Document:

EXHIBIT 10.1
                                                               Execution Version

                                   $10,000,000

                                CREDIT AGREEMENT

                                      AMONG

                              NATIONAL COAL CORP.,

                                   AS HOLDINGS

                           NATIONAL COAL CORPORATION,

                                  AS BORROWER,

                               THE SEVERAL LENDERS

                        FROM TIME TO TIME PARTIES HERETO,

                                       AND

                       GUGGENHEIM CORPORATE FUNDING, LLC,

                             AS ADMINISTRATIVE AGENT

                          DATED AS OF OCTOBER 12, 2006

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                                TABLE OF CONTENTS

                                                                            PAGE

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

   1.1      Defined Terms......................................................1

   1.2      Other Definitional Provisions.....................................20

SECTION 2.  AMOUNT AND TERMS OF COMMITMENTS...................................21

   2.1      Term Loan Commitments.............................................21

   2.2      Procedure for Term Loan Borrowing.................................21

   2.3      Repayment of Term Loans...........................................22

   2.4      Repayment of Term Loans; Evidence of Debt.........................22

   2.5      Optional Prepayments..............................................23

   2.6      Mandatory Prepayments and Term Loan Commitment Reductions.........23

   2.7      Conversion and Continuation Options...............................24

   2.8      Minimum Amounts and Maximum Number of Eurodollar Tranches.........25

   2.9      Interest Rates and Payment Dates..................................25

   2.10     Computation of Interest and Fees..................................26

   2.11     Inability to Determine Interest Rate..............................26

   2.12     Pro Rata Treatment and Payments...................................27

   2.13     Requirements of Law...............................................28

   2.14     Taxes.............................................................30

   2.15     Indemnity.........................................................31

   2.16     Illegality........................................................32

   2.17     Change of Lending Office..........................................32

   2.18     Replacement of Lenders under Certain Circumstances................32

SECTION 3.  REPRESENTATIONS AND WARRANTIES....................................33

   3.1      Financial Condition...............................................33

   3.2      No Change.........................................................34

   3.3      Corporate Existence; Compliance with Law..........................34

   3.4      Corporate Power; Authorization; Enforceable Obligations...........34

   3.5      No Legal Bar......................................................34

   3.6      No Material Litigation............................................35

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   3.7      No Default........................................................35

   3.8      Ownership of Property; Mines; Liens...............................35

   3.9      Intellectual Property.............................................35

   3.10     Taxes.............................................................36

   3.11     Federal Regulations...............................................36

   3.12     Labor Matters.....................................................36

   3.13     ERISA.............................................................36

   3.14     Investment Company Act; Other Regulations.........................37

   3.15     Subsidiaries......................................................37

   3.16     Use of Proceeds...................................................37

   3.17     Environmental Matters.............................................37

   3.18     Accuracy of Information, etc......................................38

   3.19     Security Documents................................................38

   3.20     Senior Indebtedness...............................................39

   3.21     Solvency..........................................................39

   3.22     Regulation H......................................................39

   3.23     Coal Act; Black Lung Act..........................................39

SECTION 4.  CONDITIONS PRECEDENT..............................................40

   4.1      Conditions to Initial Extension of Credit.........................40

   4.2      Conditions to Term Loans on Delayed Draw Funding Dates............43

SECTION 5.  AFFIRMATIVE COVENANTS.............................................43

   5.1      Financial Statements..............................................43

   5.2      Certificates; Other Information...................................44

   5.3      Payment of Obligations............................................46

   5.4      Conduct of Business and Maintenance of Existence, etc.............46

   5.5      Maintenance of Property; Insurance................................46

   5.6      Inspection of Property; Books and Records; Discussions............46

   5.7      Notices...........................................................46

   5.8      Environmental Laws................................................47

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   5.9      Interest Rate Protection..........................................47

   5.10     Additional Collateral, etc........................................48

   5.11     Further Assurances................................................49

   5.12     Coal Related Matters; Mining......................................49

   5.13     Post-Closing Requirements.........................................50

SECTION 6.  NEGATIVE COVENANTS................................................50

   6.1      Financial Condition Covenants.....................................50

   6.2      Limitation on Indebtedness........................................52

   6.3      Limitation on Liens...............................................53

   6.4      Limitation on Fundamental Changes.................................54

   6.5      Limitation on Disposition of Property.............................55

   6.6      Limitation on Restricted Payments.................................55

   6.7      Limitation on Capital Expenditures................................56

   6.8      Limitation on Investments.........................................56

   6.9      Limitation on Optional Payments and Modifications of
               Debt Instruments, etc..........................................57

   6.10     Limitation on Transactions with Affiliates........................57

   6.11     Limitation on Sales and Leasebacks................................57

   6.12     Limitation on Changes in Fiscal Periods...........................57

   6.13     Limitation on Negative Pledge Clauses.............................57

   6.14     Limitation on Restrictions on Subsidiary Distributions............58

   6.15     Limitation on Lines of Business...................................58

   6.16     Limitation on Hedge Agreements....................................58

SECTION 7.  EVENTS OF DEFAULT.................................................58

SECTION 8.  THE ADMINISTRATIVE AGENT..........................................61

   8.1      Appointment.......................................................61

   8.2      Delegation of Duties..............................................61

   8.3      Exculpatory Provisions............................................61

   8.4      Reliance by Administrative Agent..................................62

   8.5      Notice of Default.................................................62

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   8.6      Non-Reliance on Administrative Agent and Other Lenders............62

   8.7      Indemnification...................................................63

   8.8      Administrative Agent in Its Individual Capacity...................63

   8.9      Successor Administrative Agent....................................64

   8.10     Authorization to Release Liens and Guarantees.....................64

SECTION 9.  MISCELLANEOUS.....................................................64

   9.1      Amendments and Waivers............................................64

   9.2      Notices...........................................................66

   9.3      No Waiver; Cumulative Remedies....................................67

   9.4      Survival of Representations and Warranties........................67

   9.5      Payment of Expenses...............................................67

   9.6      Successors and Assigns; Participations and Assignments............69

   9.7      Adjustments; Set-off..............................................71

   9.8      Counterparts......................................................71

   9.9      Severability......................................................72

   9.10     Integration.......................................................72

   9.11     GOVERNING LAW.....................................................72

   9.12     Submission To Jurisdiction; Waivers...............................72

   9.13     Acknowledgments...................................................73

   9.14     Confidentiality...................................................73

   9.15     Accounting Changes................................................74

   9.16     Intercreditor Agreement...........................................74

   9.17     WAIVERS OF JURY TRIAL.............................................74

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                                TABLE OF CONTENTS

SCHEDULES:
         I        Term Loan Commitments
         1.1      Mortgaged Property
         3.1(b)   Financial Statements
         3.4      Consents, Authorizations, Filings and Notices
         3.8      Ownership of Property; Mines
         3.15     Subsidiaries
         3.17     Environmental Matters
         3.19(b)  Mortgage Filing Jurisdictions
         6.2(d)   Existing Indebtedness
         6.3(f)   Existing Liens

EXHIBITS:
         A        Form of Security Agreement
         B        Form of Compliance Certificate
         C        Form of Closing Certificate
         D        Form of Assignment and Acceptance
         E        Form of Term Note
         F        Form of Borrowing Notice

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                  CREDIT AGREEMENT, dated as of October 12, 2006, among National
Coal Corp., a Florida  corporation  ("HOLDINGS"),  National Coal Corporation,  a
Tennessee  corporation (the  "BORROWER"),  the several banks and other financial
institutions  or  entities  from time to time  parties  to this  Agreement  (the
"LENDERS"),  and Guggenheim Corporate Funding,  LLC, as administrative agent (in
such capacity, the "ADMINISTRATIVE AGENT").

                              W I T N E S S E T H:

                  WHEREAS,  Holdings and the Borrower  have  requested  that the
Lenders make available a credit facility to the Borrower;

                  WHEREAS,   the   Lenders  are  willing  to  make  such  credit
facilities  available upon and subject to the terms and  conditions  hereinafter
set forth;

                  NOW,  THEREFORE,  in  consideration  of the  premises  and the
agreements hereinafter set forth, the parties hereto hereby agree as follows:

                             SECTION 1. DEFINITIONS

         1.1      DEFINED TERMS. As used in this Agreement,  the terms listed in
this  Section 1.1 shall have the  respective  meanings set forth in this Section
1.1.

                  "ADMINISTRATIVE AGENT":  as defined in the preamble hereto.

                  "AFFILIATE": as to any Person, any other Person that, directly
or  indirectly,  is in control of, is controlled  by, or is under common control
with, such Person. For purposes of this definition,  "control" of a Person means
the  power,  directly  or  indirectly,  either  to (a)  vote  10% or more of the
securities  having  ordinary  voting  power for the  election of  directors  (or
persons  performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person,  whether by contract or
otherwise.

                  "AGGREGATE EXPOSURE":  with respect to any Lender at any time,
an amount  equal to (a) until the Delayed  Draw Funding  Termination  Date,  the
aggregate  amount  of  such  Lender's  Term  Loans  and  outstanding  Term  Loan
Commitments at such time and (b) thereafter, the aggregate then unpaid principal
amount of such Lender's Term Loans.

                  "AGGREGATE EXPOSURE PERCENTAGE": with respect to any Lender at
any time,  the ratio  (expressed  as a percentage)  of such  Lender's  Aggregate
Exposure at such time to the sum of the  Aggregate  Exposures  of all Lenders at
such time.

                  "AGREEMENT":  this Credit Agreement, as amended,  supplemented
or otherwise modified from time to time.

                  "APPLICABLE  MARGIN":  (a) with respect to Term Loans that are
(i) Eurodollar Loans, 3.50% and (ii) Base Rate Loans, 2.50%.

                  "ASSET SALE": any Disposition of Property or series of related
Dispositions  of Property  (excluding any such  Disposition  permitted by clause
(a), (b), (c) or (d) of Section  6.5)

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which yields gross proceeds to Holdings, the Borrower or any of their respective
Subsidiaries  (valued at the  initial  principal  amount  thereof in the case of
non-cash  proceeds  consisting of notes or other debt  securities  and valued at
fair market value in the case of other non-cash proceeds) in excess of $100,000.

                  "ASSIGNEE":  as defined in Section 9.6(c).

                  "ASSIGNMENT AND ACCEPTANCE":  as defined in Section 9.6(c).

                  "ASSIGNOR":  as defined in Section 9.6(c).

                  "AVAILABLE  CREDIT":  the  undrawn  portion  of the Term  Loan
Commitment and any amounts available under any revolving credit facility or line
of credit.

                  "BANKRUPTCY  CODE":  title 11,  United States Code, as amended
from time to time, or any  subsequent  legislation  that amends,  supplements or
supercedes such statute.

                  "BASE RATE":  for any day, a rate per annum (rounded  upwards,
if  necessary,  to the next 1/16 of 1%) equal to the  greatest  of (a) the Prime
Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof:  "PRIME RATE" shall mean the prime
rate of interest specified under the Bloomberg  reference  identified as "PRIMBB
Index" on the date that is two  Business  Days  prior to such day (or such other
comparable page as may, in the opinion of the Administrative Agent, replace such
page for the purpose of displaying  such rate),  as in effect from time to time.
Any change in the Base Rate due to a change in the Prime Rate actually available
or the Federal  Funds  Effective  Rate shall be  effective  as of the opening of
business  on the  effective  day of such change in the Prime Rate or the Federal
Funds Effective Rate, respectively.  The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate actually available.

                  "BASE RATE LOANS": Term Loans for which the applicable rate of
interest is based upon the Base Rate.

                  "BENEFITED LENDER":  as defined in Section 9.7.

                  "BLACK  LUNG  ACT" :  collectively,  the Black  Lung  Benefits
Revenue Act of 1977, as amended and the Black Lung Benefits  reform Act of 1977,
as amended.

                  "BOARD":  the Board of Governors of the Federal Reserve System
of the United States (or any successor).

                  "BORROWER":  as defined in the preamble hereto.

                  "BORROWING NOTICE":  with respect to any request for borrowing
of Term Loans hereunder,  a notice from the Borrower,  substantially in the form
of, and  containing the  information  prescribed by, Exhibit I, delivered to the
Administrative Agent.

                  "BUSINESS  DAY": (a) for all purposes other than as covered by
clause (b)  below,  a day other  than a  Saturday,  Sunday or other day on which
commercial banks in New York City are authorized or required by law to close and

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(b) with  respect to all notices and  determinations  in  connection  with,  and
payments of  principal  and interest on,  Eurodollar  Loans,  any day which is a
Business Day  described in clause (a) and which is also a day for trading by and
between banks in Dollar deposits in the interbank eurodollar market.

                  "CAPITAL  EXPENDITURES":  for any period,  with respect to any
Person,  the aggregate of all expenditures by such Person for the acquisition or
leasing (pursuant to a capital lease) of fixed or capital assets or additions to
equipment (including  replacements,  capitalized repairs and improvements during
such period) which are required to be capitalized  under GAAP on a balance sheet
of such Person.

                  "CAPITAL LEASE  OBLIGATIONS":  with respect to any Person, the
obligations  of such Person to pay rent or other  amounts under any lease of (or
other arrangement  conveying the right to use) real or personal  property,  or a
combination  thereof,  which  obligations  are  required  to be  classified  and
accounted  for as capital  leases on a balance  sheet of such Person under GAAP;
and, for the purposes of this Agreement,  the amount of such  obligations at any
time  shall  be the  capitalized  amount  thereof  at such  time  determined  in
accordance with GAAP.

                  "CAPITAL STOCK": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a corporation, any
and all  equivalent  ownership  interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.

                  "CASH  EQUIVALENTS":  (a) marketable direct obligations issued
by, or unconditionally  guaranteed by, the United States government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each  case  maturing  within  one  year  from the  date of  acquisition;  (b)
certificates  of deposit,  time deposits,  eurodollar time deposits or overnight
bank  deposits  having  maturities  of six  months  or  less  from  the  date of
acquisition  issued by any Lender or by any commercial  bank organized under the
laws of the  United  States of  America  or any state  thereof  having  combined
capital and surplus of not less than  $500,000,000;  (c) commercial  paper of an
issuer  rated at least A-2 by S&P or P-2 by Moody's,  or carrying an  equivalent
rating by a nationally recognized rating agency, if both of the two named rating
agencies cease  publishing  ratings of commercial paper issuers  generally,  and
maturing  within  six  months  from  the  date of  acquisition;  (d)  repurchase
obligations of any Lender or of any commercial bank satisfying the  requirements
of clause  (b) of this  definition,  having a term of not more than 30 days with
respect to securities issued or fully guaranteed or insured by the United States
government;  (e) securities with maturities of one year or less from the date of
acquisition  issued or fully guaranteed by any state,  commonwealth or territory
of the United States,  by any political  subdivision or taxing  authority of any
such  state,  commonwealth  or  territory  or by  any  foreign  government,  the
securities  of which  state,  commonwealth,  territory,  political  subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or P by Moody's;  (f)  securities  with  maturities of six months or less
from the date of acquisition  backed by standby  letters of credit issued by any
Lender or any commercial bank satisfying the  requirements of clause (b) of this
definition;  and (g) shares of money market mutual or similar funds which invest
exclusively in assets  satisfying the requirements of clauses (a) through (f) of
this definition.

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                  "CHANGE OF CONTROL":  the  occurrence  of any of the following
events:  (a) the direct or indirect sale, lease,  transfer,  conveyance or other
disposition (other than by way of merger or  consolidation),  in one or a series
of related transactions, of all or substantially all of the properties or assets
of Holdings and its Subsidiaries  taken as a whole to any "person" (as that term
is used in Section 13(d) of the Exchange  Act) other than a Permitted  Investor;
(b) (i) "person" or "group" (as such terms are used in Sections  13(d) and 14(d)
of the  Securities  Exchange  Act of 1934,  as amended  (the  "EXCHANGE  ACT")),
excluding the Permitted  Investors,  shall become,  or obtain rights (whether by
means or warrants,  options or otherwise) to become,  the "beneficial owner" (as
defined in Rules  13(d)-3  and  13(d)-5  under the  Exchange  Act),  directly or
indirectly,  of more than 35% of the  outstanding  common  stock of Holdings and
(ii) the Permitted Investors are the beneficial owners,  directly or indirectly,
in the aggregate of a lesser  percentage of the total voting power of the voting
stock of  Holdings  than such  person  and do not have the right or  ability  by
voting  power,  contract or  otherwise,  to elect or  designate  for  election a
majority of the board of  directors  of  Holdings,  (c) during any period of two
consecutive  years,  individuals who at the beginning of such period constituted
the board of  directors  of  Holdings  (together  with any new  directors  whose
election by such board of  directors  or whose  nomination  for  election by the
shareholders  of Holdings was approved by a vote of a majority of the  directors
of Holdings  then still in office who were either  directors at the beginning of
such period or whose  election or  nomination  for  election was  previously  so
approved),  cease  for any  reason  to  constitute  a  majority  of the board of
directors of Holdings  then in office,  or (d)  Holdings  shall cease to own and
control, of record and beneficially, directly, 100% of each class of outstanding
Capital  Stock  of the  Borrower  free  and  clear of all  Liens  (except  Liens
permitted hereunder and Liens created by the Security Agreement).

                  "CLOSING DATE": the date on which the conditions precedent set
forth in Section  4.1 shall have been  satisfied,  which date shall be not later
than October 12, 2006.

                  "COAL":  all of the coal owned or leased by any Loan Party and
(i) located on,  under,  or within,  or (ii)  produced  and  severed  from,  the
properties owned or leased by any Loan Party.

                  "COAL ACT": the Coal Industry  Retiree Health  Benefits Act of
1992, as amended.

                  "COAL  SUPPLY  AGREEMENTS:  those  contracts  now in effect or
hereafter  entered  into by any Loan  Party  for the sale,  purchase,  exchange,
processing or handling of Coal with an initial term of more than one year.

                  "CODE":  the United States  Internal  Revenue Code of 1986, as
amended from time to time.

                  "COLLATERAL":  as defined in the Security Agreement.

                  "COMMONLY  CONTROLLED  ENTITY":  an  entity,  whether  or  not
incorporated,  that is under common control with the Borrower within the meaning
of Section  4001 of ERISA or is part of a group that  includes  the Borrower and
that is treated as a single employer under Section 414 of the Code.

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                  "COMPLIANCE  CERTIFICATE":  a  certificate  duly executed by a
Responsible Officer, substantially in the form of Exhibit B.

                  "CONSOLIDATED   EBITDA":   of  any  Person  for  any   period,
Consolidated  Net Income of such  Person and its  Subsidiaries  for such  period
PLUS,  without  duplication  and to the  extent  reflected  as a  charge  in the
statement of such Consolidated Net Income for such period, the sum of (a) income
tax  expense,  (b)  Consolidated   Interest  Expense  of  such  Person  and  its
Subsidiaries,  amortization or writeoff of debt discount and debt issuance costs
and  commissions,   discounts  and  other  fees  and  charges   associated  with
Indebtedness,  (c) depreciation and  amortization  expense,  (d) amortization of
intangibles  (including,  but not limited to, goodwill) and organization  costs,
(e) any extraordinary,  unusual or non-recurring  expenses or losses (including,
whether or not otherwise  includable as a separate item in the statement of such
Consolidated  Net Income for such period,  losses on sales of assets  outside of
the ordinary course of business) and (f) any other non-cash charges,  and MINUS,
to the extent included in the statement of such Consolidated Net Income for such
period,  the sum of (a)  interest  income  (except  to the  extent  deducted  in
determining  Consolidated Interest Expense),  (b) any extraordinary,  unusual or
non-recurring income or gains (including, whether or not otherwise includable as
a  separate  item in the  statement  of such  Consolidated  Net  Income for such
period, gains on the sales of assets outside of the ordinary course of business)
and (c) any other non-cash income, all as determined on a consolidated basis.

                   "CONSOLIDATED  INTEREST COVERAGE RATIO":  for any period, the
ratio of (a)  Consolidated  EBITDA of  Holdings  and its  Subsidiaries  for such
period to (b) Consolidated Interest Expense of Holdings and its Subsidiaries for
such period.

                  "CONSOLIDATED INTEREST EXPENSE": of any Person for any period,
total cash  interest  expense  (including  that  attributable  to Capital  Lease
Obligations) of such Person and its Subsidiaries for such period with respect to
all  outstanding   Financial  Covenant  Indebtedness  of  such  Person  and  its
Subsidiaries  (including,  without  limitation,  all commissions,  discounts and
other fees and charges owed by such Person with respect to letters of credit and
bankers'  acceptance  financing  and  net  costs  of  such  Person  under  Hedge
Agreements  in  respect  of  interest  rates to the  extent  such net  costs are
allocable to such period in accordance with GAAP).

                  "CONSOLIDATED  LEVERAGE  RATIO":  as at  the  last  day of any
period  of four  consecutive  fiscal  quarters  of  Holdings,  the  ratio of (a)
Consolidated  Total Debt on such day to (b) Consolidated  EBITDA of Holdings and
its  Subsidiaries  for such period;  PROVIDED  that for purposes of  calculating
Consolidated  EBITDA of Holdings and its  Subsidiaries  for any period,  (i) the
Consolidated  EBITDA of any Person  acquired  by  Holdings  or its  Subsidiaries
during  such  period  shall be  included  on a pro forma  basis for such  period
(assuming the  consummation of such acquisition and the incurrence or assumption
of any Financial Covenant  Indebtedness in connection  therewith occurred on the
first day of such period) if the  consolidated  balance  sheet of such  acquired
Person and its  consolidated  Subsidiaries as at the end of the period preceding
the acquisition of such Person and the related consolidated statements of income
and  stockholders'  equity  and of cash flows for the period in respect of which
Consolidated EBITDA is to be calculated (x) have been previously provided to the
Administrative  Agent and the Lenders and (y)(1) have been reported on without a
qualification  arising  out of the scope of the audit by  independent  certified
public  accountants  of nationally  recognized  standing and (2) have been found

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acceptable by the Administrative  Agent and (ii) the Consolidated  EBITDA of any
Person Disposed of by Holdings or its  Subsidiaries  during such period shall be
excluded for such period  (assuming the consummation of such Disposition and the
repayment  of  any  Financial  Covenant  Indebtedness  in  connection  therewith
occurred on the first day of such period).

                  "CONSOLIDATED NET INCOME":  of any Person for any period,  the
consolidated  net income (or loss) of such Person and its  Subsidiaries for such
period,  determined on a consolidated  basis in accordance with GAAP;  PROVIDED,
that in  calculating  Consolidated  Net Income of Holdings and its  consolidated
Subsidiaries for any period, there shall be excluded (a) the income (or deficit)
of any Person  accrued  prior to the date it becomes a Subsidiary of Holdings or
is merged into or consolidated with Holdings or any of its Subsidiaries, (b) the
income (or deficit) of any Person (other than a Subsidiary of Holdings) in which
Holdings or any of its  Subsidiaries  has an ownership  interest,  except to the
extent that any such income is actually  received by Holdings or such Subsidiary
in the form of  dividends  or similar  distributions  and (c) the  undistributed
earnings of any  Subsidiary  of Holdings to the extent that the  declaration  or
payment of dividends or similar  distributions  by such Subsidiary is not at the
time permitted by the terms of any Contractual  Obligation (other than under any
Loan Document) or Requirement of Law applicable to such Subsidiary.

                  "CONSOLIDATED   TOTAL  DEBT":   at  any  date,  the  aggregate
principal  amount of all  Financial  Covenant  Indebtedness  of Holdings and its
Subsidiaries at such date, determined on a consolidated basis in accordance with
GAAP.

                  "CONTRACTUAL  OBLIGATION":  as to any Person, any provision of
any  security  issued by such Person or of any  agreement,  instrument  or other
undertaking  to  which  such  Person  is a party  or by  which  it or any of its
Property is bound.

                  "CONTROL AGREEMENT":  with respect to any deposit account, any
securities  account,  commodity  account,  securities  entitlement  or commodity
contract, an agreement, in form and substance satisfactory to the Administrative
Agent, among the Administrative Agent, the financial institution or other Person
at which such account is maintained or with which such  entitlement  or contract
is carried  and the Loan Party  maintaining  such  account,  effective  to grant
"control"  (as  defined  under the  applicable  UCC) over  such  account  to the
Administrative Agent.

                  "CONTROL  INVESTMENT  AFFILIATE":  as to any Person, any other
Person that (a) directly or  indirectly,  is in control of, is controlled by, or
is under common  control  with,  such Person and (b) is organized by such Person
primarily  for the purpose of making equity or debt  investments  in one or more
companies.  For  purposes of this  definition,  "control"  of a Person means the
power,  directly  or  indirectly,  to  direct  or  cause  the  direction  of the
management and policies of such Person, whether by contract or otherwise.

                  "DEFAULT":  any of the events  specified in Section 7, whether
or not any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.

