Document:

<PAGE>
                                                                    EXHIBIT 10.4

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,THIS NOTE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT AND LAWS IS AVAILABLE.

                            CYBERIAN OUTPOST, INC.

                            SECURED PROMISSORY NOTE
                            -----------------------

$13,000,000                                                    September 4, 2001

     FOR VALUE RECEIVED, the undersigned, CYBERIAN OUTPOST, INC., a Delaware
corporation (the "Company"), promises to pay to the order of FRY'S ELECTRONICS,
                  -------
INC., a California corporation (the "Holder"), on December 31, 2001 (the
                                     ------
"Maturity Date"), the principal amount of (a) THIRTEEN MILLION DOLLARS
 -------------
($13,000,000.00) (the "Maximum Principal Amount"), or, if less, (b) the
                       ------------------------
aggregate unpaid principal amount of all loans made by the Holder to the
Company.

     This secured promissory note (this "Note") evidences loans made by the
                                         ----
Holder to the Company in connection with the execution and delivery of that
certain Merger Agreement dated of even date herewith (the "Merger Agreement")
                                                           ----------------
among the Holder, a wholly-owned subsidiary of the Holder and the Company.  This
Note is secured pursuant to that certain Collateral Assignment and Security
Agreement of even date herewith (the "Security Agreement") made by the Company
                                      ------------------
in favor of the Holder.

     The unpaid principal amount of this Note from time to time outstanding
shall bear interest at the Interest Rate (as defined in Section 4), and such
principal and interest shall be due and payable on the Maturity Date. Interest
will be computed on the basis of a 365-day year and the actual number of days
elapsed including the first day but excluding the payment date. All payments of
principal of and interest on this Note shall be payable in lawful currency of
the United States of America. All such payments shall be made by the Company to
an account established by the Holder and notified to the Company and shall be
recorded on the books and records of the Company and the Holder.

     If any payment on this Note becomes due and payable on a day other than a
day on which commercial banks in San Jose, California are open for the
transaction of normal business (a "Business Day"), the maturity thereof shall be
                                   ------------
extended to the next succeeding Business Day and, with respect to any payment of
principal or interest thereon shall be payable at the then-applicable rate
during such extension.

     The Holder is authorized to endorse on Schedule A attached hereto and made
a part hereof the amount of each loan made pursuant to this Note and the date
and amount of each
<PAGE>

payment or prepayment of principal thereof. Each such endorsement shall, absent
manifest error, constitute prima facie evidence of the accuracy of the
                           ----- -----
information endorsed.

     In addition to, but not in limitation of, the foregoing, the Company
further agrees to pay all expenses, including reasonable attorneys' fees and
legal expenses, incurred by the Holder in connection with (i) the making of any
loans under this Note and (ii) endeavoring to collect any amounts payable
hereunder which are not paid when due.

     1.   Loans.  Subject to Section 1.4, through the earlier of the Maturity
          -----
Date or the occurrence of an Event of Default, the Holder will make the
following loans to the Company:

          1.1  PCC Repayment.  Pursuant to the Company's instruction, the Holder
               -------------
will loan $4,845,761.88 to the Company upon execution and delivery of this Note,
which amount shall be paid directly by the Holder to Merrimack Services
Corporation and/or PC Connection, Inc., each creditors of the Company.  The
balance of the Maximum Principal Amount is referred to hereunder as the
"Remaining Amount."
 ----------------

          1.2  Letters of Credit. Within five (5) days of the Holder's receipt
               -----------------
of the Company's written request therefor, the Holder shall from time to time
guarantee letters of credit issued in the name of the Company for the benefit of
the Company's vendors and/or service providers. Any such guarantee and letters
of credit shall be in form and substance satisfactory to the Holder. The
obligations guaranteed or as to which the Holder has otherwise committed in
order to secure any such letters of credit shall not exceed one-half of the
Remaining Amount. All (i) amounts paid by the Holder in respect of any such
guarantee or commitment and (ii) issue or commitment fees and any other costs
incurred by the Holder associated with such letters of credit shall constitute
loans made hereunder, in each case deemed made when and as such amounts are paid
or such fees or costs are incurred by the Holder.

