Document:

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                                                                 Exhibit 10-Q(v)

                            FIFTH AMENDMENT TO THE
                            PROFIT SHARING PLAN OF
                 PRIORITY HEALTHCARE CORPORATION AND AFFILIATES

WHEREAS, Priority Healthcare Corporation (the "Company") sponsors the Profit
Sharing Plan of Priority Healthcare Corporation and Affiliates (the "Plan"),
originally effective as of January 1, 1999 as stated in the PRISM
Non-Standardized Prototype Retirement Plan as provided by the Trustee; and

WHEREAS, the Company acquired several new divisions operating on January 20,
2001, under the name FRECO, Inc., Lynnfield Compounding Center, Inc., and
Lynnfield Drug Company, Inc. d/b/a Freedom Drug, and desires to give those
employees acquired in the transaction prior service credit for eligibility and
vesting for Plan purposes; and

WHEREAS, the Company has also acquired and absorbed the employees of Physicians
Formulary and desires to give such employees past service credit for eligibility
and vesting under the Plan; and

WHEREAS, the Company desires to amend the Plan, effective as of January 20,
2001.

NOW THEREFORE,

BE IT RESOLVED, that the Company, effective January 20, 2001, amends the
provisions of Item B.4.j.(v) of the Adoption Agreement to provide as follows:

B. Basic Plan Provisions:
   ...

   4. Definitions:
   ...

      j. Year of Service shall mean:
      ...
      v  X  For eligibility purposes, Years of Service with the following
        --- Predecessor Employers shall count in fulfilling the eligibilty
            requirements for this Plan:

            Bindley Western Industries, Inc., and subsidiaries, but only for
            service as of the Effective Date, and only for employees employed by
            Priority Healthcare Corporation (or its affiliates) as of the
            Effective Date, Pharmacy Plus, Inc., Supplies Unlimited, and active
            Employees of FRECO, Inc., Lynnfield Compounding Center, Inc.,
            Lynnfield Drug, Inc. d/b/a Freedom Drug and Physicians Formulary
            employed on January 20, 2001.

      vi X  For vesting purposes, Years of Service with the following
        --- Predecessor Employers shall count for purposes of determining the
            nonforfeitable

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           amount of a Participant's account:

           Bindley Western Industries, Inc., and subsidiaries, but only for
           service as of the Effective Date, and only for employees employed by
           Priority Healthcare Corporation (or its affiliates) as of the
           Effective Date, Pharmacy Plus, Inc., Supplies Unlimited, and active
           Employees of FRECO, Inc., Lynnfield Compounding Center, Inc.,
           Lynnfield Drug, Inc. d/b/a Freedom Drug and Physicians Formulary
           employed on January 20, 2001.

AND BE IT FURTHER RESOLVED, that except as amended herein, all other provisions
of the Profit Sharing Plan of Priority Healthcare Corporation and Affiliates
shall remain effective as set forth in the Adoption Agreement.

Plan Sponsor: Priority Healthcare Corporation

By: /s/ Barbara J. Luttrell                              Dated  5-23-01
    -----------------------                                     ---------

Trustee: KeyBank National Association

By: /s/ George M. Newsham                                Dated: 5/29/01
    ---------------------                                       ---------<PAGE>
                                                                    EXHIBIT 4.10

                               SECURITY AGREEMENT

            SECURITY AGREEMENT, dated as of January 18, 2002 (this "Agreement"),
      among e.Digital Corporation, a Delaware corporation ("Parent"), e.Digital
      Corporation, a California corporation ("Subsidiary" and, each of
      Subsidiary and Parent are a "Debtor" and Subsidiary and Parent are,
      collectively, the "Debtors"), and Immanuel Kant International Limited, its
      endorsees, transferees and assigns (the "Secured Party").

                              W I T N E S S E T H:

            WHEREAS, pursuant to the 5% Secured Promissory Note of the Parent,
      dated the date of this Agreement, issued in the original principal amount
      of $1,200,000 to the Secured Party (the "Note"), the Secured Party has
      agreed to extend the loan to Parent evidenced by the Note; and

            WHEREAS, in order to induce the Secured Party to extend the loan
      evidenced by the Note, the Debtors have agreed to execute and deliver to
      the Secured Party this Agreement and to grant Secured Party a first
      priority security interest in certain property of the Debtors to secure
      the prompt payment, performance and discharge in full of all of Parent's
      obligations under the Note.

            NOW, THEREFORE, in consideration of the agreements herein contained
      and for other good and valuable consideration, the receipt and sufficiency
      of which is hereby acknowledged, the parties hereto hereby agree as
      follows:

            1.    Certain Definitions. As used in this Agreement, the following
      terms shall have the meanings set forth in this Section 1. Terms used but
      not otherwise defined in this Agreement that are defined in Article 9 of
      the UCC (such as "general intangibles" and "proceeds") shall have the
      respective meanings given such terms in Article 9 of the UCC.

