EXHIBIT 10.2
                                                               Execution Version



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                        SECURITY AND GUARANTEE AGREEMENT

                                   dated as of

                                October 12, 2006,

                                      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

                        GUGGENHEIM CORPORATE FUNDING, LLC
                             as Administrative Agent







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                                TABLE OF CONTENTS

                                                                            PAGE

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

   1.1        Certain Defined Terms; New York UCC Definitions..................2
   1.2        Rules of Interpretation..........................................8

SECTION 2.            SECURITY INTEREST........................................9

   2.1        Grant of Security Interest.......................................9
   2.2        Security for Obligations........................................11
   2.3        Transfer of Collateral..........................................11
   2.4        Bailees.........................................................11

SECTION 3.            REPRESENTATIONS AND WARRANTIES..........................11

   3.1        Representations in Perfection Certificate.......................12
   3.2        Title; No Other Liens...........................................12
   3.3        Perfected First Priority Liens..................................12
   3.4        Jurisdiction of Organization; Chief Executive Office............12
   3.5        Inventory and Equipment.........................................12
   3.6        Farm Products...................................................12
   3.7        Investment Property.............................................13
   3.8        Receivables.....................................................13
   3.9        Intellectual Property...........................................13
   3.10       Deposit Accounts and Securities Accounts........................14
   3.11       Benefit to Holdings and each Subsidiary Grantor.................14
   3.12       Consents........................................................14

SECTION 4.            COVENANTS...............................................15

   4.1        Covenants in Credit Agreement...................................15
   4.2        Delivery of Instruments, Certificated Securities and
                 Chattel Paper................................................15
   4.3        Maintenance of Insurance........................................15
   4.4        Payment of Obligations..........................................16
   4.5        Maintenance of Perfected Security Interest; Further
                 Documentation................................................16
   4.6        Changes in Locations, Name, etc.................................17
   4.7        Notices.........................................................17
   4.8        Investment Property.............................................17
   4.9        Receivables.....................................................19
   4.10       Intellectual Property...........................................19
   4.11       Deposit Accounts................................................21
   4.12       New Accounts....................................................21
   4.13       Commercial Tort Claims..........................................21

SECTION 5.            REMEDIAL PROVISIONS.....................................22

   5.1        Certain Matters Relating to Receivables.........................22
   5.2        Communications with Obligors; Grantors Remain Liable............22
   5.3        Pledged Stock...................................................23
   5.4        Proceeds To Be Turned Over to Administrative Agent..............25
   5.5        Application of Proceeds.........................................25


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                                TABLE OF CONTENTS
                                   (continued)
                                                                            PAGE

   5.6        Code and Other Remedies.........................................25
   5.7        Registration Rights.............................................27
   5.8        Deficiency......................................................28
   5.9        Non-Judicial Enforcement........................................28

SECTION 6.            THE SECURED PARTY.......................................28

   6.1        Administrative Agent's Appointment as Attorney-in-Fact, etc.....28
   6.2        Administrative Agent's Appointment as Agent.....................30
   6.3        Duty of the Administrative Agent................................31
   6.4        Execution of Financing Statements...............................32
   6.5        Authority of the Administrative Agent...........................32

SECTION 7.            SUBORDINATION OF INDEBTEDNESS...........................33

   7.1        Subordination of All Grantor Claims.............................33
   7.2        Claims in Bankruptcy............................................33
   7.3        Payments Held in Trust..........................................33
   7.4        Liens Subordinate...............................................34
   7.5        Notation of Records.............................................34

SECTION 8.            MISCELLANEOUS...........................................34

   8.1        Amendments in Writing...........................................34
   8.2        Notices.........................................................34
   8.3        No Waiver by Course of Conduct; Cumulative Remedies.............34
   8.4        Enforcement Expenses; Indemnification...........................35
   8.5        Successors and Assigns..........................................35
   8.6        Set-Off.........................................................35
   8.7        Counterparts....................................................36
   8.8        Severability....................................................36
   8.9        Section Headings................................................36
   8.10       Integration.....................................................36
   8.11       GOVERNING LAW...................................................36
   8.12       Submission To Jurisdiction; Waivers.............................37
   8.13       Acknowledgements................................................37
   8.14       WAIVER OF JURY TRIAL............................................38
   8.15       Additional Grantors.............................................38
   8.16       Releases........................................................38

SECTION 9.            GUARANTEE...............................................39

   9.1        Guarantee.......................................................39
   9.2        Right of Contribution...........................................40
   9.3        Subrogation.....................................................41
   9.4        Amendments, etc. with respect to the Obligations................41
   9.5        Guarantee Absolute and Unconditional............................42
   9.6        Reinstatement...................................................44
   9.7        Payments........................................................45


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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 AND GUARANTEE AGREEMENT

         NOTWITHSTANDING  ANYTHING HEREIN TO THE CONTRARY,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.  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 AND GUARANTEE AGREEMENT (this  "AGREEMENT"),  dated as of
October 12, 2006, is made by NATIONAL COAL CORPORATION, a Tennessee corporation,
(the  "COMPANY"),  NATIONAL COAL CORP., a Florida  corporation  ("HOLDINGS") and
each of the  undersigned  direct and indirect  subsidiaries of Holdings (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"; Holdings, the Subsidiary
Grantors and the Company are collectively referred to herein as the "Grantors"),
in favor of GUGGENHEIM CORPORATE FUNDING, LLC, in its capacity as administrative
agent for the banks and other  financial  institutions  from time to time  party
thereto (the  "LENDERS")  (in such  capacity,  together with its  successors and
assigns, the "ADMINISTRATIVE AGENT").

                              W I T N E S S E T H:

         A.       Pursuant  to that certain Credit Agreement dated as of October
12,  2006 (as such  Credit  Agreement  may be  amended,  amended  and  restated,
supplemented  or otherwise  modified from time to time, the "CREDIT  AGREEMENT")
among the  Administrative  Agent,  as agent for the Secured  Parties (as defined
below), the Company,  as borrower (the "BORROWER"),  Holdings and the Subsidiary
Grantors,  the Lenders have severally agreed to make extensions of credit to the
Borrower  upon the terms  and  subject  to the  conditions  set  forth  therein.
Capitalized terms used in this Agreement without  definition have the respective
meanings assigned such terms in the Credit Agreement.

         B.       On  Closing Date and until the  occurrence of the discharge of
the  Obligations,  the Liens granted to the Collateral  Agent (as defined in the
Indenture) for the benefit of the Holders (as defined in the Indenture) pursuant
to the Indenture  dated December 29, 2005 among Holdings,  the guarantors  party
thereto  and  Wells  Fargo  Bank,  National  Association,   a  national  banking
association,  as trustee (the "NOTE TRUSTEE") in connection with the issuance of
the Senior Secured Notes shall be  subordinated  to the Liens created in respect
of the Obligations pursuant to an Intercreditor  Agreement  substantially in the
form of Exhibit H to the Indenture,  among the  Administrative  Agent,  the Note


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Trustee,  Holdings, 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 Lenders to make their  respective  extensions  of credit to the Borrower
hereunder,  and for other  good and  valuable  consideration,  the  receipt  and
adequacy of which are hereby  acknowledged,  each Grantor hereby agrees with the
Administrative Agent as follows:

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 Credit Agreement,
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.

         "BORROWER CREDIT AGREEMENT OBLIGATIONS": means "Obligations" as defined
in the Credit Agreement.

         "BORROWER HEDGE AGREEMENT  OBLIGATIONS" means the collective  reference
to  all  obligations  and  liabilities  of  the  Borrower  (including,   without
limitation,  interest  accruing  at the then  applicable  rate  provided  in any
Specified Hedge Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency,  reorganization or like proceeding,  relating to


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the Borrower,  whether or not a claim for post-filing or post-petition  interest
is allowed in such proceeding) to any Qualified Counterparty,  whether direct or
indirect,  absolute or  contingent,  due or to become  due,  or now  existing or
hereafter  incurred,  which may arise under,  out of, or in connection with, any
Specified  Hedge  Agreement or any other  document  made,  delivered or given in
connection  therewith,  in each case whether on account of principal,  interest,
reimbursement  obligations,  fees,  indemnities,  costs,  expenses or  otherwise
(including,  without  limitation,  all fees and  disbursements of counsel to the
relevant  Qualified  Counterparty  that are  required to be paid by the Borrower
pursuant to the terms of any Specified Hedge Agreement).

