EXHIBIT 4.3

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                               SECURITY AGREEMENT

                                   dated as of

                               December 29, 2005,

                                      among

                               NATIONAL COAL CORP.

                           NATIONAL COAL CORPORATION,
                             NC TRANSPORTATION INC.
                                       and
                                NC RAILROAD, INC.

                and each other Subsidiary of National Coal Corp.
                 as may from time to time become a party hereto

                                   as Grantors

                                       and

                     WELLS FARGO BANK, NATIONAL ASSOCIATION
                      as Collateral Agent and Secured Party

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                                TABLE OF CONTENTS

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SECTION 1.            DEFINITIONS..............................................2

         1.1      Certain Defined Terms; New York UCC Definitions..............2

         1.2      Rules of Interpretation......................................7

SECTION 2.            SECURITY INTEREST........................................7

         2.1      Grant of Security Interest...................................7

         2.2      Security for Secured Obligations.............................9

         2.3      Transfer of Collateral.......................................9

         2.4      Bailees......................................................9

SECTION 3.            REPRESENTATIONS AND WARRANTIES..........................10

         3.1      Representations in Perfection Certificate...................10

         3.2      Title; No Other Liens.......................................10

         3.3      Perfected Second Priority Liens.............................10

         3.4      Jurisdiction of Organization; Chief Executive Office........10

         3.5      Inventory and Equipment.....................................11

         3.6      Farm Products...............................................11

         3.7      Investment Property.........................................11

         3.8      Receivables.................................................11

         3.9      Intellectual Property.......................................11

         3.10     Deposit Accounts and Securities Accounts....................12

         3.11     Benefit to each Subsidiary Grantor..........................12

         3.12     Consents....................................................12

SECTION 4.            COVENANTS...............................................13

         4.1      Covenants in Indenture......................................13

         4.2      Delivery of Instruments, Certificated Securities and
                  Chattel Paper...............................................13

         4.3      Maintenance of Insurance....................................13

         4.4      Payment of Obligations......................................14

         4.5      Maintenance of Perfected Security Interest; Further
                  Documentation...............................................14

         4.6      Changes in Locations, Name, etc.............................15

         4.7      Notices.....................................................15

         4.8      Investment Property.........................................15


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                                TABLE OF CONTENTS
                                   (continued)
                                                                            PAGE
                                                                            ----

         4.9      Receivables.................................................17

         4.10     Intellectual Property.......................................17

         4.11     Deposit Accounts............................................19

         4.12     New Accounts................................................19

         4.13     Commercial Tort Claims......................................19

SECTION 5.            REMEDIAL PROVISIONS.....................................19

         5.1      Certain Matters Relating to Receivables.....................19

         5.2      Communications with Obligors; Grantors Remain Liable........20

         5.3      Pledged Stock...............................................21

         5.4      Proceeds To Be Turned Over to Secured Party.................22

         5.5      Application of Proceeds.....................................22

         5.6      Code and Other Remedies.....................................23

         5.7      Registration Rights.........................................24

         5.8      Deficiency..................................................25

         5.9      Non-Judicial Enforcement....................................25

SECTION 6.            THE SECURED PARTY.......................................25

         6.1      Secured Party's Appointment as Attorney-in-Fact, etc........25

         6.2      Secured Party's Appointment as Agent........................27

         6.3      Duty of the Secured Party...................................28

         6.4      Execution of Financing Statements...........................29

         6.5      Authority of the Secured Party..............................29

SECTION 7.            SUBORDINATION OF INDEBTEDNESS...........................29

         7.1      Subordination of All Subsidiary Grantor Claims..............29

         7.2      Claims in Bankruptcy........................................29

         7.3      Payments Held in Trust......................................30

         7.4      Liens Subordinate...........................................30

         7.5      Notation of Records.........................................30

SECTION 8.            MISCELLANEOUS...........................................30

         8.1      Amendments in Writing.......................................30

         8.2      Notices.....................................................31


                                      -ii-
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                                TABLE OF CONTENTS
                                   (continued)
                                                                            PAGE
                                                                            ----

         8.3      No Waiver by Course of Conduct; Cumulative Remedies.........31

         8.4      Enforcement Expenses; Indemnification.......................31

         8.5      Successors and Assigns......................................31

         8.6      Set-Off.....................................................32

         8.7      Counterparts................................................32

         8.8      Severability................................................32

         8.9      Section Headings............................................32

         8.10     Integration.................................................32

         8.11     GOVERNING LAW...............................................33

         8.12     Submission To Jurisdiction; Waivers.........................33

         8.13     Acknowledgements............................................33

         8.14     WAIVER OF JURY TRIAL........................................34

         8.15     Additional Grantors.........................................34

         8.16     Releases....................................................34


                                     -iii-
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SCHEDULES

Schedule I        Notice Addresses

ANNEXES

Annex I           Form of Assumption Agreement for Additional Grantors
Annex II          Form of Deposit Account Control Agreement
Annex III         Form of Securities Account Control Agreement
Annex IV          Form of Perfection Certificate


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                               SECURITY AGREEMENT

         NOTWITHSTANDING  ANYTHING  HEREIN TO THE  CONTRARY,  UPON AND AFTER THE
OCCURRENCE  OF THE FIRST LIEN  CLOSING  DATE (AS  DEFINED  BELOW),  THE LIEN AND
SECURITY  INTEREST  GRANTED TO THE SECURED PARTY  PURSUANT TO THIS AGREEMENT AND
THE  EXERCISE  OF ANY RIGHT OR REMEDY BY THE  SECURED  PARTY  HEREUNDER  WILL BE
SUBJECT TO THE PROVISIONS OF THE  INTERCREDITOR  AGREEMENT (AS DEFINED BELOW) IN
ACCORDANCE WITH THE TERMS THEREOF. DURING THE FIRST LIEN PERIOD, IN THE EVENT OF
ANY  CONFLICT  BETWEEN  THE  TERMS  OF  THE  INTERCREDITOR  AGREEMENT  AND  THIS
AGREEMENT, THE TERMS OF THE INTERCREDITOR AGREEMENT SHALL GOVERN.

         THIS SECURITY  AGREEMENT (this  "AGREEMENT"),  dated as of December 29,
2005, is made by NATIONAL  COAL CORP.,  a Florida  corporation,  as grantor (the
"COMPANY"),  each of the  undersigned  direct and indirect  subsidiaries  of the
Company  (each  of the  undersigned  subsidiaries  being a  "INITIAL  SUBSIDIARY
GRANTOR" and, collectively,  the "INITIAL SUBSIDIARY GRANTORS"),  and each other
Person that may become an  additional  Grantor  hereunder as provided in SECTION
8.15  hereof  (any  such  Person,  an  "ADDITIONAL   SUBSIDIARY   GRANTOR"  and,
collectively with the Initial Subsidiary  Grantors,  the "SUBSIDIARY  GRANTORS";
the Subsidiary  Grantors and the Company are collectively  referred to herein as
the  "GRANTORS"),  in favor of WELLS FARGO BANK,  NATIONAL  ASSOCIATION,  in its
capacity as trustee,  as  Collateral  Agent for and  representative  of (in such
capacity,  together with its  successors and assigns,  the "SECURED  PARTY") the
Holders (as defined in the Indenture).

                              W I T N E S S E T H:

         A.       Pursuant  to (i) that certain  Indenture  dated as of December
29, 2005 (as such Indenture may be amended,  amended and restated,  supplemented
or otherwise  modified  from time to time,  the  "INDENTURE")  among the Secured
Party,  as Trustee for the Holders (as therein  defined) (in such capacity,  the
"TRUSTEE"),  the Company, as Issuer, and the Subsidiary  Grantors,  and (ii) the
Purchase  Agreement  dated as of  December  22,  2005  among  the  Company,  the
Subsidiary Grantors,  and Jefferies & Company,  Inc., as Initial Purchaser,  the
Company  issued the Senior  Secured  Notes due 2010 (the  "NOTES").  Capitalized
terms used in this Agreement  without  definition  have the respective  meanings
assigned such terms in the Indenture.

         B.       Upon the occurrence of the First Lien Closing Date (as defined
below) and until the occurrence of the Discharge of First Lien  Obligations  (as
defined in the Indenture),  the Liens of the Collateral Agent for the benefit of
the Holders and the Trustee  created hereby will be  subordinated  to the Credit
Facility Liens pursuant to an Intercreditor  Agreement substantially in the form
of Exhibit H to the Indenture, among the First Lien Agent, the Secured Party, as
Trustee,  the Company  and the  Subsidiary  Grantors  (as  amended,  amended and
restated,   supplemented   or  otherwise   modified  from  time  to  time,   the
"INTERCREDITOR AGREEMENT").

         NOW, THEREFORE, in consideration of the premises and in order to induce
(a) the  Initial  Purchaser  and other  Holders to acquire the Notes and (b) the
Trustee  to  enter  into  the  Indenture,   and  for  other  good  and  valuable
consideration,  the receipt and adequacy of which are hereby acknowledged,  each
Grantor hereby agrees with the Secured Party as follows:


<PAGE>


SECTION 1.        DEFINITIONS.

         1.1      CERTAIN DEFINED TERMS; NEW YORK UCC DEFINITIONS.  For purposes
of this Agreement,  the following terms shall have the respective meanings given
to them below.  All  capitalized  terms used in this Agreement and not otherwise
defined herein shall have the meanings  assigned to them in the  Indenture,  and
the  following  terms are used herein as defined in the New York UCC:  Accounts,
Certificated Security,  Chattel Paper,  Commercial Tort Claims, Deposit Account,
Documents,  Equipment, Farm Products, Goods, Instruments,  Inventory,  Letter of
Credit  Rights,  Securities  Account,  Securities  Intermediary  and  Supporting
Obligations.

         The following terms shall have the following meanings:

         "ACCOUNT COLLATERAL" each Grantor's right, title and interest,  whether
now existing or hereafter  acquired or arising,  in, to and under,  each Deposit
Account and Securities  Account  (including  any successor  accounts to any such
accounts) and all amounts,  investments and any other property  (including,  but
not limited to,  Checks,  securities,  financial  assets,  investment  property,
security  entitlements  and instruments) at any time deposited in or credited to
any such account and all security  entitlements with respect thereto,  including
all income or gain earned thereon and any Proceeds thereof.

         "AGREEMENT" means this Security Agreement,  as the same may be amended,
supplemented or otherwise modified from time to time.

         "BOOKS  AND  RECORDS"  means all  books,  records  and  other  written,
electronic or other  documentation  in whatever form maintained now or hereafter
by or for the Company in connection  with, and relating to, the ownership of, or
evidencing or containing information relating to, the Collateral.

         "CHECKS"  means  checks  and  other   instruments   and  other  payment
instructions deposited into any Deposit Account or Securities Account.

         "COLLATERAL" has the meaning set forth in SECTION 2.1.

         "COLLATERAL  ACCOUNT" means any collateral  account  established by the
Secured Party as provided in SECTION 5.1 or 5.4.

         "COMPUTER  HARDWARE AND SOFTWARE" means all rights (including rights as
licensee and lessee) with  respect to (i)  computer  and other  electronic  data
processing  hardware,   including  all  integrated  computer  systems,   central
processing units, memory units, display terminals,  printers, computer elements,
card readers, tape drives, hard and soft disc drives, cables,  electrical supply
hardware,  generators,  power equalizers,  accessories,  peripheral  devices and
other related  computer  hardware;  (ii) all software and all software  programs
designed  for use on the  computers  and  electronic  data  processing  hardware
described  in  clause  (i)  above,  including  all  operating  system  software,
utilities and application  programs in any form (service code and object code in
magnetic tape, disc or hard copy format or any other listings whatsoever); (iii)
any firmware  associated with any of the foregoing;  (iv) any  documentation for
hardware,  software and firmware described in clauses (i), (ii) and (iii) above,
including flow charts, logic diagrams,


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manuals,  specifications,  training materials,  charts and pseudo codes; and all
rights with respect thereto, including any and all licenses,  options, warrants,
service contracts,  program services,  test rights,  maintenance rights, support
rights,  improvement  rights,  renewal  rights  and  indemnifications,  and  any
substitutions,  replacements,  additions  or  model  conversions  of  any of the
foregoing.

         "CONTRACTS" means all contracts, agreements, instruments and indentures
in any  form  (including,  without  limitation,  any  interest  rate  protection
agreements,  Hedging  Agreements,   licensing  agreements  and  any  partnership
agreements,  joint venture agreements and limited liability company agreements),
and portions thereof, to which any Grantor is a party or under which any Grantor
or any property of any Grantor is subject,  as the same may from time to time be
amended,   supplemented,   waived  or  otherwise  modified,  including,  without
limitation,  (i) all rights of any  Grantor to receive  moneys due and to become
due to it thereunder or in connection therewith,  (ii) all rights of any Grantor
to damages arising thereunder, (iii) all rights of any Grantor to perform and to
exercise all remedies thereunder,  (iv) any and all rights to receive and compel
performance  under  any or all  Contracts  and (v) any  and  all  other  rights,
interests and claims now existing or in the future  arising in  connection  with
any or all Contracts.

         "COPYRIGHT  LICENSES" means any written agreement naming any Grantor as
licensor  or  licensee  (including,  without  limitation,  those  listed  in the
Perfection  Certificate),  granting  any right under any  Copyright,  including,
without limitation, the grant of rights to manufacture,  distribute, exploit and
sell materials derived from any Copyright.

         "COPYRIGHTS"  means (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  (including,
without   limitation,   those  listed  in  the  Perfection   Certificate),   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.

         "DEPOSIT  ACCOUNT  CONTROL  AGREEMENT"  means a Deposit Account Control
Agreement,  in  substantially  the form set forth on ANNEX II attached hereto or
otherwise  reasonably  acceptable to the Secured Party,  by and among a Grantor,
the Secured Party and a depositary institution.

         "DOMAIN  NAMES" means all  Internet  domain  names and  associated  URL
addresses  in or to which any Grantor now or hereafter  has any right,  title or
interest.

         "FILINGS" means the filing or recording of (i) the financing statements
as set forth in the Perfection Certificate by the Grantors or their agents, (ii)
this Agreement or a notice thereof with respect to Intellectual  Property as set
forth in the Perfection  Certificate and (iii) any filings after the date hereof
in any other jurisdiction as may be necessary under any requirement of law.

         "FINANCING  DOCUMENTS" means the Indenture,  the Notes and the Security
Documents.

         "FIRST LIEN AGENT"  means the  financial  institution  or other  Person
acting as  collateral  agent for the  holders of the First Lien  Obligations  in
connection with any Liens securing such First Lien Obligations.


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<PAGE>


         "FIRST LIEN CLOSING  DATE" means the earliest date on which both of the
following  shall  have  occurred:  (a)  the  Company  and/or  one or more of its
Subsidiaries  shall have entered into a First Lien Credit Facility that complies
with the terms and provisions of clause (1) of Section 4.09 of the Indenture and
(b) the execution and delivery of the Intercreditor  Agreement by the First Lien
Agent, the Trustee, the Company and the Subsidiary Grantors.

         "FIRST LIEN PERIOD" means the period  commencing on (and including) the
First Lien Closing Date and ending on the  occurrence  of the Discharge of First
Lien Obligations.

         "GENERAL  INTANGIBLES" means all "general  intangibles" as such term is
defined in Section  9-102(a)(42) of the Uniform Commercial Code in effect in the
State of New York on the date  hereof  and,  in any  event,  including,  without
limitation, with respect to any Grantor, all contracts, agreements,  instruments
and  indentures in any form,  and portions  thereof,  to which such Grantor is a
party or under which such  Grantor has any right,  title or interest or to which
such Grantor or any  property of such  Grantor is subject,  as the same may from
time to time be amended,  supplemented or otherwise modified, including, without
limitation,  (I) all rights of such Grantor to receive  moneys due and to become
due to it thereunder or in connection therewith, (II) all rights of such Grantor
to damages  arising  thereunder  and (III) all rights of such Grantor to perform
and to exercise all remedies thereunder.

         "INDENTURE" has the meaning set forth in the recitals hereto.

         "INTELLECTUAL  PROPERTY" means 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 Domain Names,
the Patents, the Patent Licenses,  the Trade Secrets, the Trade Secret Licenses,
the Trademarks and the Trademark Licenses and all rights to sue at law or equity
or  otherwise  recover for any and all past,  present and future  infringements,
misappropriations,  dilutions  or  other  impairments  thereof  and all  income,
royalties,  damages and other payments now and hereafter due and/or payable with
respect  thereto  (including,  without  limitation,  payments under all licenses
entered into in connection therewith, and damages and payments for past, present
or  future  infringements,  misappropriations,  dilutions  or other  impairments
thereof).

         "INTERCOMPANY  NOTE" means any promissory note evidencing loans made by
any Grantor to the Company or any of its Subsidiaries.

         "INTERCREDITOR  AGREEMENT"  has the meaning  set forth in the  recitals
hereto.

         "INVESTMENT  PROPERTY"  means  the  collective  reference  to  (A)  all
"investment property" as such term is defined in Section 9-102(a)(49) of the New
York  UCC  and (B)  whether  or not  constituting  "investment  property"  as so
defined, all Pledged Notes and all Pledged Stock.

         "ISSUERS"  means  the  collective  reference  to  each  issuer  of  any
Investment Property.

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


                                       4
<PAGE>


         "NOTES" has the meaning set forth in the recitals hereto.

         "PATENT  LICENSE"  means  all  agreements,  whether  written  or  oral,
providing for the grant by or to any Grantor of any right to  manufacture,  have
manufactured, use or sell or import any invention covered in whole or in part by
a Patent, including, without limitation, any of the foregoing referred to in the
Perfection Certificate.

         "PATENTS" means (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,  including,  without limitation,
any  of the  foregoing  referred  to in the  Perfection  Certificate,  (II)  all
applications  for letters  patent of the United  States or any other country and
all provisionals,  divisions,  continuations and continuations-in-part  thereof,
including,  without  limitation,  any  of  the  foregoing  referred  to  in  the
Perfection  Certificate,  and  (III)  all  rights  to  obtain  any  reissues  or
extensions of the foregoing.

         "PERFECTION  CERTIFICATE" means a perfection  certificate  delivered by
the Company to the Secured Party on the date hereof,  in substantially  the form
set forth on ANNEX IV attached hereto.

         "PLEDGED  NOTES" means all  promissory  notes listed on the  Perfection
Certificate,  all  Intercompany  Notes at any time issued to any Grantor and all
other  promissory  notes issued to or held by any Grantor (other than promissory
notes issued in connection with extensions of trade credit by any Grantor in the
ordinary course of business).

         "PLEDGED SECURITIES" means the Pledged Notes and the Pledged Stock.

         "PLEDGED  STOCK" means the Equity  Interests  listed on the  Perfection
Certificate,  together  with any  other  shares,  stock  certificates,  options,
interests or rights of any nature  whatsoever in respect of the Equity Interests
of any Person that may be issued or granted  to, or held by, any  Grantor  while
this Agreement is in effect.

         "PROCEEDS"  means all  "proceeds"  as such term is  defined  in Section
9-102(a)(64)  of the New York UCC and,  in any  event,  shall  include,  without
limitation,  all  dividends  or  other  income  from  the  Investment  Property,
collections thereon or distributions or payments with respect thereto.

