SECURITY AGREEMENT
                               ------------------

      This Security Agreement (this "Agreement"), dated as of November 14, 2001,
by and among Palisade  Concentrated Equity Partnership,  L.P.  ("Palisade"),  as
collateral  agent for the Investors (as hereinafter  defined) (in such capacity,
the "Collateral Agent") and Kroll Inc., an Ohio corporation (the "Company").


                                   BACKGROUND

      Pursuant to the terms of a Securities  Purchase  Agreement dated as of the
date hereof (as amended,  modified,  restated or supplemented from time to time,
the "Purchase Agreement") by and among the Company, the Collateral Agent and the
investors  named  in the  Purchase  Agreement,  including,  without  limitation,
Palisade (collectively,  the "Investors"),  the Investors have agreed to acquire
from the Company an aggregate of $30,000,000  principal  amount of the Company's
6% Senior Secured  Subordinated  Convertible Notes due 2006  (collectively,  the
"Notes").  The Investors are willing to enter into the Purchase  Agreement  only
upon the condition,  among others, that the Company secure its obligations under
the Purchase Documents (as hereinafter defined) by executing and delivering this
Agreement to the Collateral Agent.

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


                                    ARTICLE I

                                   Definitions
                                   -----------

      Section 1.1.      General   Definitions.   For   all   purposes   of  this
Agreement,  except  as  otherwise  expressly  provided  or  unless  the  context
otherwise requires:

            "Chattel  Paper" means all chattel  paper as such term is defined in
the UCC,  now  owned  or  hereafter  acquired,  including,  without  limitation,
electronic chattel paper, as such term is defined in the UCC.

            "Collateral"  means  and  includes  all now and  hereafter  acquired
assets of the Company including, without limitation:

            (A)   all Inventory;

            (B)   all Equipment;

            (C)   all General Intangibles;

            (D)   all Receivables;

            (E)   all Chattel Paper;

            (F)   all Letter-of-Credit Rights;
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            (G)   all Instruments;

            (H)   the commercial tort claims set forth on Schedule V;

            (I)   all  books,  records,   ledgercards,   files,  correspondence,
computer programs,  tapes, disks and related data processing  software (owned by
the  Company  or in which it has an  interest)  which  at any time  evidence  or
contain information  relating to any or all of (A), (B), (C), (D), (E), (F), (G)
and (H) above or are otherwise necessary or helpful in the collection thereof or
realization thereupon;

            (J)   documents of title,  policies and  certificates  of insurance,
securities,   Chattel  Paper,  other  documents  or  instruments  evidencing  or
pertaining to any or all of (A), (B), (C), (D) (E), (F), (G), (H) and (I) above;

            (K)   all Supporting  Obligations and guaranties,  including letters
of credit  and  guarantees  issued in  support of  Receivables,  Chattel  Paper,
General Intangibles and Investment Property, Liens on real or personal property,
leases,  and other  agreements and property which in any way secure or relate to
any or all of (A), (B), (C), (D), (E), (F), (G), (H), (I) and (J) above,  or are
acquired for the purpose of securing and enforcing any item thereof;

            (L)   (i) all  cash  held  as  cash  collateral  to the  extent  not
otherwise  constituting  Collateral,  all other cash or  property at any time on
deposit  with or held by the  Collateral  Agent for the  account of the  Company
(whether for safekeeping,  custody, pledge, transmission or otherwise), (ii) all
present  or future  deposit  accounts  (whether  time or demand or  interest  or
non-interest  bearing) of the  Company  with the  Collateral  Agent or any other
Person  including  those to which any such cash may at any time and from time to
time be  credited,  (iii) all  Payment  Intangibles,  (iv) all  letter of credit
obligations,  (v) all  investments  and  reinvestments  (however  evidenced)  of
amounts  from  time to  time  credited  to such  accounts,  (iv)  all  interest,
dividends,  distributions  and other proceeds  payable on or with respect to (x)
such investments and reinvestments and (y) such accounts, and (v) all Investment
Property; and

            (M)   all products and proceeds of (A),  (B),  (C),  (D),  (E), (F),
(G), (H), (I), (J), (K) and (L) above (including, but not limited to, all claims
to items  referred to in (A),  (B),  (C), (D), (E), (F), (G), (H), (I), (J), (K)
and (L) above) and all claims of the Company  against  third parties (x) for (i)
loss of,  damage to, or  destruction  of, and (ii) payments due or to become due
under  leases,  rentals and hires of any or all of (A), (B), (C), (D), (E), (F),
(G),  (H),  (I),  (J),  (K) and (L) above and (y)  proceeds  payable  under,  or
unearned premiums with respect to policies of insurance in whatever form.

            "Copyright License" means any written agreement, now or hereafter in
effect,  granting  any  right to any third  party  under  any  Copyright  now or
hereafter  owned by the Company or which the Company  otherwise has the right to
license,  or  granting  any  right to the  Company  under any  Copyright  now or
hereafter owned by any third party, and all rights of the Company under any such
agreement.

            "Copyrights"  means  all of the  following  now  owned or  hereafter
acquired by the  Company:  (a) all  copyright  rights in any work subject to the
copyright  laws of the United  States


                                      -2-
<PAGE>


or any other country, whether as author, assignee,  transferee or otherwise, and
(b) all registrations and applications for registration of any such copyright in
the United States or any other  country,  including  registrations,  recordings,
supplemental  registrations  and pending  applications  for  registration in the
United States Copyright Office,  including those used in the Company's  business
listed on Schedule II attached hereto.

            "Customer" means and includes the account debtor with respect to any
Receivable  and/or the  prospective  purchaser  of goods,  services or both with
respect to any contract or contract  right,  and/or any party who enters into or
proposes  to enter into any  contract  or other  arrangement  with the  Company,
pursuant to which the Company is to deliver any personal property or perform any
services.

            "Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.

            "Equipment"  means all equipment as such term is defined in the UCC,
now owned or  hereafter  acquired,  including,  without  limitation,  equipment,
machinery and goods (excluding Inventory), whether or not constituting fixtures,
including,  without limitation:  plant and office equipment, tools, dies, parts,
data  processing  equipment,  computer  equipment  with  embedded  software  and
peripheral equipment,  furniture and trade fixtures,  trucks, trailers,  loaders
and other  vehicles and all  replacements  and  substitutions  therefore and all
accessions thereto.

            "Event of  Default"  means the  occurrence  of any of the events set
forth in Section 6.1 hereof.

            "GAAP"  means  the  United  States  generally  accepted   accounting
principles,  applied on a basis consistent with the accounting practices applied
in the Company's financial statements included in the SEC Filings.

            "General  Intangibles" means all general intangibles as such term is
defined  in the  UCC,  now  owned  or  hereafter  acquired,  including,  without
limitation,   Payment   Intangibles,   Trademarks,   trade  secrets,   equipment
formulation,  manufacturing  procedures,  quality  control  procedures,  product
specifications,   Patents,  Patent  applications,   Copyrights,   registrations,
software,  contract  rights,  choses in action,  causes of action,  corporate or
other business records, inventions,  designs, goodwill, claims under guarantees,
licenses,  franchises,  tax  refunds,  tax  refund  claims,  computer  programs,
computer data bases, computer program flow diagrams,  source codes, object codes
and all other intangible property of every kind and nature.

