of the Collateral and of the preservation of its rights
therein, whether in anticipation and following the effectiveness of Revised
Article 9 in any jurisdiction.

            (c) Nothing contained in this Section shall be construed to narrow
the scope of the security interest granted hereby in any of the Collateral or
the perfection or priority thereof or to impair or otherwise limit any of the
rights, powers, privileges or remedies of SGI hereunder except as (and then only
to the extent) specifically mandated by Revised Article 9 to the extent then
applicable.

                            [Signature page follows]
<PAGE>   15
                                                                              15

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

                                    K2 DIGITAL, INC.

                                    By:___________________________________
                                       Gary Brown
                                       Chief Operating Officer

                                    Address for notices:

                                    30 Broad Street, 16th Floor
                                    New York, NY 10004
                                    Fax: 212 301-8801
                                    Attention: Gary Brown

                                    K2 HOLDINGS LLC

                                    By:___________________________________
                                       Name:
                                       Title: Manager

                                    Address for notices:

                                    c/o SGI Partners
                                    437 Fifth Avenue, 11th Floor
                                    New York, NY  10016
                                    Fax: 212 481-4114
<PAGE>   16
                                                                              16

                                   SCHEDULE A

          PLACES OF BUSINESS; CHIEF EXECUTIVE OFFICE; FILING LOCATIONS

Place of Business and Chief Executive Office:

30 Broad Street, 16th Floor
New York, NY 10004

Filing Locations:

1)  Secretary of State of the State of New York
2)  New York County

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