         "RECEIVABLE" means 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).

         "RELEASE  DATE"  means the  earlier to occur of (i) the date upon which
the amounts due and owing under the Notes and all other Secured Obligations then
due and owing shall have been paid in full in cash, or (ii) as to any Subsidiary
Grantor  the date upon  which all the  capital  stock or  substantially  all the
assets of such Subsidiary  Grantor shall have been sold or otherwise disposed of
in accordance with the terms of the Indenture.

         "SECURED  OBLIGATIONS"  means all  obligations and liabilities of every
nature of the Company and the Subsidiary  Grantors or any other obligor  thereof
(including, without limitation,


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<PAGE>


the  obligations  under the guarantees by the Subsidiary  Grantors and any other
obligor thereunder and the obligations under the Registration  Rights Agreement,
but, with respect to the  Registration  Rights  Agreement,  only for  Liquidated
Damages payable thereunder) now or hereafter existing under or arising out of or
in connection  with the Indenture and the Notes,  in each case together with all
extensions  or renewals  thereof,  whether for  principal,  interest  (including
without limitation interest that, but for the filing of a petition in bankruptcy
with  respect  to the  Company  or any  other  Grantor,  would  accrue  on  such
obligations,  whether  or not a claim is  allowed  against  the  Company or such
Grantor for such interest in the related bankruptcy proceeding), fees, expenses,
indemnities or otherwise, whether 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, the Trustee
or any  Holder  as a  preference,  fraudulent  transfer  or  otherwise,  and all
obligations of every nature of the Grantors now or hereafter existing under this
Agreement.

         "SECURITIES  ACCOUNT  CONTROL  AGREEMENT"  means a  Securities  Account
Control  Agreement,  in  substantially  the form set forth on ANNEX III attached
hereto or otherwise  reasonably  acceptable to the Secured Party, by and among a
Grantor, the Secured Party and a Securities Intermediary.

         "SECURITIES ACT" means the Securities Act of 1933, as amended.

         "SUBSIDIARY  GRANTOR CLAIMS" means  indebtedness  owing to a Grantor by
another Grantor.

         "TRADE SECRETS" means all trade secrets, including, without limitation,
know-how, processes, formulae, compositions,  designs, and confidential business
and  technical  information,  and all  rights  of any kind  whatsoever  accruing
thereunder or pertaining thereto.

         "TRADE SECRET  LICENSES" means any agreement,  whether written or oral,
providing  for the  grant by or to any  Grantor  of any  right to use any  Trade
Secret,  including without  limitation,  any of the foregoing referred to in the
Perfection Certificate.

         "TRADEMARK  LICENSE"  means any  agreement,  whether  written  or oral,
providing for the grant by or to any Grantor of any right to use any  Trademark,
including,  without  limitation,  any  of  the  foregoing  referred  to  in  the
Perfection Certificate.

         "TRADEMARKS"  means (I) all trademarks,  trade names,  corporate names,
company names, business names,  fictitious business names, trade styles, service
marks,  domain names,  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,  including,  without  limitation,  any of the foregoing
referred  to in the  Perfection  Certificate,  and (II) the right to obtain  all
renewals thereof.


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<PAGE>


         1.2      RULES OF  INTERPRETATION.  As used herein, and any certificate
or other document made or delivered pursuant hereto:

                  (a)      the words "include", "includes" and "including" shall
         be deemed to be followed by the phrase "without limitation";

                  (b)      the word  "incur"  shall be  construed to mean incur,
         create,  issue, assume,  become liable in respect of or suffer to exist
         (and the words  "incurred"  and  "incurrence"  shall  have  correlative
         meanings);

                  (c)      the words "asset" and  "property"  shall be construed
         to have  the  same  meaning  and  effect  and to  refer  to any and all
         tangible and intangible  assets and properties,  including cash, equity
         interests,   securities,   vessels,  equipment,   revenues,   accounts,
         leasehold interests and contract rights;

                  (d)      the words  "hereof",  "herein"  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  clause,  subsection,  Section,  Schedule  and  Exhibit
         references are to this Agreement unless otherwise specified;

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

                  (f)      the expressions "payment in full", "paid in full" and
         any other similar terms or phrases when used herein with respect to the
         Secured  Obligations  shall mean the  payment in full,  in  immediately
         available funds, of all the Secured Obligations;

                  (g)      in  any   computation  of  periods  of  time  from  a
         specified date to a later  specified  date, the word "from" means "from
         and  including"  and the  words  "to" and  "until"  each  means "to but
         excluding" and the word "through" means "to and including";

                  (h)      references  to   agreements   or  other   contractual
         obligations shall,  unless otherwise  specified,  be deemed to refer to
         such  agreements or contractual  obligations as amended,  supplemented,
         restated  or  otherwise  modified  from  time to time  (subject  to any
         applicable restrictions herein); and

                  (i)      where the  context  requires,  terms  relating to the
         Collateral  or any part  thereof,  when used in  relation to a Grantor,
         shall refer to such Grantor's Collateral or the relevant part thereof;

SECTION 2.        SECURITY INTEREST.

         2.1      GRANT OF  SECURITY  INTEREST.  Each  Grantor  hereby  pledges,
assigns and  transfers to the Secured  Party,  and hereby  grants to the Secured
Party a security interest in, all of the following  property now owned or at any
time  hereafter  acquired by such Grantor or in which such Grantor now has or at
any time in the future may acquire any right,  title or interest  (collectively,
the "COLLATERAL"):


                                       7
<PAGE>


                  (a)      all Accounts;

                  (b)      all Account Collateral;

                  (c)      all Books and Records;

                  (d)      all Chattel Paper;

                  (e)      all  Commercial  Tort  Claims   (including,   without
         limitation, those set forth in the Perfection Certificate);

                  (f)      all Computer Hardware and Software;

                  (g)      all Contracts;

                  (h)      all Documents;

                  (i)      all Equipment;

                  (j)      all General Intangibles;

                  (k)      all Goods;

                  (l)      all Instruments;

                  (m)      all Intellectual Property;

                  (n)      all Inventory;

                  (o)      all Investment Property;

                  (p)      all Letter of Credit Rights;

                  (q)      all  plant  fixtures,  business  fixtures  and  other
         fixtures and storage and office facilities,  and all accessions thereto
         and products thereof;

                  (r)      all  other  personal   property  to  the  extent  not
         otherwise described above; and

                  (s)      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.

Notwithstanding   the  foregoing,   the  Collateral   shall  expressly   exclude
certificates  of deposit and similar  instruments,  whether  held on the date of
this  Agreement  or acquired  in the  future,  used by the Company or any of its
Subsidiaries  for  the  sole  purpose  of  enabling  the  Company  or any of its
Subsidiaries to purchase or post reclamation,  surety, or similar bonds PROVIDED
that (i) the cash


                                       8
<PAGE>


designated  for the  purchase  of such  certificates  of  deposits  and  similar
instruments  shall be  deposited  in a  specially  designated  account and shall
constitute  Collateral while it is held in such an account, (ii) such cash shall
be released from the  Collateral  automatically  upon its  withdrawal  from such
account for the purpose of the  purchase of such  certificates  of deposits  and
similar  instruments  for so long as such  certificates  of deposits and similar
instruments  are issued in the name of the Company or such  Subsidiary and (iii)
upon the termination or expiration, and release of such certificates of deposits
and similar instruments, such cash shall once again constitute Collateral.

         Each item of  Collateral  listed in this SECTION 2.1 that is defined in
Articles  8 or 9 of the New York UCC and that is not  otherwise  defined  herein
shall have the meaning set forth in the New York UCC, it being the  intention of
the Grantors that the description of the Collateral set forth above be construed
to include the broadest  possible range of assets,  except for assets  expressly
excluded pursuant to the immediately preceding paragraph.

         2.2      SECURITY FOR SECURED OBLIGATIONS.  This Agreement secures, and
the Collateral  assigned by each Grantor is collateral  security for, the prompt
payment or performance in full when due, whether at stated maturity, by required
prepayment,  declaration,  acceleration,  demand or otherwise (including without
limitation the payment of amounts that would become due but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy  Code), of all Secured
Obligations of such Grantor.

         2.3      TRANSFER  OF  COLLATERAL.  All  certificates  and  instruments
representing or evidencing the Pledged Securities shall be delivered to and held
pursuant hereto by the Secured Party or a Person designated by the Secured Party
and shall be in suitable form for transfer by delivery,  or shall be accompanied
by duly executed instruments of transfer or assignment in blank, and accompanied
by any  required  transfer  tax  stamps to  effect  the  pledge  of the  Pledged
Securities to the Secured Party; PROVIDED,  HOWEVER, that upon the occurrence of
the First Lien Closing Date,  the Secured Party shall deliver such  certificates
and instruments to the First Lien Agent to the extent  required  pursuant to the
Intercreditor Agreement.  Notwithstanding the preceding sentence, at the Secured
Party's discretion, all such Pledged Securities must be delivered or transferred
in such manner as to permit the Secured  Party to be a "protected  purchaser" to
the extent of its security interest as provided in Section 8-303 of the New York
UCC (if the Secured Party otherwise qualifies as a protected purchaser).  During
the continuance of an Event of Default (but subject, after the occurrence of the
First Lien Closing  Date,  to the  Intercreditor  Agreement),  the Secured Party
shall have the right,  at any time in its  discretion  and  without  notice,  to
transfer  to or to  register  in the  name of the  Secured  Party  or any of its
nominees  any  or all  of  the  Pledged  Securities.  In  addition,  during  the
continuance  of an Event of Default (but  subject,  after the  occurrence of the
First Lien Closing  Date,  to the  Intercreditor  Agreement),  the Secured Party
shall  have the  right  at any  time to  exchange  certificates  or  instruments
representing or evidencing Pledged Securities for certificates or instruments of
smaller or larger denominations.

         2.4      BAILEES. Any Person (other than the Secured Party) at any time
and from time to time  holding  all or any  portion of the  Collateral  shall be
deemed to, and shall,  hold the Collateral as pledge holder and bailee and agent
for perfection  for, the Secured Party. At any time and from time to time during
the continuance of an Event of Default, the Secured Party may give notice to


                                       9
<PAGE>


any such Person holding all or any portion of the Collateral that such Person is
holding the  Collateral  as the bailee of and agent for  perfection  for, and as
pledge  holder  for,  the  Secured  Party,  and request  such  Person's  written
acknowledgment thereof. Without limiting the generality of the foregoing, during
the continuance of an Event of Default,  each Grantor will join with the Secured
Party  upon  the  Secured  Party's  request  in  notifying  any  Person  who has
possession of any Collateral of the Secured Party's  security  interest  therein
and  requesting  an  acknowledgment  from such  Person  that it is  holding  the
Collateral for the benefit of the Holders.

SECTION 3.        REPRESENTATIONS AND WARRANTIES.

         To induce the Secured  Party to enter into the  Indenture and to induce
the Initial  Purchaser  to enter into the  Purchase  Agreement  and purchase the
Notes  thereunder,  each Grantor  hereby  represents and warrants to the Secured
Party, the Initial Purchaser and each other Holder that:

         3.1      REPRESENTATIONS IN PERFECTION CERTIFICATE. The representations
and warranties of such Grantor set forth in the  Perfection  Certificate as they
relate to such Grantor or to the Indenture or the Notes to which such Grantor is
a party, each of which is hereby incorporated herein by reference,  are true and
correct, and the Secured Party and each Holder shall be entitled to rely on each
of them as if they were fully set forth herein.

         3.2      TITLE;  NO OTHER  LIENS.  Except  for  Permitted  Liens,  such
Grantor owns each item of the Collateral  free and clear of any and all Liens or
claims of others. 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  (i) such as have  been  filed in favor  of the  Secured  Party,  for the
ratable  benefit of the Holders and the Trustee,  pursuant to this Agreement and
(ii) as are permitted by the Indenture.

3.3 PERFECTED  SECOND PRIORITY  LIENS.  Upon completion of the Filings and other
actions  specified  on the  Perfection  Certificate  (which,  in the case of all
Filings and other  documents  referred to on said Perfection  Certificate,  have
been delivered to the Secured Party in completed and duly executed form) (or, in
the case of (x) all Deposit  Accounts,  Securities  Accounts and the  Collateral
Account,  the obtaining and maintenance of "control" (as described in the Code),
(y) in the case of Commercial Tort Claims, the taking of the actions required by
SECTION 4.13 herein and (z) in the case of Letter of Credit  Rights,  the taking
of the actions  required  by SECTION  4.5(C)  hereof),  the  security  interests
granted pursuant to this Agreement (1) will constitute valid perfected  security
interests in all of the Collateral,  to the extent that a security  interest may
be perfected by Filings,  in favor of the Secured Party, for the ratable benefit
of the Holders and the Trustee as collateral security for such Grantor's Secured
Obligations,  enforceable  in  accordance  with the  terms  hereof  against  all
creditors of such Grantor and any Persons  purporting to purchase any Collateral
from such  Grantor  and are (2) prior to all other  Liens on the  Collateral  in
existence on the date hereof except for (x)  unrecorded  Liens  permitted by the
Indenture  which have priority over the Liens on the  Collateral by operation of
law and (y) Permitted Liens.

         3.4      JURISDICTION OF ORGANIZATION;  CHIEF EXECUTIVE  OFFICE. On the
date hereof, such Grantor's jurisdiction of organization,  identification number
from the jurisdiction of organization


                                       10
<PAGE>


(if any),  and the location of such  Grantor's  chief  executive  office or sole
place of business or principal  residence,  as the case may be, are specified on
the Perfection Certificate.

         3.5      INVENTORY AND EQUIPMENT. On the date hereof, the Inventory and
the Equipment  (other than mobile goods) are kept at the locations listed on the
Perfection Certificate.

         3.6      FARM PRODUCTS. None of the Collateral  constitutes,  or is the
Proceeds of, Farm Products.

         3.7      INVESTMENT PROPERTY.

                  (a)      The shares of Pledged  Stock  pledged by such Grantor
         hereunder constitute all the issued and outstanding Equity Interests of
         each Issuer owned by such Grantor.

                  (b)      All the  shares of the  Pledged  Stock have been duly
         and validly issued and are fully paid and nonassessable.

                  (c)      Such Grantor is the record and  beneficial  owner of,
         and has good and marketable  title to, the Investment  Property pledged
         by it  hereunder,  free of any and all Liens or options in favor of, or
         claims of, any other Person, except the Liens created by this Agreement
         and, during the First Lien Period, the Credit Facility Liens.

         3.8      RECEIVABLES.

                  (a)      No  amount  payable  to  such  Grantor  under  or  in
         connection  with any  Receivable  is  evidenced  by any  Instrument  or
         Chattel  Paper which has not been  delivered to the Secured  Party (or,
         after the  occurrence of the First Lien Closing Date, to the First Lien
         Agent,  as bailee and agent for  perfection for the Secured Party under
         the Intercreditor Agreement).

                  (b)      None  of  the  obligors  on  any   Receivables  is  a
         Governmental Authority.

                  (c)      The  amounts  represented  by  such  Grantor  to  the
         Holders  from time to time as owing to such  Grantor  in respect of the
         Receivables will at such times be accurate in all material respects.

         3.9      INTELLECTUAL PROPERTY.

                  (a)      The Perfection  Certificate  lists all  registrations
         and applications for Intellectual  Property and trade names (whether or
         not subject to an application or  registration)  that are owned by such
         Grantor in its own name on the date hereof.

                  (b)      On  the  date  hereof,   all  material   Intellectual
         Property owned or used by such Grantor is valid, subsisting,  unexpired
         and  enforceable,  has not been  abandoned  and does not  infringe  the
         intellectual property rights of any other Person.


                                       11
<PAGE>


                  (c)      Except as set forth in the Perfection Certificate, on
         the date hereof,  none of the  Intellectual  Property  owned or used by
         such Grantor is the subject of any  licensing  or  franchise  agreement
         pursuant to which such Grantor is the licensor or franchisor.

                  (d)      No holding, decision or judgment has been rendered by
         any  Governmental  Authority which would limit,  cancel or question the
         validity of, or such Grantor's rights in, any Intellectual  Property in
         any  respect  that  could  reasonably  be  expected  to have a material
         adverse effect.

                  (e)      No  action  or  proceeding  is  pending,  or,  to the
         knowledge of such Grantor,  threatened,  on the date hereof (i) seeking
         to limit, cancel or question the validity of any Intellectual  Property
         or  such  Grantor's  ownership  interest  therein,  or (ii)  which,  if
         adversely determined, would have a material adverse effect on the value
         of any Intellectual Property.

         3.10     DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS.  Each Grantor is the
record and beneficial  owner of, and has good title to, the Deposit Accounts and
Securities  Accounts  pledged  by it  hereunder,  free of any and all  Liens  or
options  in favor or, or  claims  of,  any other  Person,  except  the  Security
Interest  created by this Agreement,  rights of setoff of any depository bank or
securities  intermediary  and,  during the First Lien  Period,  Credit  Facility
Liens. As of the date hereof, all Deposit Accounts and Securities  Accounts held
by a Grantor (other than those maintained with the Collateral Agent) are subject
to a  Deposit  Account  Control  Agreement  and  a  Securities  Account  Control
Agreement, as applicable.

         3.11     BENEFIT TO EACH SUBSIDIARY GRANTOR. The Company is a member of
an affiliated group of companies that includes each Subsidiary Grantor,  and the
Company and the  Subsidiary  Grantors  are engaged in related  businesses.  Each
Subsidiary  Grantor is a Subsidiary of the Company and its obligations  pursuant
to this Agreement reasonably may be expected to benefit, directly or indirectly,
it; and it has determined that this Agreement is necessary and convenient to the
conduct, promotion and attainment of the business of such Subsidiary Grantor and
the Company.

         3.12     CONSENTS.  Except as set forth in the Perfection  Certificate,
no consent of any party (other than a Grantor) to any Copyright License,  Patent
License,  Trade Secret License or Trademark License  constituting  Collateral or
any obligor in respect of any material Account constituting  Collateral or which
owes in the  aggregate  a  material  portion  of all the  Accounts  constituting
Collateral  is  required,  or purports to be  required,  to be obtained by or on
behalf of any Grantor in connection with the execution, delivery and performance
of this  Agreement that has not been obtained.  Each Copyright  License,  Patent
License,  Trade  Secret  License,  Trademark  License and  Account  constituting
Collateral  is in full  force and  effect and  constitutes  a valid and  legally
enforceable  obligation  of the Grantor  party  thereto and (to the knowledge of
such Grantor) each other party thereto except as  enforceability  may be limited
by bankruptcy, insolvency, reorganization,  moratorium or similar laws affecting
the  enforcement  of  creditor's  rights  generally  and  by  general  equitable
principles  (whether  enforcement  is sought by proceedings in equity or at law)
and except to the  extent the  failure  of any such  Copyright  License,  Patent
License,  Trade  Secret  License,  Trademark  License  or  Account  constituting
Collateral to be in full force and effect or valid or legally  enforceable could
not be reasonably expected, in the


                                       12
<PAGE>


aggregate,  to have a material  adverse  effect on the value of the  Collateral.
Except as set forth on the Perfection  Certificate,  no consent or authorization
of, filing with or other act by or in respect of any  Governmental  Authority is
required in connection with the execution,  delivery,  performance,  validity or
enforceability of any of the Copyright Licenses,  Patent Licenses,  Trade Secret
Licenses,  Trademark Licenses and Accounts constituting  Collateral by any party
thereto  other than those which have been duly  obtained,  made or performed and
are in full force and  effect  and those the  failure of which to make or obtain
could not be reasonably expected,  in the aggregate,  to have a material adverse
effect on the  value of the  Collateral.  Except as set forth on the  Perfection
Certificate, no Grantor nor (to the knowledge of any Grantor) any other party to
any Copyright License, Patent License, Trade Secret License or Trademark License
or  Account  constituting  Collateral  is  in  default  in  the  performance  or
observance  of any of the terms  thereof,  except for such defaults as could not
reasonably be expected,  in the aggregate,  to have a material adverse effect on
the value of the Collateral.