                  (a)   "Collateral" means the collateral in which the Secured
      Party is granted a security interest by this Agreement and which shall
      include the following, whether presently owned or existing or hereafter
      acquired or coming into existence, and all additions and accessions
      thereto and all substitutions and replacements thereof, and all proceeds,
      products and accounts thereof, including, without limitation, all proceeds
      from the sale or transfer of the Collateral and of insurance covering the
      same and of any tort claims in connection therewith:

(i)   All Goods of the Debtors, including, without limitations, all machinery,
      equipment, computers, motor vehicles, trucks, tanks, boats, ships,
      appliances, furniture, special and general tools, fixtures, test and
      quality control devices and other equipment of every kind and nature and
      wherever situated, together with all documents of title and documents
      representing the same, all additions and accessions thereto, replacements
      therefor, all parts therefor, and all substitutes for any of the foregoing
      and all other items used and useful in connection with the Debtors'
      respective businesses and all improvements thereto (collectively, the
      "Equipment"); and

(ii)  All Inventory of the Debtors; and

(iii) All of the Debtors' respective contract rights and general intangibles,
      including, without limitation, all partnership interests, stock or other
      securities, licenses, distribution and other agreements, computer software
      development rights, leases, franchises, customer lists, quality control
      procedures, grants and rights, goodwill, trademarks, service marks, trade
      styles, trade names, patents, patent applications, copyrights, deposit
      accounts, and income tax refunds (collectively, the "General
      Intangibles"); and

(iv)  All Receivables of the Debtors including all insurance proceeds, and
      rights to refunds or indemnification whatsoever owing, together with all
      instruments, all documents of title representing any of the foregoing, all
      rights in any merchandising, goods, equipment, motor vehicles and trucks
      which any of the same may represent, and all right, title,

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      security and guaranties with respect to each Receivable, including any
      right of stoppage in transit; and

(v)   All of the Debtors' respective documents, instruments and chattel paper,
      files, records, books of account, business papers, computer programs and
      the products and proceeds of all of the foregoing Collateral set forth in
      clauses (i)-(iv) above.

                  (c)   "Obligations" means all of the Debtors' respective
      obligations under this Agreement and the Note, in each case, whether now
      or hereafter existing, voluntary or involuntary, direct or indirect,
      absolute or contingent, liquidated or unliquidated, whether or not jointly
      owed with others, and whether or not from time to time decreased or
      extinguished and later increased, created or incurred, and all or any
      portion of such obligations or liabilities that are paid, to the extent
      all or any part of such payment is avoided or recovered directly or
      indirectly from the Secured Party as a preference, fraudulent transfer or
      otherwise as such obligations may be amended, supplemented, converted,
      extended or modified from time to time.

                  (d)   "UCC" means the Uniform Commercial Code and or any other
      applicable law of any jurisdiction (including, without limitation, the
      state of California) as to any Collateral located therein.

            2.    Grant of First Priority Security Interest. As an inducement
      for the Secured Party to extend the loan as evidenced by the Note and to
      secure the complete and timely payment, performance and discharge in full,
      as the case may be, of all of the Obligations, each Debtor hereby,
      unconditionally and irrevocably, pledges, grants and hypothecates to the
      Secured Party, a continuing first priority security interest in, a first
      lien upon and a right of set-off against all of their respective right,
      title and interest of whatsoever kind and nature in and to the Collateral
      (the "Security Interest").

            3.    Representations, Warranties, Covenants and Agreements of the
      Debtors. The Debtors jointly and severally represent and warrant to, and
      covenant and agree with, the Secured Party as follows:

                  (a)   The Debtors have the requisite corporate power and
      authority to enter into this Agreement and otherwise to carry out their
      obligations thereunder. The execution, delivery and performance by the
      Debtors of this Agreement and the filings contemplated therein have been
      duly authorized by all necessary action on the part of the Debtors and no
      further action is required by the Debtors.

                  (b)   The Debtors represent and warrant that they have no
      place of business or offices where their respective books of account and
      records are kept (other than temporarily at the offices of its attorneys
      or accountants) or places where Collateral is stored or located, except as
      set forth on Schedule A attached hereto.