                  "DELAYED DRAW FUNDING DATE":  the date on which the additional
borrowings of the Term Loan are made pursuant to Section 2.2(b) hereof.

                  "DELAYED DRAW FUNDING TERMINATION DATE": July 12, 2007.

                                       6
<PAGE>

                  "DELAYED DRAW TERM LOANS": as defined in Section 2.1.

                  "DERIVATIVES COUNTERPARTY":  as defined in Section 6.6.

                  "DISPOSITION":  with respect to any Property, any sale, lease,
sale and  leaseback,  assignment,  conveyance,  transfer  or  other  disposition
thereof;  and the terms  "DISPOSE"  and  "DISPOSED  OF" shall  have  correlative
meanings.

                  "DOLLARS"  and "$":  lawful  currency of the United  States of
America.

                  "DOMESTIC  SUBSIDIARY":  any Subsidiary of Holdings  organized
under the laws of any jurisdiction within the United States of America.

                  "ECF PERCENTAGE": with respect to any fiscal year of Holdings,
50%;  PROVIDED,  that,  with respect to any fiscal year of Holdings ending on or
after the second  anniversary of the Closing Date,  the ECF Percentage  shall be
25% if the Consolidated Leverage Ratio as of the last day of such fiscal year is
less than 3.0 to 1.0.

                  "ELIGIBLE  ASSIGNEE":  (a) a Lender or an  Affiliate,  Related
Fund or Control Investment Affiliate of any Lender, (b) a commercial bank, (c) a
finance company,  insurance company, financial institution or fund, in each case
regularly engaged in making, purchasing, holding or otherwise investing in loans
and  similar  extensions  of credit,  or (d) a savings and loan  association  or
savings bank organized under the laws of the United States or any State thereof.

                  "ENVIRONMENTAL   LAWS":  any  and  all  laws,  rules,  orders,
regulations,  statutes, ordinances, guidelines, codes, decrees, or other legally
enforceable  requirements  (including,  without  limitation,  common law) of any
international  authority,  foreign government,  the United States, or any state,
local,  municipal or other Governmental  Authority,  regulating,  relating to or
imposing  liability  or  standards  of  conduct  concerning  protection  of  the
environment or of human health,  or employee health and safety,  as has been, is
now, or may at any time hereafter be, in effect, including,  without limitation,
the Surface Mining Control and Reclamation Act.

                  "ENVIRONMENTAL  PERMITS":  any  and  all  permits,   licenses,
approvals,  registrations,  notifications,  exemptions and other  authorizations
required under any Environmental Law.

                  "ERISA":  the Employee Retirement Income Security Act of 1974,
as amended from time to time.

                  "EUROCURRENCY   RESERVE   REQUIREMENTS":   for  any  day,  the
aggregate  (without  duplication)  of the maximum rates  (expressed as a decimal
fraction)  of reserve  requirements  in effect on such day  (including,  without
limitation,  basic,  supplemental,  marginal and emergency  reserves)  under any
regulations of the Board or other  Governmental  Authority  having  jurisdiction
with  respect   thereto  dealing  with  reserve   requirements   prescribed  for
eurocurrency  funding  (currently  referred to as "Eurocurrency  Liabilities" in
Regulation D of the Board)  maintained  by a member bank of the Federal  Reserve
System.

                  "EURODOLLAR  BASE RATE":  with respect to each day during each
Interest  Period,  the rate per  annum  determined  on the basis of the rate for
deposits in Dollars for a period equal to such Interest Period commencing on the

                                       7
<PAGE>

first day of such Interest Period  appearing on Page 3750 of the Telerate screen
as of 11:00 A.M.,  London time, two Business Days prior to the beginning of such
Interest Period. In the event that such rate does not appear on Page 3750 of the
Telerate screen (or otherwise on such screen),  the  "EURODOLLAR  BASE RATE" for
purposes of this  definition  shall be  determined  by  reference  to such other
comparable publicly available service for displaying  eurodollar rates as may be
selected by the Administrative Agent.

                  "EURODOLLAR  LOANS":  Term Loans for which the applicable rate
of interest is based upon the Eurodollar Rate.

                  "EURODOLLAR  RATE":  with  respect  to each  day  during  each
Interest Period, a rate per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th of 1%):

                                 EURODOLLAR BASE RATE
                           ---------------------------------
                    1.00 - Eurocurrency Reserve Requirements

                  "EURODOLLAR  TRANCHE":  the collective reference to Eurodollar
Loans the then  current  Interest  Periods with respect to all of which begin on
the same date and end on the same later  date  (whether  or not such  Eurodollar
Loans shall originally have been made on the same day).

                  "EVENT OF DEFAULT":  any of the events specified in Section 7,
PROVIDED that any  requirement  for the giving of notice,  the lapse of time, or
both, has been satisfied.

                  "EXCESS CASH FLOW": for each fiscal year,  Consolidated EBITDA
in respect of such fiscal year (adjusted to add or subtract, as the case may be,
any extraordinary or non-recurring  gains or losses or gains and losses from the
sale,  transfer or  disposition  of assets  (other than sale of inventory in the
ordinary  course of business)  during such fiscal year, in each case only to the
extent that (A) such gains or losses result in cash gains or losses and (B) such
gains or losses were not given effect in the calculation of Consolidated  EBITDA
for  such  fiscal  year),  MINUS,  without  duplication,  the sum of each of the
following  with  respect  to  Holdings  and its  Subsidiaries,  determined  on a
consolidated basis in accordance with GAAP: (i) Capital Expenditures made during
such fiscal year, (ii) Consolidated Interest Expense for such fiscal year or any
prior  period to the extent paid in cash during  such  fiscal  year,  (iii) with
respect to all Indebtedness under revolving credit  facilities,  an amount equal
to the excess, if any, of (a) the aggregate outstanding principal balance of all
such  Indebtedness  at the  beginning of such fiscal year over (b) the aggregate
outstanding principal balance of all such Indebtedness at the end of such fiscal
year,  (iv) with  respect  to all other  Indebtedness,  all  repayments  of such
Indebtedness  which were made during  such  fiscal  year (other than  repayments
under Section 2.6), (v) cash income taxes  (including  franchise  taxes or other
similar taxes,  in each case on or based on net income) to the extent paid, and,
to the extent not  included  as part of such cash  income  taxes,  and (vi) cash
collateral  posted by Holdings,  the Borrower or any of its Subsidiaries for the
sole purpose of enabling  Holdings,  the Borrower or any of its  Subsidiaries to
provision  reclamation,  surety, or similar bonds, and PLUS (A) the decrease (or
minus the  increase)  as between (x)  current  assets  (excluding  cash and cash
equivalents)  less current  liabilities on the first day of such fiscal year and
(y)  current  assets   (excluding  cash  and  cash   equivalents)  less  current

                                       8
<PAGE>

liabilities  on the last day of such fiscal year and (B)  reimbursements  of any
cash collateral in connection with the termination or suspension of reclamation,
surety,  or  similar  bonds,  in each case for  Holdings  and its  Subsidiaries,
determined on a consolidated basis in accordance with GAAP.

                  "EXCESS  CASH FLOW  APPLICATION  DATE":  as defined in Section
2.6(c).

                  "EXCLUDED  FOREIGN  SUBSIDIARIES":  any Foreign  Subsidiary in
respect  of which  either  (a) the  pledge of all of the  Capital  Stock of such
Subsidiary  as  Collateral  or (b) the  guaranteeing  by such  Subsidiary of the
Obligations,  would,  in the good faith judgment of Holdings,  result in adverse
tax consequences to Holdings and its Subsidiaries.

                  "FEDERAL FUNDS EFFECTIVE  RATE": for any day, a rate per annum
(expressed as a decimal, rounded upwards, if necessary, to the next higher 1/100
of 1%) equal to the  weighted  average of the rates on overnight  federal  funds
transactions  with  members of the Federal  Reserve  System  arranged by federal
funds brokers on such day, as published by the Federal  Reserve Bank of New York
on the Business Day next succeeding  such day,  PROVIDED that (i) if the day for
which such rate is to be  determined  is not a Business  Day, the Federal  Funds
Effective Rate for such day shall be such rate on such  transactions on the next
preceding Business Day as so published on the next succeeding  Business Day, and
(ii) if such rate is not so published for any day, the Federal  Funds  Effective
Rate for such day shall be the  average of the  quotations  for such day on such
transactions  received  by the  Administrative  Agent from three  Federal  Funds
brokers of recognized standing selected by it.

                  "FEE  LETTER":  the  letter  dated  as of  October  12,  2006,
addressed to Holdings  and the Borrower  with respect to certain fees to be paid
from time to time to the Administrative Agent.

                  "FINANCIAL  COVENANT   INDEBTEDNESS":   of  any  Person  means
Indebtedness of the type specified in clauses (a), (b), (c), (d) and (e) and (h)
of the definition of "Indebtedness" and  non-contingent  obligations of the type
specified in clause (f) of such definition,  and all Guarantee  Obligations with
respect to any such Indebtedness.

                  "FOREIGN SUBSIDIARY": any Subsidiary of Holdings that is not a
Domestic Subsidiary.

                  "GAAP": generally accepted accounting principles in the United
States of America as in effect from time to time.

                  "GOVERNMENTAL AUTHORITY":  any nation or government, any state
or other  political  subdivision  thereof and any entity  exercising  executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government.

                  "GROWTH CAPEX" : for any period, the Capital Expenditures made
by  Holdings  or any  Subsidiary  that  have not been  made for the  purpose  of
replacing,  maintaining,  repairing  or upgrading  existing  Mines or to improve
business efficiencies.

                  "GUARANTEE  OBLIGATION":  as to any Person (the  "GUARANTEEING
PERSON"),  any obligation of (a) the  guaranteeing  person or (b) another Person
(including,  without  limitation,  any bank under any letter of  credit),  if to

                                       9
<PAGE>

induce the creation of such  obligation  of such other  Person the  guaranteeing
person has issued a reimbursement,  counterindemnity or similar  obligation,  in
either case  guaranteeing or in effect  guaranteeing any  Indebtedness,  leases,
dividends or other  obligations  (the "PRIMARY  OBLIGATIONS") of any other third
Person (the "PRIMARY  OBLIGOR") in any manner,  whether  directly or indirectly,
including,  without  limitation,  any  obligation  of the  guaranteeing  person,
whether or not  contingent,  (i) to purchase any such primary  obligation or any
Property  constituting direct or indirect security therefor,  (ii) to advance or
supply funds (1) for the purchase or payment of any such primary  obligation  or
(2) to maintain  working  capital or equity  capital of the  primary  obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase Property,  securities or services primarily for the purpose of assuring
the owner of any such primary  obligation of the ability of the primary  obligor
to make payment of such primary  obligation or (iv)  otherwise to assure or hold
harmless  the  owner of any such  primary  obligation  against  loss in  respect
thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include
endorsements  of instruments for deposit or collection in the ordinary course of
business.  The amount of any  Guarantee  Obligation of any  guaranteeing  person
shall  be  deemed  to be the  lower of (a) an  amount  equal  to the  stated  or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable  pursuant to the terms of the instrument  embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable,  in which case
the amount of such  Guarantee  Obligation  shall be such  guaranteeing  person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.

                  "GUARANTORS":  the  collective  reference  to Holdings and the
Subsidiary Guarantors.

                  "HEDGE AGREEMENTS":  all interest rate or currency swaps, caps
or collar  agreements,  foreign  exchange  agreements,  commodity  contracts  or
similar arrangements entered into by Holdings or its Subsidiaries  providing for
protection  against  fluctuations  in interest rates,  currency  exchange rates,
commodity  prices  or the  exchange  of  nominal  interest  obligations,  either
generally or under specific contingencies.

                  "HOLDINGS":  as defined in the preamble hereto.

                  "INDEBTEDNESS":   of  any   Person   at  any   date,   without
duplication,  (a) all  indebtedness of such Person for borrowed  money,  (b) all
obligations  of such  Person for the  deferred  purchase  price of  Property  or
services  (other than trade  payables with original  payment terms of 90 days or
less  incurred  in the  ordinary  course  of such  Person's  business),  (c) all
obligations  of such  Person  evidenced  by notes,  bonds,  debentures  or other
similar  instruments,   (d)  all  indebtedness  created  or  arising  under  any
conditional  sale or other title  retention  agreement  with respect to Property
acquired by such Person  (even  though the rights and  remedies of the seller or
lender under such agreement in the event of default are limited to  repossession
or sale of such Property), (e) all Capital Lease Obligations of such Person, (f)
all obligations of such Person,  contingent or otherwise, as an account party or
applicant  under  acceptance,  letter of credit or similar  facilities,  (g) all
obligations of such Person, contingent or otherwise, to purchase, redeem, retire
or otherwise  acquire for value any Capital Stock of such Person,  in each case,

                                       10
<PAGE>

to the extent such  obligations  are treated as  indebtedness  on the  financial
statements (including any notes thereto) of such Person or is otherwise then due
and payable in cash by such Person, (h) all Guarantee Obligations of such Person
in respect of  obligations  of the kind  referred  to in clauses (a) through (g)
above;  (i) all  obligations  of the kind referred to in clauses (a) through (h)
above  secured by (or for which the holder of such  obligation  has an  existing
right,  contingent  or  otherwise,  to be  secured  by)  any  Lien  on  Property
(including,  without  limitation,  accounts and contract  rights)  owned by such
Person,  whether or not such Person has assumed or become liable for the payment
of  such  obligation  and (j)  for  the  purposes  of  Section  7(e)  only,  all
obligations of such Person in respect of Hedge Agreements.

                  "INDEMNIFIED LIABILITIES":  as defined in Section 9.5.

                  "INDEMNITEE":  as defined in Section 9.5.

                  "INSOLVENCY":  with  respect to any  Multiemployer  Plan,  the
condition  that such Plan is  insolvent  within the  meaning of Section  4245 of
ERISA.

                  "INSOLVENT":  pertaining to a condition of Insolvency.

                  "INTELLECTUAL PROPERTY": as defined in the Security Agreement.

                  "INTERCREDITOR  AGREEMENT":  The Intercreditor Agreement dated
October  12,  2006,  between  the  Administrative  Agent and Wells  Fargo  Bank,
National Association, a national banking association.

                  "INTEREST  PAYMENT  DATE":  (a) as to any Base Rate Loan,  the
last  day of  each  calendar  month  to  occur  while  such  Base  Rate  Loan is
outstanding  and the final  maturity date of such Base Rate Loan,  (b) as to any
Eurodollar Loan having an Interest  Period of three months or shorter,  the last
day of such Interest  Period,  (c) as to any Eurodollar  Loan having an Interest
Period  longer  than three  months,  each day that is three  months,  or a whole
multiple  thereof,  after the first day of such Interest Period and the last day
of such Interest  Period and (d) as to any Term Loan,  the date of any repayment
or prepayment made in respect thereof.

                  "INTEREST  PERIOD":  as to any Eurodollar Loan, (a) initially,
the period  commencing on the borrowing or conversion  date, as the case may be,
with respect to such  Eurodollar  Loan and ending one, two,  three or six months
thereafter,  as selected by the Borrower in its notice of borrowing or notice of
conversion,  as the case may be, given with respect thereto; and (b) thereafter,
each period  commencing on the last day of the next  preceding  Interest  Period
applicable  to such  Eurodollar  Loan and ending one,  two,  three or six months
thereafter,   as  selected  by  the  Borrower  by  irrevocable   notice  to  the
Administrative  Agent not less than three Business Days prior to the last day of
the then current Interest Period with respect thereto; PROVIDED that, all of the
foregoing provisions relating to Interest Periods are subject to the following:

                  (1)      if any Interest  Period would  otherwise end on a day
                           that is not a  Business  Day,  such  Interest  Period
                           shall be extended to the next succeeding Business Day
                           unless the result of such extension would be to carry

                                       11
<PAGE>

                           such Interest  Period into another  calendar month in
                           which  event such  Interest  Period  shall end on the
                           immediately preceding Business Day;

                  (2)      any  Interest  Period  that  would  otherwise  extend
                           beyond  the  date  final  payment  is due on the Term
                           Loans, shall end on such due date, as applicable; and

                  (3)      any Interest  Period that begins on the last Business
                           Day of a calendar  month (or on a day for which there
                           is no numerically  corresponding  day in the calendar
                           month at the end of such  Interest  Period) shall end
                           on the last Business Day of the calendar month at the
                           end of such Interest Period.

                  "INVESTMENTS":  as defined in Section 6.8.

                  "LENDERS":  as defined in the preamble hereto.

                  "LIEN":  any  mortgage,  pledge,  hypothecation,   assignment,
deposit  arrangement,  encumbrance,  lien (statutory or other),  charge or other
security  interest or any  preference,  priority or other security  agreement or
preferential  arrangement of any kind or nature whatsoever  (including,  without
limitation,  any  conditional  sale or other title  retention  agreement and any
capital  lease  having  substantially  the same  economic  effect  as any of the
foregoing).

                  "LOAN DOCUMENTS":  this Agreement, the Security Documents, the
Fee Letter,  any Term Notes and each other  agreement or document  executed by a
Loan Party and delivered to the Administrative Agent or any Lender in connection
with or pursuant to any of the foregoing.

                  "LOAN PARTIES":  Holdings, the Borrower and each Subsidiary of
the Borrower that is a party to a Loan Document.

                  "MAINTENANCE CAPEX" : for any period, the Capital Expenditures
made by  Holdings  or any  Subsidiary  that have been  made for the  purpose  of
replacing,  maintaining,  repairing  or upgrading  existing  Mines or to improve
business efficiencies.

                  "MATERIAL  ADVERSE  EFFECT":  a material adverse effect on (a)
the business, assets, property,  condition (financial or otherwise) or prospects
of  Holdings  and its  Subsidiaries  taken  as a whole  or (b) the  validity  or
enforceability  of this  Agreement  or any of the other  Loan  Documents  or the
rights or  remedies of the  Administrative  Agent or the  Lenders  hereunder  or
thereunder.

                  "MATERIAL  ENVIRONMENTAL AMOUNT": an amount or amounts payable
by  Holdings  and/or  any of its  Subsidiaries,  in the  aggregate  in excess of
$500,000, for: costs of any investigation,  and any remediation, of any Material
of  Environmental   Concern;  and  compensatory   damages  (including,   without
limitation,  damages  to  natural  resources),   punitive  damages,  fines,  and
penalties pursuant to any Environmental Law.

                  "MATERIALS  OF   ENVIRONMENTAL   CONCERN":   any  gasoline  or
petroleum  (including crude oil or any fraction thereof) or petroleum  products,
polychlorinated biphenyls,  urea-formaldehyde insulation,  asbestos, pollutants,
contaminants,  radioactive materials,  and any other substances or forces of any
kind,  whether or not any such  substance  or force is defined as  hazardous  or

                                       12
<PAGE>

toxic under any Environmental  Law, that is regulated  pursuant to or could give
rise to liability under any Environmental Law.

                  "MATURITY DATE":  March 15, 2010.

                  "MINE":  any  excavation  or  opening  into the  earth now and
hereafter  made from  which  Coal is or can be  extracted  on or from any of the
properties owned or leased by any Loan Party,  together with all  appurtenances,
fixtures, structures, improvements, and all tangible property of whatsoever kind
or nature in connection therewith.

                  "MINING  LAWS":  any and all  applicable  current  and  future
federal,  state,  local and  foreign  statutes,  laws,  regulations,  guidances,
ordinances,  rules, judgments,  orders, decrees, permits,  concessions,  grants,
franchises,  licenses,  agreements or other governmental  restrictions or common
law causes of action relating to mining  operations and activities.  Mining Laws
shall include,  but not be limited to the Federal Coal Leasing  Amendments  Act,
the Surface Mining Control and Reclamation  Act, all other land  reclamation and
use statutes and  regulations,  the Federal Coal Mine Health and Safety Act, the
Black  Lung Act and the Coal Act,  each as  amended,  and their  state and local
counterparts or equivalents.

                  "MINING LEASE":  a lease which provides a Loan Party the right
to mine coal reserves.

                  "MINING   PERMITS":    any   and   all   permits,    licenses,
registrations,  notifications,  exemptions and any other authorization  required
under any applicable Mining Law or otherwise  necessary to recover Coal from any
Mine being operated by a Loan Party.

                   "MOODY'S":  Moody's Investors Service, Inc.

                  "MORTGAGED PROPERTIES": the real properties listed on Schedule
1.1, as to which the Administrative Agent for the benefit of the Secured Parties
shall be granted a Lien pursuant to one or more Mortgages.

                  "MORTGAGES":  each of the mortgages and deeds of trust made by
any Loan Party in favor of, or for the benefit of, the Administrative  Agent for
the benefit of the Secured  Parties,  in form and substance  satisfactory to the
Administrative Agent, in its reasonable discretion,  as the same may be amended,
supplemented or otherwise modified from time to time.

                  "MULTIEMPLOYER  PLAN": a Plan that is a multiemployer  plan as
defined in Section 4001(a)(3) of ERISA.

                  "NET CASH PROCEEDS":  (a) in connection with any Asset Sale or
any  Recovery  Event,  the  proceeds  thereof  in the  form  of  cash  and  Cash
Equivalents  (including any such proceeds received by way of deferred payment of
principal  pursuant  to a note  or  installment  receivable  or  purchase  price
adjustment receivable or otherwise, but only as and when received) of such Asset
Sale or Recovery Event, net of attorneys' fees,  accountants'  fees,  investment
banking fees,  amounts  required to be applied to the repayment of  Indebtedness
secured  by a Lien  expressly  permitted  hereunder  on any  asset  which is the
subject of such Asset Sale or Recovery  Event (other than any Lien pursuant to a
Security  Document) and other customary fees and expenses  actually  incurred in

                                       13
<PAGE>

connection therewith and net of taxes paid or reasonably estimated to be payable
as a result  thereof  (after  taking into account any  available  tax credits or
deductions  and  any tax  sharing  arrangements),  (b) in  connection  with  any
issuance or sale of equity  securities or debt  securities or instruments or the
incurrence  of  loans,  the  cash  proceeds   received  from  such  issuance  or
incurrence,  net of attorneys' fees, investment banking fees, accountants' fees,
underwriting  discounts and  commissions  and other  customary fees and expenses
actually  incurred  in  connection  therewith  and (c) in  connection  with  any
Purchase Price Refund, the cash amount thereof,  net of any expenses incurred in
the collection thereof.

                  "NON-CONSENTING  LENDER": has the meaning specified in Section
9.1.

                  "NON-EXCLUDED TAXES":  as defined in Section 2.14(a).

                  "NON-U.S. LENDER": as defined in Section 2.14(d).

                  "NOTE TRUSTEE": has the meaning specified in the definition of
"Senior Secured Indenture".

                   "OBLIGATIONS":  the  unpaid  principal  of  and  interest  on
(including, without limitation, interest accruing after the maturity of the Term
Loans and interest  accruing after the filing of any petition in bankruptcy,  or
the commencement of any insolvency,  reorganization or like proceeding, relating
to the  Borrower,  whether  or not a  claim  for  post-filing  or  post-petition
interest is allowed in such proceeding) the Term Loans and all other obligations
and liabilities of the Borrower to the Administrative  Agent or to any Lender or
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, this Agreement,  any other Loan Document
any Specified Hedge Agreement or any other document made,  delivered or given in
connection  herewith or therewith,  whether on account of  principal,  interest,
reimbursement  obligations,  fees,  indemnities,   costs,  expenses  (including,
without  limitation,  all fees,  charges  and  disbursements  of  counsel to the
Administrative  Agent  or to any  Lender  that  are  required  to be paid by the
Borrower  pursuant  hereto) or  otherwise;  PROVIDED,  that (i)  obligations  of
Holdings or any Subsidiary  under any Specified Hedge Agreement shall be secured
and guaranteed  pursuant to the Security  Documents only to the extent that, and
for so long as, the other Obligations are so secured and guaranteed and (ii) any
release of  Collateral or  Guarantors  effected in the manner  permitted by this
Agreement  shall not  require  the  consent  of  holders  of  obligations  under
Specified Hedge Agreements.

                  "OTHER  TAXES":  any  and  all  present  or  future  stamp  or
documentary  taxes or any other  excise or  property  taxes,  charges or similar
levies arising from any payment made  hereunder or from the execution,  delivery
or  enforcement  of, or otherwise  with respect to, this  Agreement or any other
Loan Document.
                  "PARTICIPANT":  as defined in Section 9.6(b).

                  "PAYMENT  OFFICE":  as to any  Lender  or  the  Administrative
Agent,   the  office  specified  from  time  to  time  by  such  Lender  or  the
Administrative Agent, as the case may be, as its payment office by notice to the
Borrower  and,  in the case of a Lender's  Payment  Office,  the  Administrative
Agent.