SECTION 4.        COVENANTS.

         Each Grantor  covenants and agrees with the Secured Party and the other
Holders that, from and after the date of this Agreement until the Release Date:

         4.1      COVENANTS  IN  INDENTURE.  In the case of each  Grantor,  such
Grantor  shall take,  or shall  refrain  from  taking,  as the case may be, each
action that is necessary  to be taken or not taken,  as the case may be, so that
no Default or Event of Default is caused by the  failure to take such  action or
to refrain from taking such action by such Grantor or any of its Subsidiaries.

         4.2      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 promptly
delivered  to the  Secured  Party (or,  after the  occurrence  of the First Lien
Closing Date and to the extent required by the Intercreditor Agreement, to First
Lien Agent,  as bailee and agent for  perfection for the Secured Party under the
Intercreditor Agreement),  duly indorsed in a manner satisfactory to the Secured
Party, to be held as Collateral pursuant to this Agreement.

         4.3      MAINTENANCE OF INSURANCE.

                  (a)      Such Grantor will maintain,  with  financially  sound
         and reputable companies, insurance policies (i) insuring the Inventory,
         the Equipment and all real property  subject to a Mortgage against loss
         by  fire,  explosion,  theft  and  such  other  casualties  as  may  be
         reasonably  satisfactory  to the Secured  Party and (ii)  insuring such
         Grantor,  the Secured Party and the other Holders against liability for
         personal  injury and property  damage  relating to such  Inventory  and
         Equipment, such policies to be in such form and amounts and having such
         coverage as may be reasonably satisfactory to the Secured Party.

                  (b)      All  such   insurance   shall  (i)  provide  that  no
         cancellation,  material  reduction  in  amount  or  material  change in
         coverage  thereof  shall be  effective  until  at  least 30 days  after
         receipt by the Secured Party of written notice  thereof,  (ii) name the
         Secured


                                       13
<PAGE>


         Party as insured party and, subject,  after the occurrence of the First
         Lien Closing Date, to the  Intercreditor  Agreement,  loss payee as its
         interests  may appear,  (iii) if  reasonably  requested  by the Secured
         Party,  include  a breach of  warranty  clause  and (iv) be  reasonably
         satisfactory in all other respects to the Secured Party.

                  (c)      The  Company  shall  deliver to the  Secured  Party a
         report of a reputable  insurance  broker with respect to such insurance
         substantially  concurrently  with each delivery of the Company's annual
         financial statements pursuant to Section 4.03 of the Indenture and such
         supplemental reports with respect thereto as the Secured Party may from
         time to time reasonably request.

         4.4      PAYMENT OF OBLIGATIONS. Such Grantor will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes,  assessments and governmental  charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including,  without limitation,  claims for labor, materials
and  supplies)  against or with respect to the  Collateral,  except that no such
charge  need be paid if the  amount  or  validity  thereof  is  currently  being
contested in good faith by appropriate proceedings,  reserves in conformity with
GAAP with respect  thereto  have been  provided on the books of such Grantor and
such  proceedings  could  not  reasonably  be  expected  to  result in the sale,
forfeiture  or loss of any material  portion of the  Collateral  or any interest
therein.

         4.5      MAINTENANCE   OF   PERFECTED   SECURITY   INTEREST;    FURTHER
DOCUMENTATION.

                  (a)      Other  than as  permitted  by this  Agreement  or the
         Indenture, such Grantor shall maintain the security interest created by
         this  Agreement as a perfected  security  interest  having at least the
         priority  described  in  SECTION  3.3 and shall  defend  such  security
         interest  against  the claims and  demands  of all  Persons  whomsoever
         including  without  limitation,  completing  the Filings and filing 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.

                  (b)      Such Grantor  will furnish to the Secured  Party from
         time  to  time  statements  and  schedules   further   identifying  and
         describing  the  Collateral  of such Grantor and such other  reports in
         connection  therewith as the Secured Party may reasonably request,  all
         in reasonable detail.

                  (c)      At any time and from time to time,  upon the  written
         request of the Secured Party,  and at the sole expense of such Grantor,
         subject  (after the  occurrence  of the First Lien Closing Date) to the
         Intercreditor  Agreement,  such Grantor will  promptly and duly execute
         and deliver, and have recorded,  such further instruments and documents
         and take such  further  actions  as the  Secured  Party 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) filing 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,
         (ii) in the case of Investment  Property,  Letter-of-Credit  Rights and
         any other relevant Collateral,


                                       14
<PAGE>


         taking any actions reasonably  necessary to enable the Secured Party to
         obtain  "control"  (within  the  meaning  of  the  applicable   Uniform
         Commercial  Code) with  respect  thereto,  and (iii) in the case of any
         item of  Equipment  that is covered by a  certificate  of title under a
         statute  of any  jurisdiction  under the law of which  indication  of a
         security  interest on such  certificate  is required as a condition  of
         perfection  thereof, at the request of the Secured Party (to the extent
         not delivered after the First Lien Closing Date to the First Lien Agent
         for the  benefit  of the  holders of the First  Lien  Obligations  and,
         pursuant to the Intercreditor Agreement, the Holders), execute and file
         with the registrar of motor vehicles or other appropriate  authority in
         such  jurisdiction  an  application  or other  document  requesting the
         notation or other indication of the security interest created hereunder
         on such  certificate of title, and within 30 days after the end of each
         calendar  quarter,  deliver  to the  Secured  Party  copies of all such
         certificates  of title issued during such calendar  quarter  indicating
         the  security  interest  created  hereunder  in the items of  Equipment
         covered thereby.

         4.6      CHANGES IN LOCATIONS, NAME, ETC. Such Grantor will not, except
upon 15 days'  prior  written  notice to the Secured  Party and  delivery to the
Secured Party of copies of all filed additional financing statements,  and other
documents (in each case, properly executed)  reasonably requested by the Secured
Party,  to maintain  the  validity,  perfection  and  priority  of the  security
interests provided for herein:

                  (a)      change  its   jurisdiction  of  organization  or  the
         location of its chief  executive  office or sole place of business from
         that referred to in SECTION 3.4; or

                  (b)      change its name.

         4.7      NOTICES.  Such Grantor will advise the Secured Party promptly,
in reasonable detail, of:

                  (a)      any Lien (other than  Permitted  Liens) on any of the
         Collateral  which  would  adversely  affect the  ability of the Secured
         Party to exercise any of its remedies hereunder; and

                  (b)      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.

         4.8      INVESTMENT PROPERTY.

                  (a)      If such Grantor  shall become  entitled to receive or
         shall  receive any  certificate  (including,  without  limitation,  any
         certificate  representing  a dividend or a  distribution  in connection
         with any  reclassification,  increase  or  reduction  of capital or any
         certificate  issued in connection with any  reorganization),  option or
         rights in respect of the Equity  Interests  of any  Issuer,  whether in
         addition to, in  substitution  of, as a  conversion  of, or in exchange
         for, any shares of the Pledged Stock, or otherwise in respect  thereof,
         such Grantor  shall  accept the same as the agent of the Secured  Party
         and the other Holders, hold the same in trust for the Secured Party and
         the other Holders and deliver


                                       15
<PAGE>


         the same  forthwith to the Secured Party (or,  after the  occurrence of
         the  First  Lien  Closing  Date  and  to  the  extent  required  by the
         Intercreditor  Agreement,  to the First Lien Agent, as bailee and agent
         for perfection for the Secured Party under the Intercreditor Agreement)
         in the exact  form  received,  duly  indorsed  by such  Grantor  to the
         Secured  Party (or to the First Lien Agent,  as  applicable),  together
         with an undated stock power covering such  certificate duly executed in
         blank by such Grantor and with signature guaranteed,  to be held by the
         Secured  Party (or,  during the First  Lien  Period,  by the First Lien
         Agent),  subject to the terms hereof, as additional collateral security
         for the  Secured  Obligations.  Any sums paid upon or in respect of the
         Investment  Property upon the  liquidation or dissolution of any Issuer
         shall be paid over to the Secured  Party (or,  after the  occurrence of
         the  First  Lien  Closing  Date  and  to  the  extent  required  by the
         Intercreditor  Agreement,  to the First Lien Agent, as bailee and agent
         for perfection for the Secured Party under the Intercreditor Agreement)
         to be held by it hereunder as  additional  collateral  security for the
         Secured  Obligations,  and in case any distribution of capital shall be
         made on or in respect of the Investment  Property or any property shall
         be distributed upon or with respect to the Investment Property pursuant
         to the  recapitalization  or  reclassification  of the  capital  of any
         Issuer or  pursuant  to the  reorganization  thereof,  the  property so
         distributed  shall,  unless otherwise  subject to a perfected  security
         interest in favor of the Secured  Party,  be  delivered  to the Secured
         Party (or,  after the  occurrence of the First Lien Closing Date and to
         the extent required by the Intercreditor  Agreement,  to the First Lien
         Agent,  as bailee and agent for  perfection for the Secured Party under
         the  Intercreditor  Agreement) to be held by it hereunder as additional
         collateral security for the Secured  Obligations.  If any sums of money
         or  property  so paid  or  distributed  in  respect  of the  Investment
         Property shall be received by such Grantor,  such Grantor shall,  until
         such money or property is paid or delivered to the Secured Party (or to
         the First Lien Agent,  as  applicable),  hold such money or property in
         trust for the  Secured  Party and the other  Holders,  segregated  from
         other funds of such Grantor, as additional  collateral security for the
         Secured Obligations.

                  (b)      Without  the prior  written  consent  of the  Secured
         Party,  such  Grantor  will not (i) vote to  enable,  or take any other
         action to  permit,  any  Issuer to issue any  Equity  Interests  of any
         nature or to issue any other  securities  convertible  into or granting
         the right to  purchase  or  exchange  for any Equity  Interests  of any
         nature  of any  Issuer,  (ii)  sell,  assign,  transfer,  exchange,  or
         otherwise  dispose  of,  or grant  any  option  with  respect  to,  the
         Investment   Property  or  Proceeds   thereof  (except  pursuant  to  a
         transaction expressly permitted by the Indenture),  (iii) create, incur
         or  permit to exist any Lien or option in favor of, or any claim of any
         Person  with  respect  to, any of the  Investment  Property or Proceeds
         thereof,  or any interest  therein,  except for the security  interests
         created  by  this  Agreement  or  (iv)  enter  into  any  agreement  or
         undertaking  that restricts the right or ability of such Grantor or the
         Secured  Party  to  sell,  assign  or  transfer  any of the  Investment
         Property  or  Proceeds  thereof;  provided,  however,  that  after  the
         occurrence  of the First Lien Closing  Date,  the rights of the Secured
         Party  under  this  CLAUSE  (B)  shall be  subject  to the terms of the
         Intercreditor Agreement.

                  (c)      In the case of each Grantor  that is an Issuer,  such
         Issuer agrees that (i) it will be bound by the terms of this  Agreement
         relating to the Investment  Property  issued by it and will comply with
         such terms  insofar as such terms are  applicable  to it,  (ii) it will


                                       16
<PAGE>


         notify the Secured Party  promptly in writing of the  occurrence of any
         of  the  events  described  in  SECTION  4.8(A)  with  respect  to  the
         Investment Property issued by it and (iii) the terms of SECTIONS 5.3(C)
         and 5.7  shall  apply to it,  mutatis  mutandis,  with  respect  to all
         actions  that may be required  of it pursuant to SECTION  5.3(C) or 5.7
         with respect to the Investment Property issued by it.

         4.9      RECEIVABLES.

                  (a)      Other  than  in  the  ordinary   course  of  business
         consistent with its past practice, such Grantor will not, without prior
         written  consent from the Secured Party (such consent to be provided at
         the Secured  Party's sole  discretion),  (i) grant any extension of the
         time of  payment  of any  Receivable,  (ii)  compromise  or settle  any
         Receivable for less than the full amount thereof, (iii) release, wholly
         or partially, any Person liable for the payment of any Receivable, (iv)
         allow any credit or discount whatsoever on any Receivable or (v) amend,
         supplement or modify any Receivable in any manner that could  adversely
         affect the value thereof.

                  (b)      Such Grantor will deliver to the Secured Party a copy
         of  each  material  demand,  notice  or  document  received  by it that
         questions  or calls into doubt the validity or  enforceability  of more
         than 5% of the aggregate amount of the then outstanding Receivables.

         4.10     INTELLECTUAL PROPERTY.

                  (a)      Except as otherwise  permitted  under the  Indenture,
         such Grantor (either itself or through  licensees) will (i) continue to
         use each material Trademark in order to maintain such Trademark in full
         force free from any claim of abandonment for non-use,  (ii) maintain as
         in the past the quality of products  and  services  offered  under such
         Trademark,  (iii) use such  Trademark  with the  appropriate  notice of
         registration  and all other notices and legends  required by applicable
         law and (iv) not (and not permit any  licensee or  sublicensee  thereof
         to) do any act or knowingly  omit to do any act whereby such  Trademark
         may become invalidated or impaired in any way.

                  (b)      Except as otherwise  permitted  under the  Indenture,
         such Grantor (either itself or through  licensees) will not do any act,
         or omit to do any act,  whereby any  material  Patent  owned or used by
         such  Grantor  may become  forfeited,  abandoned  or  dedicated  to the
         public.

                  (c)      Except as otherwise  permitted  under the  Indenture,
         such Grantor (either itself or through  licensees) (i) will employ each
         material  Copyright and (ii) will not (and will not permit any licensee
         or  sublicensee  thereof to) do any act or knowingly omit to do any act
         whereby any material  portion of the Copyrights may become  invalidated
         or otherwise impaired.  Such Grantor will not (either itself or through
         licensees)  do any act whereby any material  portion of the  Copyrights
         may fall into the public domain.


                                       17
<PAGE>


                  (d)      Such  Grantor  (either  itself or through  licensees)
         will  not do any act that  knowingly  uses  any  material  Intellectual
         Property  owned or used by such  Grantor to infringe  the  intellectual
         property rights of any other Person.

                  (e)      Such   Grantor   will   notify  the   Secured   Party
         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 such Grantor's ownership of, or the validity of, any material
         Intellectual  Property or such Grantor's  right to register the same or
         to own and maintain the same.

                  (f)      Whenever  such  Grantor,  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,  such  Grantor  shall  report  such filing to the
         Secured  Party  within  five  Business  Days  after the last day of the
         fiscal  quarter in which such filing occurs and will notify the Secured
         Party of any acquisition by such Grantor of any exclusive  rights under
         a material Copyright License,  Patent License,  Trade Secret License or
         Trademark  License  within five Business Days after the last day of the
         fiscal  quarter in which such  agreement  shall have become  effective.
         Such Grantor shall execute and deliver, and have recorded,  any and all
         agreements,  instruments,  documents,  and papers necessary to evidence
         the Secured  Party's and the other  Holders'  security  interest in any
         Copyright, Patent or Trademark and the goodwill and general intangibles
         of such Grantor relating thereto or represented thereby;  PROVIDED, if,
         in the  reasonable  judgment of such  Grantor,  after due  inquiry,  so
         evidencing  such  interest  would  result in the  grant of a  Trademark
         registration  or  Copyright  registration  in the  name of the  Secured
         Party,  such Grantor shall give written  notice to the Secured Party as
         soon  as  reasonably  practicable  and  the  filing  shall  instead  be
         undertaken as soon as practicable but in no case later than immediately
         following  the  grant  of  the  applicable  Trademark  registration  or
         Copyright registration, as the case may be.

                  (g)      Except as otherwise  permitted  under the  Indenture,
         such Grantor 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.

                  (h)      In the event that any material  Intellectual Property
         is infringed, misappropriated or diluted by a third party, such Grantor
         shall (i) take such  actions  as such  Grantor  shall  reasonably  deem
         appropriate under the circumstances to protect such


                                       18
<PAGE>


         Intellectual  Property  and (ii) if such  Intellectual  Property  is of
         material  economic  value,  promptly  notify the Secured Party after it
         learns thereof and sue for infringement,  misappropriation or dilution,
         to seek injunctive  relief where appropriate and to seek to recover any
         and all damages for such infringement, misappropriation or dilution.

                  (i)      such Grantor will take all  reasonable  and necessary
         steps to preserve and protect the secrecy of all material Trade Secrets
         of such Grantor.

         4.11     DEPOSIT  ACCOUNTS.  No  Grantors  shall  deposit or in any way
transfer  any money into any account  listed in  Schedule  11 of the  Perfection
Certificate as an account used exclusively for payroll  purposes,  except to the
extent required to pay such Grantor's employees' wages, or as otherwise required
by law.

         4.12     NEW ACCOUNTS.  No Grantors shall open any new Deposit  Account
or Security  Account unless such account is subject to a Deposit Account Control
Agreement or  Securities  Account  Control  Agreement,  as  applicable,  or such
Deposit Account or Securities  Account is maintained with the Collateral  Agent.
All such Deposit  Account  Control  Agreements  and Securities  Account  Control
Agreements shall be in substantially the same form as ANNEX II and ANNEX III, as
applicable, or in such other form as the Secured Party shall reasonably approve,
and the Grantors  shall  deliver true,  correct and complete and fully  executed
copies of the same to the Secured Party. This SECTION 4.12 will not apply to one
or more such new Deposit Accounts and Securities Accounts containing cash in the
amount of (or in the case of any Securities Accounts, Investment Property having
a fair market  value of) no more than  $25,000 in the  aggregate  with all other
such new Deposit Accounts and Securities Accounts.

         4.13     COMMERCIAL TORT CLAIMS.  If any Grantor shall at any time hold
or  acquire,  or  otherwise  become  plaintiff  or  claimant  in respect of, any
Commercial  Tort Claim,  such Grantor will (a) promptly notify the Secured Party
thereof,  including a reasonably  detailed  description of such  Commercial Tort
Claim,  and (b) if in excess of $20,000,  grant to the Secured  Party a security
interest  therein  and in the  Proceeds  thereof,  all  upon  the  terms of this
Agreement,  pursuant to one or more written  supplements  in form and  substance
reasonably satisfactory to the Secured Party.