          1.3  Working Capital Loans.  Upon execution and delivery of this Note,
               ---------------------
the Holder will loan $750,000 to the Company for working capital purposes.
Within five (5) days of the Holder's receipt of the Company's written request
therefor, the Holder will loan the Company additional monies for working capital
purposes.  All such working capital loans made under this Note shall be in an
amount equal to $5,000 or an integral multiple thereof.

          1.4  Certain Limits on Loans. Notwithstanding anything herein to the
               -----------------------
contrary:

                 a.   In no event shall amounts loaned pursuant to Section 1.3
                      exceed one-half of the Remaining Amount.

                 b.   In no event shall the Holder loan the Company aggregate
                      proceeds in excess of the Maximum Principal Amount.

                 c.   The Holder may, at any time and from time to time, refuse
                      any loan request made by the Company to the extent, if at
                      the time such loan is to be made:

                                      -2-
<PAGE>

                    1.   the amount of monies theretofore loaned or so requested
                         is in excess of the working capital budget attached on
                         Schedule B hereto as of the time of such request;

                    2.   the Holder reasonably believes that the Collateral (as
                         defined in the Security Agreement), or the value
                         thereof, has been impaired or constitutes insufficient
                         security for amounts theretofore loaned or then-
                         requested to be loaned;

                    3.   the Holder reasonably believes that the Company has
                         breached any of its representations, warranties,
                         covenants and agreements under the Merger Agreement and
                         such breach has not been cured to the satisfaction of
                         the Holder; or

                    4.   the Holder reasonably believes that the Company has
                         breached any of its obligations under this Note or the
                         Security Agreement and such breach has not been cured
                         to the satisfaction of the Holder.

     2.   Default.  The entire unpaid principal of this Note, together with all
          -------
accrued and unpaid interest, shall become and be immediately due and payable
upon written demand of the Holder (or in the case of an event specified in
Sections 2(a), (d) or (e), automatically without notice), without any other
notice or demand of any kind or any presentment or protest, if any one of the
following events (an "Event of Default") shall occur and be continuing at the
                      ----------------
time of such demand, whether voluntarily or involuntarily, or, without
limitation, occurring or brought about by operation of law or pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any governmental body:

               a.   The Merger Agreement has been terminated by the Holder or
                    the Company;

               b.   The Company fails to comply with any of its agreements in
                    this Note or the Security Agreement and such failure
                    continues for 5 days after notice of the type specified
                    below;

               c.   Indebtedness or any interest thereon of the Company or any
                    Subsidiary with a principal amount in excess of $10,000 is
                    not paid within any applicable grace period after it shall
                    become due and payable or is accelerated or permitted to be
                    accelerated by the holders thereof because of a default;

               d.   The Company or a Subsidiary pursuant to or within the
                    meaning of any Bankruptcy Law:

                    1.   commences a voluntary case;

                                      -3-
<PAGE>

                    2.   consents to the entry of an order for relief against it
                         in an involuntary case;

                    3.   consents to the appointment of a custodian of it or for
                         any substantial part of its property;

                    4.   makes a general assignment for the benefit of its
                         creditors; or

                    5.   is unable to, or admits in writing its inability to,
                         pay its debts as they become due;

                    or takes any comparable action under any foreign laws
                    relating to insolvency;

               e.   There shall be commenced against the Company any case,
                    proceeding or action of the type referred to in Section 2(e)
                    hereof or a court of competent jurisdiction enters an order
                    or decree under any Bankruptcy Law that:

                    1.   is for relief against the Company or any Subsidiary in
                         an involuntary case;

                    2.   appoints a custodian of the Company or any Subsidiary
                         or for any substantial part of its property; or

                    3.   orders the winding up or liquidation of the Company or
                         any Subsidiary;

                    or any similar relief is granted under any foreign laws;

               f.   Any judgment or decree for the payment of money in excess of
                    $10,000 is rendered against the Company or any Subsidiary
                    and is not discharged and either (1) an enforcement
                    proceeding has been commenced by any creditor upon such
                    judgment or decree or (2) there is a period of 10 days
                    following such judgment during which such judgment or decree
                    is not discharged, waived or the execution thereof stayed;
                    and

               g.   The Security Agreement shall cease, for any reason, to be in
                    full force and effect, or the Company shall so assert, or
                    any Lien (as defined in the Security Agreement) created by
                    the Security Agreement shall cease to be enforceable and of
                    the same effect and priority purported to be created
                    thereby.