                                       14
<PAGE>

                  "PBGC": the Pension Benefit Guaranty  Corporation  established
pursuant to Subtitle A of Title IV of ERISA (or any successor).

                  "PERMITTED  ACQUISITION"  means any Proposed  Acquisition  (i)
consented  to by the  Administrative  Agent  in its  sole  discretion  and  (ii)
satisfying each of the following  conditions:  (a) the aggregate amounts payable
in connection  with, and other  consideration  for (in each case,  including all
transaction costs and all Indebtedness,  liabilities and Obligations incurred or
assumed in connection therewith or otherwise reflected in a consolidated balance
sheet  of  Holdings  and  the  Proposed  Acquisition   Target),   such  Proposed
Acquisition and all other Permitted Acquisitions  consummated on or prior to the
date  of  the  consummation  of  such  Proposed  Acquisition  shall  not  exceed
$30,000,000, (b) the Administrative Agent shall have received reasonable advance
notice of such Proposed Acquisition  including a reasonably detailed description
thereof at least 30 days prior to the consummation of such Proposed  Acquisition
(or such  later  date as may be agreed by the  Administrative  Agent)  and on or
prior to the date of such Proposed  Acquisition,  the Administrative Agent shall
have  received  copies of the  acquisition  agreement  and  related  Contractual
Obligations and other documents (including  financial  information and analysis,
environmental assessments and reports, opinions, certificates and lien searches)
and information  reasonably  requested by the Administrative Agent and (c) as of
the date of consummation of any transaction as part of such Proposed Acquisition
and after  giving  effect to all  transactions  to occur on such date as part of
such  Proposed  Acquisition,  all  conditions  set forth in Section 4.2 shall be
satisfied or duly waived and, after giving effect to such Permitted Acquisition,
Holdings  shall be in  compliance  with the  financial  covenants  set  forth in
Section 6 on a pro forma basis as of the last day of the last fiscal quarter for
which financial statements have been delivered hereunder.

                   "PERMITTED INVESTORS": the collective reference to (i) Jon E.
Nix, (ii) the spouse,  parents,  siblings,  descendants  (including  children or
grandchildren  by adoption)  of Jon E. Nix or such spouse or siblings,  (iii) in
the event of the  incompetence  or death of any of the  Persons  referred  to in
clauses (i) or (ii), such Person's estate, executor, administrator, committee or
other personal  representative,  in each case who at any  particular  date shall
"beneficially  own" (as defined in Rules 13d-s and 13d-5 of the Exchange Act) or
have the right to acquire directly or indirectly, voting stock of Holdings, (iv)
any trusts or  foundations  created  for the sole  benefit of any of the Persons
referred to in clauses (i) through  (iii) above or any trust or  foundation  for
the benefit of such trust or foundation,  (v) any Person of which one or more of
the Persons  referred to in clauses (i) through (iv) above  "beneficially  owns"
(as defined in Rules  13d-3 and 13-d5 of the  Exchange  Act) on a fully  diluted
basis all of the voting  stock of such Person or is the sole  trustee or general
partner,  or otherwise  has the sole power to manage the business and affairs of
such Person or (vi) any  Affiliate of any of the Persons  referred to in clauses
(i) through (v) above, provided that in the case of this clause (vi), Jon E. Nix
shall, in the aggregate with any such Affiliate,  continue to "beneficially own"
(as defined in Rules  13d-3 and 13d-5 of the  Exchange  Act) on a fully  diluted
basis at least the same  percentage of the voting stock of Holdings as are owned
by him on the Closing Date.

                  "PERMITTED REFINANCING INDEBTEDNESS":  any Indebtedness of any
Loan Party  incurred or issued in exchange for, or the net proceeds of which are
used  to  renew,  refund,   refinance,   replace,  defease  or  discharge  other

                                       15
<PAGE>

Indebtedness  of  any  Loan  Parties  (other  than  intercompany  Indebtedness);
PROVIDED that (a) the principal  amount (or accreted  value,  if  applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted  value,  if  applicable)  of  the   Indebtedness   renewed,   refunded,
refinanced,  replaced,  defeased or discharged (plus all accrued interest on the
Indebtedness  and the  amount  of all  fees  and  expenses,  including  premiums
incurred in connection therewith),  (b) such Permitted Refinancing  Indebtedness
has a final  maturity  date  later  than the final  maturity  date of, and has a
Weighted  Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity  of, the  Indebtedness  being  renewed,  refunded,  refinanced,
replaced,  defeased  or  discharged,  (c) if  the  Indebtedness  being  renewed,
refunded refinanced,  replaced,  defeased or discharged is subordinated in right
of payment of the  Obligations,  such Permitted  Refinancing  Indebtedness has a
final maturity date later than the final  maturity date of, and is  subordinated
in right of payment to, the  Obligations  on terms at least as  favorable to the
Lenders as those contained in the documentation governing the Indebtedness being
renewed, refunded,  refinanced,  replaced,  defeased or discharged, and (d) such
Indebtedness is incurred by a Loan Party who is the obligor on the  Indebtedness
being renewed, refunded, refinanced, replaced, defeased or discharged.

                  "PERSON":  an individual,  partnership,  corporation,  limited
liability company,  business trust, joint stock company,  trust,  unincorporated
association,  joint venture,  Governmental Authority or other entity of whatever
nature.

                  "PLAN":  at a particular  time, any employee benefit plan that
is  covered  by  ERISA  and in  respect  of which  the  Borrower  or a  Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an  "employer" as defined in Section 3(5)
of ERISA.

                  "PRO FORMA BALANCE SHEET":  as defined in Section 3.1(a).

                  "PROJECTIONS":  as defined in Section 5.2(c).

                  "PROPERTY":  any right or  interest  in or to  property of any
kind  whatsoever,  whether  real,  personal  or mixed and  whether  tangible  or
intangible, including, without limitation, Capital Stock.

                  "PROPOSED  ACQUISITION":  (a) any proposed acquisition that is
consensual  and approved by the board of directors of such Proposed  Acquisition
Target,  of all or  substantially  all of the  assets  or  Capital  Stock of any
Proposed  Acquisition  Target by the Borrower or any  Subsidiary of the Borrower
(or by  Holdings  to the extent  such  assets and Stock are  transferred  to the
Borrower  or  any  Subsidiary  of  the  Borrower   contemporaneously  with  such
acquisition) or (b) any proposed merger of any Proposed  Acquisition Target with
or into the Borrower or any  Subsidiary  of the Borrower  (and, in the case of a
merger with the Borrower, with the Borrower being the surviving corporation).

                  "PROPOSED  ACQUISITION  TARGET": any Person or any brand, line
of business, division, branch, operating division or other unit operation of any
Person.

                                       16
<PAGE>

                  "PURCHASE  PRICE REFUND":  any amount  received by Holdings or
any  Subsidiary as a result of a purchase  price  adjustment or similar event in
connection with any acquisition of Property by Holdings or any Subsidiary.

                  "QUALIFIED COUNTERPARTY":  with respect to any Specified Hedge
Agreement,  any  counterparty  thereto  that, at the time such  Specified  Hedge
Agreement was entered into, was a Lender or an affiliate of a Lender.

                  "RECOVERY  EVENT":  any settlement of or payment in respect of
any property or casualty insurance claim or any condemnation proceeding relating
to any asset of Holdings or any of its Subsidiaries.

                  "REINVESTMENT   DEFERRED   AMOUNT":   with   respect   to  any
Reinvestment  Event, the aggregate Net Cash Proceeds  received by Holdings,  the
Borrower or any of its Subsidiaries in connection therewith that are not applied
to prepay the Term Loans  pursuant to Section 2.6(b) as a result of the delivery
of a Reinvestment Notice.

                  "REINVESTMENT  EVENT":  any Asset  Sale or  Recovery  Event in
respect of which the Borrower has delivered a Reinvestment Notice.

                  "REINVESTMENT   NOTICE":   a  written  notice  executed  by  a
Responsible Officer stating that no Default or Event of Default has occurred and
is  continuing  and  that  the  Borrower   (directly  or  indirectly  through  a
Subsidiary)  intends and  expects to use all or a  specified  portion of the Net
Cash Proceeds of an Asset Sale or Recovery Event to acquire assets useful in its
business.

                  "REINVESTMENT   PREPAYMENT   AMOUNT":   with  respect  to  any
Reinvestment  Event, the Reinvestment  Deferred Amount relating thereto LESS any
amount  expended prior to the relevant  Reinvestment  Prepayment Date to acquire
assets useful in the Borrower's business.

                  "REINVESTMENT   PREPAYMENT   DATE":   with   respect   to  any
Reinvestment  Event,  the earlier of (a) the date  occurring 180 days after such
Reinvestment  Event and (b) the date on which the Borrower shall have determined
not to,  or shall  have  otherwise  ceased  to,  acquire  assets  useful  in the
Borrower's  business  with  all or any  portion  of  the  relevant  Reinvestment
Deferred Amount.

                  "REGISTER":  as defined in Section 9.6(d).

                  "REGULATION  H":  Regulation  H of the Board as in effect from
time to time.

                  "REGULATION  U":  Regulation  U of the Board as in effect from
time to time.

                  "RELATED FUND": with respect to any Lender,  any fund that (x)
invests in commercial loans and (y) is managed or advised by the same investment
advisor as such Lender, by such Lender or an Affiliate of such Lender.

                  "REORGANIZATION":  with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.

                                       17
<PAGE>

                  "REPORTABLE  EVENT":  any of the  events  set forth in Section
4043(c)  of ERISA,  other  than  those  events as to which the thirty day notice
period is waived under  subsections  .27, .28, .29, .30, .31, .32, .34 or .35 of
PBGC Reg. ss. 4043.

                  "REQUIRED LENDERS":  at any time, the Administrative Agent and
the holders of more than 50% of (a) until the Delayed Draw  Funding  Termination
Date, the aggregate  amount of Term Loans and outstanding  Term Loan Commitments
and (b) thereafter, the sum of the aggregate unpaid principal amount of the Term
Loans then outstanding.

                  "REQUIREMENT  OF LAW": as to any Person,  the  Certificate  of
Incorporation and By-Laws or other organizational or governing documents of such
Person,  and  any  law,  treaty,  rule  or  regulation  or  determination  of an
arbitrator or a court or other Governmental  Authority,  in each case applicable
to or binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.

                  "RESPONSIBLE OFFICER": the chief executive officer,  president
or chief financial  officer of the Borrower,  but in any event,  with respect to
financial matters, the chief financial officer of the Borrower.

                  "RESTRICTED PAYMENTS":  as defined in Section 6.6.

                  "SEC":  the Securities and Exchange  Commission (or successors
thereto or an analogous Governmental Authority).

                  "SECURED PARTIES":  as defined in the Security Agreement.

                  "SECURITY  AGREEMENT":  the Security  Agreement to be executed
and  delivered  by  Holdings,   the  Borrower  and  each  Subsidiary  Guarantor,
substantially in the form of Exhibit A, as the same may be amended, supplemented
or otherwise modified from time to time.

                  "SECURITY DOCUMENTS": the collective reference to the Security
Agreement,  the Intercreditor  Agreement,  any Control Agreement, the Mortgages,
the Intellectual  Property Security  Agreement and all other security  documents
hereafter delivered to the Administrative  Agent granting a Lien on any Property
of any Person to secure the  obligations and liabilities of any Loan Party under
any Loan Document.

                  "SENIOR SECURED  INDENTURE":  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.

                  "SENIOR SECURED NOTE DOCUMENTS": the Senior Secured Indenture,
the Senior  Secured  Notes,  and each other  agreement or document  executed and
delivered in connection therewith or pursuant to any of the foregoing.

                  "SENIOR SECURED NOTES":  the 10.5% senior secured notes issued
by Holdings pursuant to the Senior Secured Indenture.

                                       18
<PAGE>

                  "SINGLE  EMPLOYER PLAN":  any Plan that is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.

                  "SOFTWARE":  any and all computer programs,  including any and
all software implementations of algorithms, models and methodologies, whether in
source code or object code;  databases and  compilations,  including any and all
data  and  collections  of  data,   whether   machine   readable  or  otherwise;
descriptions,  flow-charts and other work product used to design, plan, organize
and develop any of the foregoing,  screens,  user  interfaces,  report  formats,
firmware,  development  tools,  templates,  menus,  buttons  and icons;  and all
documentation including user manuals and other training documentation related to
any of the foregoing.

                  "SOLVENT":  with  respect  to any  Person,  as of any  date of
determination, (a) the amount of the "present fair saleable value" of the assets
of such Person will, as of such date,  exceed the amount of all  "liabilities of
such Person, contingent or otherwise", as of such date, as such quoted terms are
determined  in  accordance  with  applicable  federal  and state laws  governing
determinations of the insolvency of debtors, (b) the present fair saleable value
of the assets of such Person will,  as of such date,  be greater than the amount
that will be required to pay the  liability  of such Person on its debts as such
debts become  absolute and  matured,  (c) such Person will not have,  as of such
date,  an  unreasonably  small  amount of  capital  with  which to  conduct  its
business,  and (d) such Person will be able to pay its debts as they mature. For
purposes of this definition,  (i) "debt" means liability on a "claim",  and (ii)
"claim"  means any (x) right to payment,  whether or not such a right is reduced
to judgment, liquidated,  unliquidated,  fixed, contingent,  matured, unmatured,
disputed,  undisputed, legal, equitable, secured or unsecured or (y) right to an
equitable  remedy for breach of performance if such breach gives rise to a right
to  payment,  whether  or not such  right to an  equitable  remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.

                  "SPECIFIED HEDGE AGREEMENT":  any Hedge Agreement entered into
by the Borrower or any Subsidiary Guarantor and any Qualified Counterparty.

                  "S&P":  Standard & Poor's Rating Services.

                  "SUBSIDIARY":  as to any Person,  a corporation,  partnership,
limited  liability  company  or other  entity of which  shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership  interests  having  such  power only by reason of the  happening  of a
contingency)  to elect a majority of the board of directors or other managers of
such  corporation,  partnership  or other  entity are at the time owned,  or the
management of which is otherwise controlled,  directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to  "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.

                  "SUBSIDIARY GUARANTOR": each Subsidiary of Holdings other than
any Excluded Foreign Subsidiary.

                  "TERM LOAN":  as defined in Section 2.1.

                                       19
<PAGE>

                  "TERM LOAN  COMMITMENT":  as to any Lender,  the obligation of
such  Lender,  if  any,  to  make a Term  Loan to the  Borrower  hereunder  in a
principal amount not to exceed the amount set forth under the heading "Term Loan
Commitment"  opposite such  Lender's name on Schedule I hereto,  or, as the case
may be, in the Assignment and Acceptance  pursuant to which such Lender became a
party hereto, as the same may be changed from time to time pursuant to the terms
hereof.   The  original  aggregate  amount  of  the  Term  Loan  Commitments  is
$10,000,000.

                  "TERM LOAN FACILITY":  the Term Loan  Commitments and the Term
Loans made hereunder.

                  "TERM  LOAN  PERCENTAGE":  as to any  Lender at any time,  the
percentage  which such Lender's Term Loan  Commitment  then  constitutes  of the
aggregate Term Loan  Commitments (or, at any time after the Delayed Draw Funding
Termination  Date, the percentage  which the aggregate  principal amount of such
Lender's Term Loans then  outstanding  constitutes  of the  aggregate  principal
amount of the Term Loans then outstanding).

                  "TERM NOTE":  as defined in Section 2.4(e).

                  "TRANSFEREE":  as defined in Section 9.14.

                  "TYPE": as to any Term Loan, its nature as a Base Rate Loan or
a Eurodollar Loan.

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

                  "WEIGHTED  AVERAGE  LIFE TO  MATURITY":  when  applied  to any
Indebtedness  at any date,  the number of years obtained by dividing (x) the sum
of the products  obtained by  multiplying  (a) the amount of each then remaining
installment,  sinking  fund,  serial  maturity  or other  required  payments  of
principal,  including payment at final maturity, in respect of the Indebtedness,
by (b) the number of years  (calculated  to the nearest  one-twelfth)  that will
elapse  between  such  date  and the  making  of such  payment;  by (y) the then
outstanding principal amount of such Indebtedness.

         1.2      OTHER DEFINITIONAL PROVISIONS.  (a) Unless otherwise specified
therein,  all terms defined in this  Agreement  shall have the defined  meanings
when used in the other Loan Documents or any  certificate or other document made
or delivered pursuant hereto or thereto.

         (b)      As  used  herein  and in the  other  Loan  Documents,  and any
                  certificate  or  other  document  made or  delivered  pursuant
                  hereto or thereto,  accounting terms relating to Holdings, the
                  Borrower  and their  respective  Subsidiaries  not  defined in
                  Section 1.1 and  accounting  terms  partly  defined in Section
                  1.1,  to the extent  not  defined,  shall have the  respective
                  meanings given to them under GAAP.

         (c)      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 Section,  Schedule and Exhibit references
                  are to this Agreement unless otherwise specified.

                                       20
<PAGE>

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

         (e)      All  calculations of financial ratios set forth in Section 6.1
                  shall be  calculated  to the same number of decimal  places as
                  the  relevant  ratios  are  expressed  in and shall be rounded
                  upward  if  the  number  in  the  decimal  place   immediately
                  following  the  last  calculated  decimal  place  is  five  or
                  greater.   For  example,  if  the  relevant  ratio  is  to  be
                  calculated to the hundredth  decimal place and the calculation
                  of the ratio is 5.126, the ratio will be rounded up to 5.13.

         (f)      Unless the context  requires  otherwise,  any definition of or
                  reference to any agreement, instrument or other document shall
                  be construed as referring  to such  agreement,  instrument  or
                  other document as from time to time amended,  supplemented  or
                  otherwise  modified  (subject  to  any  restrictions  on  such
                  amendments,  supplements or modifications  set forth herein or
                  in any other Loan Document).

                   SECTION 2. AMOUNT AND TERMS OF COMMITMENTS

         2.1      TERM LOAN  COMMITMENTS.  Subject  to the terms and  conditions
hereof,  the Lenders severally agree to make term loans (each, a "TERM LOAN") to
the Borrower (a) on the Closing Date in an aggregate  amount equal to $5,000,000
and (b) on each  Delayed  Draw  Funding  Date,  in an  aggregate  amount for all
Delayed Draw Funding Dates,  not to exceed  $5,000,000 (each such Term Loan made
on any Delayed Draw Funding Date, a "DELAYED DRAW TERM Loan"). Each Lender shall
be obligated to make Term Loans pursuant to the preceding  sentence in an amount
not to exceed the amount of the Term Loan  Commitment  of such Lender.  The Term
Loans  may  from  time to time be  Eurodollar  Loans  or  Base  Rate  Loans,  as
determined  by  the  Borrower  and  notified  to  the  Administrative  Agent  in
accordance with SectionS 2.2 and 2.7.

         2.2      PROCEDURE FOR TERM LOAN BORROWING. (a) TERM LOAN DISBURSEMENT;
CLOSING  DATE.  With respect to the initial Term Loans to be made on the Closing
Date, the Borrower shall deliver to the Administrative  Agent a Borrowing Notice
(which  Borrowing Notice must be received by the  Administrative  Agent prior to
10:00  A.M.,  New York City time,  two  Business  Days prior to the  anticipated
Closing Date)  requesting  that the Lenders make Term Loans on the Closing Date.
The Term Loans made on the Closing  Date shall  initially be  Eurodollar  Loans.
Upon receipt of such Borrowing  Notice the  Administrative  Agent shall promptly
notify each Lender thereof. On the Closing Date each Lender shall make available
to the  Borrower at an account  designated  by the  Borrower  in such  Borrowing
Notice, an amount in immediately  available funds equal to the Term Loan or Term
Loans to be made by such Lender.

         (b)      TERM  LOAN  DISBURSEMENT;   DELAYED  DRAW  FUNDING  DATE.  The
                  Borrower shall deliver to the Administrative Agent a Borrowing
                  Notice  (which  Borrowing  Notice  must  be  received  by  the
                  Administrative  Agent prior to 10:00 A.M., New York City time,
                  ten (10) Business Days prior to any  anticipated  Delayed Draw
                  Funding Date)  requesting  that the Lenders make Term Loans on

                                       21
<PAGE>

                  such Delayed Draw Funding Date,  PROVIDED,  HOWEVER,  that (i)
                  the  Borrower  shall only be permitted to borrow Term Loans on
                  up to two (2)  occasions  after the  Closing  Date and (ii) no
                  Term Loans may be  borrowed  after the  Delayed  Draw  Funding
                  Termination  Date.  Each  borrowing  on a Delayed Draw Funding
                  Date shall be in an amount equal to at least  $2,000,000.  The
                  Term  Loans  made  on any  Delayed  Draw  Funding  Date  shall
                  initially be Eurodollar  Loans. Upon receipt of such Borrowing
                  Notice the  Administrative  Agent shall  promptly  notify each
                  Lender  thereof.  On the applicable  Delayed Draw Funding Date
                  each Lender shall make available to the Borrower at an account
                  designated by the Borrower in such Borrowing Notice, an amount
                  in immediately  available funds equal to the Term Loan or Term
                  Loans to be made by such Lender.

         2.3      REPAYMENT  OF TERM LOANS.  The Term Loans shall  mature on the
Maturity Date.

         2.4      REPAYMENT  OF TERM LOANS;  EVIDENCE OF DEBT.  (a) The Borrower
hereby  unconditionally  promises  to pay to the  Administrative  Agent  for the
account of each Lender the principal  amount of each Term Loan of such Lender on
the  Maturity  Date (or on such  earlier date on which the Term Loans become due
and payable  pursuant to Section 7). The Borrower  hereby  further agrees to pay
interest  on the  unpaid  principal  amount of the Term  Loans from time to time
outstanding  from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in Section 2.9.

         (b)      Each  Lender  shall  maintain  in  accordance  with its  usual
                  practice an account or accounts evidencing indebtedness of the
                  Borrower to such Lender  resulting from each Term Loan of such
                  Lender from time to time,  including  the amounts of principal
                  and interest payable and paid to such Lender from time to time
                  under this Agreement.

         (c)      The  Administrative  Agent,  on behalf of the Borrower,  shall
                  maintain  the  Register  pursuant  to  Section  9.6(d),  and a
                  subaccount therein for each Lender, in which shall be recorded
                  (i) the amount of each Term Loan made  hereunder  and any Term
                  Note evidencing such Term Loan, the Type of such Term Loan and
                  each Interest Period  applicable  thereto,  (ii) the amount of
                  any principal or interest due and payable or to become due and
                  payable from the Borrower to each Lender  hereunder  and (iii)
                  both the  amount  of any sum  received  by the  Administrative
                  Agent  hereunder  from the  Borrower and each  Lender's  share
                  thereof.

         (d)      The  entries  made in the  Register  and the  accounts of each
                  Lender  maintained  pursuant to Section  2.4(b) shall,  to the
                  extent permitted by applicable law, be PRIMA FACIE evidence of
                  the existence and amounts of the  obligations  of the Borrower
                  therein recorded;  PROVIDED,  HOWEVER, that the failure of any
                  Lender or the Administrative Agent to maintain the Register or
                  any such  account,  or any  error  therein,  shall  not in any
                  manner  affect the  obligation  of the Borrower to repay (with
                  applicable  interest)  the Term Loans made to the  Borrower by
                  such Lender in accordance with the terms of this Agreement.

         (e)      The   Borrower   agrees   that,   upon  the   request  to  the
                  Administrative Agent by any Lender, the Borrower will promptly
                  execute and deliver to such  Lender a  promissory  note of the
                  Borrower   evidencing   any  Term   Loans   of  such   Lender,
                  substantially  in the form of Exhibit E (a "TERM NOTE"),  with
                  appropriate  insertions  as  to  date  and  principal  amount;

                                       22
<PAGE>

                  PROVIDED, that delivery of Term Notes shall not be a condition
                  precedent to the  occurrence of the Closing Date or the making
                  of the Term  Loans on the  Closing  Date or any  Delayed  Draw
                  Funding Date.

         (f)      FEES. The Borrower agrees to pay to the  Administrative  Agent
                  the fees in the  amounts and on the dates set forth in the Fee
                  Letter,  including  without  limitation,  a ticking fee on the
                  unfunded Term Loan  Commitment,  and as otherwise from time to
                  time   agreed  to  in   writing  by  the   Borrower   and  the
                  Administrative Agent.