SECTION 5.        REMEDIAL PROVISIONS

         5.1      CERTAIN MATTERS RELATING TO RECEIVABLES.

                  (a)      At  any  time  and  from  time  to  time   after  the
         occurrence  and  during the  continuance  of an Event of  Default,  the
         Secured  Party shall have the right to make test  verifications  of the
         Receivables  in any manner and through  any medium  that it  reasonably
         considers advisable, and each Grantor shall furnish all such assistance
         and  information  as the Secured Party may require in  connection  with
         such test  verifications.  At any time and from time to time  after the
         occurrence and during the continuance of an Event of Default,  upon the
         Secured Party's request,  at the expense of the relevant Grantor,  such
         Grantor  shall  cause   independent   public   accountants   or  others
         satisfactory  to the  Secured  Party to  furnish to the  Secured  Party
         reports showing  reconciliations,  aging and test verifications of, and
         trial balances for, the Receivables.


                                       19
<PAGE>


                  (b)      The Secured Party hereby  authorizes  each Grantor to
         collect such  Grantor's  Receivables,  and the Secured Party  (subject,
         after  the   occurrence   of  the  First  Lien  Closing  Date,  to  the
         Intercreditor  Agreement),  may curtail or terminate  said authority at
         any time after the occurrence and during the continuance of an Event of
         Default.  If  required  by the  Secured  Party  at any time  after  the
         occurrence  and  during the  continuance  of an Event of  Default,  any
         payments of  Receivables,  when collected by any Grantor,  (i) shall be
         forthwith  (and, in any event,  within two Business Days)  deposited by
         such Grantor in the exact form received,  duly indorsed by such Grantor
         to the Secured Party if required,  in a Collateral  Account  maintained
         under the sole dominion and control of the Secured Party (or, after the
         occurrence of the First Lien Closing Date and to the extent required by
         the  Intercreditor  Agreement,  of the First Lien Agent,  as bailee and
         agent for  perfection  for the Secured  Party  under the  Intercreditor
         Agreement),  subject to withdrawal by the Secured Party for the account
         of the Holders only as provided in Section 5.5 and in  accordance  with
         the Intercreditor  Agreement (if applicable),  and (ii) until so turned
         over,  shall be held by such Grantor in trust for the Secured Party and
         the other Holders,  segregated  from other funds of such Grantor.  Each
         such  deposit of  Proceeds of  Receivables  shall be  accompanied  by a
         report  identifying  in reasonable  detail the nature and source of the
         payments included in the deposit.

                  (c)      During the  continuance of a Default,  at the Secured
         Party's  request,  each Grantor  shall deliver to the Secured Party all
         original  (or,  during the First Lien Period,  copies of original)  and
         other  documents  evidencing,  and  relating  to,  the  agreements  and
         transactions  which gave rise to the  Receivables,  including,  without
         limitation, all orders, invoices and shipping receipts.

         5.2      COMMUNICATIONS WITH OBLIGORS; GRANTORS REMAIN LIABLE.

                  (a)      At  any  time  and  from  time  to  time   after  the
         occurrence  and  during the  continuance  of an Event of  Default,  the
         Secured  Party in its own name or in the name of others may at any time
         communicate  with obligors under the Receivables to verify with them to
         the Secured Party's satisfaction the existence, amount and terms of any
         Receivables.

                  (b)      Upon the written  request of the Secured Party at any
         time after the  occurrence  and during the  continuance  of an Event of
         Default, each Grantor shall notify obligors on the Receivables that the
         Receivables  have been  assigned to the  Secured  Party for the ratable
         benefit of the Holders and that  payments in respect  thereof  shall be
         made directly to the Secured Party  (subject,  after the  occurrence of
         the First Lien Closing Date, to the Intercreditor Agreement).

                  (c)      Anything herein to the contrary notwithstanding, each
         Grantor  shall remain liable under each of the  Receivables  to observe
         and perform  all the  conditions  and  obligations  to be observed  and
         performed by it  thereunder,  all in  accordance  with the terms of any
         agreement giving rise thereto.  Neither the Secured Party nor any other
         Holder shall have any obligation or liability  under any Receivable (or
         any agreement giving rise thereto), by reason of or arising out of this
         Agreement  or the receipt by the Secured  Party or any other  Holder of
         any payment relating thereto, nor shall the Secured


                                       20
<PAGE>


         Party or any other  Holder be obligated in any manner to perform any of
         the  obligations of any Grantor under or pursuant to any Receivable (or
         any  agreement  giving rise  thereto) to make any payment,  to make any
         inquiry as to the nature or the sufficiency of any payment  received by
         it or as to the sufficiency of any performance by any party thereunder,
         to  present  or file any  claim,  to take any  action  to  enforce  any
         performance  or to collect the  payment of any  amounts  which may have
         been  assigned  to it or to  which  it may be  entitled  at any time or
         times.

         5.3      PLEDGED STOCK.

                  (a)      Unless an Event of Default shall have occurred and be
         continuing and (unless any of the events  described in Sections 6.01(9)
         and (10) of the  Indenture  shall have  occurred  with  respect to such
         Grantor)  the  Secured  Party  shall have given  written  notice to the
         relevant  Grantor  of  the  Secured  Party's  intent  to  exercise  its
         corresponding  rights pursuant to SECTION 5.3(B), each Grantor shall be
         permitted to receive all cash  dividends paid in respect of the Pledged
         Stock and all payments  made in respect of the Pledged  Notes,  in each
         case paid in the normal  course of business of the relevant  Issuer and
         consistent  with  past  practice,   to  the  extent  permitted  in  the
         Indenture,   and  to  exercise  all  voting  and   corporate  or  other
         organizational   rights  with  respect  to  the  Investment   Property;
         PROVIDED,  HOWEVER,  that no vote shall be cast or  corporate  or other
         organizational  right  exercised  or other  action  taken that,  in the
         Secured  Party's  reasonable  judgment,  would impair the Collateral or
         which  would be  inconsistent  with or result in any  violation  of any
         provision  of the  Indenture,  this  Agreement  or any other  Financing
         Document.

                  (b)      If an Event of Default  shall occur and be continuing
         and the Secured Party elects to exercise one of the following  remedies
         (unless  any of the events  described  in  paragraph 9 or 10 of Section
         6.01  of the  Indenture  shall  have  occurred  with  respect  to  such
         Grantor),  the Secured Party shall give written notice of its intent to
         exercise  such rights to the  relevant  Grantor or  Grantors,  subject,
         after  the   occurrence   of  the  First  Lien  Closing  Date,  to  the
         Intercreditor  Agreement, (i) the Secured Party shall have the right to
         receive any and all cash  dividends,  distributions,  payments or other
         Proceeds  paid  in  respect  of  the   Investment   Property  and  make
         application  thereof to the  Secured  Obligations  in such order as the
         Secured  Party  may  determine,  and (ii) any or all of the  Investment
         Property  shall be  registered  in the name of the Secured Party or its
         nominee,  and the Secured Party or its nominee may thereafter  exercise
         (x)  all  voting,   corporate  and  other  rights  pertaining  to  such
         Investment Property at any meeting of shareholders (or other equivalent
         body) of the relevant  Issuer or Issuers or  otherwise  and (y) any and
         all  rights of  conversion,  exchange  and  subscription  and any other
         rights, privileges or options pertaining to such Investment Property as
         if it were the absolute owner thereof  (including,  without limitation,
         the right to exchange at its  discretion  any and all of the Investment
         Property    upon    the    merger,    consolidation,    reorganization,
         recapitalization  or other fundamental change in the corporate or other
         organizational  structure  of any Issuer,  or upon the  exercise by any
         Grantor  or  the  Secured  Party  of any  right,  privilege  or  option
         pertaining to such Investment  Property,  and in connection  therewith,
         the right to deposit and deliver any and all of the Investment Property
         with any  committee,  depositary,  transfer  agent,  registrar or other
         designated  agency upon such terms and  conditions as the


                                       21
<PAGE>


         Secured Party may determine),  all without  liability except to account
         for property  actually received by it, but the Secured Party shall have
         no duty to any Grantor to exercise any such right,  privilege or option
         and shall not be  responsible  for any  failure to do so or delay in so
         doing.

                  (c)      Each Grantor  hereby  authorizes  and instructs  each
         Issuer of any Investment  Property pledged by such Grantor hereunder to
         (i) comply with any  instruction  received by it from the Secured Party
         in writing that (x) states that an Event of Default has occurred and is
         continuing  and (y) is otherwise in  accordance  with the terms of this
         Agreement and, to the extent applicable,  the Intercreditor  Agreement,
         without any other or further  instructions from such Grantor,  and each
         Grantor  agrees  that  each  Issuer  shall  be  fully  protected  in so
         complying,  and (ii) unless otherwise  expressly  permitted hereby, and
         subject,  after the  occurrence  of the First Lien Closing Date, to the
         Intercreditor  Agreement,  pay any  dividends  or other  payments  with
         respect to the Investment Property directly to the Secured Party.

                  (d)      After the occurrence and during the  continuation  of
         an Event of  Default,  if the  Issuer of any  Pledged  Stock or Pledged
         Notes  is  the  subject  of   bankruptcy,   insolvency,   receivership,
         custodianship  or  other  proceedings  under  the  supervision  of  any
         Governmental  Authority,  then all  rights of the  Grantor  in  respect
         thereof to exercise the voting and other  consensual  rights which such
         Grantor  would  otherwise  be entitled to exercise  with respect to the
         Pledged Stock or Pledged  Notes issued by such Issuer shall cease,  and
         all such rights shall thereupon become vested in the Secured Party (or,
         after the  occurrence  of the First Lien Closing Date and to the extent
         required by the Intercreditor  Agreement,  in the First Lien Agent) who
         shall  thereupon  have the sole right to exercise such voting and other
         consensual rights, but the Secured Party shall have no duty to exercise
         any such voting or other consensual rights and shall not be responsible
         for any failure to do so or delay in so doing.

         5.4      PROCEEDS  TO BE TURNED OVER TO SECURED  PARTY.  In addition to
the rights of the Secured Party and the other  Holders  specified in SECTION 5.1
with respect to payments of Receivables and SECTION 5.3 with respect to payments
in respect of  Investment  Property,  if an Event of Default  shall occur and be
continuing,  all Proceeds received by any Grantor consisting of cash, checks and
cash  equivalents  shall be held by such Grantor in trust for the Secured  Party
and the other Holders,  segregated from other funds of such Grantor,  and shall,
forthwith upon receipt by such Grantor, be turned over to the Secured Party (or,
if required by the Intercreditor  Agreement,  to the First Lien Agent, as bailee
and  agent  for  perfection  for  the  Secured  Party  under  the  Intercreditor
Agreement)  in the exact form  received by such Grantor  (duly  indorsed by such
Grantor to the Secured  Party,  or to the First Lien Agent,  as  applicable,  if
required). All Proceeds received by the Secured Party hereunder shall be held by
the Secured Party in a Collateral Account maintained under its sole dominion and
control.  All Proceeds  while held by the Secured Party in a Collateral  Account
(or by such Grantor in trust for the Secured Party and the other  Holders) shall
continue to be held as collateral security for all the obligations and shall not
constitute payment thereof until applied as provided in SECTION 5.5.

         5.5      APPLICATION OF PROCEEDS.  At any time that an Event of Default
shall have occurred and be continuing,  subject to the Intercreditor  Agreement,
the Secured Party may apply


                                       22
<PAGE>


all or any part of the Proceeds of any collection or sale of the Collateral, and
any  Collateral  consisting  of  cash,  whether  or not  held in any  Collateral
Account, in payment of the Secured Obligations in the following order:

                           (i)      FIRST,  to the  payment  of  all  reasonable
                  costs and expenses incurred by the Secured Party in connection
                  with  this  Agreement,  the  Indenture,  any  other  Financing
                  Document or any of the Secured Obligations, including, without
                  limitation,  all  court  costs  and the  reasonable  fees  and
                  expenses  of its  agents  and  legal  counsel,  and any  other
                  reasonable  costs or expenses  incurred in connection with the
                  exercise  by the  Secured  Party of any right or remedy  under
                  this Agreement, the Indenture or any other Financing Document;

                           (ii)     SECOND,  to the ratable  satisfaction of all
                  other  Secured  Obligations  (with any  amounts  so payable in
                  respect of Secured Obligations under the Indenture paid to the
                  Secured Party for  application in accordance with Section 3.02
                  of the Indenture); and

                           (iii)    THIRD,  to  the  relevant   Grantor  or  its
                  successors  or  assigns,  or to  whomsoever  may  be  lawfully
                  entitled to receive the same.

         5.6      CODE AND OTHER REMEDIES.

                  (a)      If an Event of Default shall occur and be continuing,
         the Secured Party, on behalf of the Holders,  may exercise,  subject to
         the  Intercreditor  Agreement,  in  addition  to all other  rights  and
         remedies granted to them in this Agreement, the Indenture and the other
         Financing  Documents and in any other instrument or agreement securing,
         evidencing  or  relating  to the  Secured  Obligations,  all rights and
         remedies  of a  secured  party  under  the New  York  UCC or any  other
         applicable  law or  otherwise  available  at law or in equity.  Without
         limiting the  generality of the foregoing,  the Secured Party,  without
         demand  of   performance   or  other  demand,   presentment,   protest,
         advertisement  or notice of any kind (except any notice required by law
         referred to below) to or upon any Grantor or any other  Person (all and
         each of which demands, defenses,  advertisements and notices are hereby
         waived),  may in  such  circumstances,  subject  to  the  Intercreditor
         Agreement, forthwith collect, receive, appropriate and realize upon the
         Collateral,  or any part  thereof,  and/or may forthwith  sell,  lease,
         assign, give option or options to purchase, or otherwise dispose of and
         deliver the  Collateral  or any part  thereof (or contract to do any of
         the  foregoing),  in one or more  parcels at public or private  sale or
         sales,  at any exchange,  broker's board or office of the Secured Party
         or any other Holder or elsewhere  upon such terms and  conditions as it
         may deem  advisable and at such prices as it may deem best, for cash or
         on credit or for future delivery without assumption of any credit risk.
         The  Secured  Party or any other  Holder  shall have the right upon any
         such public sale or sales,  and, to the extent  permitted by law,  upon
         any such  private  sale or sales,  to purchase the whole or any part of
         the  Collateral  so sold,  free of any right or equity of redemption in
         any Grantor, which right or equity is hereby waived and released.  Each
         Grantor further agrees, at the Secured Party's request, to assemble the
         Collateral  and make it available to the Secured  Party at places which
         the Secured Party shall  reasonably  select,  whether at such Grantor's
         premises  or  elsewhere.  Upon any such sale or  transfer,  the Secured
         Party


                                       23
<PAGE>


         shall have the right to deliver,  assign and transfer to the  purchaser
         or  transferee  thereof  the  Collateral  so sold or  transferred.  The
         Secured  Party shall apply the net  proceeds of any action  taken by it
         pursuant to this SECTION 5.6, after deducting all reasonable  costs and
         expenses of every kind incurred in  connection  therewith or incidental
         to the  care  or  safekeeping  of any of the  Collateral  or in any way
         relating to the  Collateral  or the rights of the Secured Party and the
         other Holders hereunder, including, without limitation, attorneys' fees
         and  disbursements,  to the  payment in whole or in part of the Secured
         Obligations,  in such order as the  Secured  Party may elect,  and only
         after such  application  and after the payment by the Secured  Party of
         any other amount required by any provision of law,  including,  without
         limitation,  Section  9-615(a)(3) of the New York UCC, need the Secured
         Party  account for the surplus,  if any, to any Grantor.  To the extent
         permitted by applicable  law, each Grantor  waives all claims,  damages
         and  demands it may  acquire  against  the  Secured  Party or any other
         Holder arising out of the exercise by them of any rights hereunder.  If
         any notice of a proposed sale or other  disposition of Collateral shall
         be required by law, such notice shall be deemed  reasonable  and proper
         if given at least 10 days before such sale or other disposition.

                  (b)      In the event  that the  Secured  Party  elects not to
         sell the Collateral, the Secured Party retains its rights to dispose of
         or utilize the  Collateral  or any part or parts  thereof in any manner
         authorized or permitted by law or in equity,  and to apply the proceeds
         of the same towards payment of the Secured Obligations.  Each and every
         method of  disposition  of the  Collateral  described in this Agreement
         shall constitute disposition in a commercially reasonable manner.

                  (c)      The  Secured  Party  will not  submit an  "Notice  of
         Exclusive  Control"  under a Deposit  Account  Control  Agreement  or a
         Securities Account Control Agreement, as applicable, unless an Event of
         Default has occurred and is continuing.

                  (d)      The Secured  Party may appoint any Person as agent to
         perform any act or acts  necessary  or incident to any sale or transfer
         of the Collateral.

         5.7      REGISTRATION RIGHTS.

                  (a)      If the Secured Party shall  determine to exercise its
         right to sell any or all of the Pledged Stock  pursuant to SECTION 5.6,
         and if in the opinion of the Secured Party it is necessary or advisable
         to  have  the  Pledged  Stock,  or that  portion  thereof  to be  sold,
         registered  under the  provisions of the  Securities  Act, the relevant
         Grantor will cause the Issuer  thereof to (i) execute and deliver,  and
         use its best efforts to cause the directors and officers of such Issuer
         to execute and deliver,  all such instruments and documents,  and do or
         cause to be done all such other  acts as may be, in the  opinion of the
         Secured Party, necessary or advisable to register the Pledged Stock, or
         that portion thereof to be sold, under the provisions of the Securities
         Act,  (ii) use its best  efforts  to cause the  registration  statement
         relating  thereto to become  effective  and to remain  effective  for a
         period of one year from the date of the first  public  offering  of the
         Pledged Stock,  or that portion  thereof to be sold, and (iii) make all
         amendments  thereto  and/or to the  related  prospectus  which,  in the
         opinion of the  Secured  Party,  are  necessary  or  advisable,  all in
         conformity  with the  requirements  of the Securities Act and the rules
         and regulations of the Securities and


                                       24
<PAGE>


         Exchange Commission  applicable  thereto.  Each Grantor agrees to cause
         such Issuer to comply with the  provisions  of the  securities or "Blue
         Sky" laws of any and all  jurisdictions  which the Secured  Party shall
         designate  and to make  available to its security  holders,  as soon as
         practicable,  an earnings  statement  (which need not be audited) which
         will satisfy the provisions of Section 11(a) of the Securities Act.

                  (b)      Each Grantor recognizes that the Secured Party may be
         unable  to effect a public  sale of any or all the  Pledged  Stock,  by
         reason of certain  prohibitions  contained  in the  Securities  Act and
         applicable state securities laws or otherwise,  and may be compelled to
         resort to one or more private  sales  thereof to a restricted  group of
         purchasers  which will be  obliged to agree,  among  other  things,  to
         acquire such  securities  for their own account for  investment and not
         with a  view  to the  distribution  or  resale  thereof.  Each  Grantor
         acknowledges and agrees that any such private sale may result in prices
         and other  terms less  favorable  than if such sale were a public  sale
         and,  notwithstanding such circumstances,  agrees that any such private
         sale  shall be deemed to have  been made in a  commercially  reasonable
         manner.  The Secured Party shall be under no obligation to delay a sale
         of any of the Pledged Stock for the period of time  necessary to permit
         the Issuer  thereof to register such  securities  for public sale under
         the Securities Act, or under  applicable state securities laws, even if
         such Issuer would agree to do so.