                                      -4-
<PAGE>

     3.   Covenants.
          ---------

          3.1  Working Capital Budget.  Within seven (7) days of the date
               ----------------------
hereof, the Company shall submit to Holder for its consideration and approval,
in its sole discretion, a working capital budget for the Company for the ninety
(90) day period from and after the date hereof.  The working capital budget in
the form approved by the Holder shall be attached as Schedule B to this Note.

          3.2  No Indirect Violations.  The Company shall cause all of its
               ----------------------
Subsidiaries to observe Section 6.1 of the Merger Agreement as if such
Subsidiary was a party to such agreement and subject to such Section to the same
extent as the Company.

          3.3  Use of Proceeds.  Neither the Company nor any of its Subsidiaries
               ---------------
shall use any amounts loaned hereunder in a manner inconsistent with those uses
and those amounts specified in the working capital budget to be attached as
Schedule B hereto.

          3.4  No Investments. None of the Company or its Subsidiaries shall
               --------------
make any Investment in any Person.

          3.5  Limitation on Restrictions on Distributions from Subsidiaries.
               -------------------------------------------------------------
The Company shall not, and shall not permit any Subsidiary to, create or permit
to exist or become effective any consensual encumbrance or restriction on the
ability of any Subsidiary to (i) pay dividends or make any other distributions
on its Capital Stock or pay any Indebtedness or other obligation owed to the
Company, (ii) make any loans or advances to the Company or (iii) transfer any of
its property or assets to the Company, except in the case of clause (iii), any
encumbrance or restriction that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a lease,
license, conveyance or contract or similar property or asset.

          3.6  Notice of Default.  The Company shall notify the Holder of any
               -----------------
Event of Default or default in the performance of any covenants or agreements
under this Note within one Business Day thereof.

          3.7  Waiver of Stay, Extension or Usury Laws.  The Company covenants
               ---------------------------------------
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay or extension law or any usury law or other law that would prohibit
or forgive the Company from paying all or any portion of the principal of and/or
interest on this Note as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Note, and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Holder, but will suffer and permit the execution of every such power as
though no such law had been enacted.

                                      -5-
<PAGE>

     4.   Certain Definitions.   As used in this Note, the following terms shall
          -------------------
have the following meanings:

          "Bankruptcy Law" means all applicable U.S. federal and state laws
           --------------
relating to bankruptcy, insolvency, winding up, administration, receivership and
other similar matters and any similar foreign law for the relief of creditors.

          "Capital Stock" of any Person means any and all shares, interests,
           -------------
rights to purchase, warrants, options, participation or other equivalents of or
interests in (however designated) equity of such Person, including, without
limitation, any preferred stock, and if such Person is a partnership,
partnership interests, but excluding any debt securities convertible into such
equity.

          "Interest Rate" shall mean the U.S. prime interest rate published in
           -------------
the Wall Street Journal on the date hereof.

          "Investment" in any Person means any direct or indirect advance, loan
           ----------
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, indebtedness or other
similar instruments issued by such Person.

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

          "Subsidiary" of any Person means any corporation, association,
           ----------
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.

     5.   Loss, Theft, Destruction or Mutilation.  Upon receipt of evidence
          --------------------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note and, in the case of such loss, theft or destruction, upon delivery to
the Company of an indemnity undertaking reasonably satisfactory to the Company,
or, in the case of any such mutilation, upon surrender of this Note to the
Company, the Company will issue a new note, of like tenor and principal amount,
in lieu of or in exchange for such lost, stolen, destroyed or mutilated Note.
Upon the issuance of any substitute Note, the Company may require the payment to
it of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other reasonable expenses in connection
therewith.