                  (c)   Except for the indebtedness and subordinated liens of
      the holders of the Parent's 12% Secured Promissory Notes due December 31,
      2002 in the principal amount of $1,000,000, the Debtors are the sole
      owners of the Collateral (except for non-exclusive licenses granted by the
      Debtors in the ordinary course of business), free and clear of any liens,
      security interests, encumbrances, rights or claims, and are fully
      authorized to grant the Security Interest in and to pledge the Collateral.
      There is not on file in any governmental or regulatory authority, agency
      or recording office an effective financing statement, security agreement,
      license or transfer or any notice of any of the foregoing (other than
      those that have been filed in favor of the Secured Party pursuant to this
      Agreement) covering or affecting any of the Collateral. So long as this
      Agreement shall be in effect, neither Debtor shall not execute and shall
      not knowingly permit to be on file in any such office or agency any such
      financing statement or other document or instrument (except to the extent
      filed or recorded in favor of the Secured Party pursuant to the terms of
      this Agreement).

                  (d)   No part of the Collateral has been judged invalid or
      unenforceable. No written claim has been received that any Collateral or
      either Debtor's use of any Collateral violates the rights of any third
      party. There has been no adverse decision to either Debtor's claim of
      ownership rights in or exclusive rights to use the Collateral

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      in any jurisdiction or to a Debtor's right to keep and maintain such
      Collateral in full force and effect, and there is no proceeding involving
      said rights pending or, to the best knowledge of the Debtors, threatened
      before any court, judicial body, administrative or regulatory agency,
      arbitrator or other governmental authority.

                  (e)   The Debtors shall at all times maintain their respective
      books of account and records relating to the Collateral at their
      respective principal place of business and their respective Collateral at
      the locations set forth on Schedule A attached hereto and may not relocate
      such books of account and records or tangible Collateral unless they
      deliver to the Secured Party at least 30 days prior to such relocation (i)
      written notice of such relocation and the new location thereof (which must
      be within the United States) and (ii) evidence that appropriate financing
      statements under the UCC and other necessary documents have been filed and
      recorded and other steps have been taken to perfect the Security Interest
      to create in favor of the Secured Party a valid, perfected and continuing
      first priority liens in the Collateral.

                  (f)   This Agreement creates in favor of the Secured Party a
      valid security interest in the Collateral securing the payment and
      performance of the Obligations and, upon making the filings described in
      the immediately following sentence, a perfected first priority security
      interest in such Collateral. Except for the filing of financing statements
      pursuant to the UCC with the proper filing and recording agencies in the
      jurisdictions indicated on Schedule B, attached hereto, no authorization
      or approval of or filing with or notice to any governmental authority or
      regulatory body is required either (i) for the grant by the Debtors of, or
      the effectiveness of, the Security Interest granted hereby or for the
      execution, delivery and performance of this Agreement by the Debtors or
      (ii) for the perfection of or exercise by the Secured Party of its rights
      and remedies hereunder.

                  (g)   On the date of execution of this Agreement, the Debtors
      will file one or more financing statements under the UCC with respect to
      the Security Interest with the proper filing and recording agencies in the
      jurisdictions indicated on Schedule B, attached hereto and in such other
      jurisdictions as may be requested by the Secured Party and will deliver
      true and complete copies of such filings to the Secured Party.

                  (h)   The execution, delivery and performance of this
      Agreement by the Debtors does not conflict with, or constitute a default
      (or an event that with notice or lapse of time or both would become a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation (with or without notice, lapse of time or
      both) of, any agreement, credit facility, debt or other instrument
      (evidencing a Debtor's debt or otherwise) or other understanding to which
      either Debtor is a party or by which any property or asset of the Debtors
      is bound or affected. No consent (including, without limitation, from
      stock holders or creditors of a Debtor) is required for the Debtors to
      enter into and perform its obligations hereunder.

                  (i)   The Debtors shall at all times maintain the liens and
      Security Interest provided for hereunder as valid and perfected first
      priority liens and security interests in the Collateral in favor of the
      Secured Party until this Agreement and the Security Interest hereunder
      shall be terminated pursuant to Section 11 hereof. The Debtors hereby
      agree to defend the same against any and all persons. The Debtors shall
      safeguard and protect all Collateral for the account of the Secured Party.
      At the request of the Secured Party, the Debtors will sign and deliver to
      the Secured Party at any time or from time to time one or more financing
      statements pursuant to the UCC in form reasonably satisfactory to the
      Secured Party and will pay the cost of filing the same in all public
      offices wherever filing is, or is deemed by the Secured Party to be,
      necessary or desirable to effect the rights and obligations provided for
      herein. Without limiting the generality of the foregoing, the Debtors
      shall pay all fees, taxes and other amounts necessary to maintain the
      Collateral and the Security Interest hereunder, and the Debtors shall
      obtain and furnish to the Secured Party from time to time, upon demand,
      such releases and/or subordinations of claims and liens which may be
      required to maintain the priority of the Security Interest hereunder.