                  (c)      Each Grantor  agrees to use its best efforts to do or
         cause to be done all such other acts as may be  necessary  to make such
         sale or sales of all or any  portion of the Pledged  Stock  pursuant to
         this SECTION 5.7 valid and binding and in  compliance  with any and all
         other applicable laws. Each Grantor further agrees that a breach of any
         of the covenants  contained in this SECTION 5.7 will cause  irreparable
         injury to the  Secured  Party and the other  Holders,  that the Secured
         Party and the other  Holders have no adequate  remedy at law in respect
         of such  breach  and, as a  consequence,  that each and every  covenant
         contained in this SECTION 5.7 shall be specifically enforceable against
         such Grantor,  and such Grantor  hereby waives and agrees not to assert
         any  defenses  against  an  action  for  specific  performance  of such
         covenants  except for a defense  that no Event of Default has  occurred
         under the Indenture.

         5.8      DEFICIENCY.   Each  Grantor   shall  remain   liable  for  any
deficiency if the proceeds of any sale or other  disposition  of the  Collateral
are insufficient to pay its Secured  Obligations and the fees and  disbursements
of any  attorneys  employed by the Secured  Party or any other Holder to collect
such deficiency.

         5.9      NON-JUDICIAL  ENFORCEMENT.  The Secured  Party may enforce its
rights hereunder without prior judicial process or judicial hearing,  and to the
extent permitted by law, each Grantor  expressly waives any and all legal rights
which  might  otherwise  require  the  Secured  Party to  enforce  its rights by
judicial process.

SECTION 6.        THE SECURED PARTY

         6.1      SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC.


                                       25
<PAGE>


                  (a)      Each  Grantor  hereby  irrevocably   constitutes  and
         appoints the Secured Party and any officer or agent thereof,  with full
         power of  substitution,  as its true and lawful  attorney-in-fact  with
         full  irrevocable  power and  authority  in the place and stead of such
         Grantor  and in the name of such  Grantor  or in its own name,  for the
         purpose of  carrying  out the terms of this  Agreement,  subject to the
         Intercreditor  Agreement, to take any and all appropriate action and to
         execute any and all documents and instruments which may be necessary or
         desirable to accomplish the purposes of this  Agreement,  and,  without
         limiting the generality of the foregoing, each Grantor hereby gives the
         Secured Party the power and right,  on behalf of such Grantor,  without
         notice to or  assent  by such  Grantor,  subject  to the  Intercreditor
         Agreement, to do any or all of the following:

                           (i)      in the name of such Grantor or its own name,
                  or otherwise,  take  possession of and indorse and collect any
                  checks,  drafts,  notes,  acceptances or other instruments for
                  the payment of moneys due under any Receivable or with respect
                  to any other  Collateral  and file any claim or take any other
                  action  or  proceeding  in  any  court  of law  or  equity  or
                  otherwise  deemed  appropriate  by the  Secured  Party for the
                  purpose of  collecting  any and all such  moneys due under any
                  Receivable  or with respect to any other  Collateral  whenever
                  payable;

                           (ii)     in the  case of any  Intellectual  Property,
                  execute  and  deliver,   and  have   recorded,   any  and  all
                  agreements,  instruments,  documents and papers as the Secured
                  Party may  request to  evidence  the  Secured  Party's and the
                  other Holders' security interest in such Intellectual Property
                  and the  goodwill  and  general  intangibles  of such  Grantor
                  relating thereto or represented thereby;

                           (iii)    pay or  discharge  taxes and Liens levied or
                  placed on or  threatened  against the  Collateral,  effect any
                  repairs  or any  insurance  called  for by the  terms  of this
                  Agreement and pay all or any part of the premiums therefor and
                  the costs thereof;

                           (iv)     execute,   in   connection   with  any  sale
                  provided  for  in  SECTION  5.6  or  5.7,  any   indorsements,
                  assignments  or other  instruments  of  conveyance or transfer
                  with respect to the Collateral; and

                           (v)      direct  any  party  liable  for any  payment
                  under any of the  Collateral  to make  payment  of any and all
                  moneys due or to become due thereunder directly to the Secured
                  Party or as the Secured Party shall direct; ask or demand for,
                  collect,  and receive  payment of and receipt for, any and all
                  moneys,  claims and other  amounts due or to become due at any
                  time in respect of or arising out of any Collateral;  sign and
                  indorse  any  invoices,  freight  or express  bills,  bills of
                  lading, storage or warehouse receipts, drafts against debtors,
                  assignments,  verifications,  notices and other  documents  in
                  connection with any of the Collateral;  commence and prosecute
                  any suits,  actions or  proceedings at law or in equity in any
                  court of competent  jurisdiction  to collect the Collateral or
                  any portion  thereof and to enforce any other right in respect
                  of any  Collateral;  defend  any suit,  action  or  proceeding
                  brought  against such Grantor with respect to any  Collateral;
                  settle,   compromise  or  adjust  any  such  suit,  action  or
                  proceeding


                                       26
<PAGE>


                  and, in connection therewith, give such discharges or releases
                  as  the  Secured  Party  may  deem  appropriate;   assign  any
                  Copyright,  Patent,  Domain  Name,  Trade  Secret or Trademark
                  (along  with the  goodwill  of the  business to which any such
                  Copyright,  Patent,  Domain  Name,  Trade  Secret or Trademark
                  pertains),  throughout  the world  for such term or terms,  on
                  such  conditions,  and in such  manner,  as the Secured  Party
                  shall in its sole discretion determine;  and generally,  sell,
                  transfer,  pledge and make any  agreement  with  respect to or
                  otherwise  deal  with  any  of the  Collateral  as  fully  and
                  completely as though the Secured Party were the absolute owner
                  thereof  for all  purposes,  and do,  at the  Secured  Party's
                  option and such Grantor's  expense,  at any time, or from time
                  to time,  all acts and things  which the  Secured  Party deems
                  necessary to protect,  preserve or realize upon the Collateral
                  and the  Secured  Party's  and  the  other  Holders'  security
                  interests  therein and to effect the intent of this Agreement,
                  all as fully and effectively as such Grantor might do.

                  (b)      Anything  in  this   SECTION  6.1  to  the   contrary
         notwithstanding, the Secured Party agrees that it will not exercise any
         rights  under the power of attorney  provided  for in this  SECTION 6.1
         unless an Event of Default shall have occurred and be continuing.

                  (c)      If any Grantor fails to perform or comply with any of
         its agreements  contained herein, the Secured Party, at its option, but
         without any  obligation  so to do, may perform or comply,  or otherwise
         cause performance or compliance, with such agreement.

                  (d)      The  expenses  of  the  Secured  Party   incurred  in
         connection  with  actions  undertaken  as provided in this SECTION 6.1,
         together with interest thereon at a rate per annum equal to the highest
         rate per annum at which  interest  would  then be  payable  on past due
         Notes  under the  Indenture,  from the date of payment  by the  Secured
         Party to the date reimbursed by the relevant Grantor,  shall be payable
         by such Grantor to the Secured Party on demand.

                  (e)      Each Grantor hereby  ratifies all that said attorneys
         shall  lawfully  do or cause to be done by virtue  hereof.  All powers,
         authorizations  and agencies  contained in this  Agreement  are coupled
         with an interest and are irrevocable until this Agreement is terminated
         and the security interests created hereby are released.

         6.2      SECURED PARTY'S APPOINTMENT AS AGENT.

                  (a)      The  Secured  Party  has  been  appointed  to  act as
         Secured  Party  hereunder by the Trustee and the  Holders.  The Secured
         Party shall be obligated,  and shall have the right hereunder,  to make
         demands,  to give notices,  to exercise or refrain from  exercising any
         rights,  and to take or  refrain  from  taking  any  action  (including
         without  limitation the release or substitution of Collateral),  solely
         in accordance with this Agreement,  the Intercreditor Agreement and the
         Indenture;  PROVIDED that Secured Party shall,  subject to the terms of
         the Intercreditor Agreement,  exercise, or refrain from exercising, any
         remedies   provided  for  in  SECTION  5.6  in   accordance   with  the
         instructions  of Holders  representing  more than 50% of the  aggregate
         amount of the Secured Obligations.


                                       27
<PAGE>


                  (b)      Unless the  Trustee  has  appointed  a  co-Collateral
         Agent under the terms of the Indenture,  the Secured Party shall at all
         times be the same  Person  that is the  Trustee  under  the  Indenture.
         Written  notice of  resignation  by the Trustee  pursuant to subsection
         7.08(b) of the Indenture shall also constitute notice of resignation as
         the Secured Party under this Agreement; removal of the Trustee pursuant
         to subsection 7.08(b) of the Indenture shall also constitute removal as
         the Secured Party under this Agreement;  and appointment of a successor
         Trustee  pursuant to  subsection  7.08(a) of the  Indenture  shall also
         constitute   appointment  of  a  successor  Secured  Party  under  this
         Agreement.  Upon the acceptance of any appointment as the Trustee under
         subsection  7.08(a)  of the  Indenture  by a  successor  Trustee,  that
         successor Trustee shall thereupon succeed to and become vested with all
         the rights,  powers,  privileges  and duties of the retiring or removed
         Secured Party under this Agreement, and the retiring or removed Secured
         Party  under  this  Agreement  shall  promptly  (i)  transfer  to  such
         successor  Secured  Party  all  sums,  securities  and  other  items of
         Collateral  held  hereunder,   together  with  all  records  and  other
         documents  necessary or appropriate in connection  with the performance
         of the duties of the successor Secured Party under this Agreement,  and
         (ii)  execute  and  deliver  to  such  successor   Secured  Party  such
         amendments to financing statements, and take such other actions, as may
         be necessary or appropriate  in connection  with the assignment to such
         successor Secured Party of the security  interests  created  hereunder,
         whereupon  such  retiring or removed  Secured Party shall be discharged
         from its  duties  and  obligations  under  this  Agreement.  After  any
         retiring or removed  Trustee's  resignation or removal hereunder as the
         Secured  Party,  the  provisions of this  Agreement  shall inure to its
         benefit as to any actions taken or omitted to be taken by it under this
         Agreement while it was Secured Party hereunder.

         6.3      DUTY OF THE SECURED PARTY.  The Secured Party's sole duty with
respect to the custody,  safekeeping and physical preservation of the Collateral
in its possession,  under Section 9-207 of the New York UCC or otherwise,  shall
be to deal with it in the same  manner as the Secured  Party deals with  similar
property for its own account.  None of the Secured Party,  the Holders or any of
their respective  officers,  directors,  employees or agents shall be liable for
failure to demand,  collect or  realize  upon any of the  Collateral  or for any
delay in doing so or shall be under any obligation to sell or otherwise  dispose
of any Collateral upon the request of any Grantor or any other Person or to take
any other action  whatsoever  with regard to the Collateral or any part thereof.
The powers  conferred on the Secured Party and the other  Holders  hereunder are
solely to protect the Secured  Party's and the other  Holders'  interests in the
Collateral  and shall not  impose any duty upon the  Secured  Party or any other
Holder to exercise  any such  powers.  The Secured  Party and the other  Holders
shall be accountable  only for amounts that they actually receive as a result of
the  exercise  of such  powers,  and  neither  they nor any of  their  officers,
directors,  employees or agents shall be  responsible to any Grantor for any act
or failure to act  hereunder,  except for their own gross  negligence or willful
misconduct. To the fullest extent permitted by applicable law, the Secured Party
shall be under no duty  whatsoever  to make or give any  presentment,  notice of
dishonor, protest, demand for performance, notice of non-performance,  notice of
intent to  accelerate,  notice  of  acceleration,  or other  notice or demand in
connection with any Collateral or the Secured Obligations,  or to take any steps
necessary  to  preserve  any  rights  against  any  Grantor  or other  Person or
ascertaining  or taking  action with respect to calls,  conversions,  exchanges,
maturities,  tenders or other matters relative to any Collateral, whether or not
it has or is deemed to have knowledge of such matters. Each Grantor,


                                       28
<PAGE>


to the extent  permitted by  applicable  law,  waives any right of marshaling in
respect of any and all  Collateral,  and waives any right to require the Secured
Party or any other  Holder to  proceed  against  any  Grantor  or other  Person,
exhaust any  Collateral  or enforce any other remedy which the Secured  Party or
any other Holder now has or may hereafter have against each Grantor, any Grantor
or other Person.

         6.4      EXECUTION OF FINANCING STATEMENTS.  Pursuant to any applicable
law,  each  Grantor  authorizes  the Secured  Party to file or record  financing
statements and other filing or recording  documents or instruments  with respect
to the Collateral without the signature of such Grantor in such form and in such
offices as the Secured Party  reasonably  determines  appropriate to perfect the
security  interests  of the Secured  Party under this  Agreement.  Each  Grantor
authorizes the Secured Party to use the collateral  description  "all assets" or
"all personal  property" in any such financing  statements.  Each Grantor hereby
ratifies  and  authorizes  the  filing  by the  Secured  Party of any  financing
statement with respect to the Collateral made prior to the date hereof.  Nothing
in this SECTION 6.4 shall  relieve the Grantor from its  obligation  to make the
Filings or file any continuation statements.

         6.5      AUTHORITY OF THE SECURED PARTY. Each Grantor acknowledges that
the rights and  responsibilities  of the Secured Party under this Agreement with
respect to any action taken by the Secured Party or the exercise or non-exercise
by the Secured  Party of any option,  voting right,  request,  judgment or other
right or  remedy  provided  for  herein  or  resulting  or  arising  out of this
Agreement shall, as between the Secured Party and the other Holders, be governed
by the Indenture and by such other  agreements with respect thereto as may exist
from  time to time  among  them,  but,  as  between  the  Secured  Party and the
Grantors, the Secured Party shall be conclusively presumed to be acting as agent
for the Holders with full and valid  authority so to act or refrain from acting,
and no  Grantor  shall be under  any  obligation,  or  entitlement,  to make any
inquiry respecting such authority.

SECTION 7.        SUBORDINATION OF INDEBTEDNESS

         7.1      SUBORDINATION  OF  ALL  SUBSIDIARY  GRANTOR  CLAIMS.  As  used
herein,  the  term  "SUBSIDIARY   GRANTOR  CLAIMS"  shall  mean  all  debts  and
obligations  of the Company or any other  Grantor to any  Grantor,  whether such
debts and obligations  now exist or are hereafter  incurred or arise, or whether
the obligation of the debtor thereon be direct, contingent,  primary, secondary,
several, joint and several, or otherwise, and irrespective of whether such debts
or obligations be evidenced by note, contract,  open account, or otherwise,  and
irrespective  of the Person or Persons in whose favor such debts or  obligations
may, at their inception,  have been, or may hereafter be created,  or the manner
in which they have been or may  hereafter  be acquired  by. After and during the
continuation  of an Event of  Default,  no Grantor  shall  receive  or  collect,
directly or indirectly,  from any obligor in respect thereof any amount upon the
Subsidiary Grantor Claims unless otherwise consented to by the Secured Party.

         7.2      CLAIMS IN BANKRUPTCY.  Subject to the Intercreditor Agreement,
in the event of receivership, bankruptcy, reorganization,  arrangement, debtor's
relief or other insolvency  proceedings involving any Grantor, the Secured Party
on behalf of itself and the other  Holders  shall have the right to prove  their
claim in any proceeding,  so as to establish their rights  hereunder and receive
directly  from the  receiver,  trustee or other court  custodian,  dividends and
payments that would  otherwise be payable upon Subsidiary  Grantor Claims.  Each
Grantor  hereby assigns such dividends and payments


                                       29
<PAGE>


to the Secured  Party for the benefit of the Secured Party and the other Holders
for application  against the Secured Obligations in the manner determined by the
Secured  Party.  Should  the  Secured  Party or any other  Holder  receive,  for
application upon the Secured  Obligations,  any such dividend or payment that is
otherwise  payable to any  Grantor,  and that,  as between  such Grantor and the
applicable  Secured  Party  or  Holder,  shall  constitute  a  credit  upon  the
Subsidiary Grantor Claims, then upon payment in full of the Secured Obligations,
the  intended  recipient  shall become  subrogated  to the rights of the Secured
Party and the other  Holders to the extent  that such  payments  to the  Secured
Party and the other Holders on the Subsidiary  Grantor  Claims have  contributed
toward the liquidation of the Secured Obligations, and such subrogation shall be
with respect to that proportion of the Secured  Obligations that would have been
unpaid if the Secured Party and the other Holders had not received  dividends or
payments upon the Subsidiary Grantor Claims.

         7.3      PAYMENTS  HELD IN  TRUST.  In the event  that  notwithstanding
SECTION  7.1 and SECTION 7.2 any  Grantor  should  receive any funds,  payments,
claims or distributions  which are prohibited by such Sections,  then it agrees:
(a) to hold in trust for the Secured Party and the other Holders an amount equal
to the amount of all funds,  payments,  claims or distributions so received, and
(b) that it shall have  absolutely  no  dominion  over the amount of such funds,
payments,  claims or  distributions  except to pay them  promptly to the Secured
Party (or, after the occurrence of the First Lien Closing Date and to the extent
required  by the  Intercreditor  Agreement,  to the First Lien  Agent),  for the
benefit of the Secured Party and the other Holders;  and each Grantor  covenants
promptly  to pay the same to the Secured  Party (or to the First Lien Agent,  as
applicable).

         7.4      LIENS SUBORDINATE. Each Grantor agrees that, until the Release
Date, any Liens securing  payment of the Subsidiary  Grantor Claims shall be and
remain  inferior and  subordinate to any Liens  securing  payment of the Secured
Obligations,  regardless of whether such  encumbrances in favor of such Grantor,
the Secured Party or other Holder  presently  exist or are hereafter  created or
attach.  Without the prior  written  consent of the Secured  Party,  no Grantor,
during the period in which any of the Secured  Obligations are outstanding shall
(a) exercise or enforce any  creditor's  right it may have against any debtor in
respect of the Subsidiary Grantor Claims, or (b) foreclose, repossess, sequester
or  otherwise  take steps or  institute  any action or  proceeding  (judicial or
otherwise,  including  without  limitation the commencement of or joinder in any
liquidation,   bankruptcy,   rearrangement,   debtor's   relief  or   insolvency
proceeding) to enforce any Lien held by it.

         7.5      NOTATION OF RECORDS.  All  promissory  notes and all  accounts
receivable  ledgers or other evidence of the Subsidiary  Grantor Claims accepted
by or held by any Grantor shall contain a specific  written  notice thereon that
the  indebtedness  evidenced  thereby  is  subordinated  under the terms of this
Agreement.

SECTION 8.        MISCELLANEOUS

         8.1      AMENDMENTS IN WRITING. None of the terms or provisions of this
Agreement may be waived,  amended,  supplemented or otherwise modified except in
accordance with Article 9 of the Indenture.


                                       30
<PAGE>


         8.2      NOTICES.  All  notices,  requests  and  demands to or upon the
Secured Party or any Grantor  hereunder shall be effected in the manner provided
for in Section 13.02 of the Indenture; provided that any such notice, request or
demand to or upon any Subsidiary  Grantor shall be addressed to such  Subsidiary
Grantor at its notice address set forth on SCHEDULE I hereto.