         "BORROWER  OBLIGATIONS":  the collective  reference to (i) the Borrower
Credit Agreement Obligations, (ii) the Borrower Hedge Agreement Obligations, but
only to the extent  that,  and only so long as, the  Borrower  Credit  Agreement
Obligations  are secured and  guaranteed  pursuant  hereto,  and (iii) all other
obligations  and  liabilities  of the  Borrower,  whether  direct  or  indirect,
absolute  or  contingent,  due or to become due,  or now  existing or  hereafter
incurred,  which may arise under,  out of, or in connection with, this Agreement
(including,  without  limitation,  all fees and  disbursements of counsel to the
Administrative  Agent or to the Secured  Parties that are required to be paid by
the Borrower pursuant to the terms of this Agreement).

         "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
Administrative Agent 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,  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.


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         "CONTRACTS" means all contracts, agreements, instruments and indentures
in any  form  (including,  without  limitation,  any  interest  rate  protection
agreements,   Hedge  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  Administrative  Agent,  by and among a
Grantor, the Administrative Agent 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.

         "EQUITY  INTERESTS"  means Capital  Stock and all warrants,  options or
other rights to acquire  Capital Stock (but  excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

         "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.


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          "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.

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

         "GUARANTOR HEDGE AGREEMENT  OBLIGATIONS":  the collective  reference to
all obligations and liabilities of a Guarantor  (including,  without limitation,
interest  accruing at the then  applicable  rate provided in any Specified Hedge
Agreement after the filing of any petition in bankruptcy, or the commencement of
any insolvency,  reorganization or like proceeding,  relating to such Guarantor,
whether or not a claim for post-filing or  post-petition  interest is allowed in
such  proceeding)  to any Qualified  Counterparty,  whether  direct or indirect,
absolute  or  contingent,  due or to become due,  or now  existing or  hereafter
incurred,  which may arise under,  out of, or in connection  with, any Specified
Hedge  Agreement or any other  document  made,  delivered or given in connection
therewith, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including, without
limitation,  all fees and  disbursements  of counsel to the  relevant  Qualified
Counterparty  that are  required  to be paid by such  Guarantor  pursuant to the
terms of any Specified Hedge Agreement).

         "GUARANTOR OBLIGATIONS":  with respect to any Guarantor, the collective
reference to (i) any Guarantor  Hedge  Agreement  Obligations of such Guarantor,
but only to the extent that, and only so long as, the other  Obligations of such
Guarantor are secured and guaranteed  pursuant hereto,  and (ii) all obligations
and  liabilities of such Guarantor  which may arise under or in connection  with
this  Agreement  (including,  without  limitation,  Section 9) or any other Loan
Document to which such Guarantor is a party,  in each case whether on account of
guarantee obligations,  reimbursement  obligations,  fees,  indemnities,  costs,
expenses or otherwise (including, without limitation, all fees and disbursements
of counsel to the Administrative Agent or to any Secured Party that are required
to be paid by such  Guarantor  pursuant  to the terms of this  Agreement  or any
other Loan Document).


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         "GUARANTORS" means the collective  reference to each Grantor other than
the Borrower.

         "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.

          "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.


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

         "PERMITTED  LIENS"  means Liens  permitted by Section 6.3 of the Credit
Agreement.

         "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
all  Obligations  then due and owing shall have been paid in full in cash (other
than  Borrower  Hedge  Agreement   Obligations  and  Guarantor  Hedge  Agreement
Obligations),  or (ii) as to Holdings or any Subsidiary  Grantor, as applicable,
the date upon which all the  capital  stock or  substantially  all the assets of
Holdings or such Subsidiary  Grantor shall have been sold or otherwise  disposed
of in accordance with the terms of the Credit 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 Administrative  Agent, by and
among a Grantor, the Administrative Agent and a Securities Intermediary.

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

          "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.


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         "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.

         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;


                                       8
<PAGE>


                  (f)      the expressions "payment in full", "paid in full" and
                           any other  similar  terms or phrases when used herein
                           with  respect  to  the  Obligations  shall  mean  the
                           payment in full, in immediately  available  funds, of
                           all  the  Obligations   (other  than  Borrower  Hedge
                           Agreement  Obligations  and Guarantor Hedge Agreement
                           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  Administrative  Agent,  for its benefit and the
ratable benefit of the Secured Parties,  and hereby grants to the Administrative
Agent for its benefit and the ratable benefit of the Secured Parties, 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"):

                  (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;


                                       9
<PAGE>


                  (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  Holdings  or any of its
Subsidiaries  for the  sole  purpose  of  enabling  Holdings  or any  Subsidiary
Guarantor to purchase or post  reclamation,  surety,  or similar bonds  PROVIDED
that (i) the cash  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 Holdings 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.


                                       10
<PAGE>


         2.2      SECURITY FOR  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
Obligations of such Grantor.

         2.3      TRANSFER   OF   COLLATERAL.   Subject  to  the   Intercreditor
Agreement,  all  certificates  and  instruments  representing  or evidencing the
Pledged  Securities  shall be  delivered  to and  held  pursuant  hereto  by the
Administrative  Agent or a Person  designated  by the  Administrative  Agent 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  Administrative  Agent.  Subject  to  the  Intercreditor  Agreement,  the
Administrative  Agent shall have the right,  at any time in its  discretion  and
without notice, to transfer to or to register in the name of the  Administrative
Agent or any of its nominees any or all of the Pledged Securities.  In addition,
subject to the Intercreditor  Agreement, the Administrative Agent 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 Administrative  Agent) 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  Administrative  Agent.  At any time and from
time to time during the continuance of an Event of Default,  the  Administrative
Agent may give  notice to 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  Administrative  Agent,  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 Administrative Agent upon the Administrative  Agent's
request in notifying  any Person who has  possession  of any  Collateral  of the
Administrative   Agent's   security   interest   therein   and   requesting   an
acknowledgment  from such  Person  that it is  holding  the  Collateral  for the
benefit of the Administrative Agent and the Secured Parties.

SECTION 3.        REPRESENTATIONS AND WARRANTIES.

         To induce the  Administrative  Agent and the  Lenders to enter into the
Credit Agreement and to induce the Lenders to make their  respective  extensions
of credit  to the  Borrower  thereunder,  each  Grantor  hereby  represents  and
warrants to the Administrative Agent and each Secured Party that:


                                       11
<PAGE>


         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 Loan  Documents  to which  such  Grantor is a
party, each of which is hereby  incorporated  herein by reference,  are true and
correct,  and the Administrative  Agent and each Secured Party 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 Administrative Agent, for the
ratable benefit of the Secured  Parties,  pursuant to this Agreement and (ii) as
are permitted by the Credit Agreement.

         3.3      PERFECTED FIRST 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 Administrative  Agent 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 Administrative  Agent, for
the  ratable  benefit of the Secured  Parties as  collateral  security  for such
Grantor's  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 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  (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.


                                       12
<PAGE>


         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 for Permitted 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 Administrative Agent.

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

                  (c)      The  amounts  represented  by  such  Grantor  to  the
                           Secured  Parties  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.

                  (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.


                                       13
<PAGE>


                  (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 Liens created by
this  Agreement,   rights  of  setoff  of  any  depository  bank  or  securities
intermediary  and Liens created by any Senior Secured Note  Document.  As of the
date hereof,  all Deposit  Accounts and  Securities  Accounts  held by a Grantor
(other than those  maintained  with the  Administrative  Agent) are subject to a
Deposit Account Control Agreement and a Securities Account Control Agreement, as
applicable.

         3.11     BENEFIT TO  HOLDINGS  AND EACH  SUBSIDIARY  GRANTOR.  The Loan
Parties are members of an affiliated group of companies that includes  Holdings,
the Company and each  Subsidiary  Grantor,  and the Loan  Parties are engaged in
related  businesses.  Each Subsidiary Grantor and the Company is a Subsidiary of
Holdings  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 Holdings, 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


                                       14
<PAGE>


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 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 Administrative Agent and the
Secured  Parties  that,  from and  after  the date of this  Agreement  until the
Release Date:

         4.1      COVENANTS IN CREDIT  AGREEMENT.  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 Administrative Agent (subject to the terms of the Intercreditor
Agreement),  duly indorsed in a manner satisfactory to the Administrative Agent,
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  in
                           accordance with Section 5.5 of the Credit Agreement.