            "Health-Care-Insurance  Receivables" means all health-care-insurance
receivables as such term is defined in the UCC, now owned or hereafter acquired,
including,  without  limitation,  an  interest  in or claim  under a  policy  of
insurance  which is a right to payment of a monetary  obligation for health-care
goods or services provided.

            "Instruments"  means all  instruments as such term is defined in the
UCC,  now  owned  or  hereafter  acquired,   including,  without  limitation,  a
negotiable  instrument  or a  certificated  security or any other  writing which
evidences a right to the payment of money.


                                      -3-
<PAGE>


            "Intellectual  Property" means all intellectual and similar property
of the Company of every kind and nature now owned or  hereafter  acquired by the
Company,   including  inventions,   designs,  Patents,   Copyrights,   Licenses,
Trademarks,  trade secrets,  confidential or proprietary  technical and business
information,  know-how,  show-how  or other data or  information,  software  and
databases and all  embodiments or fixations  thereof and related  documentation,
registrations and franchises, and all additions, improvements and accessions to,
and books and records  describing  or used in the  connection  with,  any of the
foregoing.

            "Inventory"  means all inventory as such term is defined in the UCC,
now  owned  or  hereafter  acquired,   including,  without  limitation,   goods,
merchandise and other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease,  all raw  materials,  work in
process,  finished  goods and  materials  and  supplies  of any kind,  nature or
description  which  are or  might be used or  consumed  in  business  or used in
selling or furnishing such goods,  merchandise and other personal property,  and
all documents of title or other documents representing them.

            "Investment  Property" means all investment property as such term is
defined in the UCC.

            "Letter-of-Credit  Rights" means all letter-of-credit rights as such
term is defined in the UCC, now owned or hereafter acquired,  including, without
limitation,  rights to payment or performance under a letter of credit,  whether
or not the  beneficiary  has  demanded  or is  entitled  to  demand  payment  or
performance.

            "License" means any Patent  License,  Trademark  License,  Copyright
License or other license or sublicense to which the Company is a party.

            "Lien" means any mortgage,  security  deed,  deed of trust,  pledge,
hypothecation,   assignment,  security  interest,  lien  (whether  statutory  or
otherwise),  charge,  claim or  encumbrance,  or  preference,  priority or other
security  agreement or preferential  arrangement  held or asserted in respect of
any asset of any kind or nature whatsoever  including,  without limitation,  any
conditional  sale  or  other  title  retention   agreement,   any  lease  having
substantially  the same economic effect as any of the foregoing,  and the filing
of, or agreement to give,  any financing  statement  under the UCC or comparable
law of any jurisdiction.

            "Obligations"  means and includes all  obligations of the Company to
the  Collateral  Agent and the  Investors  under this  Agreement,  the  Purchase
Agreement, the Notes and all other agreements,  documents and instruments now or
at any time hereafter  executed  and/or  delivered by the Company to, with or in
favor of  Collateral  Agent  and/or the  Investors  in  connection  therewith or
related  thereto  including,   without   limitation,   all  reasonable  expenses
(including  reasonable  attorney  fees)  chargeable to the Company's  account or
incurred by the  Collateral  Agent and/or the Investors in  connection  with the
Company's  account  whether  provided  for  herein  or in any  other  agreement,
instrument,  or document  executed by or on behalf of the Company in  connection
with this Agreement or the Collateral.


                                      -4-
<PAGE>


            "Patent  License" means any written  agreement,  now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent,  now or  hereafter  owned by the Company or which the Company
otherwise has the right to license, is in existence,  or granting to the Company
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party,  is in existence,  and all rights of the Company under
any such agreement.

            "Patents" means all of the following now owned or hereafter acquired
by the Company (a) all letters patent of the United States or any other country,
all  registrations  and recordings  thereof,  and all  applications  for letters
patent  of the  United  States or any other  country,  including  registrations,
recordings  and pending  applications  in the United States Patent and Trademark
Office or any similar offices in any other country,  including those used in the
Company's business listed on Schedule III attached hereto, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals or extensions thereof,
and the inventions  disclosed or claimed  therein,  including the right to make,
use and/or sell the inventions disclosed or claimed therein.

            "Payment  Intangibles" means all payment intangibles as such term is
defined  in the  UCC,  now  owned  or  hereafter  acquired,  including,  without
limitation,  a General  Intangible  under which the account  debtor's  principle
obligation is a monetary obligation.

            "Permitted  Liens"  means  (a)  Liens  of  carriers,   warehousemen,
artisans,  bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) Liens incurred in the ordinary course of
business in connection  with worker's  compensation,  unemployment  insurance or
other forms of  governmental  insurance  or  benefits,  relating  to  employees,
securing sums (i) not overdue or (ii) being  diligently  contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of the Company in  conformity  with GAAP,  (c) Liens in favor of the  Collateral
Agent for its benefit and for the ratable  benefit of the  Investors,  (d) Liens
for taxes (i) not yet due or (ii) being  diligently  contested  in good faith by
appropriate  proceedings,  provided that adequate  reserves with respect thereto
are  maintained  on the books of the Company in conformity  with GAAP  provided,
that,  the Lien  shall have no effect on the  priority  of Liens in favor of the
Collateral  Agent other than by operation  of law, and (e) zoning  restrictions,
easements,  licenses, or other restrictions on the use of real property or other
minor  irregularities  in title  thereto,  so long as the same do not materially
impair the use, value or marketability of such real estate.

            "Premises"  means  all  premises  where  the  Company  conducts  its
business and has any rights of possession,  including,  without limitation,  the
premises described in Schedule I attached hereto.

            "Purchase  Documents" means this Agreement,  the Registration Rights
Agreement, the Notes, the Pledge Agreement and all other documents, instruments,
agreements and  certificates at any time delivered  executed and/or delivered by
the Company to, with or in favor of  Collateral  Agent  and/or the  Investors in
connection herewith or therewith or related hereto or thereto.


                                      -5-
<PAGE>


            "Receivables" means all accounts as such term is defined in the UCC,
including,  without  limitation,  each and every  right to the payment of money,
whether such right to payment now exists or hereafter arises, whether such right
to payment  arises out of a sale,  lease or other  disposition of goods or other
property,  out of a rendering of services, out of a loan, out of the overpayment
of taxes or other  liabilities,  or  otherwise  arises  under  any  contract  or
agreement,  whether such right to payment is created, generated or earned by the
Company  or by some  other  Person  who  subsequently  transfers  such  Person's
interest  to the  Company,  whether  such right to payment is or is not  already
earned by  performance,  and  howsoever  such right to payment may be evidenced,
together  with all other rights and  interests  (including  all Liens) which the
Company may at any time have by law or agreement  against any account  debtor or
other obligor obligated to make any such payment or against any property of such
account  debtor or other  obligor;  all including but not limited to all present
and future accounts,  contract rights, loans and obligations receivable,  Health
Care  Insurance  Receivables,   Chattel  Paper,  bonds,  notes  and  other  debt
instruments,  tax  refunds  and  rights to  payment  in the  nature  of  General
Intangibles.

            "Security  Interest" shall have the meaning assigned to such term in
Section 2.1 hereof.

            "Senior  Debt" shall have the  meaning  assigned to such term in the
Notes.

            "Senior  Liens"  means the Liens  granted by the Company in favor of
the holders of the Senior Debt to secure the Senior Debt.