     6.   Notices and Demands.  All notices, demands and other communications
          -------------------
provided for in this Note or made under this Note shall be in writing and shall
be deemed to have been

                                      -6-
<PAGE>

duly given if delivered by hand (whether by overnight courier or otherwise) or
sent by registered or certified mail, return receipt requested, postage prepaid,
to the Person to whom it is directed:

          (a)  If to Holder, to it at the following address:

               Fry's Electronics, Inc.
               600 East Brokaw Road
               San Jose, California  95112
               Attn: Executive Vice President

          with a copy to:

               Simpson Thacher & Bartlett
               3330 Hillview Avenue
               Palo Alto, California 94304
               Attn: Richard Capelouto, Esq.
                     Daniel Clivner, Esq.

          (b)  If to the Company, to it at the following address:

               Cyberian Outpost, Inc.
               25 North Main Street
               Kent, Connecticut  06757
               Attn: General Counsel

          with a copy to:

               Mintz, Levin, Cohn, Ferris, Glovsy & Popeo, P.C.
               One Financial Center
               Boston, Massachusetts  02111
               Attn: Mark Chamberlain, Esq.

     7.   Present Intent.  By acceptance of this Note, the Holder acknowledges
          --------------
that this Note is being acquired without a present intention of resale or
distribution, and that this Note will not be transferred, pledged or otherwise
disposed of by the Holder in the absence of an effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or an
                                                   --------------
opinion of counsel (including in-house counsel) reasonably satisfactory to the
Company that such registration is, under the circumstances, not required.

     8.   Miscellaneous Provisions.
          ------------------------

          8.1  No Oral Modifications.  Neither this Note nor any term of this
               ---------------------
Note may be changed, waived, discharged or terminated orally, but may only be
amended or modified by an instrument in writing signed by the Holder and the
Company.

          8.2  Binding Effect.  This Note shall be binding upon and inure to the
               --------------
benefit of the Company, the Holder of this Note and their respective heirs,
successors and assigns.

                                      -7-
<PAGE>

          8.3  Governing Law, Jurisdiction; Jury Trial Waiver.  This Note shall
               ----------------------------------------------
be governed by, and construed and interpreted in accordance with, the law of the
State of New York.  The Company hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York located in the borough of Manhattan in the City of New York, or, if
such court does not have jurisdiction, the Supreme Court of the State of New
York, New York County, for the purposes of any suit, action or other proceeding
arising out of this Note.  The Company hereby further agrees that service of any
process, summons, notice or document by U.S. registered mail to its address set
forth in Section 7 shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding sentence.  Each of
the parties hereto irrevocably and unconditionally waives, to the extent
permitted by applicable law, any objection to the laying of venue of any action,
suit or proceeding arising out of this Note in (a) the United States District
Court for the Southern District of New York or (b) the Supreme Court of the
State of New York, New York County, and hereby further irrevocably and
unconditionally waives, to the extent permitted by applicable law, and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.  To the
extent permitted by applicable law, the Company waives the right to trial by
jury in any such action or proceeding.

          8.4  Assignability.  The Holder may sell, assign, transfer or
               -------------
otherwise hypothecate ("Transfer") this Note to any other Person.  If any
                        --------
interest in this Note is Transferred in compliance with this Section 8.4, this
Note shall be cancelled and each of the Company shall execute and deliver a new
note (in substantially the form of this Note) to each Person to whom an interest
in this Note has been Transferred in an aggregate principal amount equal to such
Person's interest in this Note.

          8.5  Costs.  The Company will pay all reasonable costs and expenses of
               -----
collection, including attorneys' fees and disbursements, appraiser's fees and
court costs, incurred or paid by the Holder in enforcing this Note, to the
extent permitted by law, including all costs and reasonable attorneys' fees
incurred in any appeal, bankruptcy proceeding, or other proceeding.

                                      -8-
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Note to be executed in its
corporate name by its duly authorized officer this 4th day of September 2001.

                                            CYBERIAN OUTPOST, INC.

                                            By: /s/ Darryl Peck
                                                ---------------
                                                Title: CEO
                                                       Darryl Peck

Agreed and Accepted:

FRY'S ELECTRONICS, INC.