                  (j)   The Debtors will not transfer, pledge, hypothecate,
      encumber, license (except for non-exclusive licenses granted by a Debtor
      in its ordinary course of business and sales of inventory), sell or
      otherwise dispose of any of the Collateral without the prior written
      consent of the Secured Party.

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                  (k)   The Debtors shall keep and preserve its Equipment,
      Inventory and other tangible Collateral in good condition, repair and
      order and shall not operate or locate any such Collateral (or cause to be
      operated or located) in any area excluded from insurance coverage.

                  (l)   The Debtors shall, within ten (10) days of obtaining
      knowledge thereof, advise the Secured Party promptly, in sufficient
      detail, of any substantial change in the Collateral, and of the occurrence
      of any event which would have a material adverse effect on the value of
      the Collateral or on the Secured Party's security interest therein.

                  (m)   The Debtors shall promptly execute and deliver to the
      Secured Party such further deeds, mortgages, assignments, security
      agreements, financing statements or other instruments, documents,
      certificates and assurances and take such further action as the Secured
      Party may from time to time request and may in its sole discretion deem
      necessary to perfect, protect or enforce its security interest in the
      Collateral including, without limitation, the execution and delivery of a
      separate security agreement with respect to each Debtor's intellectual
      property ("Intellectual Property Security Agreement") in which the Secured
      Party has been granted a security interest hereunder, substantially in a
      form acceptable to the Secured Party, which Intellectual Property Security
      Agreement, other than as stated therein, shall be subject to all of the
      terms and conditions hereof.

                  (n)   The Debtor's shall permit the Secured Party and its
      representatives and agents to inspect the Collateral at any time, and to
      make copies of records pertaining to the Collateral as may be requested by
      the Secured Party from time to time.

                  (o)   The Debtor's shall take all steps reasonably necessary
      to diligently pursue and seek to preserve, enforce and collect any rights,
      claims, causes of action and accounts receivable in respect of the
      Collateral.

                  (p)   The Debtors shall promptly notify the Secured Party in
      sufficient detail upon becoming aware of any attachment, garnishment,
      execution or other legal process levied against any Collateral and of any
      other information received by a Debtor that may materially affect the
      value of the Collateral, the Security Interest or the rights and remedies
      of the Secured Party hereunder.

                  (q)   All information heretofore, herein or hereafter supplied
      to the Secured Party by or on behalf of the Debtors with respect to the
      Collateral is accurate and complete in all material respects as of the
      date furnished.

                  (r)   The Debtors shall at all times preserve and keep in full
      force and effect their respective valid existence and good standing and
      any rights and franchises material to its business.

                  (s)   A Debtor will not change its name, FEIN, corporate
      structure, or identity, or add any new fictitious name unless it provides
      at least 30 days prior written notice to the Secured Party of such change
      and, at the time of such written notification, such Debtor provides any
      financing statements or fixture filings necessary to perfect and continue
      perfected the first priority Security Interest granted and evidenced by
      this Agreement and the Note as to the Collateral.

                  (t)   A Debtor may not consign any of its Inventory or sell
      any of its Inventory on bill and hold, sale or return, sale on approval,
      or other conditional terms of sale without the consent of the Secured
      Party which shall not be unreasonably withheld.

                  (u)   A Debtor may not relocate its chief executive office to
      a new location without providing 30 days prior written notification
      thereof to the Secured Party and so long as, at the time of such written
      notification, such Debtor provides any financing statements or fixture
      filings necessary to perfect and continue perfected the first

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      priority Security Interest granted and evidenced by this Agreement and the
      Note as to the Collateral.

                  (v)   Parent owns 100% of the capital stock of Subsidiary.

            4.    Defaults. The following events shall be "Events of Default":

                  (a)   The occurrence of an Event of Default (as defined in the
      Note) under the Note;

                  (b)   Any representation or warranty of a Debtor in this
      Agreement or in the Intellectual Property Security Agreement shall prove
      to have been incorrect in any material respect when made;

                  (c)   The failure by a Debtor to observe or perform any of its
      obligations hereunder or in the Intellectual Property Security Agreement
      for five (5) days after delivery to such Debtor of notice of such failure
      by or on behalf of the Secured Party;

                  (d)   A Debtor shall prepay, redeem, defease, purchase, or
      otherwise acquire any of its or its subsidiaries' indebtedness, other than
      permitted prepayments under the Note;

                  (e)   A Debtor shall make any distribution or declare or pay
      any dividends (in cash or other property, other than common stock) on, or
      purchase, acquire, redeem, or retire any of its capital stock, of any
      class, whether now or hereafter outstanding;

                  (f)   Parent shall modify or change its method of accounting
      or enter into, modify, or terminate any agreement currently existing, or
      at any time hereafter entered into with any third party accounting firm or
      service bureau for the preparation or storage of its accounting records;

                  (g)   If a judgment or other claim becomes a lien or
      encumbrance upon any material portion of a Debtor's assets; and

                  (h)   If any provision of this Agreement shall at any time for
      any reason be declared to be null and void, or the validity or
      enforceability thereof shall be contested by a Debtor, or a proceeding
      shall be commenced by a Debtor, or by any governmental authority having
      jurisdiction over a Debtor, seeking to establish the invalidity or
      unenforceability thereof, or a Debtor shall deny that a Debtor has any
      liability or obligation purported to be created under this Agreement.