            "Supporting  Obligations"  means all supporting  obligations as such
term is defined in the UCC.

            "Trademark License" means any written agreement, now or hereafter in
effect,  granting  to any third  party any  right to use any  Trademark,  now or
hereafter  owned by the Company or which the Company  otherwise has the right to
license,  or  granting  to the  Company  any right to use any  Trademark  now or
hereafter  owned by any third party and all rights of the Company under any such
agreement.

            "Trademarks"  means  all of the  following  now  owned or  hereafter
acquired  by the  Company:  (a) all  trademarks,  service  marks,  trade  names,
corporate names, company names, business names, fictitious business names, trade
styles,  trade dress, logos, other source or business  identifiers,  designs and
general  intangibles  of like  nature,  now  existing  or  hereafter  adopted or
acquired,  all registrations and recordings  thereof,  and all registrations and
recording  applications filed in connection therewith,  including  registrations
and registration  applications in the United States Patent and Trademark Office,
any State of the United  States or any similar  offices in any other  country or
any political  subdivision  thereof,  and all  extensions  or renewals  thereof,
including  those used in the Company's  business  listed on Schedule IV attached
hereto and (b) all goodwill associated therewith or symbolized thereby.

            "UCC"  means the Uniform  Commercial  Code as in effect from time to
time in the state designated in Section 8.13 as the state whose laws govern this
Agreement or in any other state whose laws are held to govern this  Agreement or
any portion hereof.


                                      -6-
<PAGE>


      Section 1.2.   Other Terms.

            (a) All  capitalized  terms not otherwise  defined herein shall have
the meanings assigned to them in the Purchase Agreement.

            (b) All terms defined in the UCC (as defined herein) and not defined
in this Agreement shall have the meanings specified therein.

            (c) All accounting terms not otherwise defined herein shall have the
meanings assigned to them in accordance with GAAP.

      Section 1.3.   Cross References.

            (a)  All  references  in  this  Agreement  to  Articles,   Sections,
subsections,   Exhibits  and   Schedules,   shall  be  to  Articles,   Sections,
subsections,   Exhibits  and  Schedules  of  this  Agreement   unless  otherwise
explicitly specified.

            (b) All references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.


                                   ARTICLE II

                                Security Interest
                                -----------------

      Section 2.1.  Security Interest.

            (a) To secure the prompt and complete payment and performance to the
Collateral  Agent and the  Investors  of the  Obligations,  the  Company  hereby
collaterally assigns, pledges and grants to the Collateral Agent for its benefit
and for the ratable benefit of the Investors a continuing  security  interest in
and to the  Collateral,  whether now owned or existing or hereafter  acquired or
arising and wheresoever located, whether or not the same is subject to Article 9
of the UCC (the "Security Interest"). All of the Company's ledger sheets, files,
records,  books of  account,  business  papers  and  documents  relating  to the
Collateral shall, until delivered to or removed by the Collateral Agent, be kept
by the Company in trust for the Collateral Agent until all Obligations have been
paid in full.

            (b) The Company hereby  authorizes the Collateral  Agent to file one
or more financing statements  (including fixture filings),  amendments,  filings
with the United States Patent and  Trademark  Office or United States  Copyright
Office (or any successor  office or any similar  office in any other country) or
other documents for the purpose of perfecting, confirming, continuing, enforcing
or  protecting  the  Security  Interest  granted  by the  Company,  without  the
Company's  signature  appearing  thereon.  The Company  agrees to furnish to the
Collateral Agent promptly upon request any information  reasonably necessary for
the purpose of perfecting,  confirming,  continuing, enforcing or protecting the
Security  Interest  granted by the  Company.  The  parties  agree that a carbon,
photographic  or other  reproduction  of this Agreement shall be sufficient as a
financing statement. If any Receivable becomes evidenced by a promissory note or
any other  instrument  for the payment of money,  the Company  will  immediately
deliver such instrument to the Collateral Agent appropriately endorsed.


                                      -7-
<PAGE>


                                   ARTICLE III

                         Representations and Warranties
                         ------------------------------

      The Company represents and warrants to the Collateral Agent as follows:

      Section 3.1.  Title and Liens.  The  Collateral (a) is owned solely by the
Company  free and  clear of all  Liens  except  Permitted  Liens  and (b) is not
subject to any  agreement  prohibiting  the  granting of a security  interest or
requiring  notice of or consent to the  granting  of a  security  interest.  The
Company does not hold any commercial tort claims.

      Section  3.2.  Validity  of  Security  Interest.   The  Security  Interest
constitutes (a) a legal and valid Lien in all the Collateral, (b) subject to the
filing of the  financing  statements  described  in  Section  2.1(b)  hereof,  a
perfected  Lien in all Collateral in which a Lien may be perfected by the filing
of a financing  statement and (c) a perfected  Lien in all Collateral in which a
Lien may be perfected  upon the receipt and recording of this Agreement with the
United  States  Patent and  Trademark  Office and the  United  States  Copyright
Office, as applicable.

                                   ARTICLE IV

                                    Covenants
                                    ---------

      Section 4.1.  Change of Name;  Location of Collateral;  Records;  Place of
Business.  The  Company  shall not make any change  (a) in its name,  (b) in the
location of its chief executive  office,  its principal  place of business,  any
office in which it maintains books or records relating to Collateral owned by it
or any office facility at which  Collateral  owned by its is located  (including
the  establishment  of any such new office or facility)  from the  locations set
forth on Schedule I attached hereto, (c) in its identity or type of organization
or corporate  structure,  (d) in its Federal Taxpayer  Identification  Number or
organizational  identification number or (e) in its jurisdiction or organization
unless the Company provides the Collateral Agent at least twenty (20) days prior
written notice of such change.

      Section 4.2. Records.  The Company shall keep and maintain at its own cost
and expense,  satisfactory  and complete  records of the  Collateral  including,
without  limitation,  a record of any and all payments  received and any and all
credits  granted with respect to the  Collateral and all other dealings with the
Collateral.  Following  the  occurrence of an Event of Default,  the  Collateral
Agent  may at any time  verify  the  Company's  Receivables  utilizing  an audit
control company or any other agent of the Collateral Agent. The Collateral Agent
or the Collateral  Agent's designee may, following the occurrence of an Event of
Default,   notify  Customers  at  any  time,  at  the  Collateral  Agent's  sole
discretion,   of  the  Collateral   Agent's  security  interest  in  Receivables
(contracts,  instruments,  or chattel  paper as the case may be),  collect  them
directly  from the Customers or parties to  contracts,  instruments  and chattel
paper and charge the  collection  costs and expenses to the  Company's  account,
but,  unless and until the  Collateral  Agent does so or gives the Company other
instructions,  the Company  shall  collect all  Receivables  for the  Collateral
Agent,  receive all payments thereon for the Collateral Agent's benefit in trust
as the Collateral  Agent's  trustee and promptly  deliver them to the Collateral


                                      -8-
<PAGE>


Agent in their original form with all necessary  endorsements or, as directed by
the Collateral Agent, deposit such payments as directed by the Collateral Agent.
The Company shall place  notations  upon the Company's  books of account and any
financial  statement  prepared by the Company to disclose the Collateral Agent's
security  interest in the Collateral and shall provide the Collateral  Agent, as
requested by the Collateral Agent, such schedules,  documents and/or information
regarding the Collateral as the Collateral Agent may require.