                  (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
                           Administrative Agent of written notice thereof,  (ii)
                           name the  Administrative  Agent as insured party and,
                           loss  payee as its  interests  may  appear,  (iii) if
                           reasonably  requested  by the  Administrative  Agent,
                           include  a  breach  of  warranty  clause  and (iv) be
                           reasonably  satisfactory in all other respects to the
                           Administrative Agent.


                                       15
<PAGE>


                  (c)      The Company shall deliver to the Administrative Agent
                           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  5.1(a) of the Credit
                           Agreement and such supplemental  reports with respect
                           thereto as the Administrative  Agent 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
                           Credit  Agreement,  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 Administrative Agent
                           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 Administrative  Agent may reasonably
                           request, all in reasonable detail.

                  (c)      At any time and from time to time,  upon the  written
                           request of the Administrative  Agent, and at the sole
                           expense of such Grantor, subject 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  Administrative  Agent 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


                                       16
<PAGE>


                           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,  taking any actions reasonably  necessary
                           to  enable   the   Administrative   Agent  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  Administrative  Agent,  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   Administrative   Agent   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  Administrative  Agent and delivery to
the Administrative Agent of copies of all filed additional financing statements,
and other documents (in each case,  properly executed)  reasonably  requested by
the Administrative  Agent, 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  Administrative  Agent
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  Administrative  Agent 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


                                       17
<PAGE>


                           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  Administrative
                           Agent and the Secured Parties, hold the same in trust
                           for the Administrative  Agent and the Secured Parties
                           and deliver the same forthwith to the  Administrative
                           Agent in the exact form  received,  duly  indorsed by
                           such Grantor to the  Administrative  Agent,  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
                           Administrative Agent, subject to the terms hereof, as
                           additional  collateral  security for the 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 Administrative Agent
                           to be held by it hereunder as  additional  collateral
                           security  for  the  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
                           Administrative    Agent,    be   delivered   to   the
                           Administrative  Agent to be held by it  hereunder  as
                           additional  collateral  security for the 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  Administrative  Agent,  hold  such
                           money or  property  in trust  for the  Administrative
                           Agent and the Secured Parties,  segregated from other
                           funds  of  such  Grantor,  as  additional  collateral
                           security for the Obligations.

                  (b)      Without   the   prior   written    consent   of   the
                           Administrative  Agent, 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
                           Credit Agreement),  (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  Administrative  Agent to sell,
                           assign or transfer any of the Investment  Property or
                           Proceeds thereof.

                  (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
                           notify the  Administrative  Agent promptly in writing


                                       18
<PAGE>


                           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
                           Administrative  Agent (such consent to be provided at
                           the  Administrative  Agent'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 Administrative Agent
                           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  Credit
                           Agreement,  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  Credit
                           Agreement,  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  Credit
                           Agreement,  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


                                       19
<PAGE>


                           through  licensees)  do any act whereby any  material
                           portion  of the  Copyrights  may fall into the public
                           domain.

                  (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  Administrative  Agent
                           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
                           Administrative  Agent within five Business Days after
                           the  last day of the  fiscal  quarter  in which  such
                           filing  occurs  and will  notify  the  Administrative
                           Agent  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  Administrative  Agent's and the Secured
                           Parties' 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  Administrative  Agent,  such Grantor  shall give
                           written notice to the Administrative Agent 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  Credit
                           Agreement,  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


                                       20
<PAGE>


                           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   Intellectual
                           Property and (ii) if such Intellectual Property is of
                           material   economic   value,   promptly   notify  the
                           Administrative  Agent 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  Administrative
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  Administrative  Agent shall
reasonably  approve,  and the Grantors shall deliver true,  correct and complete
and fully executed copies of the same to the Administrative  Agent. 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  Administrative
Agent thereof,  including a reasonably  detailed  description of such Commercial
Tort Claim, and (b) if in excess of $20,000, grant to the Administrative Agent 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 Administrative Agent.


                                       21
<PAGE>


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  Administrative  Agent  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  Administrative  Agent 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
                           Administrative Agent's request, at the expense of the
                           relevant   Grantor,    such   Grantor   shall   cause
                           independent public accountants or others satisfactory
                           to  the  Administrative   Agent  to  furnish  to  the
                           Administrative Agent reports showing reconciliations,
                           aging and test  verifications  of, and trial balances
                           for, the Receivables.

                  (b)      The  Administrative   Agent  hereby  authorizes  each
                           Grantor to collect such  Grantor's  Receivables,  and
                           the    Administrative    Agent    (subject   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  Administrative  Agent  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  Administrative
                           Agent if required, in a Collateral Account maintained
                           under  the  sole   dominion   and   control   of  the
                           Administrative  Agent  (subject  to the  terms of the
                           Intercreditor  Agreement),  subject to  withdrawal by
                           the  Administrative  Agent  for  the  account  of the
                           Secured  Parties  only as provided in SECTION 5.5 and
                           in accordance with the Intercreditor  Agreement,  and
                           (ii)  until  so  turned  over,  shall be held by such
                           Grantor in trust for the Administrative Agent and the
                           Secured Parties,  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
                           Administrative  Agent's  request,  each Grantor shall
                           deliver to the Administrative  Agent all 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 Administrative Agent in its own name or


                                       22
<PAGE>


                           in the name of  others  may at any  time  communicate
                           with obligors  under the  Receivables  to verify with
                           them to the Administrative  Agent's  satisfaction the
                           existence, amount and terms of any Receivables.

                  (b)      Upon the written request of the Administrative  Agent
                           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  Administrative
                           Agent for the ratable  benefit of the Secured Parties
                           and that  payments in respect  thereof  shall be made
                           directly to the Administrative  Agent (subject 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
                           Administrative Agent nor any Secured Party 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
                           Administrative  Agent  or any  Secured  Party  of any
                           payment    relating    thereto,    nor    shall   the
                           Administrative   Agent  or  any   Secured   Party  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 the  Administrative  Agent shall have
                           given written  notice to the relevant  Grantor of the
                           Administrative   Agent'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  Credit
                           Agreement,  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
                           Administrative  Agent's  reasonable  judgment,  would
                           impair the Collateral or which would be  inconsistent
                           with or result in any  violation of any  provision of
                           the Credit  Agreement,  this  Agreement  or any other
                           Loan Document.


                                       23
<PAGE>


                  (b)      If an Event of Default  shall occur and be continuing
                           and the  Administrative  Agent elects to exercise one
                           of the following remedies,  the Administrative  Agent
                           shall give  written  notice of its intent to exercise
                           such  rights to the  relevant  Grantor  or  Grantors,
                           subject  to  the  Intercreditor  Agreement,  (i)  the
                           Administrative  Agent 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
                           Obligations in such order as the Administrative Agent
                           may determine,  and (ii) any or all of the Investment
                           Property  shall  be  registered  in the  name  of the
                           Administrative   Agent  or  its   nominee,   and  the
                           Administrative  Agent 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
                           Administrative  Agent  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   Administrative    Agent   may
                           determine),  all without  liability except to account
                           for  property   actually  received  by  it,  but  the
                           Administrative  Agent  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  Administrative  Agent  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  to  the  Intercreditor  Agreement,  pay  any
                           dividends  or  other  payments  with  respect  to the
                           Investment  Property  directly to the  Administrative
                           Agent.

                  (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


                                       24
<PAGE>


                           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
                           Administrative  Agent  (subject to the  Intercreditor
                           Agreement) who shall thereupon have the sole right to
                           exercise such voting and other consensual rights, but
                           the  Administrative  Agent  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  ADMINISTRATIVE  AGENT.  In
addition  to the  rights of the  Administrative  Agent and the  Secured  Parties
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  Administrative  Agent and the Secured  Parties,  segregated  from
other funds of such Grantor, and shall,  forthwith upon receipt by such Grantor,
be turned over to the  Administrative  Agent in the exact form  received by such
Grantor  (duly  indorsed  by such  Grantor  to the  Administrative  Agent).  All
Proceeds  received by the  Administrative  Agent  hereunder shall be held by the
Administrative  Agent in a Collateral Account maintained under its sole dominion
and control. All Proceeds while held by the Administrative Agent in a Collateral
Account  (or by such  Grantor  in trust  for the  Administrative  Agent  and the
Secured  Parties) 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  Administrative  Agent  may  apply  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 and any proceeds of the guarantee
set forth in Section 9, in payment of the  Obligations in the order set forth in
Section 2.12(e) of the Credit Agreement.