By: /s/ Kathryn J. Kolder
    ---------------------
    Title: Exec V.P.
           Kathryn J. Kolder<PAGE>

                                                                    EXHIBIT 10.5

                 COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT

          COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT, dated as of September 4,
2001, made by CYBERIAN OUTPOST, INC., a Delaware corporation (the "Company"), in
                                                                   -------
favor of FRY'S ELECTRONICS, INC., a California corporation (the "Holder").
                                                                 ------

                             W I T N E S S E T H:
                             --------------------

          WHEREAS, the Company and the Holder are parties to that certain
Secured Promissory Note, dated as of September 4, 2001 (the "Note"), in the
                                                             ----
principal amount of $13,000,000;

          WHEREAS, pursuant to the Note, the Holder has agreed to make loans to
the Company upon the terms and subject to the conditions set forth therein; and

          WHEREAS, it is a condition to the obligation of the Holder to make the
loans to the Company under the Note, that the Company shall have executed and
delivered this Collateral Assignment and Security Agreement to the Holder.

          NOW, THEREFORE, in consideration of the premises and to induce the
Holder to enter into the Note, and to induce the Holder to make the loans to the
Company, the Company hereby agrees with the Holder as follows:

          1.   Defined Terms.
               -------------

          1.1  Definitions. (a) Unless otherwise defined herein, terms defined
               -----------
in the Note and used herein shall have the meanings given to them in the Note,
and the following terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof are used herein as so
defined: Accounts, Certificated Security, Chattel Paper, Documents, Equipment,
General Intangibles, Instruments, Inventory, Investment Property, Letter-of-
Credit Rights, Proceeds and Supporting Obligations.

          (b)  The following terms shall have the following meanings:

          "Agreement": this Collateral Assignment and Security Agreement, as
           ---------
     the same may be amended, supplemented or otherwise modified from time to
     time.

          "Code": the Uniform Commercial Code as from time to time in effect in
           ----
     the State of New York.

          "Collateral": as defined in Section 2.
           ----------

          "Copyrights": (i) all copyrights arising under the laws of the United
           ----------
     States, any other country or any political subdivision thereof, whether
     registered or unregistered and whether published or unpublished, all
     registrations and recordings thereof, and all applications in connection
     therewith, including, without limitation, all registrations, recordings and
     applications in the United States Copyright Office, and (ii) the right to
     obtain all renewals thereof.
<PAGE>

                                                                               2

          "Copyright Licenses": any written agreement naming the Company as
           ------------------
     licensor or licensee, granting any right under any Copyright, including,
     without limitation, the grant of rights to manufacture, distribute, exploit
     and sell materials derived from any Copyright.

          "Deposit Accounts": as defined in the Uniform Commercial Code of any
           ----------------
     applicable jurisdiction and, in any event, including, without limitation,
     any demand, time, savings, passbook or like account maintained with a
     depositary institution.

          "Intellectual Property": the collective reference to all rights,
           ---------------------
     priorities and privileges relating to intellectual property, whether
     arising under United States, multinational or foreign laws or otherwise,
     including, without limitation, the Copyrights, the Copyright Licenses, the
     Patents, the Patent Licenses, the Trademarks and the Trademark Licenses,
     and all rights to sue at law or in equity for any infringement or other
     impairment thereof, including the right to receive all proceeds and damages
     therefrom.

          "Lien": any mortgage, pledge, hypothecation, assignment, deposit
           ----
     arrangement, encumbrance, lien (statutory or other), charge or other
     security interest or any preference, priority or other security agreement
     or preferential arrangement of any kind or nature whatsoever (including any
     conditional sale or other title retention agreement and any capital lease
     having substantially the same economic effect as any of the foregoing).

          "Obligations": the collective reference to the unpaid principal of
           -----------
     and interest on the loans made under the Note and all other obligations and
     liabilities of the Company to the Holder, whether direct or indirect,
     absolute or contingent, due or to become due, or now existing or hereafter
     incurred, which may arise under, out of, or in connection with, the Note,
     any guarantee made pursuant to Section 1.2 of the Note, or this Agreement.

          "Patents": (i) all letters patent of the United States, any other
           -------
     country or any political subdivision thereof, all reissues and extensions
     thereof and all goodwill associated therewith, (ii) all applications for
     letters patent of the United States or any other country and all divisions,
     continuations and continuations-in-part thereof and (iii) all rights to
     obtain any reissues or extensions of the foregoing.