         2.5      OPTIONAL  PREPAYMENTS.  (a) The  Borrower  may at any time and
from time to time prepay the Term Loans, in whole or in part, without premium or
penalty (except as otherwise provided herein), upon irrevocable notice delivered
to the  Administrative  Agent at least five  Business  Days prior thereto in the
case of Eurodollar  Loans and at least three  Business Days prior thereto in the
case of Base Rate Loans,  which notice shall specify the date and amount of such
prepayment,  whether such prepayment is of Eurodollar  Loans or Base Rate Loans;
PROVIDED,  that if a  Eurodollar  Loan is prepaid on any day other than the last
day of the Interest Period applicable  thereto,  the Borrower shall also pay any
amounts  owing  pursuant to Section  2.15.  Upon  receipt of any such notice the
Administrative  Agent shall promptly notify each relevant Lender thereof. If any
such  notice is given,  the amount  specified  in such  notice  shall be due and
payable on the date specified  therein,  together with accrued  interest to such
date on the amount  prepaid.  Partial  prepayments  of Term Loans shall be in an
aggregate principal amount of $1,000,000 or a whole multiple thereof.

         (b)      Each optional prepayment in respect of the Term Loans shall be
                  accompanied  by a  prepayment  premium  equal  to (i) if  such
                  prepayment  is made  prior  to the  first  anniversary  of the
                  Closing Date, 5.00% of the principal amount of such prepayment
                  and  (ii) if such  prepayment  is made on or after  the  first
                  anniversary  of the  Closing  Date  and  prior  to the  second
                  anniversary of the Closing Date, 2.00% of the principal amount
                  of such  prepayment and (iii) if such prepayment is made on or
                  after the second  anniversary of the Closing Date and prior to
                  the  third  anniversary  of the  Closing  Date,  1.00%  of the
                  principal  amount of such  prepayment.  Any  prepayment of the
                  Term Loans upon the refinancing thereof (whether with proceeds
                  of equity or  Indebtedness) or upon the occurrence of a Change
                  of Control shall be deemed to be an optional prepayment.

         2.6      MANDATORY PREPAYMENTS AND TERM LOAN COMMITMENT REDUCTIONS. (a)
Unless the Required Lenders shall otherwise agree, if any Capital Stock shall be
issued by the Borrower or any of Holdings' Subsidiaries (to the extent permitted
by Section 6.5), or if any Indebtedness is incurred by Holdings, the Borrower or
any of  their  respective  Subsidiaries,  then on the date of such  issuance  or
incurrence,  the Term Loans shall be prepaid by an amount equal to the amount of
the Net Cash  Proceeds of such issuance or  incurrence,  as set forth in Section
2.12(e).  The  provisions  of this  Section do not  constitute  a consent to the
issuance of any equity  securities  by any entity  whose equity  securities  are
pledged  pursuant to the Security  Agreement,  or a consent to the incurrence of
any  Indebtedness  by  Holdings,   the  Borrower  or  any  of  their  respective
Subsidiaries.

         (b)      Unless the Required  Lenders shall otherwise  agree, if on any
                  date  Holdings,  the  Borrower  or  any  of  their  respective
                  Subsidiaries  shall  receive Net Cash  Proceeds from any Asset
                  Sale,  Purchase Price Refund or Recovery Event then,  unless a

                                       23
<PAGE>

                  Reinvestment  Notice shall be delivered in respect thereof, on
                  the date of receipt by Holdings,  the Borrower or any of their
                  respective  Subsidiaries  of such Net Cash Proceeds,  the Term
                  Loans  shall be  prepaid  by an amount  equal to the amount of
                  such Net Cash  Proceeds,  as set  forth  in  Section  2.12(e);
                  PROVIDED,   that,   notwithstanding  the  foregoing,  (i)  the
                  aggregate Net Cash Proceeds of Asset Sales and Recovery Events
                  that may be excluded from the foregoing  requirement  pursuant
                  to a  Reinvestment  Notice  shall not exceed  $500,000  in any
                  fiscal  year  of  Holdings  and  (ii)  on  each   Reinvestment
                  Prepayment  Date the Term Loans  shall be prepaid by an amount
                  equal to the  Reinvestment  Prepayment  Amount with respect to
                  the  relevant  Reinvestment  Event,  as set  forth in  Section
                  2.12(e).  The  provisions of this Section do not  constitute a
                  consent to the  consummation  of any Disposition not permitted
                  by Section 6.5.

         (c)      Unless the Required Lenders shall otherwise agree, if, for any
                  fiscal year of Holdings  commencing on the second  anniversary
                  of the Closing Date, there shall be Excess Cash Flow, then, on
                  the relevant Excess Cash Flow Application Date, the Term Loans
                  shall be prepaid in an amount equal to the ECF  Percentage  of
                  such Excess Cash Flow. Each such prepayment shall be made on a
                  date (an "EXCESS  CASH FLOW  APPLICATION  DATE") no later than
                  five  days  after  the  earlier  of (i) the date on which  the
                  financial  statements  of  Holdings  referred  to  in  Section
                  5.1(a),  for the  fiscal  year  with  respect  to  which  such
                  prepayment  is  made,  are  required  to be  delivered  to the
                  Lenders  and (ii)  the  date  such  financial  statements  are
                  actually delivered.

         (d)      Mandatory  prepayments  pursuant to this  Section 2.6 shall be
                  without  premium or penalty,  except that if a Eurodollar Loan
                  is prepaid on any day other than the last day of the  Interest
                  Period  applicable  thereto,  the Borrower  shall also pay any
                  amounts owing pursuant to Section 2.15.

         2.7      CONVERSION  AND  CONTINUATION  OPTIONS.  (a) The  Borrower may
elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving
the Administrative  Agent at least three Business Days' prior irrevocable notice
of such election,  PROVIDED that any such conversion of Eurodollar  Loans may be
made  only on the last day of an  Interest  Period  with  respect  thereto.  The
Borrower  may elect from time to time to convert  Base Rate Loans to  Eurodollar
Loans by giving the  Administrative  Agent at least three  Business  Days' prior
irrevocable  notice of such  election  (which notice shall specify the length of
the initial Interest Period therefor), PROVIDED that no Base Rate Loan under the
Term Loan Facility may be converted into a Eurodollar Loan (i) when any Event of
Default has occurred and is continuing and the Administrative  Agent has, or the
Required Lenders in respect of the Term Loan Facility have, determined in its or
their sole discretion not to permit such conversions or (ii) after the date that
is one month prior to the final  scheduled  termination  or maturity date of the
Term Loan  Facility.  Upon receipt of any such notice the  Administrative  Agent
shall promptly notify each relevant Lender thereof.

         (b)      The Borrower may elect to continue any Eurodollar Loan as such
                  upon the expiration of the then current  Interest  Period with
                  respect   thereto   by  giving   irrevocable   notice  to  the
                  Administrative   Agent,  in  accordance  with  the  applicable
                  provisions of the term "Interest  Period" set forth in Section
                  1.1,  of  the  length  of  the  next  Interest  Period  to  be
                  applicable  to such Term Loans,  PROVIDED  that no  Eurodollar
                  Loan under the Term Loan Facility may be continued as such (i)
                  when any Event of Default has occurred and is  continuing  and
                  the  Administrative  Agent  has,  or the  Required  Lenders in
                  respect of the Term Loan Facility  have,  determined in its or

                                       24
<PAGE>

                  their sole discretion not to permit such continuations or (ii)
                  after the date that is one month prior to the final  scheduled
                  termination  or maturity date of the Term Loan  Facility,  and
                  PROVIDED, FURTHER, that if the Borrower shall fail to give any
                  required  notice as  described  above in this  paragraph or if
                  such  continuation is not permitted  pursuant to the preceding
                  proviso,  such Term Loans shall be converted  automatically to
                  Base Rate Loans on the last day of such then expiring Interest
                  Period.  Upon  receipt of any such  notice the  Administrative
                  Agent shall promptly notify each relevant Lender thereof.

         2.8      MINIMUM  AMOUNTS AND MAXIMUM  NUMBER OF  EURODOLLAR  TRANCHES.
Notwithstanding  anything to the  contrary in this  Agreement,  all  borrowings,
conversions,  continuations and optional prepayments of Eurodollar Loans and all
selections of Interest  Periods shall be in such amounts and be made pursuant to
such elections so that, (a) after giving effect thereto, the aggregate principal
amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal
to $1,000,000 or a whole  multiple of $500,000 in excess thereof and (b) no more
than three (3) Eurodollar Tranches shall be outstanding at any one time.

         2.9      INTEREST RATES AND PAYMENT  DATES.  (a) Each  Eurodollar  Loan
shall bear  interest  for each day during  each  Interest  Period  with  respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin in effect for such day.

         (b)      Each Base Rate Loan shall bear  interest for each day on which
                  it is  outstanding  at a rate per annum equal to the Base Rate
                  in effect  for such day plus the  Applicable  Margin in effect
                  for such day.

         (c)      Notwithstanding  the rates of interest specified in clause (b)
                  above or elsewhere in any Loan Document, effective immediately
                  upon (A) the  occurrence  of any Event of  Default  or (B) the
                  delivery  of a  notice  by  the  Administrative  Agent  or the
                  Required Lenders to the Borrower during the continuance of any
                  other Event of Default and, in each case,  for as long as such
                  Event of Default shall be continuing, the principal balance of
                  all Obligations  (including any Obligation that bears interest
                  by reference to the rate  applicable to any other  Obligation)
                  then due and payable  shall bear interest at a rate that is 2%
                  per annum in excess of the interest  rate  applicable  to such
                  Obligations  from time to time,  payable  on demand or, in the
                  absence  of  demand,  on the  date  that  would  otherwise  be
                  applicable.

         (d)      Interest shall be payable in arrears on each Interest  Payment
                  Date,  PROVIDED that interest  accruing  pursuant to paragraph
                  (c) of this  Section  shall be  payable  from  time to time on
                  demand.

         (e)      Notwithstanding  anything  to the  contrary  set forth in this
                  Section 2.9, if a court of competent  jurisdiction  determines
                  in a final order that the rate of interest  payable  hereunder
                  exceeds the highest  rate of  interest  permissible  under law
                  (the  "MAXIMUM  LAWFUL  RATE"),  then so  long as the  Maximum
                  Lawful Rate would be so exceeded, the rate of interest payable
                  hereunder shall be equal to the Maximum Lawful Rate; PROVIDED,
                  HOWEVER,  that if at any time  thereafter the rate of interest
                  payable  hereunder is less than the Maximum  Lawful Rate,  the
                  Borrower  shall  continue  to pay  interest  hereunder  at the
                  Maximum  Lawful  Rate  until  such time as the total  interest
                  received by the Lenders is equal to the total  interest  which
                  would  have  been  received  had  the  interest  rate  payable
                  hereunder  been (but for the operation of this  paragraph) the

                                       25
<PAGE>

                  interest  rate  payable  since the Closing  Date as  otherwise
                  provided in this  Agreement.  Thereafter,  interest  hereunder
                  shall  be  paid  at the  rate of  interest  and in the  manner
                  provided  in  this  Section,  unless  and  until  the  rate of
                  interest  again exceeds the Maximum  Lawful Rate,  and at that
                  time this paragraph  shall again apply.  In no event shall the
                  total interest  received by the Lenders  pursuant to the terms
                  hereof exceed the amount which the Lenders could lawfully have
                  received had the interest due hereunder  been  calculated  for
                  the  full  term  hereof  at  the  Maximum   Lawful  Rate.  If,
                  notwithstanding the provisions of this Section 2.9(e), a court
                  of competent  jurisdiction  shall finally  determine  that the
                  Lenders  have  received  interest  hereunder  in excess of the
                  Maximum  Lawful Rate,  the Lenders  shall refund any excess to
                  Borrower or as a court of competent jurisdiction may otherwise
                  order.

         2.10     COMPUTATION  OF  INTEREST  AND FEES.  (a)  Interest,  fees and
commissions  payable  pursuant  hereto  shall be  calculated  on the  basis of a
360-day year for the actual days elapsed, except that, with respect to Base Rate
Loans on which  interest  is  calculated  on the  basis of the Prime  Rate,  the
interest  thereon  shall be  calculated  on the basis of a 365- (or 366-, as the
case may be) day year for the actual  days  elapsed.  The  Administrative  Agent
shall as soon as  practicable  notify the Borrower  and the relevant  Lenders of
each  determination  of a Eurodollar  Rate. Any change in the interest rate on a
Term Loan resulting from a change in the Base Rate or the  Eurocurrency  Reserve
Requirements  shall become effective as of the opening of business on the day on
which such change becomes effective.  The Administrative  Agent shall as soon as
practicable  notify the Borrower and the relevant  Lenders of the effective date
and the amount of each such change in interest rate.

         (b)      Each  determination of an interest rate by the  Administrative
                  Agent  pursuant to any  provision of this  Agreement  shall be
                  conclusive  and binding on the Borrower and the Lenders in the
                  absence of manifest error. The Administrative  Agent shall, at
                  the  request  of  the  Borrower,  deliver  to the  Borrower  a
                  statement  showing the quotations  used by the  Administrative
                  Agent in  determining  any interest  rate  pursuant to Section
                  2.10(a).

         2.11     INABILITY TO DETERMINE  INTEREST  RATE.  If prior to the first
day of any Interest Period:

         (a)      the  Administrative  Agent shall have determined in good faith
                  (which  determination shall be conclusive and binding upon the
                  Borrower)  that,  by reason  of  circumstances  affecting  the
                  relevant  market,  adequate and reasonable  means do not exist
                  for ascertaining the Eurodollar Rate for such Interest Period,
                  or

         (b)      the  Administrative  Agent shall have received notice from the
                  Required Lenders that such Required Lenders have determined in
                  good  faith  that  the  Eurodollar  Rate  determined  or to be
                  determined  for such Interest  Period will not  adequately and
                  fairly  reflect  the  cost to such  Lenders  (as  conclusively
                  certified  by such  Lenders)  of making or  maintaining  their
                  affected Term Loans during such Interest Period,

the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant  Lenders as soon as  practicable  thereafter.  If such
notice is given (x) any Eurodollar Loans under the Term Loan Facility  requested
to be made on the first day of such  Interest  Period shall be made as Base Rate
Loans,  (y) any Term Loans under the Term Loan  Facility  that were to have been

                                       26
<PAGE>

converted on the first day of such Interest Period to Eurodollar  Loans shall be
continued as Base Rate Loans and (z) any outstanding  Eurodollar Loans under the
Term  Loan  Facility  shall be  converted,  on the last day of the then  current
Interest Period with respect thereto,  to Base Rate Loans. Until such notice has
been withdrawn by the  Administrative  Agent, no further  Eurodollar Loans under
the Term  Loan  Facility  shall be made or  continued  as such,  nor  shall  the
Borrower  have the right to convert  Term Loans under the Term Loan  Facility to
Eurodollar Loans.

         2.12     PRO RATA  TREATMENT  AND PAYMENTS.  (a) Each  borrowing by the
Borrower  from  the  Lenders  hereunder  and  any  reduction  of the  Term  Loan
Commitments  of the Lenders,  shall be made PRO RATA according to the respective
Term Loan Percentages of the relevant Lenders.

         (b)      Each  payment   (including   each   optional   and   mandatory
                  prepayment) of the Term Loans  outstanding under the Term Loan
                  Facility  shall be  allocated  among the Lenders  holding such
                  Term Loans PRO RATA based on the principal amount of such Term
                  Loans held by such Lenders.  Amounts prepaid on account of the
                  Term Loans may not be reborrowed.

         (c)      The  application  of any  payment of Term Loans under the Term
                  Loan Facility (including  optional and mandatory  prepayments)
                  shall be made,  FIRST,  to Base Rate Loans under the Term Loan
                  Facility and, SECOND,  to Eurodollar Loans under the Term Loan
                  Facility.  Each payment of the Loans shall be  accompanied  by
                  accrued  interest  to the date of such  payment  on the amount
                  paid.

         (d)      All payments (including optional and mandatory prepayments) to
                  be made by the  Borrower  hereunder,  whether  on  account  of
                  principal,  interest, fees or otherwise, shall be made without
                  setoff or counterclaim  and shall be made prior to 12:00 Noon,
                  New  York  City  time,   on  the  due  date   thereof  to  the
                  Administrative Agent, for the account of the relevant Lenders,
                  at the Payment Office, in Dollars and in immediately available
                  funds.  Any payment made by the Borrower after 12:00 Noon, New
                  York City time,  on any  Business  Day shall be deemed to have
                  been on the next  following  Business Day. The  Administrative
                  Agent shall  distribute such payments to the Lenders  promptly
                  upon  receipt  in  like  funds  as  received.  If any  payment
                  hereunder  (other  than  payments  on  the  Eurodollar  Loans)
                  becomes  due and  payable on a day other than a Business  Day,
                  such payment shall be extended to the next succeeding Business
                  Day.  If any  payment on a  Eurodollar  Loan  becomes  due and
                  payable  on a day other  than a  Business  Day,  the  maturity
                  thereof shall be extended to the next succeeding  Business Day
                  unless the result of such  extension  would be to extend  such
                  payment  into  another  calendar  month,  in which  event such
                  payment shall be made on the  immediately  preceding  Business
                  Day. In the case of any  extension of any payment of principal
                  pursuant to the  preceding  two  sentences,  interest  thereon
                  shall be  payable  at the then  applicable  rate  during  such
                  extension.

         (e)      (A) after the  occurrence  and  during the  continuance  of an
                  Event of Default  specified in Section  7(a) or Section  7(j),
                  (B) after the  occurrence  and  during the  continuance  of an
                  Event of Default  specified  in Section 7(i) with respect to a
                  material portion of the Collateral or (C) after the occurrence
                  and during the  continuance  of any other Event of Default not
                  specified in subclause  (A) or (B) above and the  acceleration

                                       27
<PAGE>

                  of the  Obligations  pursuant  to Section 7, all  payments  in
                  respect of the  Obligations and all proceeds of the Collateral
                  shall be applied  against  the  Obligations  in the  following
                  order:

                  (i)      FIRST, to pay incurred and unpaid fees,  expenses and
                           indemnities  of the  Administrative  Agent  under the
                           Loan Documents;

                  (ii)     SECOND,  to pay  interest  then  due and  payable  in
                           respect of the Term Loans;

                  (iii)    THIRD,  to the  prepayment  of the  Term  Loans  then
                           outstanding; and

                  (iv)     FOURTH, to pay all other Obligations.

If sufficient funds are not available to fund all payments to be made in respect
of any of the Obligations  described in any of the foregoing clauses (i) through
(iv),  the  available  funds being  applied with respect to any such  Obligation
shall be  allocated  to the payment of such  Obligations  ratably,  based on the
proportion of the  Administrative  Agent's,  Lender's or other  Secured  Party's
interest in the aggregate outstanding  Obligations described in such clause. The
order of priority set forth in clauses (i) through (iv) of this Section  2.12(e)
may at any time and from time to time be changed by the agreement of the Lenders
in the Term Loan  Facility and the  Administrative  Agent  without  necessity of
notice to or consent of or approval by the Borrower,  any other Loan Party,  any
Secured Party that is not a Lender or any other Person.

         (f)      Unless the  Administrative  Agent shall have been  notified in
                  writing by the  Borrower  prior to the date of any payment due
                  to be made by the Borrower  hereunder  that the Borrower  will
                  not  make  such  payment  to  the  Administrative  Agent,  the
                  Administrative  Agent may assume  that the  Borrower is making
                  such payment,  and the Administrative Agent may, but shall not
                  be  required  to,  in  reliance  upon  such  assumption,  make
                  available to the Lenders their respective PRO RATA shares of a
                  corresponding  amount.  If  such  payment  is not  made to the
                  Administrative  Agent by the Borrower  within  three  Business
                  Days after such due date,  the  Administrative  Agent shall be
                  entitled to recover,  on demand, from each Lender to which any
                  amount  which was made  available  pursuant  to the  preceding
                  sentence,  such amount with  interest  thereon at the rate per
                  annum equal to the daily average Federal Funds Effective Rate.
                  Nothing  herein  shall be deemed  to limit  the  rights of the
                  Administrative Agent or any Lender against the Borrower.

         2.13     REQUIREMENTS  OF LAW.  (a) If the adoption of or any change in
any  Requirement  of Law or in the  interpretation  or  application  thereof  or
compliance  by any Lender with any request or  directive  (whether or not having
the force of law) from any central  bank or other  Governmental  Authority  made
subsequent to the date hereof:

                  (i)      shall  subject  any  Lender  to any  tax of any  kind
                           whatsoever  with  respect  to this  Agreement  or any
                           Eurodollar  Loan made by it,  or change  the basis of
                           taxation  of  payments  to  such  Lender  in  respect
                           thereof  (except for  Non-Excluded  Taxes  covered by
                           Section  2.14 and  changes  in the rate of tax on the
                           overall net income of such Lender);

                                       28
<PAGE>

                  (ii)     shall impose,  modify or hold applicable any reserve,
                           special   deposit,   compulsory   loan   or   similar
                           requirement against assets held by, deposits or other
                           liabilities in or for the account of, advances, loans
                           or  other  extensions  of  credit  by,  or any  other
                           acquisition  of funds by, any  office of such  Lender
                           that is not otherwise  included in the  determination
                           of the Eurodollar Rate hereunder; or

                  (iii)    shall impose on such Lender any other condition;

and the result of any of the  foregoing  is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining  Eurodollar  Loans, or to reduce any amount receivable
hereunder  in respect  thereof,  then,  in any such  case,  the  Borrower  shall
promptly pay such Lender,  upon its demand,  any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount receivable.  If
any Lender  becomes  entitled to claim any additional  amounts  pursuant to this
Section,   it  shall   promptly   notify  the  Borrower  (with  a  copy  to  the
Administrative Agent) of the event by reason of which it has become so entitled.

         (b)      If any Lender  shall have  determined  that the adoption of or
                  any  change  in  any  Requirement  of  Law  regarding  capital
                  adequacy or in the  interpretation  or application  thereof or
                  compliance by such Lender or any corporation  controlling such
                  Lender  with  any  request  or  directive   regarding  capital
                  adequacy  (whether  or not  having  the force of law) from any
                  Governmental  Authority  made  subsequent  to the date  hereof
                  shall have the effect of  reducing  the rate of return on such
                  Lender's or such corporation's capital as a consequence of its
                  obligations  hereunder to a level below that which such Lender
                  or such corporation could have achieved but for such adoption,
                  change or compliance  (taking into consideration such Lender's
                  or  such  corporation's   policies  with  respect  to  capital
                  adequacy)  by an amount  deemed by such Lender to be material,
                  then from time to time, after submission by such Lender to the
                  Borrower  (with  a copy  to  the  Administrative  Agent)  of a
                  written  request  therefor,  the  Borrower  shall  pay to such
                  Lender such  additional  amount or amounts as will  compensate
                  such Lender or such  corporation for such reduction;  PROVIDED
                  that the Borrower shall not be required to compensate a Lender
                  pursuant to this paragraph for any amounts  incurred more than
                  six months  prior to the date that such  Lender  notifies  the
                  Borrower  of such  Lender's  intention  to claim  compensation
                  therefor;  and PROVIDED  FURTHER  that,  if the  circumstances
                  giving rise to such claim have a retroactive effect, then such
                  six month  period  shall be  extended to include the period of
                  such retroactive effect.

         (c)      A certificate as to any additional amounts payable pursuant to
                  this Section  submitted by any Lender to the Borrower  (with a
                  copy to the  Administrative  Agent) shall be conclusive in the
                  absence of manifest  error.  The  obligations  of the Borrower
                  pursuant to this Section shall survive the termination of this
                  Agreement  and the  payment  of the Term  Loans  and all other
                  amounts payable hereunder.

         (d)      Any Lender claiming any additional amounts payable pursuant to
                  Section 2.13 shall use its reasonable efforts (consistent with
                  its internal  policies and  Requirements of Law) to change the
                  jurisdiction  of its  lending  office  if such a change  would
                  reduce any such additional amounts (or any similar amount that
                  may   thereafter   accrue)   and  would   not,   in  the  sole
                  determination   of  such  Lender,   be  otherwise   materially
                  disadvantageous to such Lender.

                                       29
<PAGE>

         2.14     TAXES.  (a) All  payments  made  by the  Borrower  under  this
Agreement shall be made free and clear of, and without  deduction or withholding
for or on  account  of,  any  present or future  income,  stamp or other  taxes,
levies,  imposts,  duties,  charges,  fees,  deductions or withholdings,  now or
hereafter imposed, levied,  collected,  withheld or assessed by any Governmental
Authority,  excluding net income taxes and franchise  taxes  (imposed in lieu of
net income taxes) imposed on the Administrative  Agent or any Lender as a result
of a present  or former  connection  between  the  Administrative  Agent or such
Lender and the jurisdiction of the Governmental  Authority  imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative  Agent's or such Lender's
having  executed,  delivered or performed its  obligations or received a payment
under,  or enforced,  this  Agreement or any other Loan  Document).  If any such
non-excluded  taxes,  levies,  imposts,  duties,  charges,  fees,  deductions or
withholdings  ("NON-EXCLUDED  TAXES")  or any  Other  Taxes are  required  to be
withheld  from any  amounts  payable to the  Administrative  Agent or any Lender
hereunder,  the  amounts so payable to the  Administrative  Agent or such Lender
shall be increased to the extent necessary to yield to the Administrative  Agent
or such  Lender  (after  payment  of all  Non-Excluded  Taxes and  Other  Taxes)
interest  or any such other  amounts  payable  hereunder  at the rates or in the
amounts specified in this Agreement;  PROVIDED, HOWEVER, that the Borrower shall
not be required to increase any such amounts  payable to any Lender with respect
to any Non-Excluded  Taxes (i) that are attributable to such Lender's failure to
comply with the  requirements  of  paragraph  (d) or (e) of this Section or (ii)
that are United  States  withholding  taxes  imposed on amounts  payable to such
Lender at the time such Lender becomes a party to this Agreement,  except to the
extent  that  such  Lender's  assignor  (if  any) was  entitled,  at the time of
assignment, to receive additional amounts from the Borrower with respect to such
Non-Excluded Taxes pursuant to this paragraph (a).