         5.6      CODE AND OTHER REMEDIES.

                  (a)      If an Event of Default shall occur and be continuing,
                           the  Administrative  Agent,  on behalf of the Secured
                           Parties,  may exercise,  subject to the Intercreditor
                           Agreement,  in  addition  to  all  other  rights  and
                           remedies  granted  to  them in  this  Agreement,  the
                           Credit  Agreement and the other Loan Documents and in
                           any   other   instrument   or   agreement   securing,
                           evidencing or relating to the 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  Administrative
                           Agent, 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,


                                       25
<PAGE>


                           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
                           Administrative   Agent  or  any   Secured   Party  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
                           Administrative  Agent or any Secured Party 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  Administrative  Agent's request,  to
                           assemble the  Collateral and make it available to the
                           Administrative    Agent   at    places    which   the
                           Administrative Agent shall reasonably select, whether
                           at such  Grantor's  premises or  elsewhere.  Upon any
                           such sale or transfer, the Administrative Agent shall
                           have the right to deliver, assign and transfer to the
                           purchaser or  transferee  thereof the  Collateral  so
                           sold or transferred.  The Administrative  Agent 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
                           Administrative   Agent   and  the   Secured   Parties
                           hereunder, including, without limitation,  attorneys'
                           fees and disbursements, to the payment in whole or in
                           part  of  the  Obligations,  in  such  order  as  the
                           Administrative  Agent may elect,  and only after such
                           application    and   after   the   payment   by   the
                           Administrative  Agent 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
                           Administrative Agent 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  Administrative
                           Agent  or  any  Secured  Party  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 Administrative Agent elects not
                           to sell  the  Collateral,  the  Administrative  Agent
                           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
                           Obligations.  Each and every method of disposition of
                           the  Collateral  described  in this  Agreement  shall
                           constitute  disposition in a commercially  reasonable
                           manner.


                                       26
<PAGE>


                  (c)      The  Administrative  Agent 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  Administrative  Agent 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  Administrative   Agent  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  Administrative  Agent  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 Administrative  Agent,  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
                           Administrative Agent, are necessary or advisable, all
                           in conformity with the requirements of the Securities
                           Act and the rules and  regulations  of the Securities
                           and  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 Administrative
                           Agent 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 Administrative Agent
                           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


                                       27
<PAGE>


                           been made in a commercially  reasonable  manner.  The
                           Administrative  Agent 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  Administrative  Agent and the  Secured
                           Parties,   that  the  Administrative  Agent  and  the
                           Secured  Parties  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 Credit Agreement.

         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 Obligations and the fees and  disbursements  of any
attorneys employed by the  Administrative  Agent or any Secured Party to collect
such deficiency.

         5.9      NON-JUDICIAL ENFORCEMENT. The Administrative Agent 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  Administrative  Agent to enforce its
rights by judicial process.

SECTION 6.        THE SECURED PARTY.

         6.1      ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC.

                  (a)      Each  Grantor  hereby  irrevocably   constitutes  and
                           appoints the Administrative  Agent 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
                           Administrative  Agent 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:


                                       28
<PAGE>


                           (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
                                    Administrative  Agent  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  Administrative  Agent may
                                    request  to  evidence   the   Administrative
                                    Agent's  and the Secured  Parties'  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  Administrative
                                    Agent or as the  Administrative  Agent 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  and,  in
                                    connection  therewith,  give such discharges
                                    or releases as the Administrative  Agent 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


                                       29
<PAGE>


                                    for such term or terms, on such  conditions,
                                    and in such  manner,  as the  Administrative
                                    Agent   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  Administrative  Agent were the absolute
                                    owner thereof for all  purposes,  and do, at
                                    the  Administrative  Agent's option and such
                                    Grantor's expense, at any time, or from time
                                    to  time,  all  acts and  things  which  the
                                    Administrative   Agent  deems  necessary  to
                                    protect,   preserve  or  realize   upon  the
                                    Collateral  and the  Administrative  Agent's
                                    and the Secured Parties' 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 Administrative Agent 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 Administrative
                           Agent,  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 Administrative  Agent 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
                           principal  or interest  on the Term  Loans,  from the
                           date of  payment by the  Administrative  Agent to the
                           date  reimbursed  by the relevant  Grantor,  shall be
                           payable by such Grantor to the  Administrative  Agent
                           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      ADMINISTRATIVE AGENT'S APPOINTMENT AS AGENT.

         (a)      The  Administrative  Agent 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 Credit Agreement;  PROVIDED that Administrative  Agent
                  shall,  subject to the terms of the  Intercreditor  Agreement,
                  exercise,  or refrain from exercising,  any remedies  provided


                                       30
<PAGE>


                  for in SECTION  5.6 in  accordance  with the  instructions  of
                  Lenders  representing more than 50% of the aggregate amount of
                  the Obligations.

         (b)      Written  notice of  resignation  by the  Administrative  Agent
                  pursuant  to Section  8.9 of the Credit  Agreement  shall also
                  constitute notice of resignation as the  Administrative  Agent
                  under  this  Agreement;  removal of the  Administrative  Agent
                  pursuant  to Section  8.9 of the Credit  Agreement  shall also
                  constitute  removal  as the  Administrative  Agent  under this
                  Agreement; and appointment of a successor Administrative Agent
                  pursuant  to Section  9.9 of the Credit  Agreement  shall also
                  constitute  appointment  of a successor  Administrative  Agent
                  under this  Agreement.  Upon the acceptance of any appointment
                  as the  Administrative  Agent under  Section 8.9 of the Credit
                  Agreement by a successor  Administrative Agent, that successor
                  Administrative  Agent  shall  thereupon  succeed to and become
                  vested with all the rights,  powers,  privileges and duties of
                  the  retiring  or  removed  Administrative  Agent  under  this
                  Agreement,  and the retiring or removed  Administrative  Agent
                  under this  Agreement  shall  promptly  (i)  transfer  to such
                  successor  Administrative Agent 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
                  Administrative  Agent under this  Agreement,  and (ii) execute
                  and  deliver  to  such  successor  Administrative  Agent  such
                  amendments  to  financing  statements,  and  take  such  other
                  actions, as may be necessary or appropriate in connection with
                  the assignment to such successor  Administrative  Agent of the
                  security interests created hereunder,  whereupon such retiring
                  or removed  Administrative  Agent shall be discharged from its
                  duties  and  obligations  under  this  Agreement.   After  any
                  retiring  or removed  Administrative  Agent's  resignation  or
                  removal hereunder as the Administrative  Agent, 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 Administrative Agent hereunder.

         6.3      DUTY OF THE ADMINISTRATIVE  AGENT. The Administrative  Agent'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  Administrative
Agent  deals  with  similar   property   for  its  own  account.   None  of  the
Administrative  Agent, the Secured Parties 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  Administrative  Agent and the Secured  Parties  hereunder  are
solely to protect the Administrative  Agent's and the Secured Parties' interests
in the Collateral and shall not impose any duty upon the Administrative Agent or
any Secured Party to exercise any such powers. The Administrative  Agent and the
Secured Parties shall be accountable only for amounts that they actually receive


                                       31
<PAGE>


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
Administrative  Agent  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 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,  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 Administrative  Agent or any Secured Party to proceed against any Grantor or
other  Person,  exhaust any  Collateral  or enforce any other  remedy  which the
Administrative  Agent or any Secured Party 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  Administrative  Agent  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 Administrative Agent reasonably determines appropriate to
perfect the security interests of the Administrative Agent under this Agreement.
Each  Grantor  authorizes  the  Administrative   Agent  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
Administrative  Agent 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   ADMINISTRATIVE   AGENT.   Each   Grantor
acknowledges that the rights and  responsibilities  of the Administrative  Agent
under this  Agreement  with  respect to any action  taken by the  Administrative
Agent or the exercise or non-exercise by the Administrative Agent 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  Administrative
Agent and the Secured  Parties,  be governed by the Credit Agreement and by such
other agreements with respect thereto as may exist from time to time among them,
but, as between the  Administrative  Agent and the Grantors,  the Administrative
Agent  shall be  conclusively  presumed  to be acting  as agent for the  Secured
Parties 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.


                                       32
<PAGE>


SECTION 7.        SUBORDINATION OF INDEBTEDNESS.

         7.1      SUBORDINATION OF ALL GRANTOR CLAIMS. As used herein,  the term
"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 Grantor Claims unless  otherwise
consented to by the Administrative Agent.