         8.3      NO WAIVER BY COURSE OF CONDUCT;  CUMULATIVE REMEDIES.  Neither
the  Secured  Party nor any other  Holder  shall by any act (except by a written
instrument pursuant to SECTION 8.1), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default  or  Event  of  Default.  No  failure  to  exercise,  nor any  delay  in
exercising,  on the part of the Secured  Party or any other  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  Secured  Party or any other  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 Secured  Party or such other  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.

         8.4      ENFORCEMENT EXPENSES; INDEMNIFICATION.

                  (a)      Each  Subsidiary  Grantor  agrees to pay or reimburse
         each of the Secured  Party and each other  Holder for all its costs and
         expenses  incurred in  enforcing  or  preserving  any rights under this
         Agreement and the other  Financing  Documents to which such  Subsidiary
         Grantor is a party, including,  without limitation, the reasonable fees
         and disbursements of counsel (including the allocated fees and expenses
         of in-house counsel) to the Secured Party and each other Holder.

                  (b)      Each  Subsidiary  Grantor  agrees to pay, and to save
         the Secured  Party and the other  Holders  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.

                  (c)      Each  Subsidiary  Grantor  agrees to pay, and to save
         the Secured  Party and the other  Holders  harmless  from,  any and all
         liabilities,   obligations,   losses,  damages,   penalties,   actions,
         judgments,  suits,  costs,  expenses  or  disbursements  of any kind or
         nature whatsoever with respect to the execution, delivery, enforcement,
         performance  and  administration  of this  Agreement  to the extent the
         Company  would be required  to do so  pursuant  to Section  7.07 of the
         Indenture.

                  (d)      The  agreements  in this  SECTION  8.4 shall  survive
         repayment  of the Secured  Obligations  and all other  amounts  payable
         under  the  Indenture  and the  other  Financing  Documents  and  shall
         survive,  as to a Secured  Party,  the  resignation  or removal of such
         Secured Party.

         8.5      SUCCESSORS AND ASSIGNS.  This Agreement  shall be binding upon
the successors and assigns of each Grantor and shall inure to the benefit of the
Secured Party and the other


                                       31
<PAGE>


Holders and their successors and permitted assigns; provided that no Grantor may
assign,  transfer  or  delegate  any of its  rights or  obligations  under  this
Agreement without the prior written consent of the Secured Party.

         8.6      SET-OFF.  Each  Grantor  hereby  irrevocably   authorizes  the
Secured  Party and each other  Holder at any time and from time to time while an
Event  of  Default  shall  have  occurred  and  be  continuing,  subject  to the
Intercreditor  Agreement,  without  notice to such Grantor or any other Grantor,
any  such  notice  being  expressly  waived  by each  Grantor,  to  set-off  and
appropriate and apply any and all deposits (general or special,  time or demand,
provisional or final), in any currency,  and any other credits,  indebtedness or
claims,  in any currency,  in each case whether direct or indirect,  absolute or
contingent, matured or unmatured, at any time held or owing by the Secured Party
or such Holder to or for the credit or the account of such Grantor,  or any part
thereof in such amounts as the Secured  Party or such Holder may elect,  against
and on account of the obligations and liabilities of such Grantor to the Secured
Party or such Holder hereunder and claims of every nature and description of the
Secured  Party or such Holder  against such Grantor,  in any  currency,  whether
arising  hereunder,  under  the  Indenture,  any  other  Financing  Document  or
otherwise,  as the Secured  Party or such  Holder may elect,  whether or not the
Secured  Party or any Holder has made any demand for payment and  although  such
obligations,  liabilities and claims may be contingent or unmatured. The Secured
Party and each other  Holder  shall  notify  such  Grantor  promptly of any such
set-off  and the  application  made by the  Secured  Party or such Holder of the
proceeds thereof, provided that the failure to give such notice shall not affect
the validity of such set-off and  application.  The rights of the Secured  Party
and each other Holder under this SECTION 8.6 are in addition to other rights and
remedies  (including,  without  limitation,  other rights of set-off)  which the
Secured Party or such Holder may have.

         8.7      COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts  (including
by facsimile),  and all of said  counterparts  taken together shall be deemed to
constitute one and the same instrument.

         8.8      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.

         8.9      SECTION HEADINGS.  The Section 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.

         8.10     INTEGRATION.  This  Agreement,  the  Indenture  and the  other
Financing Documents  represent the agreement of the Grantors,  the Secured Party
and the other Holders with respect to the subject matter hereof and thereof, and
there  are no  promises,  undertakings,  representations  or  warranties  by the
Secured  Party or any Holder  relative to subject  matter hereof and thereof not
expressly  set forth or  referred  to herein  or in the  Indenture  or the other
Financing Documents.


                                       32
<PAGE>


         8.11     GOVERNING  LAW.  THIS  AGREEMENT  SHALL BE  GOVERNED  BY,  AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

         8.12     SUBMISSION  TO  JURISDICTION;  WAIVERS.  Each  Grantor  hereby
irrevocably and unconditionally:

                  (a)      submits,   for  itself  and  its  property,   to  the
         nonexclusive jurisdiction of the Supreme Court of the State of New York
         sitting in New York County and of the United States  District  Court of
         the Southern  District of New York,  and any  appellate  court from any
         thereof,  in any action or proceeding arising out of or relating to any
         Financing Document,  or for recognition or enforcement of any judgment,
         and each of the parties hereto hereby  irrevocably and  unconditionally
         agrees that all claims in respect of any such action or proceeding  may
         be heard  and  determined  in such New York  State  or,  to the  extent
         permitted by law, in such Federal court;

                  (b)      consents  that any such action or  proceeding  may be
         brought in such  courts and  waives  any  objection  that it may now or
         hereafter  have to the venue of any such  action or  proceeding  in any
         such  court  or that  such  action  or  proceeding  was  brought  in an
         inconvenient court and agrees not to plead or claim the same;

                  (c)      agrees that  service of process in any such action or
         proceeding  may be effected by mailing a copy thereof by  registered or
         certified  mail (or any  substantially  similar form of mail),  postage
         prepaid,  to such Grantor at its address  referred to in SECTION 8.2 or
         at such  other  address  of which the  Secured  Party  shall  have been
         notified pursuant thereto;

                  (d)      agrees that nothing  herein shall affect the right to
         effect service of process in any other manner permitted by law or shall
         limit the right to sue in any other jurisdiction; and

                  (e)      waives,  to the maximum extent not prohibited by law,
         any  right it may  have to claim or  recover  in any  legal  action  or
         proceeding any special, exemplary, punitive or consequential damages.

         8.13     ACKNOWLEDGEMENTS. Each Grantor hereby acknowledges that:

                  (a)      it has been  advised by  counsel in the  negotiation,
         execution  and  delivery  of this  Agreement  and the  other  Financing
         Documents to which it is a party;

                  (b)      neither  the Secured  Party nor any other  Holder has
         any fiduciary  relationship  with or duty to any Grantor arising out of
         or in  connection  with this  Agreement  or any of the other  Financing
         Documents,  and the relationship between the Grantors, on the one hand,
         and the Secured  Party and Holders,  on the other hand,  in  connection
         herewith or therewith is solely that of debtor and creditor; and


                                       33
<PAGE>


                  (c)      no joint  venture is  created  hereby or by the other
         Financing  Documents or otherwise  exists by virtue of the transactions
         contemplated  hereby  among the Holders or among the  Grantors  and the
         Holders.

         8.14     WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT  PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING  DIRECTLY OR INDIRECTLY  ARISING OUT OF OR RELATING
TO THIS  AGREEMENT,  ANY OTHER LOAN  DOCUMENT OR THE  TRANSACTIONS  CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT,  TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO  REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED,  EXPRESSLY  OR  OTHERWISE,  THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION,  SEEK TO ENFORCE THE FOREGOING  WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER  PARTIES  HERETO  HAVE  BEEN  INDUCED  TO ENTER  INTO THIS
AGREEMENT BY, AMONG OTHER THINGS,  THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.

         8.15     ADDITIONAL  GRANTORS.  Each  Subsidiary of the Company that is
required to become a party to this  Agreement  pursuant  to Section  4.17 of the
Indenture  shall  become a  Grantor  for all  purposes  of this  Agreement  upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of ANNEX I hereto.

         8.16     RELEASES.

                  (a)      After  the  Release  Date,  the  Collateral  shall be
         released  from the Liens  created  hereby,  and this  Agreement and all
         obligations   (other  than  those  expressly  stated  to  survive  such
         termination)  of the Secured  Party and each  Grantor  hereunder  shall
         terminate, all without delivery of any instrument or performance of any
         act by any party,  and all rights to the Collateral shall revert to the
         Grantors.  At the request and sole expense of any Grantor following any
         such  termination,  the Secured Party shall deliver to the such Grantor
         any  Collateral  held by the Secured Party  hereunder,  and execute and
         deliver to such Grantor such documents as such Grantor shall reasonably
         request to evidence such termination.

                  (b)      If any of the  Collateral or any  Mortgaged  Property
         (as defined in any Mortgage)  shall be sold,  transferred  or otherwise
         disposed of by any Grantor in a transaction permitted by the Indenture,
         then  the  Secured  Party,  at the  request  and sole  expense  of such
         Grantor,  shall  execute  and  deliver  to such  Grantor,  without  any
         representation  or warranty by the Secured Party, all releases or other
         documents  reasonably  necessary  or  desirable  for the release of the
         Liens created hereby on such Collateral or Mortgaged  Property.  At the
         request and sole expense of the Company,  a Subsidiary Grantor shall be
         released  from its  obligations  hereunder  in the  event  that all the
         Equity Interests of such Subsidiary Grantor shall be sold,  transferred
         or otherwise  disposed of in a transaction  permitted by the Indenture;
         PROVIDED that the Company shall have delivered to the Secured Party, at
         least ten Business  Days prior to the date of the proposed  release,  a
         written request for release identifying the relevant Subsidiary Grantor
         and the terms of the sale or other  disposition  in reasonable  detail,
         including the price  thereof and any expenses in connection  therewith,
         together  with  a  certification  by  the  Company  stating  that  such
         transaction is in compliance with the Indenture and the other Financing
         Documents.


                                       34
<PAGE>


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


                                       WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                       as Secured Party

                                       By:   /s/ Jane Y. Schweiger
                                             -----------------------------------
                                       Name:  Jane Y. Schweiger
                                       Title: Vice President


                                       NATIONAL COAL CORP.

                                       By:   /s/ Jon Nix
                                             -----------------------------------
                                       Name:  Jon Nix
                                       Title: CEO


                                       NATIONAL COAL CORPORATION

                                       By:   /s/ Jon Nix
                                             -----------------------------------
                                       Name:  Jon Nix
                                       Title: CEO


                                       NC TRANSPORTATION, INC.

                                       By:   /s/ Jon Nix
                                             -----------------------------------
                                       Name:  Jon Nix
                                       Title: CEO


                                       NC RAILROAD, INC.

                                       By:   /s/ Robert Pardue
                                             -----------------------------------
                                       Name:  Robert Pardue
                                       Title: President


                                       35
<PAGE>


                                   SCHEDULE I

                         NOTICE ADDRESSES OF GUARANTORS



         To all Guarantors at:

         National Coal Corp.
         8915 George Williams Road
         Knoxville, TN 37923
         Telecopier No.: (865) 691-9982
         Attention:  General Counsel

         With a copy to:

         Mayer, Brown, Rowe & Maw LLP
         71 S. Wacker Drive
         Chicago, IL 60606
         Telecopier No.: (312) 701-7711
         Attention:  James Junewicz


<PAGE>


                                   Annex I to
                               SECURITY AGREEMENT

         ASSUMPTION AGREEMENT, dated as of ___, 20[ ], made by ______________, a
______________  (the  "ADDITIONAL  GRANTOR"),  in  favor of  Wells  Fargo  Bank,
National Association, as the Secured Party under the Indenture referred to below
(together with its successors and assigns, the "SECURED PARTY").

         All  capitalized  terms  not  defined  herein  shall  have the  meaning
ascribed to them in such Indenture.

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


         WHEREAS, National Coal Corp. (the "COMPANY") and the Secured Party have
entered into the Indenture,  dated as of [____________]  [__], 2005 (as amended,
supplemented or otherwise modified from time to time, the "INDENTURE");

         WHEREAS,  in connection with the Indenture,  the Company and certain of
its  Subsidiaries  (other than the  Additional  Grantor)  have  entered into the
Security  Agreement,   dated  as  of  [____________]  [__],  2005  (as  amended,
supplemented or otherwise modified from time to time, the "SECURITY  AGREEMENT")
in favor of the Secured Party and the other Holders;

         WHEREAS,  the  Indenture  requires the  Additional  Grantor to become a
party to the Security Agreement; and

         WHEREAS,  the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Security Agreement;

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

         1.       SECURITY   AGREEMENT.   By  executing  and   delivering   this
Assumption Agreement, the Additional Grantor, as provided in Section 8.15 of the
Security  Agreement,  hereby  becomes  a party to the  Security  Agreement  as a
Grantor thereunder with the same force and effect as if originally named therein
as a Grantor and,  without  limiting the  generality  of the  foregoing,  hereby
expressly assumes all obligations and liabilities of a Grantor  thereunder.  The
information set forth in ANNEX 1-A hereto is hereby added to the information set
forth in the Perfection  Certificate.  The Additional  Grantor hereby represents
and  warrants  that each of the  representations  and  warranties  contained  in
Section  3 of the  Security  Agreement  is true and  correct  on and as the date
hereof (after giving effect to this  Assumption  Agreement) as if made on and as
of such date.

         2.       GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND  INTERPRETED  IN ACCORDANCE  WITH, THE LAW OF THE STATE OF NEW
YORK.


<PAGE>


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

                                       [ADDITIONAL GRANTOR]

                                   By:
                                       -------------------------------
                                       Name:
                                       Title:


                                       2
<PAGE>


                                   Annex II to
                               SECURITY AGREEMENT



         DEPOSIT ACCOUNT  CONTROL  AGREEMENT,  dated as of  [__________,  200_],
between WELLS FARGO BANK, NATIONAL  ASSOCIATION,  as the Secured Party under the
Indenture  referred to below  (together  with its  successors  and assigns,  the
"SECURED PARTY"), [APPLICABLE GRANTOR] (the "DEPOSITOR") and [Name of Bank] (the
"BANK").

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


         WHEREAS,  [the  Depositor][National  Coal Corp.] and the Secured  Party
have entered  into the  Indenture,  dated as of  [____________]  [__],  2005 (as
amended, supplemented or otherwise modified from time to time, the "INDENTURE");

         WHEREAS, in connection with the Indenture,  the Depositor,  [EACH OTHER
GRANTOR] have entered into the Security  Agreement,  dated as of  [____________]
[__], 2005 (as amended,  supplemented  or otherwise  modified from time to time,
the "SECURITY AGREEMENT") in favor of the Secured Party and the other Holders;

         WHEREAS,  pursuant to the Security Agreement,  the Depositor granted to
the  Secured  Party  and the other  Holders,  a  security  interest  in  certain
collateral,  including  but not  limited to all right,  title or interest of the
Depositor in deposit  account  number  [_________]  maintained  by the Bank (the
"ACCOUNT"); and

         WHEREAS,  the Secured Party,  the Depositor and the Bank have agreed to
execute and deliver this Deposit Account  Control  Agreement in order to perfect
the security interest of the Secured Party in the Account;

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

SECTION 1.        THE  ACCOUNT. All parties agree that the Account is a "deposit
account"  within the meaning of Article 9 of the Uniform  Commercial Code of the
State of New York  (the  "UCC").  The Bank has not and will not  agree  with any
third party to comply  with  instructions  or other  directions  concerning  the
Account or the  disposition  of funds in the  Account  originated  by such third
party without the prior written consent of the Secured Party and the Depositor.

SECTION 2.        SUBORDINATION   OF  SECURITY   INTEREST.   The   Bank   hereby
subordinates all security interests,  encumbrances,  claims and rights of setoff
it may have,  now or in the  future,  against  the  Account  or any funds in the
Account other than in connection  with the payment of the Bank's  customary fees
and charges pursuant to its agreement with the Depositor.


<PAGE>


SECTION 3.        CONTROL.  The Bank will comply with instructions originated by
the Secured  Party  directing  disposition  of the funds in the Account  without
further  consent  by the  Depositor.  The  Bank  may  comply  with  instructions
directing the disposition of funds in the Account originated by the Depositor or
its authorized  representatives  until such time as the Secured Party delivers a
notice  to the Bank  that the  Secured  Party is  thereby  exercising  exclusive
control  over the  Account.  Such notice is referred to herein as the "Notice of
Exclusive  Control." After the Bank receives a Notice of Exclusive  Control,  it
will  cease  complying  with  instructions  concerning  the  Account or funds on
deposit therein originated by the Depositor or its representatives.

SECTION  4.       STATEMENTS,  CONFIRMATIONS AND NOTICES OF ADVERSE CLAIMS.  The
Bank will send copies of all  statements  concerning  the Account to each of the
Depositor  and the  Secured  Party at the address set forth in SECTION 13 below.
Upon receipt of written notice of any lien, encumbrance or adverse claim against
the Account or any funds credited thereto, the Bank will make reasonable efforts
promptly to notify the Secured Party and the Depositor thereof.

SECTION  5.       LIMITED  RESPONSIBILITY OF THE BANK.  Except for acting on the
Depositor's instructions in violation of SECTION 3 above, the Bank shall have no
responsibility or liability to the Secured Party for complying with instructions
concerning  the  Account  from  the  Depositor  or  the  Depositor's  authorized
representatives which are received by the Bank before the Bank receives a Notice
of Exclusive Control.  The Bank shall have no responsibility or liability to the
Depositor for  complying  with a Notice of Exclusive  Control or complying  with
instructions  concerning the Account  originated by the Secured Party, and shall
have  no  responsibility  to  investigate  the   appropriateness   of  any  such
instruction or Notice of Exclusive  Control,  even if the Depositor notifies the
Bank that the  Secured  Party is not  legally  entitled  to  originate  any such
instruction or Notice of Exclusive Control.

SECTION  6.       INDEMNIFICATION  OF THE BANK.  The Depositor  hereby agrees to
indemnify  and hold  harmless  the Bank,  its  directors,  officers,  agents and
employees against any and all claims, causes of action,  liabilities,  lawsuits,
demands and damages,  including without limitation,  any and all court costs and
reasonable  attorney's  fees,  in any way  related  to or  arising  out of or in
connection with this Agreement or any action taken or not taken pursuant hereto,
except  to  the  extent  caused  by  the  Bank's  gross  negligence  or  willful
misconduct.

SECTION  7.       OTHER  AGREEMENTS.  In the  event of a conflict  between  this
Agreement and any other agreement between the Bank and the Depositor,  the terms
of this Agreement will prevail; PROVIDED, HOWEVER, that this Agreement shall not
alter or affect any mandatory  arbitration provision currently in effect between
the Bank and the Depositor pursuant to a separate agreement.