         (b)      In  addition,  the  Borrower  shall pay any Other Taxes to the
                  relevant Governmental  Authority in accordance with applicable
                  law.

         (c)      Whenever any Non-Excluded  Taxes or Other Taxes are payable by
                  the Borrower,  as promptly as possible thereafter the Borrower
                  shall send to the Administrative  Agent for the account of the
                  Administrative  Agent or the relevant Lender,  as the case may
                  be, a certified copy of an original  official receipt received
                  by the Borrower showing payment thereof. If the Borrower fails
                  to pay any  Non-Excluded  Taxes or Other Taxes when due to the
                  appropriate   taxing  authority  or  fails  to  remit  to  the
                  Administrative  Agent the required  receipts or other required
                  documentary   evidence,   the  Borrower  shall  indemnify  the
                  Administrative  Agent  and the  Lenders  for  any  incremental
                  taxes,  interest or penalties  that may become  payable by the
                  Administrative  Agent or any  Lender  as a result  of any such
                  failure.  The  agreements  in this Section  shall  survive the
                  termination  of this  Agreement  and the  payment  of the Term
                  Loans and all other amounts payable hereunder.

         (d)      Each Lender (or Transferee)  that is not a citizen or resident
                  of the United States of America, a corporation, partnership or
                  other entity  created or organized in or under the laws of the
                  United States of America (or any jurisdiction thereof), or any
                  estate or trust that is subject  to  federal  income  taxation
                  regardless  of the source of its income (a "NON-U.S.  LENDER")
                  shall  deliver to the  Borrower and the  Administrative  Agent
                  (or,  in the case of a  Participant,  to the Lender from which
                  the  related  participation  shall  have been  purchased)  two
                  copies of either U.S.  Internal Revenue Service Form W-8BEN or
                  Form  W-8ECI,  or, in the case of a Non-U.S.  Lender  claiming

                                       30
<PAGE>

                  exemption  from U.S.  federal  withholding  tax under  Section
                  871(h)  or  881(c) of the Code with  respect  to  payments  of
                  "portfolio interest" a statement in a form satisfactory to the
                  Administrative  Agent  and a Form  W-8BEN,  or any  subsequent
                  versions thereof or successors  thereto properly completed and
                  duly  executed  by  such  Non-U.S.  Lender  claiming  complete
                  exemption from, or a reduced rate of, U.S. federal withholding
                  tax on all payments by the Borrower  under this  Agreement and
                  the other Loan  Documents.  Such forms shall be  delivered  by
                  each Non-U.S.  Lender on or before the date it becomes a party
                  to this Agreement (or, in the case of any  Participant,  on or
                  before  the  date  such  Participant   purchases  the  related
                  participation).   In  addition,  each  Non-U.S.  Lender  shall
                  deliver  such  forms   promptly  upon  the   obsolescence   or
                  invalidity of any form  previously  delivered by such Non-U.S.
                  Lender.  Each  Non-U.S.   Lender  shall  promptly  notify  the
                  Borrower at any time it  determines  that it is no longer in a
                  position to provide any  previously  delivered  certificate to
                  the  Borrower (or any other form of  certification  adopted by
                  the U.S. taxing authorities for such purpose). Notwithstanding
                  any other provision of this paragraph, a Non-U.S. Lender shall
                  not be required to deliver any form pursuant to this paragraph
                  that such Non-U.S. Lender is not legally able to deliver.

         (e)      A Lender that is entitled to an exemption from or reduction of
                  non-U.S.  withholding tax under the law of the jurisdiction in
                  which the  Borrower  is  located,  or any treaty to which such
                  jurisdiction  is a party,  with respect to payments under this
                  Agreement  shall  deliver to the Borrower  (with a copy to the
                  Administrative  Agent),  at the  time or times  prescribed  by
                  applicable law or reasonably  requested by the Borrower,  such
                  properly  completed and executed  documentation  prescribed by
                  applicable law as will permit such payments to be made without
                  withholding or at a reduced rate, PROVIDED that such Lender is
                  legally  entitled  to  complete,   execute  and  deliver  such
                  documentation  and in such Lender's  reasonable  judgment such
                  completion,  execution  or  submission  would  not  materially
                  prejudice the legal position of such Lender.

         2.15     INDEMNITY.  The Borrower  agrees to indemnify each Lender for,
and to hold each Lender  harmless from, any loss or expense that such Lender may
sustain or incur as a  consequence  of (a)  default by the  Borrower in making a
borrowing of,  conversion  into or  continuation  of Eurodollar  Loans after the
Borrower  has  given a  notice  requesting  the  same  in  accordance  with  the
provisions  of this  Agreement,  (b)  default  by the  Borrower  in  making  any
prepayment  after the Borrower has given a notice thereof in accordance with the
provisions of this  Agreement or (c) the making of a prepayment or conversion of
Eurodollar  Loans on a day that is not the last day of an  Interest  Period with
respect thereto. Such indemnification may include an amount equal to the excess,
if any, of (i) the amount of interest  that would have  accrued on the amount so
prepaid,  or not so borrowed,  converted or  continued,  for the period from the
date of such prepayment or of such failure to borrow, convert or continue to the
last day of such  Interest  Period  (or,  in the case of a  failure  to  borrow,
convert or continue,  the Interest  Period that would have commenced on the date
of such failure) in each case at the  applicable  rate of interest for such Term
Loans provided for herein  (excluding,  however,  the Applicable Margin included
therein,  if any) OVER (ii) the amount of interest (as reasonably  determined by
such  Lender)  that would have  accrued to such Lender on such amount by placing
such  amount on  deposit  for a  comparable  period  with  leading  banks in the
interbank Eurodollar market. A certificate as to any amounts payable pursuant to
this Section  submitted to the Borrower by any Lender shall be conclusive in the
absence of manifest  error.  This covenant shall survive the termination of this
Agreement  and the  payment  of the Term  Loans  and all other  amounts  payable
hereunder.

                                       31
<PAGE>

         2.16     ILLEGALITY. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the  interpretation or
application  thereof  shall make it unlawful  for any Lender to make or maintain
Eurodollar  Loans as contemplated by this Agreement,  (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar  Loans shall forthwith be canceled and (b)
such Lender's  Loans then  outstanding  as Eurodollar  Loans,  if any,  shall be
converted  automatically  to Base Rate Loans on the respective  last days of the
then current  Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto,  the Borrower shall pay to such Lender such amounts,  if any, as may be
required pursuant to Section 2.15.

         2.17     CHANGE OF LENDING  OFFICE.  Each Lender agrees that,  upon the
occurrence of any event giving rise to the operation of Section 2.13, 2.14(a) or
2.16 with respect to such Lender,  it will,  if requested by the  Borrower,  use
reasonable efforts (subject to overall policy  considerations of such Lender) to
designate  another lending office for any Term Loans affected by such event with
the object of  avoiding  the  consequences  of such event;  PROVIDED,  that such
designation  is made on terms that, in the sole  judgment of such Lender,  cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage,  and PROVIDED,  FURTHER, that nothing in this Section shall affect
or postpone any of the  obligations  of any Borrower or the rights of any Lender
pursuant to Section 2.13, 2.14(a) or 2.16.

         2.18     REPLACEMENT  OF  LENDERS  UNDER  CERTAIN  CIRCUMSTANCES.   The
Borrower   shall  be   permitted   to  replace  any  Lender  that  (a)  requests
reimbursement  for amounts  owing  pursuant  to Section  2.13 or 2.14 or gives a
notice of illegality  pursuant to Section 2.16 or (b) defaults in its obligation
to make Term Loans hereunder, with a replacement financial institution; PROVIDED
that (i) such replacement does not conflict with any Requirement of Law, (ii) no
Event of  Default  shall have  occurred  and be  continuing  at the time of such
replacement,  (iii) prior to any such replacement,  such Lender shall have taken
no action under Section 2.17 so as to eliminate  the continued  need for payment
of amounts owing pursuant to Section 2.13 or 2.14 or to eliminate the illegality
referred to in such notice of illegality  given  pursuant to Section 2.16,  (iv)
the replacement financial institution shall purchase, at par, all Term Loans and
other  amounts  owing  to  such  replaced  Lender  on or  prior  to the  date of
replacement,  (v) the  Borrower  shall be liable to such  replaced  Lender under
Section 2.15 (as though Section 2.15 were  applicable)  if any  Eurodollar  Loan
owing to such replaced  Lender shall be purchased  other than on the last day of
the  Interest  Period   relating   thereto,   (vi)  the  replacement   financial
institution,  if not already a Lender,  shall be reasonably  satisfactory to the
Administrative  Agent, (vii) the replaced Lender shall be obligated to make such
replacement in accordance  with the provisions of Section 9.6 (provided that the
Borrower shall be obligated to pay the  registration and processing fee referred
to  therein),  (viii) the  Borrower  shall pay all  additional  amounts (if any)
required pursuant to Section 2.13 or 2.14, as the case may be, in respect of any
period prior to the date on which such  replacement  shall be  consummated,  and
(ix) any such replacement  shall not be deemed to be a waiver of any rights that
the Borrower,  the  Administrative  Agent or any other Lender shall have against
the replaced  Lender.  Any  replacement  pursuant to this  Section  shall not be
deemed to be an optional prepayment for purposes of Section 2.9(b).

                                       32
<PAGE>

                   SECTION 3. REPRESENTATIONS AND WARRANTIES

         To induce the  Administrative  Agent and the Lenders to enter into this
Agreement and to make the Term Loans,  Holdings and the Borrower  hereby jointly
and severally represent and warrant to the Administrative  Agent and each Lender
that:

         3.1      FINANCIAL CONDITION.  (a) The unaudited PRO FORMA consolidated
balance sheet of Holdings and its consolidated  Subsidiaries as at June 30, 2006
(including the notes thereto) (the "PRO FORMA BALANCE  SHEET"),  copies of which
have heretofore  been furnished to each Lender,  has been prepared giving effect
(as if such  events had  occurred on such date) to (i) the Term Loans to be made
on the Closing Date and the use of proceeds thereof and (ii) the payment of fees
and expenses in connection  with the foregoing.  The Pro Forma Balance Sheet has
been prepared based on the best information  available to the Borrower as of the
date of delivery thereof, and presents fairly on a PRO FORMA basis the estimated
financial position of Holdings and its consolidated  Subsidiaries as at June 30,
2006,  assuming that the events specified in the preceding sentence had actually
occurred at such date.

         (b)      The audited  consolidated  balance  sheets of Holdings and its
                  consolidated  Subsidiaries  as at December 31, 2003,  December
                  31, 2004 and December 31, 2005,  and the related  consolidated
                  statements  of income and of cash  flows for the fiscal  years
                  ended on such  dates,  reported  on by and  accompanied  by an
                  unqualified  report from Gordon,  Hughes & Banks, LLP, present
                  fairly the  consolidated  financial  condition of Holdings and
                  its  consolidated  Subsidiaries  as  at  such  date,  and  the
                  consolidated  results of its operations  and its  consolidated
                  cash flows for the  respective  fiscal  years then ended.  The
                  unaudited  consolidated  balance  sheet  of  Holdings  and its
                  consolidated Subsidiaries as at June 30, 2006, and the related
                  unaudited consolidated statements of income and cash flows for
                  the six-month  period ended on such date,  present  fairly the
                  consolidated   financial   condition   of  Holdings   and  its
                  consolidated   Subsidiaries   as  at   such   date,   and  the
                  consolidated  results of its operations  and its  consolidated
                  cash flows for the  six-month  period  then ended  (subject to
                  normal  year-end  audit   adjustments).   All  such  financial
                  statements, including the related schedules and notes thereto,
                  have  been   prepared   in   accordance   with  GAAP   applied
                  consistently   throughout  the  periods  involved  (except  as
                  approved  by  the  aforementioned   firm  of  accountants  and
                  disclosed  therein).  Except as disclosed on SCHEDULE  3.1(B),
                  Holdings,  the Borrower and their  respective  Subsidiaries do
                  not  have  any  material  Guarantee  Obligations,   contingent
                  liabilities and liabilities for taxes, or any long-term leases
                  or  unusual  forward  or  long-term  commitments,   including,
                  without limitation, any interest rate or foreign currency swap
                  or  exchange  transaction  or other  obligation  in respect of
                  derivatives,  that  are  not  reflected  in  the  most  recent
                  financial statements referred to in this paragraph.  Except as
                  disclosed on SCHEDULE 3.1(B),  during the period from December
                  31, 2005 to and  including  the date hereof  there has been no
                  Disposition  by  Holdings,   the  Borrower  or  any  of  their
                  respective  Subsidiaries  of any material part of its business
                  or Property.

         3.2      NO CHANGE.  Except as  disclosed  in the  periodic  filings of
Holdings  with the SEC prior to the date hereof,  since  December 31, 2005 there
has been no development or event that has had or could reasonably be expected to
have a Material Adverse Effect.

                                       33
<PAGE>

         3.3      CORPORATE  EXISTENCE;  COMPLIANCE  WITH LAW. Each of Holdings,
the Borrower and each of their  respective  Subsidiaries  (a) is duly organized,
validly  existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate power and authority, and the legal right, to
own and operate its Property, to lease the Property it operates as lessee and to
conduct the business in which it is currently engaged,  (c) is duly qualified as
a foreign  corporation and in good standing under the laws of each  jurisdiction
where its  ownership,  lease or  operation  of  Property  or the  conduct of its
business requires such qualification, (d) is in compliance with all Requirements
of Law except to the extent that the failure to comply  therewith  could not, in
the aggregate,  reasonably be expected to have a Material Adverse Effect and (e)
has all necessary  licenses,  Permits  (including  Mining Permits),  consents or
approvals from or by each  Governmental  Authority having  jurisdiction,  to the
extent required to carry out its business as presently conducted.

         3.4      CORPORATE POWER; AUTHORIZATION;  ENFORCEABLE OBLIGATIONS. Each
Loan Party has the corporate power and authority,  and the legal right, to make,
deliver and perform the Loan  Documents  to which it is a party and, in the case
of the Borrower,  to borrow  hereunder.  Each Loan Party has taken all necessary
corporate or other action to authorize the execution,  delivery and  performance
of the Loan  Documents to which it is a party and, in the case of the  Borrower,
to authorize the  borrowings on the terms and conditions of this  Agreement.  No
consent  or  authorization  of,  filing  with,  notice  to or other act by or in
respect  of, any  Governmental  Authority  or any other  Person is  required  in
connection   with  the  borrowings   hereunder  or  the   execution,   delivery,
performance,  validity or  enforceability  of this Agreement or any of the other
Loan  Documents,  except  (i)  consents,  authorizations,  filings  and  notices
described in Schedule 3.4, which consents,  authorizations,  filings and notices
have been obtained or made and are in full force and effect and (ii) the filings
referred to in Section  3.19.  Each Loan  Document  has been duly  executed  and
delivered on behalf of each Loan Party that is a party  thereto.  This Agreement
constitutes,  and each other Loan Document upon  execution  will  constitute,  a
legal,  valid and binding obligation of each Loan Party that is a party thereto,
enforceable against each such Loan Party in accordance with its terms, except as
enforceability   may  be   limited   by   applicable   bankruptcy,   insolvency,
reorganization,   moratorium  or  similar  laws  affecting  the  enforcement  of
creditors'  rights  generally  and  by  general  equitable  principles  (whether
enforcement is sought by proceedings in equity or at law).

         3.5      NO LEGAL BAR. The execution,  delivery and performance of this
Agreement and the other Loan Documents,  the borrowings hereunder and the use of
the proceeds  thereof will not violate any Requirement of Law or any Contractual
Obligation of Holdings, the Borrower or any of their respective Subsidiaries and
will not result in, or require, the creation or imposition of any Lien on any of
their  respective  properties or revenues  pursuant to any Requirement of Law or
any such  Contractual  Obligation  (other than the Liens created by the Security
Documents).  No  Requirement  of Law or  Contractual  Obligation  applicable  to
Holdings,  Borrower or any of their respective  Subsidiaries could reasonably be
expected to have a Material Adverse Effect.

         3.6      NO  MATERIAL  LITIGATION.  No  litigation,   investigation  or
proceeding of or before any arbitrator or Governmental  Authority is pending or,
to the knowledge of Holdings or the Borrower, threatened by or against Holdings,
the  Borrower or any of their  respective  Subsidiaries  or against any of their
respective properties or revenues (a) with respect to any of the Loan Documents,

                                       34
<PAGE>

any of the  transactions  contemplated  hereby or  thereby,  or the  ranking and
seniority  of  their  respective  obligations  thereunder,  or  (b)  that  could
reasonably be expected to have a Material Adverse Effect.

         3.7      NO DEFAULT.  No Loan Party is in default under or with respect
to any of its  Contractual  Obligations in any respect that could  reasonably be
expected to have a Material  Adverse Effect.  No Default or Event of Default has
occurred and is continuing.

         3.8      OWNERSHIP OF PROPERTY;  MINES;  LIENS.  Each of Holdings,  the
Borrower  and their  respective  Subsidiaries  has title in fee  simple to, or a
valid  leasehold  interest  in, all its real  property,  and good title to, or a
valid leasehold  interest in, all its other Property,  and none of such Property
is subject to any Lien except as permitted by Section 6.3. Set forth on Schedule
3.8 is a list as of the Closing Date of (i) all real property  owned by the Loan
Parties (including  surface rights and coal and other mineral rights),  (ii) all
leases for material real property,  including  Mining Leases and (iii) all Mines
(including  addresses and the owner and operator  thereof)  owned or operated by
any Loan Party and  indicates  whether each such Mine is owned or leased by such
Loan  Party.  With  respect to each  Mining  Lease,  the  applicable  Loan Party
possesses the leasehold  interest(s)  mining rights and Mining Permits necessary
for the operation of the  applicable  Mine(s)  currently  being operated on such
parcel,  and  each of its  rights  under  the  applicable  lease(s),  contracts,
rights-of-way  and  easements  necessary for the operation of such Mine(s) is in
full force and effect and no  default  exists  thereunder,  except to the extent
that such  defaults or the failure to maintain  such  lease(s),  mining  rights,
Mining Permits,  contracts, rights of way and easements in full force and effect
does not and will  not have a  material  adverse  effect  on the  operation  and
intended use of such parcel by such Loan Party.

         3.9      INTELLECTUAL  PROPERTY. (a) Holdings, the Borrower and each of
their  respective  Subsidiaries  owns,  or  licenses  pursuant  to a  valid  and
enforceable written agreement,  all material  Intellectual Property and material
Software  necessary  and  sufficient  for the  conduct  of their  businesses  as
currently conducted and proposed to be conducted.  No other Person has contested
any right,  title or  interest of  Holdings,  the  Borrower or their  respective
Subsidiaries in or relating to any material  Intellectual Property or challenged
the ownership,  use,  validity or  enforceability  of any material  Intellectual
Property of Holdings,  the Borrower or their respective  Subsidiaries,  nor does
Holdings or the  Borrower  know of any valid  basis for any such  claim.  To the
knowledge of Holdings,  the Borrower and each of their respective  Subsidiaries,
the operation and conduct of the  businesses of Holdings,  the Borrower and each
of their respective  Subsidiaries  (including,  without  limitation,  the use or
practice of any Intellectual  Property and Software  therein) does not infringe,
misappropriate,  dilute,  violate or otherwise impair any Intellectual  Property
owned by any other Person.  To the knowledge of Holdings,  the Borrower and each
of  their  respective  Subsidiaries,  no  Person  has  been  or  is  infringing,
misappropriating,  diluting,  violating or otherwise  impairing any Intellectual
Property of Holdings, the Borrower or their respective  Subsidiaries.  There are
no pending  (or,  to the  knowledge  of  Holdings  or the  Borrower  threatened)
actions, investigations,  suits, proceedings, audits, claims, demands, orders or
disputes  with  respect to any such  infringement,  misappropriation,  dilution,
violation,  impairment, contest or challenge. No judgment or order regarding any
such infringement, misappropriation, dilution, violation, impairment, contest or
challenge  has been  rendered by any competent  Governmental  Authority,  and no
settlement agreement or similar contract has been entered into by Holdings,  the
Borrower or their respective Subsidiaries with respect to any such infringement,
misappropriation, dilution, violation, impairment, contest or challenge.

                                       35
<PAGE>

         3.10     TAXES.  Each of  Holdings,  the  Borrower  and  each of  their
respective  Subsidiaries has filed or caused to be filed all Federal,  state and
other  material tax returns that are required to be filed and has paid all taxes
shown to be due and payable on said returns or on any  assessments  made against
it or any of its Property and all other taxes,  fees or other charges imposed on
it or any of its  Property  by any  Governmental  Authority  (other than any the
amount or  validity  of which are  currently  being  contested  in good faith by
appropriate  proceedings  and with respect to which reserves in conformity  with
GAAP  have  been  provided  on the  books of  Holdings,  the  Borrower  or their
respective  Subsidiaries,  as the case may be);  and no tax Lien has been filed,
and, to the knowledge of Holdings and the Borrower,  no claim is being asserted,
with respect to any such tax, fee or other charge.

         3.11     FEDERAL REGULATIONS. No part of the proceeds of any Term Loans
will be used for  "purchasing"  or  "carrying"  any  "margin  stock"  within the
respective  meanings of each of the quoted  terms under  Regulation U as now and
from time to time  hereafter  in effect or for any  purpose  that  violates  the
provisions of the  Regulations  of the Board.  If requested by any Lender or the
Administrative  Agent, the Borrower will furnish to the Administrative Agent and
each  Lender  a  statement  to the  foregoing  effect  in  conformity  with  the
requirements of FR Form G-3 or FR Form U-1 referred to in Regulation U.

         3.12     LABOR  MATTERS.  There are no strikes or other labor  disputes
against Holdings,  the Borrower or any of their respective  Subsidiaries pending
or, to the knowledge of Holdings or the Borrower,  threatened that (individually
or in the  aggregate)  could  reasonably be expected to have a Material  Adverse
Effect. Hours worked by and payment made to employees of Holdings,  the Borrower
and their respective  Subsidiaries  have not been in violation of the Fair Labor
Standards  Act or any other  applicable  Requirement  of Law  dealing  with such
matters that  (individually or in the aggregate) could reasonably be expected to
have a Material Adverse Effect. All payments due from Holdings,  the Borrower or
any of their  respective  Subsidiaries on account of employee health and welfare
insurance that  (individually  or in the aggregate) could reasonably be expected
to have a  Material  Adverse  Effect if not paid have been paid or  accrued as a
liability on the books of Holdings, the Borrower or the relevant Subsidiary.

         3.13     ERISA.  Neither a Reportable Event nor an "accumulated funding
deficiency"  (within  the  meaning of Section  412 of the Code or Section 302 of
ERISA) has occurred during the five-year  period prior to the date on which this
representation  is made or deemed made with  respect to any Plan,  and each Plan
has complied in all material  respects with the  applicable  provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen,  during such  five-year  period.  The
present value of all accrued  benefits under each Single Employer Plan (based on
those  assumptions  used to fund  such  Plans)  did not,  as of the last  annual
valuation date prior to the date on which this  representation is made or deemed
made,  exceed the value of the  assets of such Plan  allocable  to such  accrued
benefits by a material amount.  Neither Holdings,  the Borrower nor any Commonly
Controlled   Entity  has  had  a  complete  or  partial   withdrawal   from  any
Multiemployer  Plan that has resulted or could  reasonably be expected to result
in a material liability under ERISA, and neither Holdings,  the Borrower nor any

                                       36
<PAGE>

Commonly  Controlled Entity would become subject to any material liability under
ERISA if Holdings,  the Borrower or any such Commonly  Controlled Entity were to
withdraw  completely from all Multiemployer  Plans as of the valuation date most
closely preceding the date on which this  representation is made or deemed made.
No such Multiemployer Plan is in Reorganization or Insolvent.