            5.    Duty To Hold In Trust. Upon the occurrence of any Event of
      Default and at any time thereafter, the Debtors shall, upon receipt of any
      revenue, income or other sums subject to the Security Interest, whether
      payable pursuant to the Note or otherwise, or of any check, draft, note,
      trade acceptance or other instrument evidencing an obligation to pay any
      such sum, hold the same in trust for the Secured Party and shall forthwith
      endorse and transfer any such sums or instruments, or both, to the Secured
      Party for application to the satisfaction of the Obligations.

            6.    Rights and Remedies Upon Default. Upon the occurrence of any
      Event of Default and at any time thereafter, the Secured Party shall have
      the right to exercise all of the remedies conferred hereunder and under
      the Note, and the Secured Party shall have all the rights and remedies of
      a secured party under the UCC. Without limitation, the Secured Party shall
      have the following rights and powers:

                  (a)   The Secured Party shall have the right to take
      possession of the Collateral and, for that purpose, enter, with the aid
      and assistance of any person, any premises where the Collateral, or any
      part thereof, is or may be placed and remove the same, and the Debtors
      shall assemble the Collateral and make it available to the Secured Party
      at places which the Secured Party shall reasonably select, whether at a
      Debtor's premises or

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      elsewhere, and make available to the Secured Party, without rent, all of
      the Debtors' respective premises and facilities for the purpose of the
      Secured Party taking possession of, removing or putting the Collateral in
      saleable or disposable form.

                  (b)   The Secured Party shall have the right to operate the
      business of the Debtors using the Collateral and shall have the right to
      assign, sell, lease or otherwise dispose of and deliver all or any part of
      the Collateral, at public or private sale or otherwise, either with or
      without special conditions or stipulations, for cash or on credit or for
      future delivery, in such parcel or parcels and at such time or times and
      at such place or places, and upon such terms and conditions as the Secured
      Party may deem commercially reasonable, all without (except as shall be
      required by applicable statute and cannot be waived) advertisement or
      demand upon or notice to the Debtors or right of redemption of a Debtor,
      which are hereby expressly waived. Upon each such sale, lease, assignment
      or other transfer of Collateral, the Secured Party may, unless prohibited
      by applicable law which cannot be waived, purchase all or any part of the
      Collateral being sold, free from and discharged of all trusts, claims,
      right of redemption and equities of the Debtors, which are hereby waived
      and released.

            7.    Applications of Proceeds. The proceeds of any such sale, lease
      or other disposition of the Collateral hereunder shall be applied first,
      to the expenses of retaking, holding, storing, processing and preparing
      for sale, selling, and the like (including, without limitation, any taxes,
      fees and other costs incurred in connection therewith) of the Collateral,
      to the reasonable attorneys' fees and expenses incurred by the Secured
      Party in enforcing its rights hereunder and in connection with collecting,
      storing and disposing of the Collateral, and then to satisfaction of the
      Obligations, and to the payment of any other amounts required by
      applicable law, after which the Secured Party shall pay to the applicable
      Debtor any surplus proceeds. If, upon the sale, license or other
      disposition of the Collateral, the proceeds thereof are insufficient to
      pay all amounts to which the Secured Party is legally entitled, the
      Debtors will be jointly and severally liable for the deficiency, together
      with interest thereon, at the rate of 10% per annum or the lesser amount
      permitted by applicable law (the "Default Rate"), and the reasonable fees
      of any attorneys employed by the Secured Party to collect such deficiency.
      To the extent permitted by applicable law, the Debtors waive all claims,
      damages and demands against the Secured Party arising out of the
      repossession, removal, retention or sale of the Collateral, unless due to
      the gross negligence or willful misconduct of the Secured Party.