      Section 4.3.  Protection of Collateral and Security Interest.  The Company
shall,  at its own  cost  and  expense,  take  any and  all  actions  reasonably
necessary to defend the Collateral against the claims and demands of all parties
and to defend the Security  Interest of the  Collateral  Agent in the Collateral
and the  priority  thereof  against any Lien other than a (a) Senior Lien or (b)
Permitted Lien.

      Section 4.4.  Further Assurances.

            (a) Any time and from time to time,  upon the written request of the
Collateral  Agent and at the sole  expense of the  Company,  the  Company  shall
promptly and duly execute and deliver any and all such further  instruments  and
documents and take such further  actions as the Collateral  Agent may reasonably
request to preserve,  protect and perfect the  Security  Interest and the rights
and remedies created hereby.

            (b) Without  limiting the generality of the  foregoing,  the Company
hereby   authorizes  the  Collateral  Agent  to  supplement  this  Agreement  by
supplementing  Schedule  II,  III or IV hereto or  adding  additional  schedules
hereto  to  specifically   identify  any  asset  or  item  that  may  constitute
Copyrights, Patents or Trademarks.

      Section  4.5.  Inspection  and  Examination.  At all times  during  normal
business  hours,  the  Collateral  Agent  shall  have the right to (a) visit and
inspect the Company's  properties and the Collateral and (b) inspect,  audit and
make  extracts  from the Company's  relevant  books and records  relating to the
Collateral.  The Company will  deliver to the  Collateral  Agent any  instrument
necessary for the  Collateral  Agent to obtain  records from any service  bureau
maintaining records for the Company.

      Section 4.6.  Liens.  The Company  shall not encumber,  mortgage,  pledge,
assign or grant any security  interest in any Collateral or any of the Company's
other assets to anyone other than the  Collateral  Agent for its benefit and for
the  ratable  benefit of the  Investors,  except  for (a)  Senior  Liens and (b)
Permitted Liens;

      Section 4.7.  Use and Disposition of Collateral. The Company shall (a) not
dispose of any of the Collateral  whether by sale, lease or otherwise except for
(i) the sale of  Inventory  in the  ordinary  course of  business,  and (ii) the
disposition  or transfer of obsolete  and  worn-out  Equipment  in the  ordinary
course of business  and (b) keep and maintain  the  Equipment in good  operating
condition,  except for  ordinary  wear and tear,  and shall make all  reasonably
necessary repairs and replacements thereof.



                                      -9-
<PAGE>


      Section 4.8. Risk of Loss; Insurance. The Company shall bear the full risk
of loss from any loss of any nature  whatsoever  with respect to the Collateral.
At it's own cost and expense in amounts and with carriers reasonably  acceptable
to the  Collateral  Agent,  it shall (a) keep all its insurable  properties  and
properties  in which it has an  interest  insured  against  the hazards of fire,
flood,  sprinkler leakage,  those hazards covered by extended coverage insurance
and such other  hazards,  and for such  amounts,  as is customary in the case of
companies  engaged in  businesses  similar to the Company's  including,  without
limitation,  public and  product  liability  insurance,  worker's  compensation,
insurance against larceny,  embezzlement or other criminal  misappropriation  of
insured's  officers and  employees  and  business  interruption  insurance;  (b)
furnish the Collateral Agent with (i) copies of all policies and evidence of the
maintenance  of such  policies at least  thirty (30) days before any  expiration
date,  and (ii)  appropriate  loss payable  endorsements  in form and  substance
satisfactory to the Collateral Agent,  naming the Collateral Agent as loss payee
and providing that as to the Collateral  Agent the insurance  coverage shall not
be impaired or  invalidated by any act or neglect of the Company and the insurer
will provide the Collateral Agent with at least thirty (30) days notice prior to
cancellation.  The Company  shall  instruct the  insurance  carriers that in the
event of any loss  thereunder,  the carriers shall make payment for such loss to
the Collateral Agent and not to the Company and the Collateral Agent jointly. If
any insurance losses are paid by check, draft or other instrument payable to the
Company and the Collateral  Agent jointly,  the Collateral Agent may endorse the
Company's name thereon and do such other things as the Collateral Agent may deem
advisable to reduce the same to cash.  Following  the  occurrence of an Event of
Default,  the  Collateral  Agent is hereby  authorized to adjust and  compromise
claims.  All loss  recoveries  received  by the  Collateral  Agent upon any such
insurance may be applied to the  Obligations,  in such order as the Investors in
their  sole  discretion  shall  determine.  Any  surplus  shall  be  paid by the
Collateral Agent to the Company or applied as may be otherwise  required by law.
Any deficiency  thereon shall be paid by the Company to the Collateral Agent, on
demand.

      Section  4.9. Covenants Regarding Patent, Trademark and Copyright
                    Collateral.

            (a) The Company  agrees that it will not,  nor will it permit any of
its licensees to, do any act, or omit to do any act, whereby any Patent material
to the Company's business may become invalidated or dedicated to the public, and
agrees that it shall continue to mark any products  covered by a Patent with the
relevant patent number as necessary and sufficient to establish and preserve its
maximum rights under applicable patent laws.

            (b) The  Company  (either  itself or through  its  licensees  or its
sublicensees) will, for each Trademark material to the Company's  business,  (i)
maintain  such  Trademark  in full force free from any claim of  abandonment  or
invalidity  for non-use unless the Company  decides in its  reasonable  business
judgment to abandon such  Trademark,  (ii)  maintain the quality of products and
services offered under such Trademark,  (iii) display such Trademark with notice
of federal or foreign  registration  to the extent  necessary and  sufficient to
establish  and preserve its maximum  rights  under  applicable  law and (iv) not
knowingly use or knowingly  permit the use of such Trademark in violation of any
third party rights.

            (c) The Company (either itself or through  licensees) will, for each
work covered by a Copyright,  continue to publish, reproduce, display, adopt and
distribute  the  work  with  appropriate   copyright  notice  as  necessary  and
sufficient  to  establish  and  preserve  its maximum  rights  under  applicable
copyright laws.


                                      -10-
<PAGE>


            (d) The Company  shall notify the  Collateral  Agent  promptly if it
knows or has reason to know that any Patent,  Trademark or Copyright material to
the Company's business may become abandoned, lost or dedicated to the public, or
of any adverse  determination  or development  (including the institution of, or
any such  determination  or development  in, any proceeding in the United States
Patent and  Trademark  Office,  United States  Copyright  Office or any court or
similar office of any country) regarding the Company's  ownership of any Patent,
Trademark or Copyright,  its right to register the same, or to keep and maintain
the same.

            (e) In no event  shall the  Company,  either  itself or through  any
agent,  employee,  licensee or  designee,  file an  application  for any Patent,
Trademark or Copyright (or for the  registration  of any Trademark or Copyright)
with the United  States  Patent and Trademark  Office,  United States  Copyright
Office (or any successor  thereof),  unless it promptly  informs the  Collateral
Agent, and, upon request of the Collateral Agent,  executes and delivers any and
all agreements,  instruments,  documents and papers as the Collateral  Agent may
request to evidence the  Collateral  Agent's  security  interest in such Patent,
Trademark or Copyright,  and the Company hereby appoints the Collateral Agent as
its  attorney-in-fact  to  execute  and file  such  writings  for the  foregoing
purposes,  all acts of such attorney being hereby  ratified and confirmed;  such
power, being coupled with an interest, is irrevocable.