          "Patent License": all agreements, whether written or oral, providing
           --------------
     for the grant by or to the Company of any right to manufacture, use or sell
     any invention covered in whole or in part by a Patent.

          "Permitted Encumbrances": (i) liens of warehousemen, mechanics,
           ----------------------
     materialmen, workers, repairmen, common carriers, or landlords, liens for
     taxes, assessments or other governmental charges (other than federal tax
     and ERISA liens), and other similar liens arising by operation of law, in
     each case arising in the ordinary course of business and for amounts that
     are not yet due and payable or which are being contested in good faith by
     appropriate proceedings promptly instituted and diligently conducted and
     for which an adequate reserve or other appropriate provision shall have
     been made to the extent required by generally accepted accounting
     principals; (ii) pledges or deposits in connection with workers'
     compensation, unemployment insurance and other social security legislation;
     (iii) deposits to secure the performance of bids, trade contracts (other
     than for borrowed money), statutory obligations, surety and appeal bonds,
     performance
<PAGE>

                                                                               3

     bonds and other obligations of a like nature incurred in the ordinary
     course of business; and (iv) the lessor's interest in property leased to
     the Company.

          "Receivable": any right to payment for goods sold or leased or for
           ----------
     services rendered, whether or not such right is evidenced by an Instrument
     or Chattel Paper and whether or not it has been earned by performance
     (including, without limitation, any Account).

          "Trademarks": (i) all trademarks, trade names, corporate names,
           ----------
     company names, business names, fictitious business names, trade styles,
     service marks, logos and other source or business identifiers, and all
     goodwill associated therewith, now existing or hereafter adopted or
     acquired, all registrations and recordings thereof, and all applications in
     connection therewith, whether in the United States Patent and Trademark
     Office or in any similar office or agency of the United States, any State
     thereof or any other country or any political subdivision thereof, or
     otherwise, and all common-law rights related thereto, and (ii) the right to
     obtain all renewals thereof.

          "Trademark License" means any agreement, written or oral, providing
           -----------------
     for the grant by or to the Company of any right to use any Trademark.

          "Vehicles" means all cars, trucks, trailers, construction and earth
           --------
     moving equipment and other vehicles covered by a certificate of title law
     of any state and all tires and other appurtenances to any of the foregoing.

          1.2  Other Definitional Provisions. (a) The words "hereof," "herein,"
               -----------------------------
"hereto" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section, subsection and Schedule references are to this
Agreement unless otherwise specified.

          (b)  The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

          2.   Grant of Security Interest. As collateral security for the prompt
               --------------------------
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations, the Company hereby grants to
the Holder a security interest in all of the following property now owned or at
any time hereafter acquired by the Company or in which the Company now has or at
any time in the future may acquire any right, title or interest (collectively,
the "Collateral"):
     ----------

          (a)  all Accounts;

          (b)  all Chattel Paper;

          (c)  all Deposit Accounts;

          (d)  all Documents;

          (e)  all Equipment;

          (f)  all General Intangibles;
<PAGE>

                                                                               4

          (g)  all Instruments;

          (h)  all Intellectual Property;

          (i)  all Inventory;

          (j)  all Investment Property;

          (k)  all Letter-of-Credit Rights;

          (l)  all Vehicles;

          (m)  all other property not otherwise described above;

          (n)  all books and records pertaining to the Collateral; and

          (o)  to the extent not otherwise included, all Proceeds, Supporting
Obligations and products of any and all of the foregoing and all collateral
security and guarantees given by any person with respect to any of the
foregoing.

          3.   Representations and Warranties. The Company hereby represents and
               ------------------------------
warrants that:

          3.1  Title; No Other Liens. Except for the security interest granted
               ---------------------
to the Holder pursuant to this Agreement, and other than as set forth on
Schedule 1, the Company owns each item of the Collateral free and clear of any
----------
and all Liens or claims of others other than Permitted Encumbrances. Other than
as set forth on Schedule 1, no financing statement or other public notice with
                ----------
respect to all or any part of the Collateral is on file or of record in any
public office, except such as have been filed in favor of the Holder pursuant to
this Agreement.