SECTION 8.        TERMINATION. This Agreement shall continue in effect until the
Secured  Party has  notified  the Bank in writing  that this  Agreement,  or its
security interest in the Account, is terminated. Upon receipt of such notice the
obligations of the Bank hereunder with respect to the operation and  maintenance
of the Account  after the receipt of such notice  shall  terminate,  the Secured
Party shall have no further right to originate instructions


                                       2
<PAGE>


concerning the Account and any previous Notice of Exclusive Control delivered by
the Secured Party shall be deemed to be of no further force and effect.

SECTION  9.       COMPLETE  AGREEMENT.  This Agreement  and the instructions and
notices  required or permitted to be executed and delivered  hereunder set forth
the entire  agreement of the parties with respect to the subject  matter hereof,
and,   subject  to  SECTION  8  above,   supersede   any  prior   agreement  and
contemporaneous oral agreements of the parties concerning its subject matter.

SECTION 10.       AMENDMENTS. No amendment, modification or (except as otherwise
specified in SECTION 8 above) termination of this Agreement,  nor any assignment
of any rights  hereunder  (except to the extent  contemplated  under  SECTION 13
below),  shall be binding  on any party  hereto  unless it is in writing  and is
signed by each of the  parties  hereto,  and any  attempt  to so amend,  modify,
terminate or assign except pursuant to such a writing shall be null and void. No
waiver of any rights  hereunder shall be binding on any party hereto unless such
waiver is in writing and signed by the party against whom enforcement is sought.

SECTION 11.       SEVERABILITY.  If any  term or  provision  set  forth in  this
Agreement  shall be invalid or  unenforceable,  the remainder of this Agreement,
other than those provisions held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.

SECTION 12.       SUCCESSORS. The terms of this Agreement shall be binding upon,
and shall  inure to the  benefit  of, the  parties  hereto and their  respective
corporate successors or heirs and personal  representatives.  This Agreement may
be assigned by the Secured Party to any successor of the Secured Party under its
security  agreement with the Depositor,  provided that written notice thereof is
given by the Secured Party to the Bank.

SECTION 13.       NOTICES.  All  notices,  requests  and  demands to or upon the
Secured Party or the Depositor  shall be effected in the manner  provided for in
Section 8.01 of the Indenture;  PROVIDED that any such notice, request or demand
to or upon the Bank shall be  addressed  to the Bank at its notice  address  set
forth on SCHEDULE 1.

SECTION 14.       COUNTERPARTS.  This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this  Agreement by signing and  delivering  one or more
counterparts.

SECTION 15.       CHOICE  OF LAW.  This  Agreement  shall  be  governed  by  and
construed in accordance with the law of the State of [ ]. The parties agree that
New York is the "bank's jurisdiction" for purposes of the UCC.


                                       3
<PAGE>


                                       SIGNATURES:

                                       WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                       as Secured Party

                                       By:______________________________________
                                       Name:
                                       Title:

                                       By:______________________________________
                                       Name:
                                       Title:



                                       [APPLICABLE GRANTOR]

                                       By:______________________________________
                                       Name:
                                       Title:



                                       [BANK]

                                       By:______________________________________
                                       Name:
                                       Title:


                                       4
<PAGE>


                                                                      SCHEDULE 1


                           NOTICE ADDRESS OF THE BANK


<PAGE>


                                  Annex III to
                               SECURITY AGREEMENT

                                     FORM OF
                      SECURITIES ACCOUNT CONTROL AGREEMENT

         SECURITIES ACCOUNT CONTROL AGREEMENT,  dated as of [__________,  200_],
between WELLS FARGO BANK, NATIONAL  ASSOCIATION,  as the Secured Party under the
Indenture  referred to below  (together  with its  successors  and assigns,  the
"SECURED PARTY"), [APPLICABLE GRANTOR] (the "DEPOSITOR") and [Name of Bank] (the
"BANK").

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


         WHEREAS,  [the  Depositor][National  Coal Corp.] and the Secured  Party
have entered  into the  Indenture,  dated as of  [____________]  [__],  2005 (as
amended, supplemented or otherwise modified from time to time, the "INDENTURE");

         WHEREAS, in connection with the Indenture,  the Depositor,  [EACH OTHER
GRANTOR] have entered into the Security  Agreement,  dated as of  [____________]
[__], 2005 (as amended,  supplemented  or otherwise  modified from time to time,
the "SECURITY AGREEMENT") in favor of the Secured Party and the other Holders;

         WHEREAS,  pursuant to the Security Agreement,  the Depositor granted to
the  Secured  Party  and the other  Holders,  a  security  interest  in  certain
collateral,  including  but not  limited to all right,  title or interest of the
Depositor in account number [_________]  maintained by the Bank (the "ACCOUNT");
and

         WHEREAS,  the Secured Party,  the Depositor and the Bank have agreed to
execute  and deliver  this  Securities  Account  Control  Agreement  in order to
perfect the security interest of the Secured Party in the Account;

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

         SECTION 1. THE ACCOUNT.  The Bank hereby represents and warrants to the
Secured Party and the Depositor that (A) the Account has been established in the
name of the  Depositor  as  recited  above,  and (B)  except  for the claims and
interest of the Secured Party and the  Depositor in the Account  (subject to any
claim in favor of the Bank permitted under SECTION 2), the Bank does not know of
any claim to or interest in the Account. All parties agree that the Account is a
"securities  account" within the meaning of Article 8 of the Uniform  Commercial
Code as in effect  from time to time in the  State of New York (the  "UCC")  and
that all  property  held by the Bank in the Account will be treated as financial
assets under the UCC.

         SECTION 2. PRIORITY OF SECURITY INTEREST.  The Bank hereby acknowledges
the security  interest  granted to the Secured Party by the Depositor.  The Bank
hereby  confirms that the Account is a cash account and that it will not advance
any margin or other  credit to the  Depositor  nor  hypothecate  any  securities
carried in the  Account  except in  connection  with the  settlement  of trading
activity permitted to be conducted by the Depositor  hereunder.  The Bank hereby
subordinates all liens,  encumbrances,  claims and rights of setoff it may have,
now or in the future, against the Account or any property carried in the Account
or any  free  credit  balance  in the  Account  other  than in  connection  with
activities  in which the Depositor is permitted to engage  hereunder,  including
the payment of the Bank's customary fees,


<PAGE>


commissions  and other charges  pursuant to its agreement with the Depositor and
for payment or delivery of  financial  assets  purchased or sold for or from the
Account.

         SECTION  3.  CONTROL.  The Bank will  comply  with  entitlement  orders
originated by the Secured Party  concerning the Account  without further consent
by the  Depositor.  Except as  otherwise  provided in SECTION 4 below,  the Bank
shall also comply with entitlement orders and other instructions  concerning the
Account   originated   by  the   Depositor,   or  the   Depositor's   authorized
representatives,  until such time as the Secured Party delivers a written notice
to the Bank that the Secured Party is thereby exercising  exclusive control over
the  Account.  Such notice is  referred  to herein as the  "Notice of  Exclusive
Control."  Until the Bank receives a Notice of Exclusive  Control,  the Bank may
distribute to the Depositor all interest and regular cash  dividends on property
in the Account.  After the Bank  receives a Notice of Exclusive  Control and has
had a reasonable opportunity to comply, it will cease complying with entitlement
orders or other instructions  concerning the Account originated by the Depositor
or its representatives and cease distributing interest and dividends on property
in the  Account to the  Depositor.  The Bank shall be  entitled to rely upon any
entitlement order or Notice of Exclusive Control that it reasonably  believes to
be from the Secured Party. Until it receives a Notice of Exclusive Control,  the
Bank  shall  be  entitled  to  continue  to act on such  instructions  from  the
Depositor as are delivered in form  satisfactory  to the Bank.  The Bank has not
agreed and will not agree with any third  party that the Bank will  comply  with
entitlement orders concerning the Account originated by such third party without
the prior written consent of the Secured Party and the Depositor.

         SECTION 4. NO WITHDRAWALS.  Notwithstanding the provisions of SECTION 3
above,  the Bank shall not comply with any entitlement  order from the Depositor
requiring a free delivery of any  financial  assets from the Account nor deliver
any such  financial  assets to the Depositor nor pay any free credit  balance or
other amount owing from the Bank to the  Depositor  with respect to the Account,
except for the  distribution of interest or dividends  permitted under SECTION 3
above, without the prior written consent of the Secured Party.

         SECTION 5. STATEMENTS, CONFIRMATIONS AND NOTICES OF ADVERSE CLAIMS. The
Bank will send copies of all statements and confirmations concerning the Account
to each of the  Depositor  and the  Secured  Party at the  address  set forth in
SECTION 14 below.  Upon receipt of written  notice of any lien,  encumbrance  or
adverse claim against the Account or in any financial asset carried therein, the
Bank will make reasonable  efforts  promptly to notify the Secured Party and the
Depositor thereof.

         SECTION 6. LIMITED  RESPONSIBILITY OF THE BANK. Except for permitting a
withdrawal or payment in violation of SECTIONS 3 or 4 above or advancing  margin
or other credit to the Depositor in violation of SECTION 2 above, the Bank shall
have no  responsibility  or liability to the Secured  Party for  complying  with
entitlement  orders concerning the Account from the Depositor or the Depositor's
authorized  representatives  which  are  received  by the Bank  before  the Bank
receives a Notice of Exclusive Control and has had reasonable opportunity to act
on it. The Bank shall have no  responsibility  or liability to the Depositor for
complying  with a Notice of  Exclusive  Control or  complying  with  entitlement
orders concerning the Account originated by the Secured Party, and shall have no
responsibility to investigate the  appropriateness of any such entitlement order
or Notice of Exclusive Control, even if the Depositor notifies the Bank that the
Secured Party is not legally entitled to originate any such entitlement order or
Notice of Exclusive  Control.  This  Agreement does not create any obligation or
duty of the Bank other than those expressly set forth herein.

         SECTION 7.  INDEMNIFICATION OF THE BANK. The Depositor hereby agrees to
indemnify  and hold  harmless  the Bank,  its  directors,  officers,  agents and
employees against any and all claims, causes of action,  liabilities,  lawsuits,
demands and damages,  including without limitation,  any and all court costs and
reasonable  attorney's  fees,  in any way  related  to or  arising  out of or in
connection with this


                                        2
<PAGE>


Agreement or any action taken or not taken pursuant hereto, except to the extent
caused by the Bank's gross negligence or willful misconduct.

         SECTION 8. OTHER  AGREEMENT.  In the event of a conflict  between  this
Agreement and any other agreement between the Bank and the Depositor,  the terms
of this Agreement will prevail; PROVIDED, HOWEVER, that this Agreement shall not
alter or affect any mandatory  arbitration provision currently in effect between
the Bank and the Depositor pursuant to a separate agreement.

         SECTION 9.  TERMINATION.  This Agreement shall continue in effect until
the Secured Party has notified the Bank in writing that this  Agreement,  or its
security interest in the Account, is terminated. Upon receipt of such notice the
obligations  of the Bank under  SECTIONS 2, 3, 4 and 5 above with respect to the
operation and  maintenance of the Account after the receipt of such notice shall
terminate,   the  Secured  Party  shall  have  no  further  right  to  originate
entitlement  orders  concerning the Account and any previous Notice of Exclusive
Control delivered by the Secured Party shall be deemed to be of no further force
and effect.

         SECTION 10. COMPLETE AGREEMENT. This Agreement and the instructions and
notices  required or permitted to be executed and delivered  hereunder set forth
the entire  agreement of the parties with respect to the subject  matter hereof,
and,   subject  to  SECTION  8  above   supersede   any  prior   agreement   and
contemporaneous oral agreements of the parties concerning its subject matter.

         SECTION  11.  AMENDMENTS.  No  amendment,  modification  or  (except as
otherwise  specified in SECTION 9 above) termination of this Agreement,  nor any
assignment  of any rights  hereunder  (except to the extent  contemplated  under
SECTION 13 below),  shall be binding on any party hereto unless it is in writing
and is  signed  by each of the  parties  hereto,  and any  attempt  to so amend,
modify,  terminate or assign except pursuant to such a writing shall be null and
void.  No waiver of any rights  hereunder  shall be binding on any party  hereto
unless  such  waiver  is in  writing  and  signed  by  the  party  against  whom
enforcement is sought.

         SECTION 12.  SEVERABILITY.  If any term or provision  set forth in this
Agreement  shall be invalid or  unenforceable,  the remainder of this Agreement,
other than those provisions held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.

         SECTION 13.  SUCCESSORS.  The terms of this Agreement  shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
corporate successors or heirs and personal  representatives.  This Agreement may
be assigned by the Secured Party to any successor of the Secured Party under its
security  agreement with the Depositor,  provided that written notice thereof is
given by the Secured Party to the Bank.

         SECTION 14. NOTICES.  All notices,  requests and demands to or upon the
Secured Party or the Depositor  shall be effected in the manner  provided for in
Section 8.01 of the Indenture;  PROVIDED that any such notice, request or demand
to or upon the Bank shall be  addressed  to the Bank at its notice  address  set
forth on SCHEDULE 1.

         SECTION 15. COUNTERPARTS.  This Agreement may be executed in any number
of counterparts,  all of which shall constitute one and the same instrument, and
any party hereto may execute this  Agreement  by signing and  delivering  one or
more counterparts.

         SECTION 16.  CHOICE OF LAW.  Regardless  of any  provision in any other
agreement  relating to the Account,  the parties  hereto agree that,  subject to
SECTION 8 of this Agreement,  the  establishment and maintenance of the Account,
and all interests,  duties and obligations with respect to the Account, shall be
governed by the law of the State of New York.


                                       3
<PAGE>


                                       SIGNATURES:

                                       WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                       as Secured Party

                                       By:______________________________________
                                       Name:
                                       Title:

                                       [APPLICABLE GRANTOR]


                                       By:______________________________________
                                       Name:
                                       Title:



                                       [BANK]

                                       By:______________________________________
                                       Name:
                                       Title:


                                       4
<PAGE>


                                                                      SCHEDULE 1




                           NOTICE ADDRESS OF THE BANK



<PAGE>


                                   Annex IV to
                               SECURITY AGREEMENT

                                     FORM OF
                             PERFECTION CERTIFICATE

         Reference  is made to that certain  Indenture  dated as of December 29,
2005 (as such Indenture may be amended,  amended and restated,  supplemented  or
otherwise  modified from time to time, the "INDENTURE")  among WELLS FARGO BANK,
NATIONAL  ASSOCIATION,  as Trustee for the Holders (as therein defined) (in such
capacity, the "SECURED PARTY"),  NATIONAL COAL CORP. (the "PARENT"),  as Issuer,
and the Subsidiary Grantors (as therein defined). Capitalized terms used but not
defined  herein have the meanings  assigned in the  Indenture or, if not defined
therein,  in the  Security  Agreement  dated as of December 29, 2005 made by the
Parent in favor of the Secured  Party (as  amended,  supplemented  or  otherwise
modified from time to time, the "SECURITY AGREEMENT").

         The  undersigned,  [the  President]  [a Vice  President] of the Parent,
hereby certifies to the Secured Party as follows:

1.       NAMES.

         (a)      The exact corporate name of each Grantor, as such name appears
in its certificate of incorporation, is as follows:

         1.       The Parent corporation is as follows:

         National Coal Corp., a Florida  corporation,  whose principal office is
located at 8915 George Williams Road,  Knoxville,  Tennessee  37923.  The Parent
corporation is not engaged in any business  except as a holding  company,  which
owns 100% of the stock of National Coal Corporation.

         2.       The subsidiary corporations are as follows:

                  a.       National Coal Corporation-  incorporated in Tennessee
         and also qualified to do business in Kentucky;

                  b.       NC  Transportation,  Inc.- incorporated in Tennessee;
         and

                  c.       NC Railroad, Inc.- incorporated in Tennessee.


<PAGE>


         (b)      Set  forth below is each other corporate name each Grantor has
had in the past five years, together with the date of the relevant change:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
           GRANTOR                     FORMER NAME                    DATE OF CHANGE
---------------------------------------------------------------------------------------------
<S>                              <C>                        <C>
National Coal Corp., a Florida   The Southern Group, Inc.   National Coal Corporation, the
corporation and parent of                                   Tennessee corporation and wholly
National Coal Corporation.                                  owned subsidiary of National Coal
                                                            Corp. (Fla) effected a reverse
                                                            merger with the Southern Group,
                                                            Inc. on April 22, 2003, see
                                                            Schedule 3.
---------------------------------------------------------------------------------------------
The other Grantors are wholly
owned subsidiaries of National
Coal Corporation (TN) and none
have had any changes.
---------------------------------------------------------------------------------------------
</TABLE>


         (c)      Except  as set forth in  SCHEDULE  3 hereto,  no  Grantor  has
changed its  identity  or  corporate  structure  in any way within the past five
years.  Changes in  identity  or  corporate  structure  would  include  mergers,
consolidations  and  acquisitions,  as well as any change in the form, nature or
jurisdiction of corporate organization. If any such change has occurred, include
in SCHEDULE 3 the information  required by SECTIONS 1 and 2 of this  certificate
as to each acquired or constituent party to a merger or consolidation.

         (d)      The  following is a list of all other names  (including  trade
names or similar  appellations)  used by each Grantor or any of its divisions or
other  business  units in  connection  with the  conduct of its  business or the
ownership of its properties at any time during the past five years:

         Each Grantor has used only its incorporated name.