         3.14     INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Loan Party is an
"investment  company",  or a company  "controlled"  by an "investment  company",
within the meaning of the  Investment  Company Act of 1940, as amended.  No Loan
Party is  subject  to  regulation  under  any  Requirement  of Law  (other  than
Regulation X of the Board) which limits its ability to incur Indebtedness.

         3.15     SUBSIDIARIES.  (a) The  Subsidiaries  listed on Schedule  3.15
constitute all the  Subsidiaries  of Holdings at the date hereof.  Schedule 3.15
sets forth as of the Closing Date the name and  jurisdiction of incorporation of
each  Subsidiary  and, as to each  Subsidiary,  the  percentage of each class of
Capital Stock owned by each Loan Party.

         (b)      Except as listed on Schedule  3.15,  there are no  outstanding
                  subscriptions,  options,  warrants,  calls,  rights  or  other
                  agreements or commitments (other than stock options granted to
                  employees or directors and  directors'  qualifying  shares) of
                  any nature  relating to any Capital  Stock of the  Borrower or
                  any Subsidiary.

         3.16     USE OF PROCEEDS.  The proceeds of the Term Loans shall be used
for general corporate purposes and to pay related fees and expenses.

         3.17     ENVIRONMENTAL  MATTERS.  Other than  exceptions  to any of the
following  that could  not,  individually  or in the  aggregate,  reasonably  be
expected to result in the payment of a Material  Environmental Amount and except
as set forth on Schedule 3.17:

         (a)      Holdings, the Borrower and their respective Subsidiaries:  (i)
                  are,  and  within  the period of all  applicable  statutes  of
                  limitation  have  been,  in  compliance  with  all  applicable
                  Environmental Laws; (ii) hold all Environmental  Permits (each
                  of which is in full  force and  effect)  necessary  for any of
                  their current operations or for any property owned, leased, or
                  otherwise  operated by any of them;  and (iii) are, and within
                  the period of all applicable statutes of limitation have been,
                  in  material   compliance  with  all  of  their  Environmental
                  Permits.

         (b)      Materials  of  Environmental  Concern  are not present at, on,
                  under,  in, or about any real property now or formerly  owned,
                  leased or operated by Holdings or any of its Subsidiaries,  or
                  at any other  location  (including,  without  limitation,  any
                  location to which Materials of Environmental Concern have been
                  sent for re-use or recycling  or for  treatment,  storage,  or
                  disposal) which could  reasonably be expected to (i) give rise
                  to liability of Holdings or any of its Subsidiaries  under any
                  applicable  Environmental  Law or otherwise result in costs to
                  Holdings or any of its  Subsidiaries,  or (ii)  interfere with
                  Holdings' or any of its Subsidiaries' continued operations, or
                  (iii)  impair  the fair  saleable  value of any real  property
                  owned or leased by Holdings or any of its Subsidiaries.

         (c)      There is no judicial,  administrative,  or arbitral proceeding
                  (including any notice of violation or alleged violation) under
                  or relating to any  Environmental Law to which Holdings or any
                  of its Subsidiaries is, or to the knowledge of Holdings or any
                  of its Subsidiaries  will be, named as a party that is pending
                  or, to the  knowledge of Holdings or any of its  Subsidiaries,
                  threatened.

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<PAGE>

         (d)      Neither  Holdings nor any of its Subsidiaries has received any
                  written request for information, or been notified that it is a
                  potentially responsible party under or relating to the federal
                  Comprehensive   Environmental  Response,   Compensation,   and
                  Liability  Act or  any  similar  Environmental  Law,  or  with
                  respect to any Materials of Environmental Concern.

         (e)      Neither  Holdings nor any of its Subsidiaries has entered into
                  or agreed to any consent decree, order, or settlement or other
                  agreement, or is subject to any judgment,  decree, or order or
                  other agreement, in any judicial, administrative, arbitral, or
                  other forum for  dispute  resolution,  relating to  compliance
                  with or liability under any Environmental Law.

         (f)      Since  December  31,  2005,  neither  Holdings  nor any of its
                  Subsidiaries has assumed or retained, by contract or operation
                  of law,  any  liabilities  of any kind,  fixed or  contingent,
                  known or unknown,  under any Environmental Law or with respect
                  to any Material of Environmental Concern.

         3.18     ACCURACY OF  INFORMATION,  ETC. No  statement  or  information
contained  in this  Agreement,  any other Loan  Document or any other  document,
certificate or statement furnished to the Administrative Agent or the Lenders or
any of them,  by or on behalf of any Loan Party for use in  connection  with the
transactions  contemplated  by  this  Agreement  or the  other  Loan  Documents,
contained as of the date such  statement,  information,  document or certificate
was so furnished,  any untrue statement of a material fact or omitted to state a
material  fact  necessary in order to make the  statements  contained  herein or
therein not misleading.  The  projections  and PRO FORMA  financial  information
contained in the materials  referenced above are based upon good faith estimates
and  assumptions  believed by management of the Borrower to be reasonable at the
time made, it being recognized by the Lenders that such financial information as
it relates to future events is not to be viewed as fact and that actual  results
during the period or periods  covered by such financial  information  may differ
from the projected  results set forth therein by a material amount.  There is no
fact  known to any Loan  Party  that  could  reasonably  be  expected  to have a
Material  Adverse Effect that has not been expressly  disclosed  herein,  in the
other Loan  Documents or in any other  documents,  certificates  and  statements
furnished to the Administrative Agent and the Lenders for use in connection with
the transactions contemplated hereby and by the other Loan Documents.

         3.19     SECURITY DOCUMENTS. (a) The Security Agreement is effective to
create in favor of the  Administrative  Agent,  for the  benefit of the  Secured
Parties,  a legal,  valid and  enforceable  security  interest in the Collateral
described  therein  and  proceeds  thereof.  In the  case of the  Pledged  Stock
described in the Security  Agreement,  when any stock certificates  representing
such Pledged Stock are delivered to the Administrative Agent, and in the case of
the  other  Collateral  described  in the  Security  Agreement,  when  financing
statements in appropriate form are filed in the offices  specified on Schedule 3
to the Security  Agreement (which financing  statements have been duly completed
and  delivered to and  authorized to be filed by the  Administrative  Agent) and
such  other  filings  as are  specified  in the  Security  Agreement  have  been
completed  (all of  which  filings  have  been  duly  completed),  the  Security
Agreement  shall  constitute  a fully  perfected  first  priority  Lien on,  and

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<PAGE>

security interest in, all right,  title and interest of the Loan Parties in such
Collateral and the proceeds thereof, as security for the Obligations (as defined
in the  Security  Agreement),  in each case prior and  superior  in right to any
other Person (except,  in the case of Collateral other than Pledged Stock, Liens
permitted  by Section 6.3) and a fully  perfected  second  priority  Lien on any
Collateral  pledged in  connection  with  Indebtedness  incurred  under  Section
6.2(g).

         (b)      Each of the  Mortgages  is effective to create in favor of the
                  Administrative  Agent, for the benefit of the Secured Parties,
                  a  legal,   valid  and  enforceable   Lien  on  the  Mortgaged
                  Properties  described therein and proceeds  thereof;  and when
                  the Mortgages  are filed in the offices  specified on Schedule
                  3.19(b)  (in the  case of the  Mortgages  to be  executed  and
                  delivered  on the  Closing  Date) or in the  recording  office
                  designated  by the Borrower (in the case of any Mortgage to be
                  executed  and  delivered  pursuant to Section  5.10(b)),  each
                  Mortgage  shall  constitute  a fully  perfected  Lien on,  and
                  security  interest  in, all right,  title and  interest of the
                  Loan Parties in the Mortgaged Properties described therein and
                  the  proceeds  thereof,  as security for the  Obligations  (as
                  defined  in the  relevant  Mortgage),  in each case  prior and
                  superior  in right to any other  Person  (other  than  Persons
                  holding Liens or other encumbrances or rights permitted by the
                  relevant Mortgage).

         3.20     SENIOR  INDEBTEDNESS.  The Obligations  constitute "First Lien
Obligations"  of the  Borrower  and any  Guarantor  under and as  defined in the
Senior Secured Indenture.

         3.21     SOLVENCY.  Each Loan Party is, and after giving  effect to the
incurrence of all  Indebtedness  and  obligations  being  incurred in connection
herewith will be and will continue to be, Solvent.

         3.22     REGULATION  H. No Mortgage  encumbers  improved  real property
which is located in an area that has been identified by the Secretary of Housing
and Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of 1968
(except any Mortgaged Properties as to which such flood insurance as required by
Regulation  H has been  obtained  and is in full force and effect as required by
this Agreement).

         3.23     COAL ACT; BLACK LUNG ACT. Each Loan Party and their respective
"RELATED  PERSONS" (as defined in the Coal Act) is in compliance in all material
respects with the Coal Act and none of the Loan Parties or their related persons
has any  liability  under the Coal Act except with  respect to premiums or other
payments  required  thereunder  which  have been paid when due and except to the
extent that the liability  thereunder,  individually or in the aggregate,  could
not  reasonably be expected to result in a Material  Adverse  Effect.  Each Loan
Party is in  compliance  in all material  respects  with the Black Lung Act, and
none of the Loan Parties has any liability  under the Black Lung Act except with
respect to premiums,  contributions or other payments required  thereunder which
have been paid when due and except to the extent that the  liability  thereunder
individually or in the aggregate,  could not reasonably be expected to result in
a Material Adverse Effect.

                                       39
<PAGE>

                        SECTION 4. CONDITIONS PRECEDENT

         4.1      CONDITIONS  TO INITIAL  EXTENSION OF CREDIT.  The agreement of
each Lender to make the initial  extension of credit  requested to be made by it
hereunder  is subject to the  satisfaction,  prior to or  concurrently  with the
making of such  extension  of  credit  on the  Closing  Date,  of the  following
conditions precedent:

         (a)      LOAN DOCUMENTS.  The Administrative  Agent shall have received
                  (i) this Agreement, (ii) the Security Agreement, (iii) the Fee
                  Letter, (iv) the Intercreditor Agreement, (v) the Intellectual
                  Property Security Agreement and (vi) Mortgages with respect to
                  each Mortgaged  Properties (other than as set forth in Section
                  5.13(b)),  each  executed and  delivered by a duly  authorized
                  officer of each party party thereto.

         (b)      PRO FORMA BALANCE  SHEET;  FINANCIAL  STATEMENTS.  The Lenders
                  shall have  received  (i) the Pro Forma  Balance  Sheet,  (ii)
                  audited consolidated  financial statements of Holdings and its
                  consolidated  Subsidiaries  for the 2003, 2004 and 2005 fiscal
                  years,   (iii)  unaudited   interim   consolidated   financial
                  statements of Holdings and its  consolidated  Subsidiaries for
                  each quarterly  period ended (A) subsequent to the date of the
                  latest applicable  financial  statements delivered pursuant to
                  clause (ii) of this paragraph and (B) for fiscal year 2006, as
                  to which such  financial  statements  are  available  and (iv)
                  unaudited  interim   consolidated   financial   statements  of
                  Holdings  and its  consolidated  Subsidiaries  for each fiscal
                  month ended  April  through  August for fiscal year 2006;  and
                  such  financial   statements  shall  not,  in  the  reasonable
                  judgment of the  Administrative  Agent,  reflect any  material
                  adverse  change in the  consolidated  financial  condition  of
                  Holdings and its  consolidated  Subsidiaries,  as reflected in
                  the financial  statements or projections  previously delivered
                  to the Lenders.

         (c)      APPROVALS.   All   governmental   and  third  party  approvals
                  (including   regulatory   approvals,   landlords'   and  other
                  consents)   necessary  in  connection   with  the   continuing
                  operations  of Holdings,  the  Borrower  and their  respective
                  Subsidiaries  and the transactions  contemplated  hereby shall
                  have been  obtained  and be in full force and effect,  and all
                  applicable  waiting  periods  shall have  expired  without any
                  action being taken or threatened  by any  competent  authority
                  which would  restrain,  prevent or  otherwise  impose  adverse
                  conditions on the financing contemplated hereby.

         (d)      RELATED  AGREEMENTS.   The  Administrative  Agent  shall  have
                  received   (in  a   form   reasonably   satisfactory   to  the
                  Administrative  Agent), true and correct copies,  certified as
                  to authenticity by the Borrower, of supply Agreements and such
                  other documents or instruments as may be reasonably  requested
                  by the Administrative Agent, including,  without limitation, a
                  copy of any  debt  instrument,  security  agreement  or  other
                  material contract to which the Loan Parties may be a party.

         (e)      FEES.  The  Lenders  and the  Administrative  Agent shall have
                  received  all fees  required to be paid,  and all expenses for
                  which invoices have been presented (including reasonable fees,
                  disbursements   and   other   charges   of   counsel   to  the
                  Administrative Agent), on or before the Closing Date. All such
                  amounts  will be paid with  proceeds of Term Loans made on the
                  Closing Date and will be reflected in the funding instructions
                  given by the Borrower to the Administrative Agent on or before
                  the Closing Date.

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<PAGE>

         (f)      CLOSING  DATE  PROJECTIONS.  The Lenders  shall have  received
                  satisfactory  PRO FORMA  financial  projections  (the "CLOSING
                  DATE  PROJECTIONS")  for the  period  from  the  Closing  Date
                  through the third anniversary of the Closing Date, which shall
                  contain the Borrower's  anticipated,  income statements,  on a
                  consolidated  basis for  Holdings and its  Subsidiaries,  on a
                  monthly  basis for the period  commencing  on the Closing Date
                  and ending on the first  anniversary  of the Closing Date, and
                  on an annual basis thereafter.

         (g)      LIEN SEARCHES.  The  Administrative  Agent shall have received
                  the   results  of  a  recent   lien  search  in  each  of  the
                  jurisdictions  in  which  Uniform  Commercial  Code  financing
                  statement or other filings or  recordations  should be made to
                  evidence or perfect  security  interests  in all assets of the
                  Loan Parties,  and such search shall reveal no liens on any of
                  the assets of the Loan Parties,  except for Liens permitted by
                  Section 6.3.

         (h)      CLOSING CERTIFICATES;  SECRETARY'S CERTIFICATES; GOOD STANDING
                  CERTIFICATES. The Administrative Agent shall have received (i)
                  a  certificate  of each Loan Party,  dated the  Closing  Date,
                  substantially  in the  form of  Exhibit  C,  with  appropriate
                  insertions  and   attachments,   (ii)  a  certificate  of  the
                  Secretary  or  an  Assistant  Secretary  of  each  Loan  Party
                  certifying  (A) the names and true  signatures of each officer
                  of such Loan Party  that has been  authorized  to execute  and
                  deliver any Loan Document or other document required hereunder
                  to be  executed  and  delivered  by or on  behalf of such Loan
                  Party, (B) the true,  correct and complete copy of the by-laws
                  (or equivalent  constituent document) of such Loan Party as in
                  effect  on the  date of  such  certification,  (C)  the  true,
                  correct  and  complete  copy of the  resolutions  of such Loan
                  Party's  Board of Directors  (or  equivalent  governing  body)
                  approving  and   authorizing   the  execution,   delivery  and
                  performance  of this Agreement and the other Loan Documents to
                  which it is a party and (D) the  true,  correct  and  complete
                  copy of the  articles  or  certificate  of  incorporation  (or
                  equivalent constituent document) of each Loan Party, certified
                  as of a recent date by the  Secretary of State of the state of
                  organization of such Loan Party and there have been no changes
                  in the certificate of incorporation (or equivalent constituent
                  document)  of  such  Loan  Party  from  the   certificate   of
                  incorporation (or equivalent constituent document) as attached
                  thereto,  and (iii) certificates of such official attesting to
                  the good standing of each such Loan Party.

         (i)      LEGAL OPINIONS.  The Administrative  Agent shall have received
                  the following executed legal opinions:

                  (i)      the legal opinion of Stubbs Alderton & Markiles, LLP,
                           counsel to the Loan  Parties,  in form and  substance
                           reasonably satisfactory to the Administrative Agent;

                  (ii)     the legal opinion of Trenam,  Kemker, Scharf, Barkin,
                           Frye,  O'Neill  & Mullis,  Professional  Association,
                           special  counsel  to the  Loan  Parties,  in form and
                           substance    reasonably     satisfactory    to    the
                           Administrative Agent;

                  (iii)    the legal opinion of Charles Kite, General Counsel of
                           the Loan Parties,  in form and  substance  reasonably
                           satisfactory to the Administrative Agent; and

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<PAGE>

                  (iv)     the legal opinion of Frost Brown & Todd LLC,  special
                           counsel  to the  Administrative  Agent,  in form  and
                           substance    reasonably     satisfactory    to    the
                           Administrative Agent.

Each  such  legal  opinion  shall  cover  such  other  matters  incident  to the
transactions  contemplated  by this  Agreement as the  Administrative  Agent may
reasonably require.

         (j)      PLEDGED  STOCK;  STOCK  POWERS;  ACKNOWLEDGMENT  AND  CONSENT;
                  PLEDGED NOTES . The  Administrative  Agent shall have received
                  (i) the certificates  representing the shares of Capital Stock
                  pledged pursuant to the Security  Agreement,  together with an
                  undated  stock  power for each such  certificate  executed  in
                  blank by a duly authorized officer of the pledgor thereof, and
                  (ii) each  promissory  note  pledged  pursuant to the Security
                  Agreement endorsed (without recourse) in blank (or accompanied
                  by an  executed  transfer  form in blank  satisfactory  to the
                  Administrative Agent) by the pledgor thereof.

         (k)      FILINGS,   REGISTRATIONS   AND   RECORDINGS.   Each   document
                  (including,  without  limitation,  any Uniform Commercial Code
                  financing  statement)  required by the  Security  Documents or
                  under law or reasonably  requested by the Administrative Agent
                  to be  filed,  registered  or  recorded  in order to create in
                  favor of the  Administrative  Agent,  for the  benefit  of the
                  Secured Parties, a perfected Lien on the Collateral  described
                  therein,  prior  and  superior  in right to any  other  Person
                  (other  than with  respect  to Liens  expressly  permitted  by
                  Section 6.3), shall have been filed, registered or recorded or
                  shall have been  delivered to the  Administrative  Agent be in
                  proper  form for  filing,  registration  or  recordation.  The
                  Administrative  Agent, for the benefit of the Secured Parties,
                  shall have been granted a second priority lien on pledged cash
                  of the Loan Parties.

         (l)      INSURANCE.   The  Administrative  Agent  shall  have  received
                  insurance certificates  satisfying the requirements of Section
                  4.3 of the Security Agreement.

         (m)      NO MATERIAL ADVERSE EFFECT. The  Administrative  Agent and the
                  Lenders  shall be satisfied  that,  prior to the Closing Date,
                  there has not occurred (i) any Material  Adverse  Change since
                  December 31, 2005 or (ii) a material disruption of or material
                  adverse change in the financial, banking or capital markets.

         (n)      FULL DISCLOSURE.  The Administrative Agent and the Lenders not
                  becoming aware prior to the Closing Date of any information or
                  other  matter  (including  any matter  relating  to  financial
                  models and underlying assumptions relating to the Closing Date
                  Projections)   affecting  Holdings,  the  Borrower  and  their
                  respective  Subsidiaries  or  the  transactions   contemplated
                  hereby that in their reasonable  judgment is inconsistent in a
                  material and adverse manner with any such information or other
                  matter disclosed to them prior to the Closing Date.

         (o)      MINIMUM  EBITDA.  Holdings  shall have pro forma  Consolidated
                  EBITDA for the twelve-month  period ended immediately prior to
                  August 31, 2006 of not less than $3,100,000.

         (p)      REPRESENTATIONS  AND WARRANTIES.  Each of the  representations
                  and  warranties  made by any Loan Party in or  pursuant to the
                  Loan  Documents  shall be true and  correct  on and as of such

                                       42
<PAGE>

                  date as if made on and as of such date  (except  as  expressly
                  provided in such representation or warranty).

         (q)      NO DEFAULT. No Default or Event of Default shall have occurred
                  and be  continuing  on such date or after giving effect to the
                  extensions of credit requested to be made on such date.

         4.2      CONDITIONS  TO TERM LOANS ON DELAYED DRAW FUNDING  DATES.  The
agreement of each Lender to make the  extensions of credit  requested to be made
by it hereunder is subject to the  satisfaction,  prior to or concurrently  with
the making of such  extension of credit on a Delayed Draw Funding  Date,  of the
following conditions precedent:

         (a)      BORROWING  NOTICE.  The  Agent  shall  have  received  a  duly
                  executed Borrowing Notice with respect to the Term Loans to be
                  borrowed on the applicable  Delayed Draw Funding Date not less
                  than ten (10) Business Days prior to such Delayed Draw Funding
                  Date in accordance with Section 2.2(b).

         (b)      NO DEFAULT. No Default or Event of Default shall have occurred
                  and be  continuing  on such date or after giving effect to the
                  extensions of credit requested to be made on such date.

         (c)      REPRESENTATIONS  AND WARRANTIES.  Each of the  representations
                  and  warranties  made by any Loan Party in or  pursuant to the
                  Loan  Documents  shall be true  and  correct  in all  material
                  respects  on and as of such  date as if made on and as of such
                  date (except as expressly  provided in such  representation or
                  warranty).

                        SECTION 5. AFFIRMATIVE COVENANTS

         Holdings and the Borrower  hereby jointly and severally  agree that, so
long as the Term  Loan  Commitments  remain  in effect or any Term Loan or other
amount is owing to any Lender or the  Administrative  Agent  hereunder,  each of
Holdings  and the  Borrower  shall  and  shall  cause  each of their  respective
Subsidiaries to:

         5.1      FINANCIAL STATEMENTS.  Furnish to the Administrative Agent and
each Lender:

         (a)      as soon as  available,  but in any event  within 90 days after
                  the end of each fiscal year of Holdings (or such longer period
                  that may be  available  to Holdings  to file annual  financial
                  statements  with the SEC pursuant to the Exchange Act), a copy
                  of the audited  consolidated balance sheet of Holdings and its
                  consolidated  Subsidiaries  as at the end of such year and the
                  related audited consolidated  statements of income and of cash
                  flows for such year, setting forth in each case in comparative
                  form the figures as of the end of and for the  previous  year,
                  reported on without a "going concern" or like qualification or
                  exception,  or  qualification  arising out of the scope of the
                  audit, by Ernst & Young or other independent  certified public
                  accountants of nationally recognized standing;

         (b)      as soon as available,  but in any event not later than 50 days
                  after the end of each of the first three quarterly  periods of
                  each  fiscal  year of  Holdings,  the  unaudited  consolidated

                                       43
<PAGE>

                  balance sheet of Holdings and its consolidated Subsidiaries as
                  at  the  end  of  such  quarter  and  the  related   unaudited
                  consolidated  statements  of income for such  quarter  and the
                  related  unaudited  consolidated  statements  of income and of
                  cash flows for the portion of the fiscal year  through the end
                  of such  quarter,  setting  forth in each case in  comparative
                  form the  figures  as of the end of and for the  corresponding
                  period  in  the  previous  year,  certified  by a  Responsible
                  Officer  as  being  fairly  stated  in all  material  respects
                  (subject to normal year-end audit adjustments); and

         (c)      as soon as available,  but in any event not later than 30 days
                  after the end of each month occurring  during each fiscal year
                  of  Holdings  (other  than the  third,  sixth and  ninth  such
                  month), the unaudited  consolidated balance sheets of Holdings
                  and  its  Subsidiaries  as at the end of  such  month  and the
                  related  unaudited  consolidated  statements  of income and of
                  cash flows for such month and the  portion of the fiscal  year
                  through the end of such month,  setting  forth in each case in
                  comparative  form each of (x) the  figures for the such period
                  set forth in the  Projections  delivered  pursuant  to Section
                  5.2(c)  below,  (y) the  figures  as of the end of and for the
                  corresponding period in the previous year and (z) a budget for
                  Holdings and its Subsidiaries for each fiscal year,  certified
                  by a  Responsible  Officer  as  being  fairly  stated  in  all
                  material   respects   (subject   to  normal   year-end   audit
                  adjustments) beginning with January 1, 2007;

all such financial statements to present fairly Holdings' consolidated financial
position  at the dates  thereof  and of its  operations  and cash  flows for the
periods  then ended and to be prepared in  reasonable  detail and in  accordance
with GAAP applied consistently throughout the periods reflected therein and with
prior periods  (except as approved by such  accountants or officer,  as the case
may be, and disclosed therein).