          3.2  Perfected First Priority Liens. The security interests granted
               ------------------------------
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 2 will constitute perfected security interests in the
             ----------
Collateral (other than security interest in vehicles granted hereunder which
shall not be required to be perfected) in favor of the Holder, as collateral
security for the Obligations and (b) other than as set forth on Schedule 1, are
                                     -------------------------------------
prior to all other Liens on the Collateral in existence on the date hereof.

          3.3  Inventory and Equipment. The Inventory and the Equipment are kept
               -----------------------
at the locations listed on Schedule 3.
                           ----------

          3.4  Jurisdiction of Organization; Chief Executive Office. The
               ----------------------------------------------------
Company's jurisdiction of organization is Delaware, its identification number
from Delaware is 2905438 and its chief executive office or sole place of
business is located at 23 North Main Street, Kent, Connecticut 06757. The
Company has delivered to the Holder a copy of its Certificate of Incorporation
certified by the Secretary of State of the State of Delaware. Schedule 4 lists
all Intellectual Property owned by the Company in its own name as of the date
hereof.

          4.   Covenants. The Company covenants and agrees with the Holder that,
               ---------
from and after the date of this Agreement until the Obligations shall have been
paid in full:
<PAGE>

                                                                               5

          4.1  Delivery of Instruments, Certificated Securities and Chattel
               ------------------------------------------------------------
Paper. If any amount payable under or in connection with any of the Collateral
-----
shall be or become evidenced by any Instrument, Certificated Security or Chattel
Paper, such Instrument, Certificated Security or Chattel Paper shall be
immediately delivered to the Holder, duly endorsed in a manner satisfactory to
the Holder, to be held as Collateral pursuant to this Agreement.

          4.2  Maintenance of Perfected Security Interest; Liens; Further
               ----------------------------------------------------------
Documentation. (a) The Company shall maintain the security interest created by
-------------
this Agreement as a perfected security interest having at least the priority
described in subsection 3.2 and shall defend such security interest against the
claims and demands of all persons whomsoever.

          (b)  The Company will furnish to the Holder from time to time
statements and schedules further identifying and describing the assets and
property of the Company and such other reports in connection therewith as the
Holder may reasonably request, all in reasonable detail.

          (c)  The Company will not create, incur, assume or suffer to exist any
Lien upon any of its property, whether now or hereafter acquired, except for (i)
the Liens created by this Agreement, (ii) those Liens set forth on Schedule 1
and (iii) Permitted Encumbrances.

          (d)  At any time and from time to time, upon the written request of
the Holder, and at the sole expense of the Company, the Company will promptly
and duly execute and deliver such further instruments and documents and take
such further actions as the Holder may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, (i) the filing of any
financing or continuation statements under the Uniform Commercial Code (or other
similar laws) in effect in any jurisdiction with respect to the security
interests created hereby and (ii) in the case of Investment Property, Deposit
Accounts, Letter-of-Credit Rights and any other relevant Collateral, taking any
actions necessary to enable the Holder to obtain "control" (within the meaning
of the applicable Uniform Commercial Code) with respect thereto.

          4.3  Changes in Locations, Name, etc. The Company will not, except
               --------------------------------
upon 15 days' prior written notice to the Holder and delivery to the Holder of
(a) all additional executed financing statements and other documents reasonably
requested by the Holder to maintain the validity, perfection and priority of the
security interests provided for herein and (b) if applicable, a written
supplement to Schedule 3 showing any additional location at which Inventory or
              ----------
Equipment shall be kept:

          (a)  permit any of the Inventory or Equipment to be kept at a location
other than those listed on Schedule 3;
                           ----------

          (b)  change its jurisdiction of organization or the location of its
chief executive office or sole place of business from that specified in
subsection 3.4; or

          (c)  change its name.

          4.4  Intellectual Property.
               ---------------------
<PAGE>

                                                                               6

          (a)  The Company (either itself or through licensees) will not do any
act, or omit to do any act, whereby any material Patent may become forfeited,
abandoned or dedicated to the public.

          (b)  The Company (either itself or through licensees) will not do any
act that knowingly uses any material Intellectual Property to infringe the
intellectual property rights of any other Person.

          (c)  The Company will notify the Holder immediately if it knows, or
has reason to know, that any application or registration relating to any
material Intellectual Property may become forfeited, abandoned or dedicated to
the public, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office, the United States
Copyright Office or any court or tribunal in any country) regarding the
Company's ownership of, or the validity of, any material Intellectual Property
or the Company's right to register the same or to own and maintain the same.