            (f) The Company will take all  necessary  steps that are  consistent
with the  practice  in any  proceeding  before  the  United  States  Patent  and
Trademark Office,  United States Copyright Office (or any successor  thereof) to
maintain  and pursue each  material  application  relating to the United  States
Patents,  Trademarks  and/or  Copyrights  (and to obtain the  relevant  grant or
registration)  and to maintain  each issued United States Patent and each United
States  registration of the Trademarks and Copyrights  material to the Company's
business,  including timely filings of applications  for renewal,  affidavits of
use,  affidavits of  incontestability  and payment of maintenance  fees, and, if
consistent with good business judgment, to initiate opposition, interference and
cancellation proceedings against third parties.

            (g) In the event that the  Company  has  reason to believe  that any
Collateral  consisting  of a Patent,  Trademark  or  Copyright  material  to the
Company's  business has been or is about to be  infringed,  misappropriated,  or
diluted by a third party, the Company promptly shall notify the Collateral Agent
and shall promptly sue for infringement,  misappropriation or dilution, and take
such other actions as the Company in its reasonable  business judgment deems are
appropriate under the circumstances to protect such Collateral.

            (h) Upon and during the continuance of an Event of Default, upon the
request of the Collateral Agent, the Company shall obtain all requisite consents
or  approvals  by the  licensor of each  Copyright  License,  Patent  License or
Trademark License to effect the assignment of all the Company's right, title and
interest thereunder to the Collateral Agent or its designee.

      Section 4.10.  Other Actions.  In order to further insure the  attachment,
perfection and priority of, and the ability of the Collateral  Agent to enforce,
the Collateral Agent's security


                                      -11-
<PAGE>


interest in the Collateral,  the Company  agrees,  in each case at the Company's
own  expense,  to take the  following  actions  with  respect  to the  following
Collateral:

            (a) Deposit  Accounts.  For each Deposit Account that the Company at
any time opens or maintains and that is included in the Collateral,  the Company
shall, at the Collateral Agent's request and option, pursuant to an agreement in
form and substance  reasonably  satisfactory to the Collateral Agent, either (i)
cause the depositary bank to agree to comply at any time with  instructions from
the Collateral  Agent to such depositary bank directing the disposition of funds
from time to time credited to such Deposit  Account,  without further consent of
the Company,  or (ii) arrange for the Collateral Agent to become the customer of
the depositary bank with respect to the Deposit Account,  with the Company being
permitted,  only with the consent of the Collateral Agent, to exercise rights to
withdraw funds from such Deposit  Account.  The Collateral Agent agrees with the
Company  that the  Collateral  Agent  shall  not give any such  instructions  or
withhold any withdrawal rights from the Company,  unless an Event of Default has
occurred and is  continuing,  or, after giving  effect to any  withdrawal  would
occur.  The  provisions  of this  paragraph  shall not apply to (A) any  Deposit
Account for which the Company, the depositary bank and the Collateral Agent have
entered into a cash collateral agreement specially negotiated among the Company,
the depositary bank and the Collateral  Agent for the specific purpose set forth
therein  and  (B)  Deposit  Accounts  for  which  the  Collateral  Agent  is the
depositary bank.

            (b)  Investment  Property.  If the Company shall at any time hold or
acquire any certificated securities, the Company shall forthwith endorse, assign
and deliver the same to the Collateral Agent for its benefit and for the ratable
benefit  of the  Investors,  accompanied  by such  instruments  of  transfer  or
assignment duly executed in blank as the Collateral  Agent may from time to time
specify.  If any  securities  now or  hereafter  acquired  by  the  Company  are
uncertificated  and are issued to the  Company or its  nominee  directly  by the
issuer  thereof,  the Company  shall  immediately  notify the  Collateral  Agent
thereof  and, at the  Collateral  Agent's  request  and  option,  pursuant to an
agreement in form and substance satisfactory to the Collateral Agent, either (y)
cause the issuer to agree to comply with  instructions from the Collateral Agent
as to such  securities,  without further consent of the Company or such nominee,
or (z) arrange for the Collateral  Agent to become the  registered  owner of the
securities. If any securities, whether certificated or uncertificated,  or other
investment  property  now or  hereafter  acquired by the Company are held by the
Company  or  its  nominees  through  a  securities   intermediary  or  commodity
intermediary,  the Company shall immediately notify the Collateral Agent thereof
and, at the Collateral  Agent's request and option,  pursuant to an agreement in
form and substance  satisfactory to the Collateral Agent,  either (i) cause such
securities  intermediary or (as the case may be) commodity intermediary to agree
to comply with  entitlement  orders or other  instructions  from the  Collateral
Agent to such securities  intermediary as to such securities or other investment
property,  or (as the case may be) to apply any value  distributed on account of
any commodity  contract as directed by the  Collateral  Agent to such  commodity
intermediary,  in each case  without  further  consent  of the  Company  or such
nominee,  or (ii) in the case of financial assets or other  investment  property
held  through a securities  intermediary,  arrange for the  Collateral  Agent to
become the entitlement holder with respect to such investment property, with the
Company  being  permitted,  only with the consent of the  Collateral  Agent,  to
exercise rights to withdraw or otherwise deal with such investment property. The
Collateral  Agent  agrees


                                      -12-
<PAGE>


with the Company that the Collateral  Agent shall not give any such  entitlement
orders,  instructions or directions to any such issuer,  securities intermediary
or commodity intermediary, and shall not withhold its consent to the exercise of
any withdrawal or dealing rights by the Company,  unless an Event of Default has
occurred and is continuing,  or, after giving effect to any such  investment and
withdrawal  rights would occur. The provisions of this paragraph shall not apply
to  any  financial  assets  credited  to a  securities  account  for  which  the
Collateral Agent is the securities intermediary.

            (c)  Letter  of  Credit  Rights.  If the  Company  is at any  time a
beneficiary under a letter of credit (other than any letter credit  constituting
a Supporting  Obligation) now or hereafter  issued in favor of the Company,  the
Company shall promptly  notify the Collateral  Agent thereof and, at the request
and option of the Collateral Agent, the Company shall,  pursuant to an agreement
in form and substance  reasonably  satisfactory to the Collateral Agent,  either
(i) arrange for the issuer and any confirmer to such letter of credit to consent
to an  assignment to the  Collateral  Agent of the proceeds of any drawing under
the  letter of credit or (ii)  arrange  for the  Collateral  Agent to become the
transferee  beneficiary  of the  letter of  credit,  with the  Collateral  Agent
agreeing,  in each case,  that the  proceeds of any drawing  under the letter of
credit are to be applied to satisfy the Obligations.

            (d) Commercial Tort Claims. If the Company shall at any time hold or
acquire a  commercial  tort claim,  the  Company  shall  immediately  notify the
Collateral Agent in a writing signed by the Company of the brief details thereof
and grant to the Collateral  Agent in such writing a security  interest  therein
for its benefit and for the ratable benefit of the Investors and in the proceeds
thereof,  all upon the terms of this Agreement,  with such writing to be in form
and substance reasonably satisfactory to the Collateral Agent.