         5.2      CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative
Agent and each Lender:

         (a)      concurrently  with the  delivery of the  financial  statements
                  referred  to  in  Section   5.1(a),   a  certificate   of  the
                  independent  certified  public  accountants  reporting on such
                  financial  statements  stating that in making the  examination
                  necessary therefor no knowledge was obtained of any Default or
                  Event of Default,  except as specified in such certificate (it
                  being understood that such certificate shall be limited to the
                  items  that  independent   certified  public  accountants  are
                  permitted  to cover  in such  certificates  pursuant  to their
                  professional standards and customs of the profession);

         (b)      concurrently  with the  delivery of any  financial  statements
                  pursuant to Section  5.1,  (i) a  Compliance  Certificate  (x)
                  stating  that,  to the  best  of  such  Responsible  Officer's
                  knowledge,  each Loan Party during such period has observed or
                  performed  all of its  covenants  and  other  agreements,  and
                  satisfied every condition, contained in this Agreement and the
                  other Loan  Documents  to which it is a party to be  observed,
                  performed  or  satisfied  by it,  and  that  such  Responsible
                  Officer has  obtained no  knowledge of any Default or Event of
                  Default  except  as  specified  in  such  certificate  and (y)
                  containing  all  information  and  calculations  necessary for
                  determining  compliance  by  Holdings,  the Borrower and their
                  respective  Subsidiaries with the provisions of this Agreement
                  referred  to therein  as of the last day of the fiscal  month,
                  fiscal quarter or fiscal year of Holdings, as the case may be,
                  and  (ii)  in  the  case  of  quarterly  or  annual  financial
                  statements,  (x) to the extent not previously disclosed to the

                                       44
<PAGE>

                  Administrative  Agent, a listing of any county or state within
                  the United  States  where any Loan Party  keeps  inventory  or
                  equipment  and of any  Intellectual  Property  acquired by any
                  Loan Party since the date of the most  recent  list  delivered
                  pursuant to this clause (x) (or, in the case of the first such
                  list so  delivered,  since the  Closing  Date) and (y) any UCC
                  financing  statements  or  other  filings  specified  in  such
                  Compliance  Certificate  as  being  required  to be  delivered
                  therewith;

         (c)      as soon as  available,  and in any event no later than 30 days
                  after the end of each  fiscal  year of  Holdings,  a  detailed
                  consolidated  monthly  budget for the  following  fiscal  year
                  (including a projected  consolidated balance sheet of Holdings
                  and its  Subsidiaries  as of the end of the  following  fiscal
                  year,  and the related  consolidated  statements  of projected
                  cash  flow,   projected  changes  in  financial  position  and
                  projected  income),  and copies of all budgets  and  financial
                  projections  provided  to the Board of  Directors  of Holdings
                  and/or the Borrower,  and, as soon as  available,  significant
                  revisions, if any, of such budget and projections with respect
                  to such fiscal year (collectively,  the "PROJECTIONS"),  which
                  Projections shall in each case be accompanied by a certificate
                  of a Responsible  Officer  stating that such  Projections  are
                  based on reasonable estimates, information and assumptions and
                  that such  Responsible  Officer has no reason to believe  that
                  such  Projections  are incorrect or misleading in any material
                  respect;

         (d)      upon Holdings ceasing to be a public reporting company, within
                  40 days after the end of each fiscal  quarter of Holdings  (or
                  at any time during which a Default or Event of Default related
                  to Sections  5.1, 5.2 or 6.1 has  occurred and is  continuing,
                  within  40 days  after  the end of each  fiscal  month  of the
                  Borrower),   a  narrative   discussion  and  analysis  of  the
                  financial  condition and results of operations of Holdings and
                  its Subsidiaries for such fiscal quarter or month, as the case
                  may be,  and for the  period  from the  beginning  of the then
                  current  fiscal  year  to the end of such  fiscal  quarter  or
                  month,  as the case may be, as  compared to the portion of the
                  Projections  covering  such  periods  and  to  the  comparable
                  periods of the previous year;

         (e)      within 5 days after the same are sent, copies of all financial
                  statements  and reports that Holdings  sends to the holders of
                  any class of its debt  securities or public equity  securities
                  and, within five days after the same are filed,  copies of all
                  financial statements and reports that Holdings may make to, or
                  file with, the SEC;

         (f)      as  soon  as  possible  and in any  event  within  10  days of
                  obtaining  knowledge thereof:  (i) any development,  event, or
                  condition  that,  individually  or in the aggregate with other
                  developments,   events  or  conditions,  could  reasonably  be
                  expected  to  result  in  the  payment  by  Holdings  and  its
                  Subsidiaries,  in the aggregate,  of a Material  Environmental
                  Amount;  and (ii) any notice that any  governmental  authority
                  may deny any application for a Environmental Permit sought by,
                  or revoke or refuse to renew any Environmental Permit held by,
                  the Borrower and necessary in the operation of its business;

         (g)      as soon as  available  but  within  10  Business  Days of each
                  month, a summary of the following information as at the end of
                  the prior month (i) tons of Coal  produced by each Loan Party,
                  (ii)  tons of  Coal  produced  per  Mine,  (iii)  tons of Coal
                  purchased  from  third  parties  in order to meet the  minimum
                  delivery requirements under the Coal supply agreements entered
                  into by each Loan Party and the purchase price per ton of such
                  Coal,  (iv) tons of Coal sold with a listing of customers  and
                  sale prices per ton, and (v) detail of any force majeure claim

                                       45
<PAGE>

                  or  other  contractual  remedy  made by any  Loan  Party  that
                  purports  to  excuse  performance  under the terms of any Coal
                  supply agreement

         (h)      as soon as available  but within 30 days after the end of each
                  month, a detailed  report of Capital  Expenditures  reflecting
                  Growth Capex and Maintenance Capex; and

         (i)      promptly,  such additional  financial and other information as
                  any Lender may from time to time reasonably request.

         5.3      PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
material  obligations  of whatever  nature,  except where the amount or validity
thereof is currently  being  contested in good faith by appropriate  proceedings
and reserves in conformity  with GAAP with respect thereto have been provided on
the books of Holdings or its Subsidiaries, as the case may be.

         5.4      CONDUCT OF BUSINESS AND  MAINTENANCE  OF  EXISTENCE,  ETC. (a)
Preserve,  renew  and keep in full  force  and  effect  its  corporate  or other
existence and take all reasonable action to maintain all rights,  privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case,  as  otherwise  permitted  by Section 6.4; and (b) comply with all
Contractual  Obligations  (including  Mine  Permits)  and  Requirements  of  Law
(including  Mining Laws),  except to the extent that failure to comply therewith
could not, in the aggregate,  reasonably be expected to have a Material  Adverse
Effect.

         5.5      MAINTENANCE OF PROPERTY;  INSURANCE. (a) Keep all Property and
systems  useful  and  necessary  in its  business  in  good  working  order  and
condition,  ordinary wear and tear excepted, (b) maintain with financially sound
and reputable insurance companies insurance on all its Property in at least such
amounts  and  against at least such risks  (but  including  in any event  public
liability,  product liability and business  interruption) as are usually insured
against in the same general  area by companies  engaged in the same or a similar
business  and  (c) all  rights,  permits,  licenses,  approvals  and  privileges
(including all Mining Permits) used or useful or necessary in the conduct of its
business  as then  being  conducted,  and (d) Coal  reserves,  or the  rights to
acquire coal from third parties,  sufficient to fulfill its  requirements  under
its Coal Supply Agreements.

         5.6      INSPECTION OF PROPERTY;  BOOKS AND RECORDS;  DISCUSSIONS.  (a)
Keep proper books of records and account in which full, true and correct entries
in  conformity  with  GAAP  and all  Requirements  of Law  shall  be made of all
dealings and  transactions in relation to its business and activities and (b) on
reasonable  advance notice,  permit  representatives  of any Lender to visit and
inspect any of its  properties  and examine and make  abstracts  from any of its
books and  records  at any  reasonable  time and as often as may  reasonably  be
desired and to discuss the business,  operations,  properties  and financial and
other condition of Holdings, the Borrower and their respective Subsidiaries with
officers  and  employees  of  Holdings,   the  Borrower  and  their   respective
Subsidiaries and with its independent certified public accountants..

         5.7      NOTICES.  Promptly give notice to the Administrative Agent and
each Lender of:

         (a)      the occurrence of any Default or Event of Default;

                                       46
<PAGE>

         (b)      any (i)  default  or event of  default  under any  Contractual
                  Obligation   of  Holdings,   the  Borrower  or  any  of  their
                  respective  Subsidiaries or (ii) litigation,  investigation or
                  proceeding which may exist at any time between  Holdings,  the
                  Borrower  or any of  their  respective  Subsidiaries  and  any
                  Governmental  Authority,  that in either case, if not cured or
                  if adversely determined,  as the case may be, could reasonably
                  be expected to have a Material Adverse Effect;

         (c)      any litigation or proceeding affecting Holdings,  the Borrower
                  or any of their  respective  Subsidiaries  in which the amount
                  involved is $500,000 or more and not covered by  insurance  or
                  in which injunctive or similar relief is sought;

         (d)      the  following  events,  as soon as possible  and in any event
                  within 10 days after the Borrower  knows or has reason to know
                  thereof:  (i) the  occurrence  of any  Reportable  Event  with
                  respect  to  any  Plan,   a  failure  to  make  any   required
                  contribution  to a Plan,  the creation of any Lien in favor of
                  the PBGC or a Plan or any withdrawal from, or the termination,
                  Reorganization  or Insolvency  of, any  Multiemployer  Plan or
                  (ii) the institution of proceedings or the taking of any other
                  action by the PBGC or the Borrower or any Commonly  Controlled
                  Entity  or  any   Multiemployer   Plan  with  respect  to  the
                  withdrawal  from,  or  the  termination,   Reorganization   or
                  Insolvency of, any Plan; and

         (e)      any  development or event that has had or could  reasonably be
                  expected to have a Material Adverse Effect.

Each notice  pursuant to this Section shall be  accompanied  by a statement of a
Responsible  Officer setting forth details of the occurrence referred to therein
and stating  what action  Holdings,  the  Borrower  or the  relevant  Subsidiary
proposes to take with respect thereto.

         5.8      ENVIRONMENTAL  LAWS. (a) Comply in all material respects with,
and ensure compliance in all material respects by all tenants and subtenants, if
any,  with,  all  applicable  Environmental  Laws,  and obtain and comply in all
material respects with and maintain,  and ensure that all tenants and subtenants
obtain  and  comply in all  material  respects  with and  maintain,  any and all
licenses,  approvals,  notifications,   registrations  or  permits  required  by
applicable Environmental Laws.

         (b)      Conduct and complete all investigations, studies, sampling and
                  testing, and all remedial,  removal and other actions required
                  under  Environmental  Laws and promptly comply in all material
                  respects  with  all  lawful  orders  and   directives  of  all
                  Governmental Authorities regarding Environmental Laws.

         5.9      INTEREST RATE PROTECTION. At the request of the Administrative
Agent made within 90 days after the Closing  Date,  in the case of the Borrower,
enter into Hedge  Agreements  within 90 days of receipt of the  request,  to the
extent necessary to provide that at least 50% of the aggregate  principal amount
of the Term Loans is subject to either a fixed  interest  rate or interest  rate
protection  for a period of not less than three  years,  which Hedge  Agreements
shall have terms and conditions  reasonably  satisfactory to the  Administrative
Agent.

         5.10     ADDITIONAL  COLLATERAL,  ETC. (a) With respect to any Property
acquired  after the  Closing  Date by  Holdings,  the  Borrower  or any of their
respective  Subsidiaries (other than (x) any Property described in paragraph (b)

                                       47
<PAGE>

or paragraph (c) of this Section,  (y) any Property  subject to a Lien expressly
permitted  by Section  6.3(g) and (z) Property  acquired by an Excluded  Foreign
Subsidiary) as to which the Administrative Agent, for the benefit of the Secured
Parties, does not have a perfected Lien, promptly (i) execute and deliver to the
Administrative  Agent such  amendments  to the Security  Agreement or such other
documents as the  Administrative  Agent deems necessary or advisable to grant to
the  Administrative  Agent, for the benefit of the Secured  Parties,  a security
interest in such  Property  and (ii) take all actions  necessary or advisable to
grant to the  Administrative  Agent, for the benefit of the Secured  Parties,  a
perfected first priority security  interest in such Property,  including without
limitation,  the filing of Uniform Commercial Code financing  statements in such
jurisdictions  as may be required by the Security  Agreement or by law or as may
be requested by the Administrative Agent.

         (b)      With respect to any fee interest in any real property having a
                  value  (together  with  improvements   thereof)  of  at  least
                  $250,000  individually or in the aggregate  acquired after the
                  Closing  Date  by  Holdings,  the  Borrower  or any  of  their
                  respective  Subsidiaries  (other  than any such real  property
                  owned by an Excluded  Foreign  Subsidiary or subject to a Lien
                  expressly  permitted by Section 6.3(g)),  promptly (i) execute
                  and  deliver  a  first  priority  Mortgage  in  favor  of  the
                  Administrative  Agent, for the benefit of the Secured Parties,
                  covering  such  real  property,   (ii)  if  requested  by  the
                  Administrative  Agent,  provide  the  Lenders  with (x) to the
                  extent available and customary within the jurisdiction of such
                  real property,  title and extended coverage insurance covering
                  such real property in an amount at least equal to the purchase
                  price of such real  property (or such other amount as shall be
                  reasonably specified by the Administrative Agent) as well as a
                  current  ALTA  survey  thereof,  together  with  a  surveyor's
                  certificate  and  (y) any  consents  or  estoppels  reasonably
                  deemed necessary or advisable by the  Administrative  Agent in
                  connection  with such Mortgage,  each of the foregoing in form
                  and substance  reasonably  satisfactory to the  Administrative
                  Agent  and (iii) if  requested  by the  Administrative  Agent,
                  deliver to the Administrative Agent legal opinions relating to
                  the matters  described above,  which opinions shall be in form
                  and substance,  and from counsel,  reasonably  satisfactory to
                  the Administrative Agent.

         (c)      With  respect to any new  Subsidiary  (other  than an Excluded
                  Foreign Subsidiary) created or acquired after the Closing Date
                  (which, for the purposes of this paragraph,  shall include any
                  existing  Subsidiary  that  ceases to be an  Excluded  Foreign
                  Subsidiary)  by  Holdings,   the  Borrower  or  any  of  their
                  respective  Subsidiaries,  promptly (i) execute and deliver to
                  the  Administrative  Agent  such  amendments  to the  Security
                  Agreement  as the  Administrative  Agent  deems  necessary  or
                  advisable  to  grant  to the  Administrative  Agent,  for  the
                  benefit of the Secured  Parties,  a perfected  first  priority
                  security  interest in the Capital Stock of such new Subsidiary
                  that is  owned  by  Holdings,  the  Borrower  or any of  their
                  respective  Subsidiaries,  (ii) deliver to the  Administrative
                  Agent  the  certificates   representing  such  Capital  Stock,
                  together  with undated stock  powers,  in blank,  executed and
                  delivered  by a  duly  authorized  officer  of  Holdings,  the
                  Borrower or such  Subsidiary,  as the case may be, (iii) cause
                  such new  Subsidiary  (A) to  become  a party to the  Security
                  Agreement and (B) to take such actions  necessary or advisable
                  to grant to the  Administrative  Agent for the  benefit of the
                  Secured Parties a perfected first priority  security  interest
                  in the  Collateral  described in the Security  Agreement  with
                  respect to such new Subsidiary, including, without limitation,
                  the filing of Uniform Commercial Code financing  statements in
                  such   jurisdictions  as  may  be  required  by  the  Security
                  Agreement   or  by  law  or  as  may  be   requested   by  the
                  Administrative   Agent,   and   (iv)  if   requested   by  the

                                       48
<PAGE>

                  Administrative  Agent,  deliver  to the  Administrative  Agent
                  legal opinions relating to the matters described above,  which
                  opinions  shall be in form and  substance,  and from  counsel,
                  reasonably satisfactory to the Administrative Agent.

         (d)      With respect to any new Excluded Foreign Subsidiary created or
                  acquired  after the Closing Date by Holdings,  the Borrower or
                  any of their respective  Subsidiaries (other than any Excluded
                  Foreign Subsidiaries), promptly (i) execute and deliver to the
                  Administrative Agent such amendments to the Security Agreement
                  or such other  documents  as the  Administrative  Agent  deems
                  necessary or advisable in order to grant to the Administrative
                  Agent,  for the  benefit of the Secured  Parties,  a perfected
                  first priority  security interest in the Capital Stock of such
                  new Subsidiary that is owned by Holdings,  the Borrower or any
                  of their  respective  Subsidiaries  (other  than any  Excluded
                  Foreign  Subsidiaries),  (provided that in no event shall more
                  than 65% of the total  outstanding  Capital  Stock of any such
                  new Excluded Foreign Subsidiary be required to be so pledged),
                  (ii)  deliver  to the  Administrative  Agent the  certificates
                  representing  such Capital Stock,  together with undated stock
                  powers, in blank,  executed and delivered by a duly authorized
                  officer of Holdings,  the Borrower or such Subsidiary,  as the
                  case may be,  and take such other  action as may be  necessary
                  or, in the opinion of the Administrative  Agent,  desirable to
                  perfect  the Lien of the  Administrative  Agent  thereon,  and
                  (iii) if requested by the Administrative Agent, deliver to the
                  Administrative  Agent legal  opinions  relating to the matters
                  described   above,   which  opinions  shall  be  in  form  and
                  substance,  and from counsel,  reasonably  satisfactory to the
                  Administrative Agent.

         5.11     FURTHER ASSURANCES.  From time to time execute and deliver, or
cause to be executed and delivered, such additional instruments, certificates or
documents,  and take such actions,  as the  Administrative  Agent may reasonably
request for the purposes of implementing or effectuating  the provisions of this
Agreement and the other Loan Documents,  or of more fully perfecting or renewing
the  rights of the  Administrative  Agent and the  Lenders  with  respect to the
Collateral (or with respect to any additions thereto or replacements or proceeds
thereof or with respect to any other  property or assets  hereafter  acquired by
Holdings,  the Borrower or any Subsidiary  which may be deemed to be part of the
Collateral) pursuant hereto or thereto.  Upon the exercise by the Administrative
Agent or any Lender of any power,  right,  privilege or remedy  pursuant to this
Agreement or the other Loan  Documents  which  requires  any consent,  approval,
recording,   qualification  or  authorization  of  any  Governmental  Authority,
Holdings and the Borrower will execute and deliver,  or will cause the execution
and  delivery  of,  all  applications,  certifications,  instruments  and  other
documents  and  papers  that  the  Administrative  Agent or such  Lender  may be
required  to obtain  from  Holdings,  the  Borrower  or any of their  respective
Subsidiaries for such governmental consent, approval,  recording,  qualification
or authorization.

         5.12     COAL RELATED MATTERS; MINING. (a) Each Loan Party shall comply
with the Black Lung Act and all other laws,  rules and  regulations  relating to
coal workers' pneumoconiosis,  workers' compensation and land reclamation in all
material  respects.  To the extent required by GAAP,  maintain adequate reserves
for  (i)  future  costs   associated   with  any  lung  disease  claim  alleging
pneumoconiosis  or silicosis  or arising out of exposure or alleged  exposure to
coal dust or the coal mining  environment,  (ii) future  costs  associated  with
retiree and health care benefits, (iii) future costs associated with reclamation
of  disturbed  acreage,  removal  of  facilities  and  other  closing  costs  in
connection  with its mining  operations  and (iv) future costs  associated  with
other potential environmental liabilities.

                                       49
<PAGE>

         (b)      Each Loan Party shall take all commercially reasonable efforts
                  to ensure that all of its  tenants,  subtenants,  contractors,
                  subcontractors,  and invitees comply in all material  respects
                  with all  applicable  Mining Laws,  and obtain,  comply in all
                  respects  with  and  maintain  any  and  all  material  Mining
                  Permits,  applicable to any of them;  and conduct and complete
                  all  investigations,  studies,  sampling and testing,  and all
                  remedial,  removal  and other  actions  in each case  required
                  under  applicable  Mining  Laws  and  promptly  comply  in all
                  respects  with  all  lawful  orders  and   directives  of  all
                  Governmental  Authorities  regarding  applicable  Mining  Laws
                  except to the extent that the same are being contested in good
                  faith by  appropriate  proceedings  and the  pendency  of such
                  proceedings  would  not  be  reasonably  expected  to  have  a
                  Material Adverse Effect.

         (c)      Each of Holdings and the Borrower shall,  and shall cause each
                  of their  respective  Subsidiaries  to,  cause each Mine being
                  operated by a Loan Party to be operated, maintained, developed
                  and mined and cause the associated processing plants and other
                  fixed and operating assets to be operated and maintained, in a
                  workmanlike manner, as would a prudent coal mine operator, and
                  in accordance with generally accepted mining practices and all
                  applicable  Requirements of Law,  including but not limited to
                  applicable  Mining Laws and  Environmental  Laws, except where
                  the failure to do so would not  reasonably be expected to have
                  a Material Adverse Effect.

         5.13     Post-Closing  Requirements.  (a)  Within  30  days  after  the
Closing Date, each of Holdings and the Borrower  shall,  and shall cause each of
their respective Subsidiaries to deliver to the Administrative Agent all Control
Agreements  that, in the reasonable  judgment of the  Administrative  Agent, are
required  for the Loan  Parties  to comply  with the Loan  Documents,  each duly
executed by, in addition to the applicable Loan Party, the applicable  financial
institution.

         (b)      Within 180 days after the Closing  Date,  the  Borrower  shall
                  deliver mortgages and deeds of trust made by NC Railroad, Inc.
                  in favor of the  Administrative  Agent for the  benefit of the
                  Secured  Parties,  in form and substance  satisfactory  to the
                  Administrative Agent, in its reasonable discretion relating to
                  the railroad properties owned by NC Railroad, Inc.

                         SECTION 6. NEGATIVE COVENANTS

         Holdings and the Borrower  hereby jointly and severally  agree that, so
long as the Term Loan  Commitments  remain in effect,  or any Term Loan or other
amount is owing to any Lender or the  Administrative  Agent  hereunder,  each of
Holdings  and the  Borrower  shall  not,  and  shall  not  permit  any of  their
respective Subsidiaries to, directly or indirectly:

         6.1      Financial Condition Covenants.

         (a)      MINIMUM  CONSOLIDATED  EBITDA.  Permit  Consolidated EBITDA of
                  Holdings and its Subsidiaries as at the last day of any period
                  of four  consecutive  fiscal  quarters of Holdings ending with
                  any fiscal  quarter set forth below to be less than the amount
                  set forth below opposite such fiscal quarter:

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<PAGE>

FISCAL QUARTER                              MINIMUM CONSOLIDATED EBITDA
--------------                              ---------------------------
March 31, 2007                                      $ 5,500,000
June 30, 2007                                       $ 7,900,000
September 30, 2007                                  $10,800,000
December 31, 2007                                   $13,300,000
March 31, 2008                                      $16,200,000
June 30, 2008                                       $18,500,000
September 30, 2008                                  $20,300,000
December 31, 2008                                   $21,600,000
March 31, 2009                                      $23,100,000
June 30, 2009                                       $24,700,000
September 30, 2009                                  $26,200,000
December 31, 2009                                   $27,700,000
March 31, 2010                                      $27,000,000

         (b)      MAXIMUM  CONSOLIDATED  LEVERAGE RATIO. Permit the Consolidated
                  Leverage  Ratio on each day of each  fiscal  quarter set forth
                  below to exceed the ratio set forth below opposite such fiscal
                  quarter:

FISCAL QUARTER                              MAXIMUM CONSOLIDATED LEVERAGE RATIO
--------------                              -----------------------------------
March 31, 2007                                      13.50 to 1.00
June 30, 2007                                        9.75 to 1.00
September 30, 2007                                   7.25 to 1.00
December 31, 2007                                    6.00 to 1.00
March 31, 2008                                       5.00 to 1.00
June 30, 2008                                        4.50 to 1.00
September 30, 2008                                   4.25 to 1.00
December 31, 2008                                    4.00 to 1.00
March 31, 2009                                       3.75 to 1.00
June 30, 2009                                        3.50 to 1.00
September 30, 2009                                   3.25 to 1.00
December 31, 2009                                    3.00 to 1.00
March 31, 2010                                       3.00 to 1.00

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<PAGE>

         (c)      MINIMUM  CONSOLIDATED  INTEREST  COVERAGE  RATIO.  Permit  the
                  Consolidated  Interest  Coverage  Ratio for any period of four
                  consecutive  fiscal  quarters  of Holdings  (or, if less,  the
                  number of full fiscal quarters subsequent to the Closing Date)
                  ending with any fiscal quarter set forth below to be less than
                  the ratio set forth below opposite such fiscal quarter:

FISCAL QUARTER                      MINIMUM CONSOLIDATED INTEREST COVERAGE RATIO
--------------                      --------------------------------------------
March 31, 2007                                      1.25 to 1.00
June 30, 2007                                       1.50 to 1.00
September 30, 2007                                  1.75 to 1.00
December 31, 2007                                   2.00 to 1.00
March 31, 2008                                      2.50 to 1.00
June 30, 2008                                       2.75 to 1.00
September 30, 2008                                  2.75 to 1.00
December 31, 2008                                   3.00 to 1.00
March 31, 2009                                      3.00 to 1.00
June 30, 2009                                       3.00 to 1.00
September 30, 2009                                  3.00 to 1.00
December 31, 2009                                   3.00 to 1.00
March 31, 2010                                      3.00 to 1.00

         (d)      MINIMUM   LIQUIDITY.   Permit  the   Available   Credit   plus
                  unrestricted  cash and Cash Equivalents at any time to be less
                  than $1,000,000.