         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 Administrative
Agent on behalf of itself and the Secured  Parties 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 Grantor  Claims.  Each Grantor
hereby assigns such dividends and payments to the  Administrative  Agent for the
benefit of the  Administrative  Agent and the Secured  Parties  for  application
against the Obligations in the manner  determined by the  Administrative  Agent.
Should the  Administrative  Agent or any Secured Party receive,  for application
upon the Obligations,  any such dividend or payment that is otherwise payable to
any Grantor, and that, as between such Grantor and the applicable Administrative
Agent or Secured Party, shall constitute a credit upon the Grantor Claims,  then
upon payment in full of the  Obligations,  the intended  recipient  shall become
subrogated to the rights of the Administrative  Agent and the Secured Parties to
the  extent  that such  payments  to the  Administrative  Agent and the  Secured
Parties on the Grantor  Claims have  contributed  toward the  liquidation of the
Obligations,  and such  subrogation  shall be with respect to that proportion of
the Obligations that would have been unpaid if the Administrative  Agent and the
Secured Parties had not received dividends or payments upon the 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  Administrative  Agent and the  Secured  Parties 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
Administrative Agent (subject to the Intercreditor  Agreement),  for the benefit
of the Administrative  Agent and the Secured Parties; and each Grantor covenants
promptly  to  pay  the  same  to  the  Administrative   Agent  (subject  to  the
Intercreditor Agreement).


                                       33
<PAGE>


         7.4      LIENS SUBORDINATE. Each Grantor agrees that, until the Release
Date,  any Liens  securing  payment of the  Grantor  Claims  shall be and remain
inferior  and  subordinate  to any Liens  securing  payment of the  Obligations,
regardless  of  whether  such  encumbrances  in  favor  of  such  Grantor,   the
Administrative  Agent or Secured Party presently exist or are hereafter  created
or attach.  Without the prior written  consent of the  Administrative  Agent, no
Grantor, during the period in which any of the Obligations are outstanding shall
(a) exercise or enforce any  creditor's  right it may have against any debtor in
respect  of the  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 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 Section 9.1 of the Credit Agreement.

         8.2      NOTICES.  All  notices,  requests  and  demands to or upon the
Administrative  Agent or any Grantor  hereunder  shall be effected in the manner
provided  for in Section  9.2 of the Credit  Agreement;  provided  that any such
notice, request or demand to or upon Holdings or any Subsidiary Grantor shall be
addressed  to Holdings  and 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  Administrative  Agent nor any  Secured  Party 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  Administrative  Agent or any  Secured
Party,  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 Administrative Agent or
any Secured Party of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy which the  Administrative  Agent or
such Secured Party 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.


                                       34
<PAGE>


         8.4      ENFORCEMENT EXPENSES; INDEMNIFICATION.

                  (a)      Holdings and each Subsidiary Grantor agrees to pay or
                           reimburse each of the  Administrative  Agent and each
                           Secured Party for all its costs and expenses incurred
                           in  enforcing  or  preserving  any rights  under this
                           Agreement  and the  other  Loan  Documents  to  which
                           Holdings  and  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
                           Administrative Agent and each Secured Party.

                  (b)      Holdings and each  Subsidiary  Grantor agrees to pay,
                           and to save the Administrative  Agent and the Secured
                           Parties  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)      Holdings and each  Subsidiary  Grantor agrees to pay,
                           and to save the Administrative  Agent and the Secured
                           Parties  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 8.7 of the Credit Agreement.

                  (d)      The  agreements  in this  SECTION  8.4 shall  survive
                           repayment of the  Obligations  and all other  amounts
                           payable under the Credit Agreement and the other Loan
                           Documents and shall survive,  as to a  Administrative
                           Agent,   the   resignation   or   removal   of   such
                           Administrative Agent.

         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
Administrative  Agent and the Secured Parties 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 Administrative Agent.

         8.6      SET-OFF.  Each  Grantor  hereby  irrevocably   authorizes  the
Administrative  Agent and each  Secured  Party 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


                                       35
<PAGE>


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
Administrative  Agent or such Secured  Party to or for the credit or the account
of such Grantor, or any part thereof in such amounts as the Administrative Agent
or such Secured Party may elect,  against and on account of the  obligations and
liabilities  of such Grantor to the  Administrative  Agent or such Secured Party
hereunder and claims of every nature and description of the Administrative Agent
or such Secured  Party against such Grantor,  in any currency,  whether  arising
hereunder,  under the Credit Agreement, any other Loan Document or otherwise, as
the  Administrative  Agent or such Secured  Party may elect,  whether or not the
Administrative  Agent or any  Secured  Party has made any demand for payment and
although  such  obligations,   liabilities  and  claims  may  be  contingent  or
unmatured.  The  Administrative  Agent and each Secured  Party shall notify such
Grantor   promptly  of  any  such  set-off  and  the  application  made  by  the
Administrative  Agent or such Secured  Party 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 Administrative Agent and each Secured
Party  under this  SECTION  8.6 are in  addition  to other  rights and  remedies
(including,   without   limitation,   other   rights  of   set-off)   which  the
Administrative Agent or such Secured Party 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 Credit  Agreement  and the
other Loan Documents represent the agreement of the Grantors, the Administrative
Agent and the Secured  Parties  with  respect to the subject  matter  hereof and
thereof, and there are no promises, undertakings,  representations or warranties
by the  Administrative  Agent or any Secured  Party  relative to subject  matter
hereof and  thereof  not  expressly  set forth or  referred  to herein or in the
Credit Agreement or the other Loan Documents.

         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.


                                       36
<PAGE>


         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  Loan   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  Administrative
                           Agent 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 Loan Documents to which it is a party;

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


                                       37
<PAGE>


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

         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  Holdings  that is
required to become a party to this  Agreement  pursuant  to Section  5.10 of the
Credit  Agreement 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
                           Administrative Agent 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 Administrative Agent shall
                           deliver to the such  Grantor any  Collateral  held by
                           the Administrative  Agent 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 Credit  Agreement,
                           then the  Administrative  Agent,  at the  request and
                           sole  expense  of such  Grantor,  shall  execute  and
                           deliver to such Grantor,  without any  representation
                           or warranty by the Administrative Agent, 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,   Holdings  and  a


                                       38
<PAGE>


                           Subsidiary   Grantor   shall  be  released  from  its
                           obligations  hereunder  in the  event  that  all  the
                           Equity  Interests  of  Holdings  and such  Subsidiary
                           Grantor  shall  be  sold,  transferred  or  otherwise
                           disposed of in a transaction  permitted by the Credit
                           Agreement;  PROVIDED  that  the  Company  shall  have
                           delivered to the  Administrative  Agent, 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 Credit  Agreement  and the other
                           Loan Documents.

SECTION 9.        GUARANTEE

         9.1      GUARANTEE.   (a)  (i)  The  Guarantors  hereby,   jointly  and
severally,  unconditionally  and  irrevocably,  guarantee to the  Administrative
Agent,  for the  ratable  benefit of the Secured  Parties  and their  respective
successors,  indorsees, transferees and assigns, the prompt and complete payment
and  performance  by the  Borrower  when due  (whether  at stated  maturity,  by
acceleration or otherwise) of the  Obligations  (other than, in the case of each
Guarantor, Obligations arising pursuant to clause (ii) of this Section 9.1(a) in
respect  of  Guarantor  Hedge  Agreement  Obligations  in  respect of which such
Guarantor is a primary obligor).

                           (ii)     The  Borrower  hereby   unconditionally  and
                                    irrevocably guarantees to the Administrative
                                    Agent,   for  the  ratable  benefit  of  the
                                    Secured   Parties   and   their   respective
                                    successors,   endorsees,   transferees   and
                                    assigns, the prompt and complete payment and
                                    performance   by  each  Guarantor  when  due
                                    (whether at stated maturity, by acceleration
                                    or  otherwise)   of  the   Guarantor   Hedge
                                    Agreement Obligations of such Guarantor.

                  (b)      Anything  herein or in any other Loan Document to the
                           contrary  notwithstanding,  (i) the maximum liability
                           of each Guarantor  hereunder and under the other Loan
                           Documents  shall in no event  exceed the amount which
                           can be guaranteed by such Guarantor under  applicable
                           federal  and  state  laws   relating  to   fraudulent
                           conveyances or transfers or the insolvency of debtors
                           (after  giving  effect to the  right of  contribution
                           established  in  Section  9)  and  (ii)  the  maximum
                           liability  of the  Borrower  under this  Section  9.1
                           shall in no event  exceed  the  amount  which  can be
                           guaranteed by the Borrower under  applicable  federal
                           and state laws relating to fraudulent  conveyances or
                           transfers or the  insolvency of debtors (after giving
                           effect to the right of  contribution  established  in
                           Section 9.2).