      Section  4.11.   Information.   The  Company  shall  promptly  inform  the
Collateral  Agent in writing of: (a) the  commencement  of all  proceedings  and
investigations  by or  before  and/or  the  receipt  of any  notices  from,  any
governmental  or  nongovernmental  body and all actions and  proceedings  in any
court or before  any  arbitrator  against  or in any way  concerning  any of the
Collateral;  (b) any Event of Default or Default; (c) any change in the location
of the  Company's  executive  offices;  (d) any  change in the  location  of the
Company's  Inventory  or  Equipment  from the  locations  listed on  Schedule  I
attached  hereto;  (h)  any  additional  Patents,   Copyrights,   Trademarks  or
commercial  tort  claims not listed on  Schedule  II,  III, IV or V; and (i) any
additional Licenses, tradenames, corporate names or company names.


                                    ARTICLE V

                                Power of Attorney
                                -----------------

      The Company hereby irrevocably  appoints the Collateral Agent or any other
Person   whom   the   Collateral   Agent   may   designate   as  the   Company's
attorney-in-fact,  with  full  power  and  authority  in place  and stead of the
Company and in the name of the Company or in its own name to: (a)  following the
occurrence  of an Event of Default,  endorse the  Company's  name on any checks,
notes,  acceptances,  money orders, drafts or other forms of payment or security
that  may  come  into the  Collateral  Agent's  possession;  (b)  following  the
occurrence  of an Event of


                                      -13-
<PAGE>


Default,  sign the Company's  name on any invoice or bill of lading  relating to
any  Receivables,   drafts  against  customers,  schedules  and  assignments  of
Receivables,  notices  of  assignment,  financing  statements  and other  public
records,  verifications  of  account  and  notices  to or  from  Customers;  (c)
following the occurrence of an Event of Default, verify the validity,  amount or
any other matter  relating to any  Receivable by mail,  telephone,  telegraph or
otherwise with  Customers;  (d) following the occurrence of an Event of Default,
execute  customs  declarations  and such other  documents  as may be required to
clear  Inventory  through United States  Customs;  (e) do all things  reasonably
necessary to carry out this  Agreement  and all other  Purchase  Documents;  (f)
continue any insurance  existing pursuant to the terms of this Agreement and pay
all or any part of the  premium  therefor  and the cost  thereof;  and (g) on or
after the occurrence and  continuation  of an Event of Default,  notify the post
office  authorities  to change the address for delivery of the Company's mail to
an address designated by the Collateral Agent, and to receive,  open and dispose
of all mail addressed to the Company.  The Company hereby  ratifies and approves
all acts taken by the attorney in accordance with the provisions of this Article
V. The powers  conferred on the Collateral Agent hereunder are solely to protect
its  interests  in the  Collateral  and  shall  not  impose  any duty upon it to
exercise any such powers.  In exercising any such powers,  the Collateral  Agent
shall act in a commercially  reasonable manner. Neither the Collateral Agent nor
the  attorney  will be  liable  for any acts or  omissions  or for any  error of
judgment  or mistake  of fact or law  unless  such  liability  results  from the
Collateral  Agent's or the  attorney's  gross (not mere)  negligence  or willful
misconduct.  This power, being coupled with an interest,  is irrevocable so long
as any  Receivable  which is  assigned to the  Collateral  Agent or in which the
Collateral  Agent  has  a  security   interest  remains  unpaid  and  until  the
Obligations have been fully satisfied.


                                   ARTICLE VI

                Events of Default, Rights and Remedies
                --------------------------------------

      Section 6.1.  Events of Default.  The occurrence of any one or more of the
following events shall constitute an "Event of Default":

            (a) the  occurrence of an "Event of Default" as such term is defined
in any of the Notes; or

            (b) the Security  Interest  for any reason  ceases to be or is not a
valid and perfected  Lien having a first priority  interest  except as expressly
permitted hereunder.

      Section 6.2. Rights and Remedies.  Upon the occurrence and continuation of
any  Event of  Default,  the  Collateral  Agent  shall  have the right to demand
repayment in full of all Obligations, whether or not otherwise due (in such case
the  Collateral  Agent may deposit any and all such  amounts  realized in a cash
collateral  deposit  account to be maintained as security for the  Obligations).
Until all  Obligations  have been fully  satisfied,  the Collateral  Agent shall
retain its security interest in all Collateral. The Collateral Agent shall have,
in addition to all other rights  provided  herein,  the rights and remedies of a
lender  under the UCC,  and under  other  applicable  law,  all other  legal and
equitable  rights  to which the  Collateral  Agent  may be  entitled,  including
without limitation, the right to take immediate possession of the Collateral, to
require the Company to assemble the Collateral, at the Company's expense, and to
make  it  available  to


                                      -14-
<PAGE>


the  Collateral  Agent at a place  designated by the  Collateral  Agent which is
reasonably  convenient  to both  parties and to enter any of the Premises of the
Company or wherever the  Collateral  shall be located,  with or without force or
process of law, and to keep and store the same any such premises until sold (and
in the case of any of the  Premises or any other  property of the  Company,  the
Company agrees not to charge the Collateral Agent for storage thereof). Further,
the Collateral  Agent may, at any time or times after the occurrence of an Event
of Default,  sell and deliver all Collateral held by or for the Collateral Agent
in one or more  parcels  at public or  private  sale for  cash,  upon  credit or
otherwise,  at such prices and upon such terms as the Collateral  Agent,  in the
Collateral Agent's sole discretion,  deems advisable or the Collateral Agent may
otherwise  recover upon the Collateral in any commercially  reasonable manner as
the Collateral Agent, in its sole discretion, deems advisable. Except as to that
part of the Collateral  which is perishable or threatens to decline  speedily in
nature or is of a type customarily sold on a recognized  market, the requirement
of reasonable  notice shall be met if such notice is mailed  postage  prepaid to
the Company at the Company's address as shown in the Collateral Agent's records,
at least ten (10)  days  before  the time of the event of which  notice is being
given.  The Collateral  Agent may be the purchaser at any sale, if it is public.
Until the Collateral Agent is able to effect a sale, lease, or other disposition
of  Collateral,  the  Collateral  Agent  shall  have the right to use or operate
Collateral, or any part thereof, to the extent that it deems appropriate for the
purpose of preserving  Collateral  or its value or for any other purpose  deemed
appropriate  by the  Collateral  Agent.  The  Collateral  Agent  shall  have  no
obligation  to the Company to maintain or preserve  the rights of the Company as
against  third  parties with respect to  Collateral  while  Collateral is in the
possession of the Collateral  Agent.  The Collateral Agent may, if it so elects,
seek the  appointment  of a receiver or keeper to take  possession of Collateral
and to enforce  any of the  Collateral  Agent's  remedies  with  respect to such
appointment  without prior notice or hearing. In connection with the exercise of
the foregoing  remedies,  the Collateral Agent is granted  permission to use (a)
all of the Company's  Intellectual  Property  which are used in connection  with
Inventory  for the purpose of disposing of such  Inventory and (b) any Equipment
for the purpose of completing the manufacture of unfinished  goods. The proceeds
of sale  shall be applied  first to all costs and  expenses  of sale,  including
attorneys'  fees,  and second to the payment (in  whatever  order the  Investors
elects) of all  Obligations.  The Collateral Agent will return any excess to the
Company and the Company shall remain liable to the Investors for any deficiency.