            8.    Costs and Expenses. The Debtors agree to pay all reasonable
      out-of-pocket fees, costs and expenses incurred in connection with any
      filing required hereunder, including without limitation, any financing
      statements pursuant to the UCC, continuation statements, partial releases
      and/or termination statements related thereto or any expenses of any
      searches reasonably required by the Secured Party. The Debtors shall also
      pay all other claims and charges which in the reasonable opinion of the
      Secured Party might prejudice, imperil or otherwise affect the Collateral
      or the Security Interest therein. The Debtors will also, upon demand, pay
      to the Secured Party the amount of any and all reasonable expenses,
      including the reasonable fees and expenses of its counsel and of any
      experts and agents, which the Secured Party may incur in connection with
      (i) the enforcement of this Agreement, (ii) the custody or preservation
      of, or the sale of, collection from, or other realization upon, any of the
      Collateral, or (iii) the exercise or enforcement of any of the rights of
      the Secured Party under the Note. Until so paid, any fees payable
      hereunder shall be added to the principal amount of the Note and shall
      bear interest at the Default Rate. The Debtors shall be jointly and
      severally liable to Secured Party for all costs and expenses due or owing
      under or in accordance with this Agreement.

            9.    Responsibility for Collateral. The Debtors jointly and
      severally assume all liabilities and responsibility in connection with all
      Collateral, and the obligations of a Debtor hereunder or under the Note
      shall in no way be affected or diminished by reason of the loss,
      destruction, damage or theft of any of the Collateral or its
      unavailability for any reason.

            10.   Security Interest Absolute. All rights of the Secured Party
      and all Obligations of the Debtors hereunder, shall be absolute and
      unconditional, irrespective of: (a) any lack of validity or enforceability
      of this Agreement, the Note or any agreement entered into in connection
      with the foregoing, or any portion hereof or thereof; (b) any change in
      the time, manner or place of payment or performance of, or in any other
      term of, all or any

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      of the Obligations, or any other amendment or waiver of or any consent to
      any departure from the Note or any other agreement entered into in
      connection with the foregoing; (c) any exchange, release or nonperfection
      of any of the Collateral, or any release or amendment or waiver of or
      consent to departure from any other collateral for, or any guaranty, or
      any other security, for all or any of the Obligations; (d) any action by
      the Secured Party to obtain, adjust, settle and cancel in its sole
      discretion any insurance claims or matters made or arising in connection
      with the Collateral; or (e) any other circumstance which might otherwise
      constitute any legal or equitable defense available to a Debtor, or a
      discharge of all or any part of the Security Interest granted hereby.
      Until the Obligations shall have been paid and performed in full, the
      rights of the Secured Party shall continue even if the Obligations are
      barred for any reason, including, without limitation, the running of the
      statute of limitations or bankruptcy. The Debtors expressly waives
      presentment, protest, notice of protest, demand, notice of nonpayment and
      demand for performance. In the event that at any time any transfer of any
      Collateral or any payment received by the Secured Party hereunder shall be
      deemed by final order of a court of competent jurisdiction to have been a
      voidable preference or fraudulent conveyance under the bankruptcy or
      insolvency laws of the United States, or shall be deemed to be otherwise
      due to any party other than the Secured Party, then, in any such event,
      the Debtors' respective obligations hereunder shall survive cancellation
      of this Agreement, and shall not be discharged or satisfied by any prior
      payment thereof and/or cancellation of this Agreement, but shall remain a
      valid and binding obligation enforceable in accordance with the terms and
      provisions hereof. Each Debtor waives all right to require the Secured
      Party to proceed against any other person or to apply any Collateral which
      the Secured Party may hold at any time, or to marshal assets, or to pursue
      any other remedy. Each Debtor waives any defense arising by reason of the
      application of the statute of limitations to any obligation secured
      hereby.

            11.   Term of Agreement. This Agreement and the Security Interest
      shall terminate on the date on which all payments under the Note have been
      made in full and all other Obligations have been paid or discharged. Upon
      such termination, the Secured Party, at the request and at the expense of
      the Debtors, will join in executing any termination statement with respect
      to any financing statement executed and filed pursuant to this Agreement.

            12.   Power of Attorney; Further Assurances. (a) Each Debtor
      authorizes the Secured Party, and does hereby make, constitute and appoint
      Secured Party and its respective officers, agents, successors or assigns
      with full power of substitution, as the Debtors' true and lawful
      attorney-in-fact, with power, in the name of the Secured Party or a
      Debtor, to, after the occurrence and during the continuance of an Event of
      Default, (i) endorse any notes, checks, drafts, money orders, or other
      instruments of payment (including payments payable under or in respect of
      any policy of insurance) in respect of the Collateral that may come into
      possession of the Secured Party; (ii) to sign and endorse any financing
      statement pursuant to the UCC or any invoice, freight or express bill,
      bill of lading, storage or warehouse receipts, drafts against debtors,
      assignments, verifications and notices in connection with accounts, and
      other documents relating to the Collateral; (iii) to pay or discharge
      taxes, liens, security interests or other encumbrances at any time levied
      or placed on or threatened against the Collateral; (iv) to demand,
      collect, receipt for, compromise, settle and sue for monies due in respect
      of the Collateral; and (v) generally, to do, at the option of the Secured
      Party, and at the expense of the Debtors, at any time, or from time to
      time, all acts and things which the Secured Party deems necessary to
      protect, preserve and realize upon the Collateral and the Security
      Interest granted therein in order to effect the intent of this Agreement
      and the Note all as fully and effectually as a Debtor might or could do;
      and each Debtor hereby ratifies all that said attorney shall lawfully do
      or cause to be done by virtue hereof. This power of attorney is coupled
      with an interest and shall be irrevocable for the term of this Agreement
      and thereafter as long as any of the Obligations shall be outstanding.