                                       39
<PAGE>


                  (c)      (i) Each Guarantor agrees that the Obligations may at
                           any time and from time to time  exceed  the amount of
                           the  liability of such  Guarantor  hereunder  without
                           impairing the guarantee of such  Guarantor  contained
                           in  this  Section  9  or  affecting  the  rights  and
                           remedies of the  Administrative  Agent or any Secured
                           Party hereunder.

                           (ii)     The Borrower agrees that the Guarantor Hedge
                                    Agreement  Obligations  may at any  time and
                                    from time to time  exceed  the amount of the
                                    liability of the Borrower under this Section
                                    9 without  impairing  the  guarantee  of the
                                    Borrower  contained  in  this  Section  9 or
                                    affecting  the  rights and  remedies  of the
                                    Administrative  Agent or any  Secured  Party
                                    hereunder.

                  (d)      Subject  to  Section  8.14  hereof,   the   guarantee
                           contained  in this  Section 9.1 shall  remain in full
                           force and  effect  until all the  Obligations  (other
                           than  Obligations  arising under  Section  9.1(a)(ii)
                           hereof) and the  obligations of each Guarantor  under
                           the guarantee  contained in this Section 9(other than
                           Guarantor   Obligations  in  respect  of  Obligations
                           arising under Section  9.1(a)(ii)  hereof) shall have
                           been  satisfied by full and final payment in cash and
                           the  Term  Loan  Commitments   shall  be  terminated,
                           notwithstanding  that  from time to time  during  the
                           term of the Credit Agreement the Borrower may be free
                           from any Obligations and any or all of the Guarantors
                           may be free from  their  respective  Guarantor  Hedge
                           Agreement Obligations.

                  (e)      No  payment  made  by  the   Borrower,   any  of  the
                           Guarantors,  any other  guarantor or any other Person
                           or received or collected by the Administrative  Agent
                           or any Secured  Party from the  Borrower,  any of the
                           Guarantors,  any other  guarantor or any other Person
                           by virtue of any action or  proceeding or any set-off
                           or  appropriation  or application at any time or from
                           time to time in  reduction  of or in  payment  of the
                           Obligations   or  the   Guarantor   Hedge   Agreement
                           Obligations  shall  be  deemed  to  modify,   reduce,
                           release  or  otherwise  affect the  liability  of the
                           Borrower or any Guarantor  under this Section 9 which
                           shall,  notwithstanding  any such payment (other than
                           any payment made by the Borrower or such Guarantor in
                           respect of the  Obligations  or the  Guarantor  Hedge
                           Agreement  Obligations  or any  payment  received  or
                           collected  from the  Borrower  or such  Guarantor  in
                           respect of the  Obligations  or the  Guarantor  Hedge
                           Agreement   Obligations),   remain   liable  for  the
                           Obligations   and  the  Guarantor   Hedge   Agreement
                           Obligations  up  to  the  maximum  liability  of  the
                           Borrower  or  such  Guarantor   hereunder  until  the
                           Obligations   and  the  Guarantor   Hedge   Agreement
                           Obligations  are fully and  finally  paid in cash and
                           the Term Loan Commitments are terminated.

         9.2      RIGHT OF  CONTRIBUTION.  (a) Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its proportionate share
of any payment made hereunder or the Guarantor Hedge Agreement Obligations, such
Guarantor  shall be entitled to seek and receive  contribution  from and against
any other Guarantor hereunder which has not paid its proportionate share of such
payment.


                                       40
<PAGE>


                  (b)      The  Borrower and each  Guarantor  agrees that to the
                           extent that the Borrower or any Guarantor  shall have
                           paid more than its proportionate share of any payment
                           made  hereunder  in  respect of any  Guarantor  Hedge
                           Agreement  Obligation  of any  other  Guarantor,  the
                           Borrower or such Guarantor, as the case may be, shall
                           be entitled to seek and receive contribution from and
                           against the  Borrower and any other  Guarantor  which
                           has not paid its proportionate share of such payment.

                  (c)      The   Borrower's  and  each   Guarantor's   right  of
                           contribution  under this Section 9.2 shall be subject
                           to the terms  and  conditions  of  Section  9.3.  The
                           provisions  of this  Section  9.2 shall in no respect
                           limit the obligations and liabilities of the Borrower
                           or any Guarantor to the Administrative  Agent and the
                           Secured Parties,  and the Borrower and each Guarantor
                           shall remain liable to the  Administrative  Agent and
                           the Secured Parties for the full amount guaranteed by
                           the Borrower or such Guarantor hereunder.

         9.3      SUBROGATION.  Notwithstanding any payment made by the Borrower
or any  Guarantor  hereunder  or any  set-off  or  application  of  funds of the
Borrower or any  Guarantor  by the  Administrative  Agent or any Secured  Party,
neither the Borrower nor any Guarantor shall be entitled to be subrogated to any
of the rights of the  Administrative  Agent or any  Secured  Party  against  the
Borrower or any other Guarantor or any collateral security or guarantee or right
of offset held by the Administrative  Agent or any Secured Party for the payment
of the Obligations or the Guarantor Hedge Agreement  Obligations,  nor shall the
Borrower  or any  Guarantor  seek or be  entitled  to seek any  contribution  or
reimbursement  from the  Borrower or any other  Guarantor in respect of payments
made by the Borrower or such Guarantor hereunder, until all amounts owing to the
Administrative  Agent and the Secured  Parties by the Borrower on account of the
Obligations are fully and finally paid in cash and the Term Loan Commitments are
terminated.  If any amount  shall be paid to the  Borrower or any  Guarantor  on
account of such subrogation rights at any time when all of the Obligations shall
not have been fully and finally  paid in cash,  such amount shall be held by the
Borrower or such Guarantor in trust for the Administrative Agent and the Secured
Parties,  segregated  from other funds of the  Borrower or such  Guarantor,  and
shall, forthwith upon receipt by the Borrower or such Guarantor,  be turned over
to the  Administrative  Agent in the exact form received by the Borrower or such
Guarantor (duly indorsed by the Borrower or such Guarantor to the Administrative
Agent,  if required),  to be applied  against the  Obligations  or the Guarantor
Hedge Agreement  Obligations,  whether matured or unmatured,  in accordance with
the terms of the Intercreditor Agreement.

         9.4      AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS. The Borrower
and each  Guarantor  shall  remain  obligated  hereunder  notwithstanding  that,
without any  reservation  of rights  against the Borrower or any  Guarantor  and


                                       41
<PAGE>


without notice to or further assent by the Borrower or any Guarantor, any demand
for payment of any of the Obligations or Guarantor  Hedge Agreement  Obligations
made by the  Administrative  Agent or any Secured  Party may be rescinded by the
Administrative  Agent  or  such  Secured  Party  and any of the  Obligations  or
Guarantor  Hedge  Agreement  Obligations  continued,   and  the  Obligations  or
Guarantor Hedge Agreement Obligations, or the liability of any other Person upon
or for any part thereof,  or any  collateral  security or guarantee  therefor or
right of offset with respect  thereto,  may,  from time to time,  in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the  Administrative  Agent or any Secured Party (with
the  consent of such of the  Borrower  and the  Guarantor  as shall be  required
thereunder),  and the Specified Hedge  Agreements,  the Credit Agreement and the
other  Loan  Documents  and  any  other  documents  executed  and  delivered  in
connection therewith may be amended,  modified,  supplemented or terminated,  in
whole or in part, as the  Administrative  Agent (or the Required  Lenders or all
Lenders,  as the case may be) may (with the consent of such of the  Borrower and
the Guarantor as shall be required thereunder) deem advisable from time to time,
and any  collateral  security,  guarantee or right of offset at any time held by
the Administrative Agent or any Secured Party for the payment of the Obligations
or Guarantor  Hedge  Agreement  Obligations may (with the consent of such of the
Borrower and the Guarantor as shall be required thereunder) be sold,  exchanged,
waived,  surrendered  or  released.  Neither  the  Administrative  Agent nor any
Secured  Party shall,  except to the extent set forth in, and for the benefit of
the parties to, the agreements and instruments governing such Lien or guarantee,
have any obligation to protect,  secure,  perfect or insure any Lien at any time
held  by it as  security  for  the  Obligations  or  Guarantor  Hedge  Agreement
Obligations or for the guarantees  contained in this Section 9.4 or any property
subject thereto.