      Section  6.3.  Grant of  License  to Use  Intellectual  Property.  For the
purpose of enabling the Collateral  Agent to exercise  rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully  entitled to
exercise such rights and remedies,  the Company  hereby grants to the Collateral
Agent for its  benefit  and for the  benefit of the  Investors  an  irrevocable,
non-exclusive   license   (exercisable  without  payment  of  royalty  or  other
compensation to the Company) to use, license or sublicense any of the Collateral
consisting  of  Intellectual  Property  now owned or  hereafter  acquired by the
Company,  and  wherever the same may be located,  and  including in such license
reasonable  access  to all  media  in which  any of the  licensed  items  may be
recorded  or stored  and to all  computer  software  and  programs  used for the
compilation or printout thereof. The use of such license by the Collateral Agent
shall be exercised,  at the option of the Collateral  Agent, upon the occurrence
and during the  continuation of an Event of Default;  provided that any license,
sublicense  or  other  transaction  entered  into  by the  Collateral  Agent  in
accordance  herewith  shall be  binding  upon the  Company  notwithstanding  any
subsequent cure of an Event of Default.


                                      -15-
<PAGE>


                                   ARTICLE VII

                                  Subordination
                                  -------------

      The Security  Interest  granted  hereunder  upon the  Collateral  shall be
subordinate to the Liens granted in connection  with the Senior Debt pursuant to
the terms of an intercreditor  agreement among the Company, the Collateral Agent
and the holders of the Senior Debt which  shall be  requested  by the holders of
the Senior Debt and shall be in form and substance  reasonably  satisfactory  to
the Collateral Agent and the other Investors.


                                  ARTICLE VIII

                                  Miscellaneous
                                  -------------

      Section 8.1. No Waiver;  Cumulative  Remedies.  No failure or delay by the
Collateral  Agent in exercising any right,  power or remedy under this Agreement
shall operate as a waiver thereof;  nor shall any single or partial  exercise of
any such right,  power or remedy preclude any other or further  exercise thereof
or the exercise of any other right,  power or remedy under this  Agreement.  The
remedies  provided in this  Agreement  are  cumulative  and not exclusive of any
remedies provided by law.

      Section 8.2.  Waivers.  The Company waives  presentment and protest of any
instrument and notice thereof,  notice of default and all other notices to which
the Company might otherwise be entitled.

      Section 8.3.  Security  Interest  Absolute.  All rights of the  Collateral
Agent hereunder, the Security Interest and all the Obligations shall be absolute
and unconditional  irrespective of (a) any lack of validity or enforceability of
the Purchase Agreement,  any other Purchase Document, any agreement with respect
to any of the Obligations or any other  agreement or instrument  relating to any
of the foregoing,  (b) any change in the time, manner or place of payment of, or
in any other term of, all of any of the  Obligations,  or any other amendment or
waiver of or any consent to any departure from the Purchase Agreement, any other
Purchase  Document  or any other  agreement  or  instrument,  (c) any  exchange,
release or  non-perfection  of any Lien on other  collateral,  or any release or
amendment or waiver of or consent under or departure from any guarantee securing
or guaranteeing  all or any of the  Obligations,  or (d) any other  circumstance
that might otherwise  constitute a defense  available to, or a discharge of, the
Company in respect of the Obligations or this Agreement.

      Section 8.4.  Amendments,  Etc. Any term of this  Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular  instance and either  retroactively or  prospectively),  only
with the written consent of the Company and the Collateral Agent.


                                      -16-
<PAGE>


      Section 8.5. Notices.  Except as otherwise  expressly provided herein, any
notice or request  hereunder  shall be given in accordance with the terms of the
Purchase Agreement.

      Section 8.6.  Collateral.  This Agreement  does not  contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the Company
is  entitled  to any surplus and shall  remain  liable for any  deficiency.  The
Collateral Agent's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed  fulfilled  if it exercises  reasonable  care in
physically keeping such Collateral,  or in the case of Collateral in the custody
or possession of a bailee or other third Person,  exercises  reasonable  care in
the selection of the bailee or other third Person, and the Collateral Agent need
not  otherwise  preserve,  protect,  insure  or  care  for any  Collateral.  The
Collateral  Agent shall not be  obligated to preserve any rights the Company may
have  against  prior  parties,  to  realize on the  Collateral  at all or in any
particular  manner or order or to apply any cash  proceeds of the  Collateral in
any particular order of application.

      Section 8.7. Costs and Expenses; Indemnification.

            (a) The Company shall pay all of the Collateral  Agent's  reasonable
out-of-pocket costs and expenses,  including without limitation  reasonable fees
and disbursements of counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and in connection  with the prosecution
or defense of any action,  contest,  dispute,  suit or proceeding concerning any
matter in any way arising out of, related to or connected  with this  Agreement.
The  Company  shall  also  pay  all  of  the   Collateral   Agent's   reasonable
out-of-pocket costs and expenses, including, without limitation, reasonable fees
and disbursements of counsel, in connection with (a) the preparation,  execution
and  delivery  of any  waiver,  any  amendment  thereto or consent  proposed  or
executed in connection with the transactions contemplated by this Agreement, (b)
the Collateral Agent's obtaining  performance of the Company's obligations under
this Agreement, including, but not limited to, the enforcement or defense of the
Security Interest,  assignments of rights and Liens hereunder as valid perfected
security interests, (c) any attempt to inspect, verify, protect,  collect, sell,
liquidate or otherwise  dispose of any Collateral,  and (d) any consultations in
connection with any of the foregoing.

            (b)  Any  such  amounts  payable  as  provided  hereunder  shall  be
additional  Obligations  secured  hereby  and  by  the  other  Agreements.   The
provisions  of this  Section 8.7 shall  remain  operative  and in full force and
effect  regardless  of the  termination  of this  Agreement  or any of the other
Agreements,  the  consummation  of the  transactions  contemplated  hereby,  the
repayment of any of the Obligations,  the invalidity or  unenforceability of any
term or  provision  of this  Agreement or any other  Purchase  Document,  or any
investigation  made by or on behalf of the  Collateral  Agent.  All  amounts due
under this Section 8.7 shall be payable on written demand therefor.

      Section 8.8. Regarding Collateral Agent.

            (a)  Each  Investor  hereby  designates   Palisade  to  act  as  the
Collateral  Agent for such Investor under this  Agreement.  Each Investor hereby
irrevocably  authorizes the  Collateral  Agent to take such action on its behalf
under the  provisions  of this  Agreement  and to  exercise  such  powers and to
perform such duties  hereunder as are  specifically  delegated to or required of


                                      -17-
<PAGE>


the Collateral Agent by the terms hereof and such other powers as are reasonably
incidental  thereto and the Collateral Agent shall hold all Collateral  received
pursuant  to this  Agreement,  for the  ratable  benefit of the  Investors.  The
Collateral  Agent may  perform  any of its duties  hereunder  by or through  its
agents or employees. As to matters not expressly provided for in this Agreement,
the  Collateral  Agent may exercise any  discretion  or take any action it deems
reasonable and necessary under the  circumstances and the Collateral Agent shall
be fully protected in so acting.

