Installment/Promissory Note

No. 127

SECURITY AGREEMENT

Agreement dated December 20, 2000 between DISC GRAPHICS, INC., a CORPORATION under the laws of the State of DELAWARE (herein called "Debtor") and PINNACLE CAPITAL CORPORATION having its principal place of business at 411 Hackensack Avenue, Hackensack, New Jersey 07601 as the Secured Party, (herein called "Secured Party").

FOR VALUABLE CONSIDERATION and to secure an indebtedness of the Debtor to Secured Party in the principal amount of $2,989,600.00 plus interest thereon (the "Loan") as evidence by an Installment Promissory Note of even date herewith (herein called the "Note") and any renewal, extensions or replacements thereof and, further, to secure the obligations of the Debtor under this Agreement and any other obligation of the Debtor to Secured Party which is now in existence or may hereafter come into existence, the Debtor hereby grants to Secured Party a security interest in the property listed on the annexed Equipment Schedule A, together with all equipment parts, attachments, present and future accessions, accessories, additions, substitution and all replacements thereto or thereof or hereafter attached to, placed upon, or used in connection with, the said property and all proceeds of the foregoing, including insurance proceeds (all herein collectively called the "Collateral").

1. DEBTOR'S WARRANTIES, REPRESENTATIONS AND COVENANTS: Debtor hereby warrants, represents and agrees (a) that the Collateral is lawfully owned by Debtor, free and clear of all other liens, encumbrances and security interests, and Debtor, will warrant and defend title to the same against the claims and demands of all persons; (b) that Debtor has not granted, and will not grant, to anyone other than Secured Party any security interest in the Collateral and, except for Financing Statements in favor of Secured Party, no Financing Statements or other instrument affecting the Collateral, or rights therein is on file in any public filling office; (c) that the Collateral is and shall be retained in Debtor's possession at 10 Gilpin Avenue, Hauppauge, New York 11788; (d) that the Collateral is and will be used only for business or commercial purposes; (e) that the Collateral is and will remain personal property; (f) that if the Collateral is attached to real estate or if the Collateral is or may become subject to a prior interest in favor of any party having an interest in the real estate, Debtor, on demand of Secured Party, will furnish Secured Party with a writing by which any and all parties having such prior interest subordinate or disclaim their rights and priorities in favor of Secured Party's security interest provided herein; (g) that the Debtor is duly organized and validly existing in good standing under the laws of the state of its incorporation or organization and has full power to own its assets and to carry on its business as now being conducted; (h) that this Agreement and the Note have been validly authorized, duly executed and delivered and constitute the valid and legally binding obligations of the Debtor, enforceable in accordance with their respective terms and are not violative of, or create a default under, its Articles or Organization, Charter, By-laws, or under any order, writ, injunction or decree of any court or governmental instrumentality or agreement to which Debtor is a party.

2. NO WARRANTY AND UNCONDITIONAL OBLIGATION: DEBTOR ACKNOWLEDGES THAT THE SECURED PARTY HAS MADE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ITS MERCHANTABILITY, SUITABILITY, DESIGN, CAPACITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. All payments due under the Note shall be made without notice and demand and Debtor's obligation to make any payment thereunder or hereunder shall be absolute and unconditional. Debtor shall not be entitled to any reduction or set-off against such payment, nor, except as otherwise expressly provided herein, shall this Security Agreement terminate, or the obligations of Debtor be otherwise affected by reason of any defect in, lack of fitness for use of, damage to, loss of possession or use of the Collateral, or for any other cause, it being the intention of the parties hereto that all amounts payable by Debtor hereunder and under the Note shall continue to be payable in all events in the manner and at the times provided in the Note and hereunder.

3. INSURANCE: Debtor agrees that from the date hereof it will, at its sole cost and expense, keep the Collateral insured against all risks of physical loss or damage including loss by fire, theft, wind and explosion with extended coverage for not less than the greater of the indebtedness or the Collateral's full replacement cost and that it will carry personal injury liability and property damage liability insurance in such amounts and covering such risks as Secured Party may reasonably require. All said insurance shall be in form and with companies satisfactory to Secured Party. The loss under all such policies against physical loss or damage shall be payable to Secured Party or its assignee and the Debtor as their interests may appear and Secured Party or its assignee shall be named as an additional insured under all liability insurance policies. Such policies shall provide that no less than thirty (30) days notice shall be given by the insurance company to Secured Party or its assignee prior to any cancellation or alteration of the policies and that the coverage afforded shall not be impaired or invalidated against Secured Party or its assignee on account of any breach of condition or warranty contained in any policy or application therefor by the Debtor or any reason of any action or inaction of the Debtor. The insurance policies and all renewals thereof, or Certificates in lieu thereof, shall be promptly delivered by the Debtor to Secured Party and shall be held by Secured Party until the indebtedness secured hereby is paid. Debtor hereby assigns to Secured Party all monies, not in excess of the indebtedness secured hereby and the obligations contained herein, which may become payable under such insurance including the return of any unearned premiums, and directs any insurer to make payment directly to Secured Party and authorizes Secured Party to apply such monies in payment against the indebtedness secured hereby and the obligations contained herein and to remit any excess to the Debtor. If the Collateral is damaged, other than being totally destroyed, and such damage is repairable and covered by insurance, all loss proceeds payable by the insurance company or companies shall be made available by Secured Party to be applied to the repair and/or replacement of such damage to the Collateral provided Debtor is not in default of its obligations under this Agreement or in the payment of any of the indebtedness secured hereby and provided further than Security Party receives such assurances as it may in its sole discretion require that (i) such proceeds will be utilized for such repair ...