         (e)      Set forth below is the  organizational  number of each Grantor
that is a registered organization:


--------------------------------------------------------------------------------
          GRANTOR            STATE/PROVINCE INCORPORATED   ORGANIZATION NUMBER
--------------------------------------------------------------------------------
    National Coal Corp.                Florida                P95000061770
--------------------------------------------------------------------------------
 National Coal Corporation            Tennessee                  0440768
--------------------------------------------------------------------------------
  NC Transportation, Inc.             Tennessee                  0478922
--------------------------------------------------------------------------------
     NC Railroad, Inc.                Tennessee                  0507850
--------------------------------------------------------------------------------


                                        2
<PAGE>


         (f)      Set forth below is the  Federal Taxpayer Identification Number
of each Grantor, if applicable:

--------------------------------------------------------------------------------
          GRANTOR                                            FEIN
--------------------------------------------------------------------------------
    National Coal Corp.                                   65-0601272
--------------------------------------------------------------------------------
 National Coal Corporation                                41-2077382
--------------------------------------------------------------------------------
  NC Transportation, Inc.                                 35-2238469
--------------------------------------------------------------------------------
     NC Railroad, Inc.                                   Applied For
--------------------------------------------------------------------------------

2.       CURRENT LOCATIONS.

         (a)      The  chief executive  office of each Grantor is located at the
address set forth opposite its name below:

--------------------------------------------------------------------------------
          GRANTOR                            CHIEF EXECUTIVE OFFICE
--------------------------------------------------------------------------------
    National Coal Corp.                   8915 George Williams Road,
                                          Knoxville, Tennessee 37923
--------------------------------------------------------------------------------
 National Coal Corporation                8915 George Williams Road,
                                          Knoxville, Tennessee 37923
--------------------------------------------------------------------------------
  NC Transportation, Inc.                 130 Coal Street,
                                          Huntsville, Tennessee 37756
--------------------------------------------------------------------------------
     NC Railroad, Inc.                    8915 George Williams Road,
                                          Knoxville, Tennessee 37923
--------------------------------------------------------------------------------

         (b)      The  jurisdiction  of  formation  of  each  Grantor  that is a
registered organization is set forth opposite its name below:

--------------------------------------------------------------------------------
          GRANTOR                                     JURISDICTION
--------------------------------------------------------------------------------
    National Coal Corp.                                 Florida
--------------------------------------------------------------------------------
 National Coal Corporation                             Tennessee
--------------------------------------------------------------------------------
  NC Transportation, Inc.                              Tennessee
--------------------------------------------------------------------------------
     NC Railroad, Inc.                                 Tennessee
--------------------------------------------------------------------------------


                                       3
<PAGE>


         (c)      Set forth below  opposite the name of each Grantor are all the
locations where such Grantor  maintains (or has at any time during the preceding
one year maintained) any Equipment or other Collateral, or any books and records
related thereto, and not identified above:

--------------------------------------------------------------------------------
          GRANTOR                               LOCATION
--------------------------------------------------------------------------------
National Coal Corporation     Anderson, Campbell, and Scott Counties, Tennessee,
                              and Bell, Harlan, and Leslie counties, Kentucky
--------------------------------------------------------------------------------
NC Transportation, Inc.       Campbell and Scott Counties, Tennessee
--------------------------------------------------------------------------------
NC Railroad, Inc.             None yet, but the assets will upon purchase be
                              located in Anderson, Campbell and Scott Counties,
                              Tennessee
--------------------------------------------------------------------------------

         (d)      Set forth below are all the places of business of each Grantor
not identified in paragraph (a), (b) or (c) above:

         N/A

         (e)      Set  forth  below are the names and  addresses  of all Persons
other than the Grantors  that have  possession  of any of the  Collateral of any
Grantor:

--------------------------------------------------------------------------------
      THIRD PARTY POSSESSING COLLATERAL             ADDRESS OF THIRD PARTY
--------------------------------------------------------------------------------
DB Zwirn Special Opportunities Fund, L.P.,        745 5th Avenue, 18th Floor,
as Administrative Agent                           New York, New York 10151
--------------------------------------------------------------------------------


3.       SCHEDULE OF FILING. Attached hereto as SCHEDULE 4 is a schedule setting
         forth,  with respect to the UCC-1  financing  statements to be filed in
         respect of each Grantor in connection with the Security Agreement, each
         filing and the filing office in which such filing is to be made.

4.       STOCK OWNERSHIP AND OTHER EQUITY INTERESTS. Attached hereto as SCHEDULE
         5 is a true and correct list of all the issued and  outstanding  stock,
         partnership  interests,  limited liability company membership interests
         or other  equity  interests  of each  Subsidiary  of the Parent and the
         record and  beneficial  owners of such  stock,  partnership  interests,
         membership  interests  or other  equity  interests.  Also set  forth on
         SCHEDULE 5 is each equity investment of the Parent or any Subsidiary of
         the Parent that  represents  50% or less of the equity of the entity in
         which such investment was made.

5.       DEBT  INSTRUMENTS.  Attached hereto as SCHEDULE 6 is a true and correct
         list of all  instruments,  including any  promissory  notes,  and other
         evidence  of   indebtedness   held  by  the  Parent  and  each  of  its
         Subsidiaries,  which are  required  to be  pledged  under the  Security
         Agreement,  including all intercompany notes between the Parent and any
         Subsidiary  of the Parent and each such  Subsidiary  and any other such
         Subsidiary.

6.       ADVANCES.  Attached hereto as SCHEDULE 7 is (a) a true and correct list
         of all advances  made by the Parent to any  Subsidiary of the Parent or
         made by any  Subsidiary  of the  Parent  to the  Parent or to any other
         Subsidiary  (other than those identified on SCHEDULE 6), and (b) a true
         and correct


                                        4
<PAGE>


         list of all unpaid  intercompany  transfers of goods sold and delivered
         by or to the Parent or any Subsidiary of the Parent.

7.       MORTGAGE  FILINGS.  Attached hereto as SCHEDULE 8 is a schedule setting
         forth,  with  respect  to each  parcel  of real  property  owned by any
         Grantor:  (a) the exact name of the Person  that owns such  property as
         such  name  appears  in  its  certificate  of  incorporation  or  other
         organizational  document,  (b) if  different  from the name  identified
         pursuant to CLAUSE (A), the exact name of the current  record holder of
         such  property  reflected in the records of the filing  office for such
         property identified pursuant to the following clause and (c) the filing
         office  in which a  mortgage  or deed of  trust  (as  applicable)  with
         respect to such  property  must be filed or  recorded  in order for the
         Secured Party to obtain a perfected  mortgage lien thereon.  No Grantor
         other than National Coal  Corporation has any interest or estate in any
         lease or sublease of real property, and each lease and sublease of real
         property  held by  National  Coal  Corporation  is listed on either (i)
         Schedule B to the Fee and Leasehold Mortgage,  Assignment of Leases and
         Subleases,   Security   Agreement,   Fixture  Filing  and  As-Extracted
         Collateral Filing made by National Coal Corporation,  as mortgagor,  in
         favor of Wells Fargo Bank,  N.A.,  as Collateral  Agent and  mortgagee,
         dated as of December 29, 2005,  to be recorded in the Counties of Bell,
         Harlan and Leslie in the State of  Kentucky  or (ii)  Schedule B to the
         Fee and Leasehold  Deed of Trust,  Assignment of Leases and  Subleases,
         Security Agreement,  Fixture Filing and As-Extracted  Collateral Filing
         made by National Coal Corporation,  as grantor,  in favor of William C.
         Gullett,  Esq., as Trustee,  for the benefit of Wells Fargo Bank, N.A.,
         as Collateral Agent and beneficiary,  dated as of December 29, 2005, to
         be recorded in the  counties of Anderson,  Campbell,  Scott and Knox in
         the State of Tennessee.

8.       INTELLECTUAL  PROPERTY.  Attached hereto as SCHEDULE 9(A) is a schedule
         setting  forth  all  of  each  Grantor's   Patents,   Patent  Licenses,
         Trademarks and Trademark Licenses, including the name of the registered
         owner, the registration  number and the expiration date of each Patent,
         Patent License,  Trademark and Trademark License owned by such Grantor.
         Attached  hereto as SCHEDULE  9(B) is a schedule  setting  forth all of
         each Grantor's Copyrights and Copyright Licenses, including the name of
         the registered  owner, the registration  number and the expiration date
         of each Copyright or Copyright License owned by such Grantor.

9.       COMMERCIAL  TORT CLAIMS.  Attached  hereto as SCHEDULE 10 is a true and
         correct list of commercial tort claims held by each Grantor,  including
         a brief description thereof.

10.      DEPOSIT ACCOUNTS AND SECURITIES  ACCOUNTS.  Attached hereto as SCHEDULE
         11 is (i) a true and correct list of each and every Deposit Account and
         Securities  Account  owned by each  Grantor and (ii) a true and correct
         list of Deposit  Accounts  owned by each Grantor used  exclusively  for
         payroll purposes.

11.      DIRECTORS  AND PERSONS  CONTROLLING  THE BUSINESS.  Attached  hereto as
         SCHEDULE 12 is a true and correct list of each director or other person
         (including shareholders or members) that controls each Grantor.


                                       5
<PAGE>


IN WITNESS WHEREOF,  the undersigned have duly executed this certificate on this
__ day of December, 2005.



                                       ------------------------------
                                       By:
                                       Title:



                                       ------------------------------
                                       By:
                                       Title:


                                       6
<PAGE>


                                   SCHEDULE 3
                            to Perfection Certificate


                   CHANGES IN IDENTITY OR CORPORATE STRUCTURE

         The Southern Group International,  Inc. was a Florida  corporation.  On
April 23, 2003 National Coal Corporation,  a Tennessee  corporation,  effected a
reverse  merger  pursuant to which the original  shareholders  of Southern Group
International,  Inc. received  approximately 5.5 % of the shares of stock of the
merged  company  and the  original  shareholders  of National  Coal  Corporation
received  approximately  94,5% of the shares of stock of the  merged  company in
exchange for all of the stock they held in National Coal  Corporation.  National
Coal  Corporation  then  became a wholly  owned  subsidiary  of  Southern  Group
International,  Inc.  Southern  Group  International,  Inc.  changed its name to
National Coal Corp., a Florida corporation, on August 3, 2003.


<PAGE>


                                   SCHEDULE 4
                            to Perfection Certificate


                           UCC-1 FILINGS FOR INDENTURE

--------------------------------------------------------------------------------
         DEBTOR                      SECURED PARTY             JURISDICTION
--------------------------------------------------------------------------------
National Coal Corp.          Wells Fargo Bank, National          Florida
                             Association, as Trustee
--------------------------------------------- ----------------------------------
National Coal Corporation    Wells Fargo Bank, National         Tennessee
                             Association, as Trustee
--------------------------------------------- ----------------------------------
NC Transportation, Inc.      Wells Fargo Bank, National         Tennessee
                             Association, as Trustee
--------------------------------------------- ----------------------------------
NC Railroad, Inc.            Wells Fargo Bank, National         Tennessee
                             Association, as Trustee
--------------------------------------------- ----------------------------------


<PAGE>


                                   SCHEDULE 5
                            to Perfection Certificate


                                  PLEDGED STOCK

<TABLE>
<CAPTION>
--------------------------- ------------- -------------------- ------------------ -------------------
           ISSUER             NUMBER OF    REGISTERED OWNER     NUMBER AND CLASS   PERCENTAGE OF ALL
                             CERTIFICATE                          OF INTEREST      SUCH OUTSTANDING
                                                                                      INTERESTS
--------------------------- ------------- -------------------- ------------------ -------------------
 <S>                             <C>      <C>                     <C>                   <C>
 National Coal Corporation       17       National Coal Corp.     20,000,000            100%
                                          (presently held by        Common
                                               DB Zwirn)
--------------------------- ------------- -------------------- ------------------ -------------------
  NC Transportation, Inc.         1          National Coal           1000               100%
                                              Corporation           Common
                                          (presently held by
                                               DB Zwirn)
--------------------------- ------------- -------------------- ------------------ -------------------
     NC Railroad, Inc.            1          National Coal           1000               100%
                                              Corporation           Common
--------------------------- ------------- -------------------- ------------------ -------------------
</TABLE>


<PAGE>


                                   SCHEDULE 6
                            to Perfection Certificate


                                DEBT INSTRUMENTS

         None.


<PAGE>


                                   SCHEDULE 7
                            to Perfection Certificate


                                    ADVANCES

         National Coal  Corporation made a contribution of capital to effect the
formation  of NC  Transportation,  Inc.  equal to the value of the  trucks  then
transferred from National Coal Corporation to NC Transportation, Inc.

         National Coal Corporation  will make a similar  contribution of capital
to NC  Railroad,  Inc. to effect the purchase and upgrade of the rail line being
purchased form Norfolk Southern.

         Both of the above described  formations of the two subsidiary companies
have or are being made through  contributions of capital,  rather than loans, so
that there is not any claim of undercapitalization.


<PAGE>


                                   SCHEDULE 8
                            to Perfection Certificate


                                MORTGAGE FILINGS

<TABLE>
<CAPTION>
---------------------- --------------------------- ------------------------------ ------------------------------------
        OWNER             CURRENT RECORD OWNER           PROPERTY LOCATION                  FILING LOCATION
---------------------- --------------------------- ------------------------------ ------------------------------------
<S>                    <C>                         <C>                            <C>
National Coal          National Coal Corporation   Knox County, Tennessee         Knox County, Tennessee
Corporation
---------------------- --------------------------- ------------------------------ ------------------------------------
National Coal          National Coal Corporation   Anderson, Campbell and Scott   Anderson, Campbell, and Scott
Corporation                                        Counties, Tennessee            Counties, Tennessee
---------------------- --------------------------- ------------------------------ ------------------------------------
National Coal          National Coal Corporation   Bell, Harlan, and Leslie       Bell, Harlan, and Leslie Counties,
Corporation                                        Counties, Kentucky             Kentucky
---------------------- --------------------------- ------------------------------ ------------------------------------
</TABLE>


<PAGE>


                                  SCHEDULE 9(A)
                            to Perfection Certificate


                                  U.S. PATENTS

                                      None.
                            U.S. PATENT APPLICATIONS

                                      None.

                          NON-U.S. PATENT APPLICATIONS

                                      None.

                          U.S. TRADEMARK REGISTRATIONS

<TABLE>
<CAPTION>
------------------------------- ---------------- -------------- -------------- -------------- ------------ -----------------

          TRADEMARK               FILING DATE      APPL. NO.     ISSUE DATE      REG. NO.       STATUS          OWNER
------------------------------- ---------------- -------------- -------------- -------------- ------------ -----------------
<S>                                <C>             <C>           <C>           <C>             <C>          <C>
NCC                                 8/4/03                         5/20/04       2,835,601     Effective    National Coal
                                                                                                             Corporation
------------------------------- ---------------- -------------- -------------- -------------- ------------ -----------------
NCC                                                              07/07/2003                    Effective    National Coal
(Tennessee Registration)                                                                                     Corporation
------------------------------- ---------------- -------------- -------------- -------------- ------------ -----------------
N                                  1/18/2005       78549105                    Not Available    Pending     National Coal
                                                                                                             Corporation
                                  (Serial No.)
------------------------------- ---------------- -------------- -------------- -------------- ------------ -----------------
</TABLE>



                        NON-U.S. TRADEMARK REGISTRATIONS

                                      None.

                              COMMON LAW TRADEMARKS

                                      None.


<PAGE>


                                    LICENSES

                                     PART 1

                             Licenses/Sublicenses Of
                       Grantor As Licensor On Date Hereof

                                   A. PATENTS

                                      None.

                                  B. TRADEMARKS

                                      None.


<PAGE>


                                     PART 2

                             Licenses/Sublicenses Of
                       Grantor As Licensee On Date Hereof

                                   A. PATENTS

                                      None.

                                  B. TRADEMARKS

                                      None.


<PAGE>


                                  SCHEDULE 9(B)
                            to Perfection Certificate


                        U.S. COPYRIGHTS OWNED BY GRANTOR


         None.


<PAGE>


                                   SCHEDULE 10
                            to Perfection Certificate


                             COMMERCIAL TORT CLAIMS


         None.


<PAGE>


                                   SCHEDULE 11
                            to Perfection Certificate


               DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS OF GRANTOR

<TABLE>
<CAPTION>
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
         Grantor               Depository Bank         Type of Account          Account Number           Balance
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
<S>                          <C>                        <C>                     <C>                     <C>
National Coal Corporation      Bank of America            Operating             0037 8677 7654          $203,836
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
National Coal Corporation      Bank of America             Payroll              0037 8677 7625           $5,809
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
National Coal Corporation    First Volunteer Bank       Mine Operating            305115782              $22,226
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
 NC Transportation, Inc.       Bank of America            Operating             0037 8354 5672            $953
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
 NC Transportation, Inc.       Bank of America             Payroll              0037 8354 5685           $6,736
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
</TABLE>



                 ACCOUNTS USED EXCLUSIVELY FOR PAYROLL PURPOSES

<TABLE>
<CAPTION>
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
         Grantor               Depository Bank         Type of Account          Account Number           Balance
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
<S>                            <C>                         <C>                  <C>                      <C>
National Coal Corporation      Bank of America             Payroll              0037 8677 7625           $5,809
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
 NC Transportation, Inc.       Bank of America             Payroll              0037 8354 5685           $6,736
--------------------------- ----------------------- ----------------------- ----------------------- ------------------
</TABLE>


         CDs held by Sevier  County  Bank,  as security  for the issuance of the
various  letters of Credit issued for the benefit of the U.S.  Office of Surface
Mining to insure that National Coal  Corporation  completes all  reclamation  of
disturbed  surface  areas  where it conducts  mining  operations.  See  Attached
Schedule 11A.

         National Coal  Corporation has on deposit directly with the U.S. Office
of Surface Mining cash in the amount of  $257,500.00  to secure the  requirement
that  National  coal  Corporation   complete  the  reclamation  of  the  surface
disturbance with respect Tennessee Mine # 2, Permit no. 3132.


<PAGE>


                                   SCHEDULE 12
                            to Perfection Certificate


                DIRECTORS OR PERSONS CONTROLLING THE BUSINESS OF
                                     COMPANY


DIRECTORS

Jon E. Nix, Chairman

T. Michael Love

Kenneth Scott

Scott Filstrup

Robert Heinlein


OFFICERS
--------------------------------------------------------------------------------
             NAME                                          TITLE
--------------------------------------------------------------------------------
          Jon E. Nix                                 President and CEO
--------------------------------------------------------------------------------
        T. Michael Love CFO
--------------------------------------------------------------------------------
         Jeanne B. Nix                                   Secretary
--------------------------------------------------------------------------------
        Charles W. Kite                            VP and General Counsel
--------------------------------------------------------------------------------

SHAREHOLDERS

The shareholders holding 5% or more are as follows:

Jon E. Nix

Jenco, Inc., a Tennessee corporation owned 100% by Jon E. Nix

Crestview Capital Master LLC All other shareholders own less that 5%.


<PAGE>


                            NATIONAL COAL CORPORATION


DIRECTORS

Jon E. Nix, Chairman

T. Michael Love

Kenneth Scott

Scott Filstrup

Robert Heinlein


OFFICERS
--------------------------------------------------------------------------------
             NAME                                        TITLE
--------------------------------------------------------------------------------
          Jon E. Nix                               President and CEO
--------------------------------------------------------------------------------
      T. Michael Love CFO
--------------------------------------------------------------------------------
       Kenneth F. Hodak                                   COO
--------------------------------------------------------------------------------
         Jeanne B. Nix                                 Secretary
--------------------------------------------------------------------------------
        Charles W. Kite                      Senior VP and General Counsel
--------------------------------------------------------------------------------

SHAREHOLDERS

National Coal Corp. holds 100%


<PAGE>


                             NC TRANSPORTATION, INC.


DIRECTORS

Jon E. Nix
Jeanne B. Nix
Charles W. Kite

OFFICERS
--------------------------------------------------------------------------------
               NAME                                       TITLE
--------------------------------------------------------------------------------
            Jon E. Nix                              President and CEO
--------------------------------------------------------------------------------
           Jeanne B. Nix                                Secretary
--------------------------------------------------------------------------------
          Charles W. Kite                     Senior VP and General Counsel
--------------------------------------------------------------------------------

SHAREHOLDERS

National Coal Corp. holds 100%


<PAGE>


                                NC RAILROAD, INC.


DIRECTORS

Robert Pardue
Jeff Samples
B. Nix


OFFICERS
--------------------------------------------------------------------------------
            NAME                                        TITLE
--------------------------------------------------------------------------------
        Robert Pardue                                 President
--------------------------------------------------------------------------------
        Jeff Samples                                  Secretary
--------------------------------------------------------------------------------

SHAREHOLDERS

National Coal Corp. holds 100%