         9.5      GUARANTEE  ABSOLUTE  AND  UNCONDITIONAL.  (a)  Each  Guarantor
waives any and all notice of the creation,  renewal, extension or accrual of any
of the  Obligations  (other than any notice with respect to any Guarantor  Hedge
Agreement  Obligation  with respect to which such Guarantor is a primary obligor
and  to  which  it is  entitled  pursuant  to  the  applicable  Specified  Hedge
Agreement) and notice of or proof of reliance by the Administrative Agent or any
Secured  Party upon the  guarantee  contained in this Section 9 or acceptance of
the  guarantee  contained in this Section 9; the  Obligations,  and any of them,
shall  conclusively be deemed to have been created,  contracted or incurred,  or
renewed,  extended,  amended or waived, in reliance upon the guarantee contained
in this  Section  9;  and  all  dealings  between  the  Borrower  and any of the
Guarantors,  on the one  hand,  and the  Administrative  Agent  and the  Secured
Parties, on the other hand, likewise shall be conclusively presumed to have been
had or consummated  in reliance upon the guarantee  contained in this Section 9.
Each Guarantor waives diligence,  presentment,  protest,  demand for payment and
notice of default or nonpayment to or upon the Borrower or any of the Guarantors
with respect to the Obligations (other than any diligence, presentment, protest,
demand or notice with respect to any Guarantor Hedge  Agreement  Obligation with
respect to which such Guarantor is a primary obligor and to which it is entitled


                                       42
<PAGE>


pursuant  to  the  applicable   Specified  Hedge   Agreement).   Each  Guarantor
understands  and agrees that the guarantee of such  Guarantor  contained in this
Section  9 shall  be  construed  as a  continuing,  absolute  and  unconditional
guarantee of payment without regard to (a) the validity or enforceability of the
Credit  Agreement  or any other Loan  Document,  any of the  Obligations  or any
collateral  security  therefor  or  guarantee  or right of offset  with  respect
thereto at any time or from time to time held by the Administrative Agent or any
Secured Party, (b) any defense, set-off or counterclaim (other than a defense of
payment or performance)  which may at any time be available to or be asserted by
the Borrower or any other Person against the Administrative Agent or any Secured
Party, or (c) any other  circumstance  whatsoever  (with or without notice to or
knowledge  of the Borrower or such  Guarantor)  which  constitutes,  or might be
construed to constitute, an equitable or legal discharge of the Borrower for the
Obligations,  or of  such  Guarantor  under  the  guarantee  of  such  Guarantor
contained in this Section 9, in bankruptcy or in any other instance. When making
any demand  hereunder  or otherwise  pursuing its rights and remedies  hereunder
against any Guarantor,  the  Administrative  Agent or any Secured Party may, but
shall be under no obligation  to, make a similar  demand on or otherwise  pursue
such  rights  and  remedies  as it may have  against  the  Borrower,  any  other
Guarantor  or any other Person or against any  collateral  security or guarantee
for the Obligations or any right of offset with respect thereto, and any failure
by the  Administrative  Agent or any Secured  Party to make any such demand,  to
pursue  such other  rights or  remedies  or to  collect  any  payments  from the
Borrower,  any other  Guarantor  or any other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or any
release of the  Borrower,  any other  Guarantor  or any other Person or any such
collateral  security,  guarantee  or right of  offset,  shall  not  relieve  any
Guarantor of any  obligation  or  liability  under this Section 9, and shall not
impair or affect the rights and remedies,  whether express, implied or available
as a matter of law, of the Administrative Agent or any Secured Party against any
Guarantor.  For the purposes hereof "demand" shall include the  commencement and
continuance of any legal proceedings.

                  (b)      The  Borrower  waives  any  and  all  notice  of  the
                           creation, renewal, extension or accrual of any of the
                           Guarantor Hedge  Agreement  Obligations and notice of
                           or proof of reliance by the  Administrative  Agent or
                           any Secured  Party upon the guarantee by the Borrower
                           contained  in this  Section  9 or  acceptance  of the
                           guarantee by the  Borrower  contained in this Section
                           9; the Guarantor Hedge Agreement Obligations, and any
                           of them,  shall  conclusively  be deemed to have been
                           created,   contracted   or   incurred,   or  renewed,
                           extended,  amended or waived,  in  reliance  upon the
                           guarantee by the  Borrower  contained in this Section
                           9; and all  dealings  between the Borrower and any of
                           the   Guarantors,   on  the   one   hand,   and   the
                           Administrative  Agent and the Secured Parties, on the
                           other  hand,  with  respect  to any  Guarantor  Hedge
                           Agreement  Obligation  likewise shall be conclusively
                           presumed to have been had or  consummated in reliance
                           upon the guarantee by the Borrower  contained in this
                           Section   9.   The   Borrower    waives    diligence,
                           presentment,  protest,  demand for payment and notice


                                       43
<PAGE>


                           of default or nonpayment to or upon the Borrower with
                           respect to the Guarantor Hedge Agreement Obligations.
                           The   Borrower   understands   and  agrees  that  the
                           guarantee by the Borrower contained in this Section 9
                           shall be  construed  as a  continuing,  absolute  and
                           unconditional  guarantee of payment without regard to
                           (a) the validity or  enforceability  of the Guarantor
                           Hedge Agreement  Obligations or any other  collateral
                           security  therefor  or  guarantee  or right of offset
                           with respect thereto at any time or from time to time
                           held  by the  Administrative  Agent  or  any  Secured
                           Party,  (b)  any  defense,  set-off  or  counterclaim
                           (other  than a defense  of  payment  or  performance)
                           which may at any time be  available to or be asserted
                           by any Person against the Administrative Agent or any
                           Secured   Party,   or  (c)  any  other   circumstance
                           whatsoever (with or without notice to or knowledge of
                           the Borrower or any Guarantor) which constitutes,  or
                           might be  construed  to  constitute,  an equitable or
                           legal  discharge of the applicable  Guarantor for the
                           applicable Guarantor Hedge Agreement Obligations,  or
                           of the Borrower under its guarantee contained in this
                           Section 9, in  bankruptcy  or in any other  instance.
                           When  making  any  demand  under  this  Section  9 or
                           otherwise pursuing its rights and remedies under this
                           Section 9 against the  Borrower,  the  Administrative
                           Agent or any Secured Party may, but shall be under no
                           obligation  to, make a similar demand on or otherwise
                           pursue  such  rights  and  remedies  as it  may  have
                           against any  Guarantor or any other Person or against
                           any   collateral   security  or  guarantee   for  the
                           Guarantor Hedge Agreement Obligations or any right of
                           offset with respect  thereto,  and any failure by the
                           Administrative Agent or any Secured Party to make any
                           such demand,  to pursue such other rights or remedies
                           or to collect any payments  from any Guarantor or any
                           other Person or to realize  upon any such  collateral
                           security or  guarantee  or to exercise any such right
                           of offset,  or any  release of any  Guarantor  or any
                           other  Person  or  any  such   collateral   security,
                           guarantee  or right of offset,  shall not relieve the
                           Borrower of any  obligation  or liability  under this
                           Section  9, and shall not impair or affect the rights
                           and remedies,  whether express,  implied or available
                           as a matter of law,  of the  Administrative  Agent or
                           any Secured  Party  against the  Borrower  under this
                           Section 9. For the  purposes  hereof  "demand"  shall
                           include the commencement and continuance of any legal
                           proceedings.

         9.6      REINSTATEMENT. The guarantee contained in this Section 9 shall
continue to be effective,  or be reinstated,  as the case may be, if at any time
payment,  or any part  thereof,  of any of the  Obligations  or Guarantor  Hedge
Agreement  Obligations is rescinded or must otherwise be restored or returned by
the Administrative  Agent or any Secured Party upon the insolvency,  bankruptcy,
dissolution,  liquidation or reorganization of the Borrower or any Guarantor, or
upon or as a result of the appointment of a receiver,  intervenor or conservator
of, or trustee or similar  officer  for,  the  Borrower or any  Guarantor or any
substantial part of its property, or otherwise,  all as though such payments had
not been made.