                  (b)   On a continuing basis, the Debtors will make, execute,
      acknowledge, deliver, file and record, as the case may be, with the proper
      filing and recording agencies in any jurisdiction, including, without
      limitation, the jurisdictions indicated on Schedule B, attached hereto,
      all such instruments, and take all such action as may reasonably be deemed
      necessary or advisable, or as reasonably requested by the Secured Party,
      to perfect the Security Interest granted hereunder and otherwise to carry
      out the intent and purposes of this Agreement, or for assuring and
      confirming to the Secured Party the grant or perfection of a first
      priority security interest in all the Collateral under the UCC.

                                       7
<PAGE>

                  (c)   Each Debtor hereby irrevocably appoints the Secured
      Party as the Debtors' attorney-in-fact, with full authority in the place
      and stead of such Debtor and in the name of such Debtor, from time to time
      in the Secured Party's discretion, to take any action and to execute any
      instrument which the Secured Party may deem necessary or advisable to
      accomplish the purposes of this Agreement, including the filing, in its
      sole discretion, of one or more financing or continuation statements and
      amendments thereto, relative to any of the Collateral without the
      signature of the Debtors where permitted by law.

            13.   Notices. All notices, requests, demands and other
      communications hereunder shall be in writing, with copies to all the other
      parties hereto, and shall be deemed to have been duly given when (i) if
      delivered by hand, upon receipt, (ii) if sent by facsimile, upon receipt
      of proof of sending thereof, (iii) if sent by the nationally recognized
      overnight delivery service (receipt requested), the next business day or
      (iv) if mailed by first-class registered or certified mail, return receipt
      requested, postage prepaid, four days after posting in the U.S. mails, in
      each case if delivered to the following addresses:

      If to either Debtor:             e.Digital Corporation
                                       13114 Evening Creek Drive South,
                                       San Diego, California 92128
                                       Facsimile No.: (858) 748-6894
                                       Attn: Ran Furman, Chief Financial Officer

      With copies to:                  Higham, McConnell & Dunning LLP
                                       28202 Cabot Road, Suite 450
                                       Laguna Niguel, CA 92677-1250
                                       Facsimile: (949) 365-5522
                                       Attn: Curt C.  Barwick, Esq.

      If to Secured Party:             Immanuel Kant International Limited
                                       c/o Beacon Capital Management
                                       Harbor House, 2nd Floor
                                       Waterfront Drive
                                       Roadtown, Tortola
                                       British Virgin Islands
                                       Attn: David Sims

      With copies to:                  Robinson Silverman Pearce Aronsohn &
                                         Berman LLP
                                       1290 Avenue of the Americas
                                       New York, NY 10104
                                       Facsimile No.: (212) 541-1432 and
                                                      (212) 541-4630
                                       Attn: Eric L.  Cohen, Esq.

            14.   Other Security. To the extent that the Obligations are now or
      hereafter secured by property other than the Collateral or by the
      guarantee, endorsement or property of any other person, firm, corporation
      or other entity, then the Secured Party shall have the right, in its sole
      discretion, to pursue, relinquish, subordinate, modify or take any other
      action with respect thereto, without in any way modifying or affecting any
      of the Secured Party's rights and remedies hereunder.

            15.   Miscellaneous.

                  (a)   No course of dealing between the Debtors and the Secured
      Party, nor any failure to exercise, nor any delay in exercising, on the
      part of the Secured Party, any right, power or privilege hereunder or
      under the Note shall operate as a waiver thereof; nor shall any single or
      partial exercise of any right, power or

                                       8
<PAGE>

      privilege hereunder or thereunder preclude any other or further exercise
      thereof or the exercise of any other right, power or privilege.

                  (b)   All of the rights and remedies of the Secured Party with
      respect to the Collateral, whether established hereby or by the Note or by
      any other agreements, instruments or documents or by law shall be
      cumulative and may be exercised singly or concurrently.

                  (c)   This Agreement constitutes the entire agreement of the
      parties with respect to the subject matter hereof and is intended to
      supersede all prior negotiations, understandings and agreements with
      respect thereto. Except as specifically set forth in this Agreement, no
      provision of this Agreement may be modified or amended except by a written
      agreement specifically referring to this Agreement and signed by the
      parties hereto.