            (b) Nature of Duties.  The Collateral  Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement. Neither the
Collateral Agent nor any of its officers,  directors,  employees or agents shall
be (i) liable for any action  taken or omitted by them as such  hereunder  or in
connection  herewith,  unless  caused by their  gross (not mere)  negligence  or
willful  misconduct,  or  (ii)  responsible  in any  manner  for  any  recitals,
statements,  representations  or  warranties  made by the Company or any officer
thereof contained in this Agreement or in any certificate,  report, statement or
other  document  referred to or provided  for in, or received by the  Collateral
Agent under or in connection  with,  this Agreement or for the value,  validity,
effectiveness,  genuineness,  enforceability or sufficiency of this Agreement or
for any failure of the Company to perform its obligations hereunder.  Collateral
Agent  shall not be under any  obligation  to any  Investor to  ascertain  or to
inquire as to the observance or  performance of any of the agreements  contained
in, or conditions of, this  Agreement,  or to inspect the  properties,  books or
records of the Company.

            (c)  Indemnification.  To the  extent  the  Collateral  Agent is not
reimbursed  and  indemnified  by the Company,  the Investors  will reimburse and
indemnify Agent from and against any and all liabilities,  obligations,  losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
of any kind or  nature  whatsoever  which  may be  imposed  on,  incurred  by or
asserted against the Collateral Agent in performing its duties hereunder,  or in
any way  relating  to or  arising  out of this  Agreement;  provided  that,  the
Investors shall not be liable for any portion of such liabilities,  obligations,
losses,  damages,  penalties,  actions,  judgments,  suits,  costs,  expenses or
disbursements  resulting from the Collateral Agent's gross (not mere) negligence
or willful misconduct.

      Section 8.9. Counterparts; Faxes. This Agreement may be executed in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same  instrument.  This Agreement may also
be executed via facsimile, which shall be deemed an original.

      Section  8.10.  Binding  Effect;  Assignment;   Complete  Agreement.  This
Agreement  shall be binding upon and inure to the benefit of the Company and the
Collateral  Agent and their respective  successors and assigns,  except that the
Company shall not have the right to assign or transfer its rights or obligations
hereunder or any interest  herein or in the Collateral  (and any such assignment
or  transfer  shall be void).  Upon a  transfer  by the  Collateral  Agent,  the
Collateral Agent shall be released from all responsibility for the Collateral to
the extent same is assigned to any transferee.


                                      -18-
<PAGE>


      Section 8.11. Severability of Provisions.  Any provision of this Agreement
which is prohibited or unenforceable  shall be ineffective to the extent of such
prohibition or unenforceability  without  invalidating the remaining  provisions
hereof.

      Section 8.12. Titles and Subtitles.  The titles and subtitles used in this
Agreement  are  used  for  convenience  only  and  are not to be  considered  in
construing or interpreting this Agreement.

      Section  8.13.  Governing  Law. This  Agreement  shall be governed by, and
construed in accordance with, the internal laws of the State of New York without
regard to the  choice of law  principles  thereof.  Each of the  parties  hereto
irrevocably submits to the co-exclusive  jurisdiction of the courts of the State
of New York located in New York County and the United States  District Court for
the  Southern  District  of New  York  for  the  purpose  of any  suit,  action,
proceeding  or judgment  relating to or arising  out of this  Agreement  and the
transactions  contemplated  thereby.  Service of process in connection  with any
such suit,  action or proceeding may be served on each party hereto  anywhere in
the world by the same methods as are  specified  for the giving of notices under
this  Agreement.  Each  of  the  parties  hereto  irrevocably  consents  to  the
jurisdiction of any such court in any such suit, action or proceeding and to the
laying  of venue  in such  court.  Each  party  hereto  irrevocably  waives  any
objection to the laying of venue of any such suit, action or proceeding  brought
in such courts and  irrevocably  waives any claim that any such suit,  action or
proceeding brought in any such court has been brought in an inconvenient forum.

      Section 8.14.  Construction.  The parties  acknowledge that each party and
its  counsel  have  reviewed  this   Agreement  and  that  the  normal  rule  of
construction to the effect that any  ambiguities are to be resolved  against the
drafting party shall not be employed in the  interpretation of this Agreement or
any amendments, schedules or exhibits hereto.

      Section  8.15  Recapture.  Anything  in  this  Agreement  to the  contrary
notwithstanding,  if the  Collateral  Agent  receives any payment or payments on
account of the  Obligations,  which  payment or payments or any part thereof are
subsequently invalidated,  declared to be fraudulent or preferential,  set aside
and/or  required to be repaid to a trustee,  receiver,  or any other party under
the United States  Bankruptcy  Code,  as amended,  or any other federal or state
bankruptcy,  reorganization,   moratorium  or  insolvency  law  relating  to  or
affecting  the  enforcement  of  creditors'  rights  generally,  common  law  or
equitable  doctrine,  then to the extent of any sum not finally  retained by the
Collateral  Agent,  the Company's  obligations to the Collateral  Agent shall be
reinstated  and this  Agreement  shall  remain in full  force and  effect (or be
reinstated)  until payment shall have been made to the Collateral  Agent,  which
payment shall be due on demand.

      Section  8.16  Termination.  This  Agreement  and the  Security  Interests
created hereby shall  terminate and the Company shall be entitled to the return,
at the Company's expense,  of such of the Collateral as has not theretofore been
sold or  otherwise  applied  pursuant  to  this  Agreement  which  may be in the
possession of the Collateral  Agent,  upon the earlier of (a) payment in full of
the Obligations and irrevocable  termination of the Purchase Agreement,  and (b)
such  time as all of the  following  claims  has  been  finally  and  completely
settled,  adjudicated,  dismissed or otherwise  resolved  with  prejudice to the
Company and all of its Subsidiaries


                                      -19-
<PAGE>


without  any  material  award,  cost,  penalty,  charge or other  expense  being
incurred  by, or  assessed  against  the  Company or any  Subsidiary:  (i) those
certain tax  assessments  pending in Brazil against  O'Gara-Hess & Eisenhardt do
Brasil LTDA;  (ii) that certain matter pending in the Ontario  Superior Court of
Justice,  encaptioned  HSBC Securities  (Canada) Inc. v. Davies,  Ward & Beck v.
Lindquist  Avey  Macdonald  Baskerville  Inc, et al.,  and (iii)  those  matters
identified  in Item 1 of the  Company's  Quarterly  Report  on Form 10-Q for the
period ending June 30, 2001.



                           [Signature Page to Follow]










                                      -20-
<PAGE>


      IN WITNESS  WHEREOF,  the parties have executed  this  Agreement or caused
their duly  authorized  officers to execute this  Agreement as of the date first
above written.

                               KROLL INC., as the Company



                               By: /s/
                                  ---------------------------------------
                                  Name:
                                  Title:


                               PALISADE CONCENTRATED EQUITY PARTNERSHIP, L.P.
                               By: Palisade Concentrate Holdings, LLC, its
                                   General Partner, as the Collateral
                                   Agent and an Investor



                               By: /s/
                                  ---------------------------------------
                                  Name:  Mark Hoffman
                                  Title: Member


                               PEGASUS PARTNERS II, L.P.,
                               By: Pegasus Investors II GP, LLC, its General
                                   Partner, as an Investor



                               By: /s/
                                  ---------------------------------------
                                  Name:
                                  Title:







                                      -21-