          (d)  Whenever such Company, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, the Company shall report such
filing to the Holder within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Holder, the Company
shall execute and deliver, and have recorded, any and all agreements,
instruments, documents, and papers as the Holder may request to evidence the
Holders' security interest in any Copyright, Patent or Trademark and the
goodwill and general intangibles of the Company relating thereto or represented
thereby.

          (e)  The Company will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.

          In the event that any material Intellectual Property is infringed,
misappropriated or diluted by a third party, the Company shall (i) take such
actions as the Company shall reasonably deem appropriate under the circumstances
to protect such Intellectual Property and (ii) if such Intellectual Property is
of material economic value, promptly notify the Holder after it learns thereof
and sue for infringement, misappropriation or dilution, to seek injunctive
relief where appropriate and to recover any and all damages for such
infringement, misappropriation or dilution.

          4.5  Notices. The Company will advise the Holder promptly, in
               -------
reasonable detail, of:

          (a)  any Lien (other than security interests created hereby or those
listed on Schedule 1) on any of the Collateral which would adversely affect the
          ----------
ability of the Holder to exercise any of its remedies hereunder; and
<PAGE>

                                                                               7

          (b)  of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.

          5.   Remedies. If an Event of Default shall occur and be continuing,
               --------
the Holder may exercise, in addition to all other rights and remedies granted to
it in this Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code.

          6.   Execution of Financing Statements. Pursuant to any applicable
               ---------------------------------
law, the Company authorizes the Holder to file or record financing statements
and other filing or recording documents or instruments with respect to the
Collateral without the signature of the Company in such form and in such offices
as the Holder determines appropriate to perfect the security interests of the
Holder under this Agreement. The Company authorizes the Holder to use the
collateral description "all personal property" in any such financing statements.

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

          8.   Amendments in Writing. None of the terms or provisions of this
               ---------------------
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Company and the Holder.

          9.   No Waiver by Course of Conduct; Cumulative Remedies. The Holder
               ---------------------------------------------------
shall not by any act (except by a written instrument pursuant to Section 8),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Event of Default. No failure to
exercise, nor any delay in exercising, on the part of the Holder, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Holder of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Holder
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law.

          10.  Enforcement Expenses; Indemnification. (a) The Company agrees to
               -------------------------------------
pay or reimburse the Holder for all its costs and expenses incurred in enforcing
or preserving any rights under this Agreement, including, without limitation,
the fees and disbursements of counsel (including the allocated fees and expenses
of in-house counsel) to the Holder.

          (b)  The Company agrees to pay, and to save the Holder harmless from,
any and all liabilities with respect to, or resulting from any delay in paying,
any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Agreement.
<PAGE>

                                                                               8

          (c)  The Company agrees to pay, and to save the Holder harmless from,
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (other than those resulting from the gross negligence or willful
misconduct of the Holder) with respect to the execution, delivery, enforcement,
performance and administration of this Agreement.

          (d)  The agreements in this Section 10 shall survive repayment of the
Obligations and all other amounts payable under the Note.

          11.  Notices. All notices, requests and demands to or upon the Holder
               -------
hereunder shall be effected in the manner provided for in the Note.

          12.  Section Headings. The Section and subsection headings used in
               ----------------
this Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.

          13.  Successors and Assigns. This Agreement shall be binding upon the
               ----------------------
successors and assigns of the Company and shall inure to the benefit of the
Holder and its successors and assigns.

          14.  Governing Law. This Agreement shall be governed by, and construed
               -------------
and interpreted in accordance with, the law of the State of New York.

          15.  WAIVER OF JURY TRIAL. THE COMPANY HEREBY IRREVOCABLY AND
               --------------------
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>

                                                                               9

          IN WITNESS WHEREOF, the undersigned has caused this Collateral
Assignment and Security Agreement to be duly executed and delivered as of the
date first above written.

                                  CYBERIAN OUTPOST, INC.

                                  By: /s/ Darryl Peck
                                      -------------------------------
                                       Name:  Darryl Peck
                                       Title: CEO

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