                  (d)   In the event that any provision of this Agreement is
      held to be invalid, prohibited or unenforceable in any jurisdiction for
      any reason, unless such provision is narrowed by judicial construction,
      this Agreement shall, as to such jurisdiction, be construed as if such
      invalid, prohibited or unenforceable provision had been more narrowly
      drawn so as not to be invalid, prohibited or unenforceable. If,
      notwithstanding the foregoing, any provision of this Agreement is held to
      be invalid, prohibited or unenforceable in any jurisdiction, such
      provision, as to such jurisdiction, shall be ineffective to the extent of
      such invalidity, prohibition or unenforceability without invalidating the
      remaining portion of such provision or the other provisions of this
      Agreement and without affecting the validity or enforceability of such
      provision or the other provisions of this Agreement in any other
      jurisdiction.

                  (e)   No waiver of any breach or default or any right under
      this Agreement shall be considered valid unless in writing and signed by
      the party giving such waiver, and no such waiver shall be deemed a waiver
      of any subsequent breach or default or right, whether of the same or
      similar nature or otherwise.

                  (f)   This Agreement shall be binding upon and inure to the
      benefit of each party hereto and its successors and assigns.

                  (g)   Each party shall take such further action and execute
      and deliver such further documents as may be necessary or appropriate in
      order to carry out the provisions and purposes of this Agreement.

                  (h)   All questions concerning the construction, validity,
      enforcement and interpretation of this Agreement shall be governed by and
      construed and enforced in accordance with the internal laws of the State
      of New York, without regard to the principles of conflicts of law thereof.
      Each party agrees that all proceedings concerning the interpretations,
      enforcement and defense of the transactions contemplated by this Agreement
      and the Note (whether brought against a party hereto or its respective
      affiliates, directors, officers, shareholders, employees or agents) shall
      be commenced exclusively in the state and federal courts sitting in the
      City of New York, Borough of Manhattan. Each party hereto hereby
      irrevocably submits to the exclusive jurisdiction of the state and federal
      courts sitting in the City of New York, Borough of Manhattan for the
      adjudication of any dispute hereunder or in connection herewith or with
      any transaction contemplated hereby or discussed herein, and hereby
      irrevocably waives, and agrees not to assert in any proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court,
      that such proceeding is improper. Each party hereto hereby irrevocably
      waives personal service of process and consents to process being served in
      any such proceeding by mailing a copy thereof via registered or certified
      mail or overnight delivery (with evidence of delivery) to such party at
      the address in effect for notices to it under this Agreement and agrees
      that such service shall constitute good and sufficient service of process
      and notice thereof. Nothing contained herein shall be deemed to limit in
      any way any right to serve process in any manner permitted by law. Each
      party hereto hereby irrevocably waives, to the fullest extent permitted by
      applicable law, any and all right to trial by jury in any legal proceeding
      arising out of or relating to this Agreement or the transactions
      contemplated hereby. If either party shall commence a proceeding to
      enforce any provisions of this Agreement, then the prevailing party in
      such proceeding shall be reimbursed by the other party for its reasonable
      attorneys fees and other costs and expenses incurred with the
      investigation, preparation and prosecution of such proceeding.

                                       9
<PAGE>

                  (i)   This Agreement may be executed in any number of
      counterparts, each of which when so executed shall be deemed to be an
      original and, all of which taken together shall constitute one and the
      same Agreement. In the event that any signature is delivered by facsimile
      transmission, such signature shall create a valid binding obligation of
      the party executing (or on whose behalf such signature is executed) the
      same with the same force and effect as if such facsimile signature were
      the original thereof.

                               * * * * * * * * * *

                                       10
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Security
      Agreement to be duly executed on the day and year first above written.

            e.DIGITAL CORPORATION

            By:_______________________
                Name:
                Title:

            e.DIGITAL CORPORATION

            By:_______________________
                Name:
                Title:

            IMMANUEL KANT INTERNATIONAL LIMITED

            By:_______________________
                Name:
                Title:

                                       11
<PAGE>

                                   Schedule A

            Principal Place of Business of Parent:

            13114 Evening Creek Drive South
            San Diego, CA 92128

            Principal Place of Business of Subsidiary:

            13114 Evening Creek Drive South
            San Diego, CA 92128

            Locations Where Collateral is Located or Stored:

      1.    13114 Evening Creek Drive South
            San Diego, CA 92128

      2.    APL Direct Logistics
            1500 Worldwide Boulevard
            Hebron, Kentucky 41048

                                       12
<PAGE>

                                   Schedule B

      Jurisdictions:

                                       13

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