                                       44
<PAGE>


         9.7      PAYMENTS.  The Borrower and each Guarantor  hereby  guarantees
that payments by it hereunder will be paid to the  Administrative  Agent without
set-off or counterclaim (i) in the case of obligations in respect of Obligations
arising under the Credit  Agreement or any other Loan Document in Dollars at the
Payment  Office  specified  in the  Credit  Agreement  and  (ii) in the  case of
obligations  in respect  of any  Borrower  Hedge  Agreement  Obligations  or any
Guarantor  Hedge  Agreement  Obligations,  in the  currency  and  at  the  place
specified in the applicable Specified Hedge Agreement.


                                       45
<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.

                                 GUGGENHEIM CORPORATE FUNDING, LLC, as
                                 Administrative Agent


                                 By: /S/ STEPHEN D. SAUTEL
                                     --------------------------------------
                                 Name:  Stephen D. Sautel
                                 Title: Managing Director


                                 NATIONAL COAL CORP.


                                 By: /S/ DANIEL A. ROLING
                                     --------------------------------------
                                 Name:  Daniel A. Roling
                                 Title: Chief Executive Officer


                                 NATIONAL COAL CORPORATION

                                 By: /S/ DANIEL A. ROLING
                                     --------------------------------------
                                 Name:  Daniel A. Roling
                                 Title: Chief Executive Officer


                                 NC TRANSPORTATION, INC.

                                 By: /S/ CHARLES W. KITE
                                     --------------------------------------
                                 Name:  Charles W. Kite
                                 Title: General Counsel


                                 NC RAILROAD, INC.

                                 By: /S/ CHARLES W. KITE
                                     --------------------------------------
                                 Name:  Charles W. Kite
                                 Title: President


                                       46
<PAGE>


                                                                      SCHEDULE I

                          NOTICE ADDRESSES OF GRANTORS

To all Grantors at:

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

With a copy to:

Stubbs, Alderton & Markiles LLP
15260 Ventura Boulevard, 20th Floor
Sherman Oaks, California 91403
Telecopier No.: (818) 444-4520
Attention:  John J. McIlvery


<PAGE>


                                                                      Annex I to
                                                              SECURITY AGREEMENT

         ASSUMPTION AGREEMENT,  dated as of ___, 20[ ], made by ____________,  a
______________  (the  "ADDITIONAL  GRANTOR"),  in favor of GUGGENHEIM  CORPORATE
FUNDING, LLC, as the Administrative Agent under the Credit Agreement referred to
below (together with its successors and assigns, the "ADMINISTRATIVE AGENT").

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

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

         WHEREAS, National Coal Corporation (the "COMPANY"), National Coal Corp.
("HOLDINGS"),   certain   subsidiaries   of   Holdings,   the  Lenders  and  the
Administrative Agent have entered into the Credit Agreement, dated as of October
12, 2006 (as amended,  supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT");

         WHEREAS, in connection with the Credit Agreement, the Company, Holdings
and certain of its Subsidiaries (other than the Additional Grantor) have entered
into the  Security  and  Guarantee  Agreement,  dated as of October 12, 2006 (as
amended,  supplemented  or otherwise  modified from time to time,  the "SECURITY
AGREEMENT") in favor of the Administrative Agent and the Lenders;

         WHEREAS, the Credit Agreement 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.


<PAGE>


         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.

         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 GUGGENHEIM CORPORATE FUNDING, LLC, as the Administrative Agent under the
Credit  Agreement  referred to below  (together with its successors and assigns,
the "ADMINISTRATIVE AGENT"), [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 Corporation (the "COMPANY"),
National Coal Corp. ("HOLDINGS"),  certain subsidiaries of Holdings, the Lenders
and the Administrative Agent have entered into the Credit Agreement, dated as of
October 12, 2006 (as amended,  supplemented  or otherwise  modified from time to
time, the "CREDIT AGREEMENT");

         WHEREAS, in connection with the Credit Agreement, the Depositor,  [EACH
OTHER GRANTOR] have entered into the Security and Guarantee Agreement,  dated as
of October 12, 2006 (as amended, supplemented or otherwise modified from time to
time,  the "SECURITY  AGREEMENT") in favor of the  Administrative  Agent and the
Lenders;

         WHEREAS,  pursuant to the Security Agreement,  the Depositor granted to
the  Administrative  Agent and the  Lenders,  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  Administrative  Agent,  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 Administrative Agent 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  Administrative  Agent 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


<PAGE>


in connection with the payment of the Bank's customary fees and charges pursuant
to its agreement with the Depositor.

         SECTION 3. CONTROL.  The Bank will comply with instructions  originated
by the  Administrative  Agent 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  Administrative  Agent
delivers  a  notice  to the  Bank  that  the  Administrative  Agent  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  Administrative  Agent 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 Administrative Agent 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  Administrative  Agent 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
Administrative  Agent,  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  Administrative  Agent 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.


                                        2
<PAGE>


         SECTION 8.  TERMINATION.  This Agreement shall continue in effect until
the  Administrative  Agent 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
Administrative  Agent  shall have no  further  right to  originate  instructions
concerning the Account and any previous Notice of Exclusive Control delivered by
the Administrative Agent 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  Administrative  Agent to any successor of the Administrative
Agent under its security  agreement  with the  Depositor,  provided that written
notice thereof is given by the Administrative Agent to the Bank.

         SECTION 13. NOTICES.  All notices,  requests and demands to or upon the
Administrative  Agent or the Depositor  shall be effected in the manner provided
for in  Section  9.2 of the Credit  Agreement;  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.


                                        3
<PAGE>


         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.


                                       4
<PAGE>


                                   SIGNATURES:

                                       GUGGENHEIM CORPORATE FUNDING, LLC, as
                                       Administrative Agent

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

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



                                       [Applicable Grantor]

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



                                       [BANK]

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


                                       5
<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 GUGGENHEIM CORPORATE FUNDING, LLC, as the Administrative Agent under the
Credit  Agreement  referred to below  (together with its successors and assigns,
the "ADMINISTRATIVE AGENT"), [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  Corporation,  ("BORROWER"),
National Coal Corp. ("HOLDINGS"),  certain subsidiaries of Holdings, the Lenders
and the Administrative  Agent and the Administrative Agent have entered into the
Credit  Agreement,  dated as of October 12, 2006 (as  amended,  supplemented  or
otherwise modified from time to time, the "CREDIT AGREEMENT");

         WHEREAS, in connection with the Credit Agreement, the Depositor,  [EACH
OTHER GRANTOR] have entered into the Security and Guarantee Agreement,  dated as
of October 12, 2006 (as amended, supplemented or otherwise modified from time to
time,  the "SECURITY  AGREEMENT") in favor of the  Administrative  Agent and the
Lenders;

         WHEREAS,  pursuant to the Security Agreement,  the Depositor granted to
the  Administrative  Agent and the  Lenders,  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  Administrative  Agent,  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 Administrative Agent 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
Administrative Agent 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  Administrative  Agent 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.


<PAGE>


         SECTION 2. PRIORITY OF SECURITY INTEREST.  The Bank hereby acknowledges
the security interest granted to the Administrative Agent 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, 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  Administrative  Agent  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 Administrative Agent delivers a written
notice to the Bank that the Administrative Agent 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 Administrative  Agent. 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  Administrative
Agent 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 Administrative Agent.

         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  Administrative  Agent 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  Administrative  Agent
and the Depositor thereof.


                                       2
<PAGE>


         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  Administrative  Agent 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  Administrative
Agent, 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  Administrative  Agent 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 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  Administrative  Agent 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  Administrative  Agent shall have no further
right to originate  entitlement  orders  concerning the Account and any previous
Notice of  Exclusive  Control  delivered  by the  Administrative  Agent 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.


                                       3
<PAGE>


         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  Administrative  Agent to any successor of the Administrative
Agent under its security  agreement  with the  Depositor,  provided that written
notice thereof is given by the Administrative Agent to the Bank.

         SECTION 14. NOTICES.  All notices,  requests and demands to or upon the
Administrative  Agent or the Depositor  shall be effected in the manner provided
for in  Section  9.2 of the Credit  Agreement;  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.


                                       4
<PAGE>


                                   SIGNATURES:

                                       GUGGENHEIM CORPORATE FUNDING, LLC, as
                                       Administrative Agent

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

                                       [APPLICABLE GRANTOR]


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



                                       [BANK]

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


                                       5
<PAGE>


                                                                      SCHEDULE 1

                           NOTICE ADDRESS OF THE BANK


<PAGE>


                                                                     Annex IV to
                                                              SECURITY AGREEMENT

                                     FORM OF
                             PERFECTION CERTIFICATE