         6.2      LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
exist any Indebtedness, except:

         (a)      Indebtedness of any Loan Party pursuant to any Loan Document;

         (b)      Indebtedness of a Loan Party to another Loan Party;

         (c)      Indebtedness  (including,  without  limitation,  Capital Lease
                  Obligations)  secured by Liens  permitted by Section 6.3(g) in
                  an aggregate  principal amount not to exceed $3,250,000 at any
                  one time outstanding;

         (d)      Indebtedness  outstanding  on the date  hereof  and  listed on
                  Schedule 6.2(d) and any refinancings,  refundings, renewals or
                  extensions  thereof  (without  any  increase in the  principal
                  amount  thereof  or  any  shortening  of the  maturity  of any
                  principal amount thereof);

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<PAGE>

         (e)      Guarantee  Obligations made in the ordinary course of business
                  by the Borrower or any of its  Subsidiaries  of obligations of
                  the Borrower or any Subsidiary Guarantor;

         (f)      Indebtedness and Guarantee  Obligations in connection with the
                  Senior Secured Note Documents;

         (g)      Indebtedness  in  respect  of  workers'  compensation  claims,
                  payment  obligations in connection  with health or other types
                  of social security  benefits,  unemployment or other insurance
                  or self-insurance obligations, statutory obligations, bankers'
                  acceptances, performance, reclamation, surety or similar bonds
                  and letters of credit and completion or performance guarantees
                  (including,   without   limitation,   performance   guarantees
                  pursuant to coal supply agreements or equipment leases) in the
                  ordinary course of business;

         (h)      Guarantee   Obligations  of  Indebtedness   arising  from  the
                  honoring by a bank or other financial  institution of a check,
                  draft  or  similar  instrument   inadvertently  drawn  against
                  insufficient  funds,  so long as such  Indebtedness is covered
                  within five Business Days;

         (i)      Indebtedness  pursuant  to letters of credit not issued  under
                  this Agreement and used to support any  obligations in respect
                  of unemployment insurance, black lung or other types of social
                  security   benefits,   other   insurance  or  self   insurance
                  arrangements,  reclamation and other  obligations  incurred in
                  connection   with   obtaining   Environmental   Permits,   the
                  performance of bids, tenders,  statutory  obligations,  sales,
                  leases,  contracts  (other than for the  repayment of borrowed
                  money) and surety, appeal,  customs,  performance or return of
                  money bonds and workers' compensation or other types of social
                  security  benefits or to secure the  performance  of statutory
                  obligations,  surety,  appeal and other similar obligations up
                  to an aggregate  principal amount not to exceed $20,000,000 at
                  any time;

         (j)      Permitted Refinancing Indebtedness; and

         (k)      additional Indebtedness of Holdings or any of its Subsidiaries
                  in an  aggregate  principal  amount (for the  Borrower and all
                  Subsidiaries)   not  to  exceed   $500,000  at  any  one  time
                  outstanding.

         6.3      LIMITATION ON LIENS. Create,  incur, assume or suffer to exist
any Lien upon any of its  Property,  whether  now owned or  hereafter  acquired,
except for:

         (a)      Liens for taxes  not yet due or which are being  contested  in
                  good faith by appropriate proceedings,  PROVIDED that adequate
                  reserves with respect  thereto are  maintained on the books of
                  Holdings  or  its  Subsidiaries,   as  the  case  may  be,  in
                  conformity with GAAP;

         (b)      carriers',    warehousemen's,    mechanics',    materialmen's,
                  repairmen's or other like Liens arising in the ordinary course
                  of business which are not overdue for a period of more than 30
                  days or that are being  contested in good faith by appropriate
                  proceedings;

         (c)      pledges or deposits in connection with workers'  compensation,
                  unemployment insurance and other social security legislation;

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<PAGE>

         (d)      deposits to secure the  performance of bids,  trade  contracts
                  (other   than   for   borrowed   money),   leases,   statutory
                  obligations,  surety and appeal bonds,  performance  bonds and
                  other  obligations  of a like nature  incurred in the ordinary
                  course of business;

         (e)      easements,  rights-of-way,   restrictions  and  other  similar
                  encumbrances incurred in the ordinary course of business that,
                  in the aggregate,  are not  substantial in amount and which do
                  not in any  case  materially  detract  from  the  value of the
                  Property  subject  thereto or  materially  interfere  with the
                  ordinary conduct of the business of the Borrower or any of its
                  Subsidiaries;

         (f)      Liens  securing  Indebtedness  permitted by Section  6.2(d) in
                  existence on the date hereof (i) listed on Schedule 6.3(f) and
                  (ii) with respect to leased  equipment,  PROVIDED that no such
                  Lien is  spread  to cover any  additional  Property  after the
                  Closing  Date and  that the  amount  of  Indebtedness  secured
                  thereby is not increased;

         (g)      Liens  securing  Indebtedness  of the  Borrower  or any  other
                  Subsidiary  incurred pursuant to Section 6.2(c) to finance the
                  acquisition of fixed or capital assets, PROVIDED that (i) such
                  Liens shall be created  substantially  simultaneously with the
                  acquisition of such fixed or capital  assets,  (ii) such Liens
                  do not at any  time  encumber  any  Property  other  than  the
                  Property  financed by such  Indebtedness,  (iii) the amount of
                  Indebtedness  secured  thereby is not  increased  and (iv) the
                  amount of Indebtedness  initially  secured thereby is not less
                  than  80%,  or more than  100% of the  purchase  price of such
                  fixed or capital asset;

         (h)      Liens  created  pursuant  to the  Security  Documents  and the
                  Senior  Secured  Note  Documents,  which  liens shall have the
                  priority set forth in the Intercreditor Agreement;

         (i)      any interest or title of a lessor under any lease entered into
                  by the Borrower or any other Subsidiary in the ordinary course
                  of its business and covering only the assets so leased;

         (j)      Liens securing (i)  Indebtedness of Holdings or any Subsidiary
                  incurred  pursuant  to  Section  6.2(i)  and (ii) cash or Cash
                  Equivalents   pledged  in  connection   with  the   supporting
                  obligations incurred by Holdings or any Subsidiary pursuant to
                  Section 6.2(i); and

         (k)      Liens not  otherwise  permitted by this Section 6.3 so long as
                  neither (i) the aggregate  outstanding principal amount of the
                  obligations secured thereby nor (ii) the aggregate fair market
                  value  (determined,  in the case of each such Lien,  as of the
                  date such Lien is  incurred)  of the  assets  subject  thereto
                  exceeds (as to the Borrower and all Subsidiaries)  $250,000 at
                  any one time.

         6.4      LIMITATION  ON  FUNDAMENTAL  CHANGES.  Enter into any  merger,
consolidation  or  amalgamation,  or liquidate,  wind up or dissolve  itself (or
suffer any liquidation or dissolution),  or Dispose of all or substantially  all
of its Property or business, except that:

         (a)      any Subsidiary of Holdings may be merged or consolidated  with
                  or  into  Holdings   (PROVIDED  that  Holdings  shall  be  the
                  continuing  or  surviving  corporation)  or with  or into  any
                  Subsidiary   Guarantor   (PROVIDED  that  (i)  the  Subsidiary
                  Guarantor shall be the continuing or surviving  corporation or
                  (ii) simultaneously  with such transaction,  the continuing or
                  surviving  corporation shall become a Subsidiary Guarantor and
                  the Borrower  shall  comply with  Section  5.10 in  connection
                  therewith);

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<PAGE>

         (b)      any  Subsidiary  of Holdings  may Dispose of any or all of its
                  assets  (upon  voluntary  liquidation  or  otherwise)  to  the
                  Borrower or any Subsidiary Guarantor; and

         (c)      any   Subsidiary  of  Holdings  may   consummate  a  Permitted
                  Acquisition.

         6.5      LIMITATION ON DISPOSITION  OF PROPERTY.  Dispose of any of its
Property (including,  without limitation,  receivables and leasehold interests),
whether  now owned or  hereafter  acquired,  or, in the case of any  Subsidiary,
issue or sell any  shares  of such  Subsidiary's  Capital  Stock to any  Person,
except:

         (a)      the  Disposition  of  obsolete,  damaged,  surplus or worn out
                  property in the ordinary course of business;

         (b)      the sale of inventory in the ordinary course of business;

         (c)      Dispositions permitted by Section 6.4(b);

         (d)      the sale or  issuance  of any  Subsidiary's  Capital  Stock to
                  Holdings, the Borrower or any Subsidiary Guarantor;

         (e)      the Disposition of other assets (i) having a fair market value
                  not to exceed $500,000 in the aggregate for any fiscal year of
                  the Borrower and (ii) at least 75% of the  consideration is in
                  cash and Cash Equivalents; and

         (f)      any Recovery Event, PROVIDED, that the requirements of Section
                  2.6 are complied with in connection therewith;

         6.6      LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any dividend
on, or make any  payment  on  account  of, or set apart  assets for a sinking or
other analogous fund for, the purchase,  redemption,  defeasance,  retirement or
other  acquisition  of, any Capital  Stock of  Holdings,  the Borrower or any of
their respective Subsidiaries, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether in
cash or property or in  obligations  of  Holdings,  the Borrower or any of their
respective Subsidiaries, or enter into any derivatives or other transaction with
any financial  institution,  commodities or stock exchange or  clearinghouse  (a
"DERIVATIVES  COUNTERPARTY")  obligating Holdings,  the Borrower or any of their
respective  Subsidiaries to make payments to such Derivatives  Counterparty as a
result of any change in market  value of any such Capital  Stock  (collectively,
"RESTRICTED PAYMENTS"), except:

         (a)      that Borrower or any Subsidiary may make  Restricted  Payments
                  to Holdings or any Subsidiary Guarantor; and

         (b)      Holdings may make  payments of regularly  scheduled  dividends
                  with respect to the Cumulative  Convertible Series A Preferred
                  Stock so long as,  both  before  and  after  giving  PRO FORMA
                  effect thereto (i) no Default or Event of Default has occurred

                                       55
<PAGE>

                  and is  continuing  (ii) the  Borrower  shall be in PRO  FORMA
                  compliance with the provisions of Section 6.1 (such compliance
                  to be  determined  on  the  basis  of the  required  financial
                  information  most  recently  delivered  to the  Administrative
                  Agent as though  such  Restricted  Payment had been made as of
                  the first day of the fiscal period covered thereby), and (iii)
                  the Available  Credit together with cash and Cash  Equivalents
                  of the Borrower reflected on the consolidated balance sheet of
                  the Borrower shall not be less than $1,500,000.

         6.7      LIMITATION  ON  CAPITAL  EXPENDITURES.  Commencing  January 1,
2007,  make  or  commit  to  make  any  Capital   Expenditure,   except  Capital
Expenditures of Holdings and its Subsidiaries in the ordinary course of business
not exceeding $5,500,000 in any fiscal year; PROVIDED, that (i) up to 50% of any
such amount  referred to above,  if not so expended in the fiscal year for which
it is  permitted,  may be carried over for  expenditure  in the next  succeeding
fiscal year and (ii) Capital Expenditures during any fiscal year shall be deemed
made,  FIRST,  in respect of amounts  permitted for such fiscal year as provided
above and SECOND,  in respect of amounts carried over from the prior fiscal year
pursuant to subclause (i) above.

         6.8      LIMITATION ON INVESTMENTS.  Make any advance,  loan, extension
of credit (by way of  guaranty  or  otherwise)  or capital  contribution  to, or
purchase any Capital Stock,  bonds,  notes,  debentures or other debt securities
of, or any assets  constituting  an  ongoing  business  from,  or make any other
investment in, any other Person (all of the foregoing, "INVESTMENTS"), except:

         (a)      extensions of trade credit in the ordinary course of business;

         (b)      investments in Cash Equivalents;

         (c)      Investments  arising  in  connection  with the  incurrence  of
                  Indebtedness permitted by Section 6.2(b) and (e);

         (d)      loans and advances to  employees of Holdings,  the Borrower or
                  any  Subsidiaries  of the Borrower in the  ordinary  course of
                  business   (including,   without   limitation,   for   travel,
                  entertainment and relocation  expenses) in an aggregate amount
                  for Holdings,  the Borrower and  Subsidiaries  of the Borrower
                  not to exceed $25,000 at any one time outstanding;

         (e)      Investments  (other than those  relating to the  incurrence of
                  Indebtedness  permitted by Section  6.8(c)) by  Holdings,  the
                  Borrower  or any of its  Subsidiaries  in the  Borrower or any
                  Person  that,  prior  to  such  Investment,  is  a  Subsidiary
                  Guarantor; and

         (f)      Investments made pursuant to a Permitted Acquisition;

         (g)      investments in certificates of deposit and similar instruments
                  of  Sevier  County  Bank  in an  amount  not to  exceed  $16.0
                  million,  and used by  Holdings,  the  Borrower  or any of its
                  Subsidiaries  for the sole purpose of enabling  Holdings,  the
                  Borrower  or any of  its  Subsidiaries  to  purchase  or  post
                  reclamation,  surety,  or similar bonds, and any extensions or
                  renewals  thereof,  provided that the aggregate  amount of all
                  such certificates of deposit or similar  instruments shall not
                  exceed $16.0 million; and

                                       56
<PAGE>

         (h)      investments in certificates of deposit and similar instruments
                  with maturities of thirty-six  months or less from the date of
                  acquisition  with any Lender or with any  domestic  commercial
                  bank having  capital  and surplus in excess of $500.0  million
                  and a Thomson  Bank  Watch  Rating of "B" or better  which are
                  used,  in each case,  by Holdings,  the Borrower or any of its
                  Subsidiaries  for the sole purpose of enabling  Holdings,  the
                  Borrower  or any of  its  Subsidiaries  to  purchase  or  post
                  reclamation,  surety,  or similar bonds, and any extensions or
                  renewals thereof.

         6.9      LIMITATION  ON OPTIONAL  PAYMENTS  AND  MODIFICATIONS  OF DEBT
INSTRUMENTS,  ETC.. (a) Make or offer to make any optional or voluntary payment,
prepayment,  repurchase or redemption of, or otherwise voluntarily or optionally
defease,  the Senior  Secured  Notes,  or segregate  funds for any such payment,
prepayment,  repurchase,  redemption or defeasance, or enter into any derivative
or other transaction with any Derivatives  Counterparty obligating Holdings, the
Borrower or any Subsidiary to make payments to such Derivatives  Counterparty as
a result of any change in market value of the Senior Secured  Notes,  (b) amend,
modify or otherwise change, or consent or agree to any amendment,  modification,
waiver or other change to, any of the terms of the Senior Secured Note Documents
(other than any such amendment,  modification,  waiver or other change which (i)
would  extend the  maturity  or reduce the  amount of any  payment of  principal
thereof,  reduce the rate or extend the date for payment of interest  thereon or
relax any covenant or other restriction  applicable to Holdings, the Borrower or
any of their respective  Subsidiaries and (ii) does not involve the payment of a
consent  fee) or (c)  amend  its  certificate  of  incorporation  in any  manner
determined by the Administrative Agent to be adverse to the Lenders.

         6.10     LIMITATION ON  TRANSACTIONS  WITH  AFFILIATES.  Enter into any
transaction,  including,  without  limitation,  any  purchase,  sale,  lease  or
exchange  of  Property,  the  rendering  of any  service  or the  payment of any
management,  advisory or similar fees, with any Affiliate  (other than Holdings,
the  Borrower  or any  Subsidiary  Guarantor)  unless  such  transaction  is (a)
otherwise permitted under this Agreement, (b) in the ordinary course of business
of Holdings,  the Borrower or such Subsidiary,  as the case may be, and (c) upon
fair and reasonable  terms no less  favorable to Holdings,  the Borrower or such
Subsidiary,  as the case may be,  than it would  obtain  in a  comparable  arm's
length transaction with a Person that is not an Affiliate.

         6.11     LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement
with any Person  providing  for the  leasing by  Holdings,  the  Borrower or any
Subsidiary  of real or  personal  property  which  has  been or is to be sold or
transferred  by Holdings,  the Borrower or such  Subsidiary to such Person or to
any other Person to whom funds have been or are to be advanced by such Person on
the security of such property or rental obligations of Holdings, the Borrower or
such Subsidiary.

         6.12     LIMITATION  ON  CHANGES IN FISCAL  PERIODS.  Permit the fiscal
year of  Holdings  to end on a day other than  December  31 or change  Holdings'
method of determining fiscal quarters.

         6.13     LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into or suffer to
exist or become  effective any agreement that prohibits or limits the ability of
Holdings, the Borrower or any of their respective Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of its Property or revenues, whether

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<PAGE>

now owned or hereafter  acquired,  to secure the  Obligations or, in the case of
any guarantor, its obligations under the Security Agreement, other than (a) this
Agreement,  the other Loan Documents, (b) the Senior Secured Note Documents, (c)
any agreements  governing any purchase money Liens or Capital Lease  Obligations
otherwise  permitted  hereby (in which case, any prohibition or limitation shall
only be effective against the assets financed  thereby),  and (d) any agreements
which provide by their express terms that neither the agreement nor any interest
therein may be assigned or pledged without the consent of the other party(ies).

         6.14     LIMITATION ON RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS.  Enter
into or  suffer to exist or  become  effective  any  consensual  encumbrance  or
restriction on the ability of any Subsidiary to (a) make Restricted  Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the  Borrower  or any other  Subsidiary,  (b) make  Investments  in the
Borrower  or any  other  Subsidiary  or (c)  transfer  any of its  assets to the
Borrower or any other  Subsidiary,  except for such encumbrances or restrictions
existing  under or by reason  of (i) any  restrictions  existing  under the Loan
Documents and the Senior  Secured Note  Documents,  (ii) any  restrictions  with
respect to a Subsidiary  imposed  pursuant to an agreement that has been entered
into in  connection  with the  Disposition  of all or  substantially  all of the
Capital  Stock or assets of such  Subsidiary,  and (iii) any  restrictions  with
respect to a Subsidiary  imposed pursuant to agreements to which such Subsidiary
is a party which  provide by their  express terms that neither the agreement nor
any interest  therein may be assigned or pledged by such Subsidiary  without the
consent of the other party(ies).

         6.15     LIMITATION  ON LINES OF  BUSINESS.  Enter  into any  business,
either  directly or through any  Subsidiary  or in  connection  with a Permitted
Acquisition,  except  for  those  businesses  in  which  the  Borrower  and  its
Subsidiaries  are engaged on the date of this  Agreement or that are  reasonably
related thereto.

         6.16     LIMITATION ON HEDGE AGREEMENTS. Enter into any Hedge Agreement
other than Hedge Agreements entered into in the ordinary course of business, and
not for  speculative  purposes,  to protect  against changes in interest rates ,
commodity prices or foreign exchange rates.

                          SECTION 7. EVENTS OF DEFAULT

         If any of the following events shall occur and be continuing:

         (a)      The Borrower  shall fail to pay any principal of any Term Loan
                  when due in accordance with the terms hereof;  or the Borrower
                  shall fail to pay any  interest  on any Term Loan or any other
                  amount  payable  hereunder  or under any other Loan  Document,
                  within  five days  after  any such  interest  or other  amount
                  becomes due in accordance with the terms hereof or thereof; or

         (b)      Any representation or warranty made or deemed made by any Loan
                  Party  herein  or in  any  other  Loan  Document  or  that  is
                  contained in any  certificate,  document or financial or other
                  statement  furnished by it at any time under or in  connection

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<PAGE>

                  with this  Agreement  or any such  other Loan  Document  shall
                  prove to have been inaccurate in any material respect on or as
                  of the date made or deemed made or furnished; or

         (c)      Any Loan Party shall default in the  observance or performance
                  of any agreement  contained in Section 5.4(a) (with respect to
                  Holdings and the Borrower only),  Section 5.7(a) or Section 6,
                  or in Section 4 of the Security Agreement (other than Sections
                  4.1,  4.9 or 4.10) or (ii) an "Event of Default"  under and as
                  defined in any Mortgage shall have occurred and be continuing;
                  or

         (d)      Any Loan Party shall default in the  observance or performance
                  of any other  agreement  contained  in this  Agreement  or any
                  other Loan Document  (other than as provided in paragraphs (a)
                  through (c) of this Section),  and such default shall continue
                  unremedied  for a period  of 15 days (or 30 days for a default
                  in the observance or performance of any agreement contained in
                  Section 5.1 or Section 5.2); or

         (e)      Holdings, the Borrower or any of their respective Subsidiaries
                  shall (i)  default in making any payment of any  principal  of
                  any Indebtedness (including, without limitation, any Guarantee
                  Obligation,  but  excluding  the  Loans) on the  scheduled  or
                  original  due date with  respect  thereto;  or (ii) default in
                  making any payment of any  interest  on any such  Indebtedness
                  beyond the period of grace, if any, provided in the instrument
                  or agreement  under which such  Indebtedness  was created;  or
                  (iii) default in the  observance or  performance  of any other
                  agreement or condition  relating to any such  Indebtedness  or
                  contained in any instrument or agreement evidencing,  securing
                  or  relating  thereto,  or any  other  event  shall  occur  or
                  condition exist, the effect of which default or other event or
                  condition is to cause,  or to permit the holder or beneficiary
                  of such  Indebtedness (or a trustee or agent on behalf of such
                  holder or beneficiary) to cause,  with the giving of notice if
                  required,  such Indebtedness to become due prior to its stated
                  maturity or to become subject to a mandatory offer to purchase
                  by  the  obligor  thereunder  or (in  the  case  of  any  such
                  Indebtedness  constituting  a Guarantee  Obligation) to become
                  payable;   PROVIDED,   that  a  default,  event  or  condition
                  described in clause (i),  (ii) or (iii) of this  paragraph (e)
                  shall not at any time  constitute an Event of Default  unless,
                  at such time,  one or more  defaults,  events or conditions of
                  the type  described  in  clauses  (i),  (ii) and (iii) of this
                  paragraph  (e) shall  have  occurred  and be  continuing  with
                  respect to Indebtedness  the outstanding  principal  amount of
                  which exceeds in the aggregate $500,000; or

         (f)      (i)  Holdings,   the  Borrower  or  any  of  their  respective
                  Subsidiaries  shall  commence  any case,  proceeding  or other
                  action   (A)  under  any   existing   or  future  law  of  any
                  jurisdiction,  domestic  or foreign,  relating to  bankruptcy,
                  insolvency,  reorganization  or relief of debtors,  seeking to
                  have an order  for  relief  entered  with  respect  to it,  or
                  seeking to adjudicate  it a bankrupt or insolvent,  or seeking
                  reorganization,     arrangement,    adjustment,    winding-up,
                  liquidation,  dissolution,  composition  or other  relief with
                  respect to it or its debts,  or (B) seeking  appointment  of a
                  receiver,  trustee,  custodian,  conservator  or other similar
                  official  for it or for  all or any  substantial  part  of its
                  assets,  or Holdings,  the Borrower or any of their respective
                  Subsidiaries  shall make a general  assignment for the benefit
                  of its  creditors;  or (ii) there shall be  commenced  against
                  Holdings, the Borrower or any of their respective Subsidiaries
                  any case,  proceeding or other action of a nature  referred to
                  in clause (i) above that (A)  results in the entry of an order
                  for  relief or any such  adjudication  or  appointment  or (B)
                  remains undismissed,  undischarged or unbonded for a period of
                  45 days; or (iii) there shall be commenced  against  Holdings,

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<PAGE>

                  the Borrower or any of their respective Subsidiaries any case,
                  proceeding  or other action  seeking  issuance of a warrant of
                  attachment,  execution,  distraint or similar  process against
                  all or any substantial  part of its assets that results in the
                  entry of an order for any such relief that shall not have been
                  vacated, discharged, or stayed or bonded pending appeal within
                  30 days from the entry thereof; or (iv) Holdings, the Borrower
                  or any of their respective  Subsidiaries shall take any action
                  in furtherance  of, or indicating its consent to, approval of,
                  or  acquiescence  in, any of the acts set forth in clause (i),
                  (ii), or (iii) above; or (v) Holdings,  the Borrower or any of
                  their respective Subsidiaries shall generally not, or shall be
                  unable to, or shall admit in writing its inability to, pay its
                  debts as they become due; or

         (g)      (i) Any Person  shall engage in any  "prohibited  transaction"
                  (as  defined  in Section  406 of ERISA or Section  4975 of the
                  Code)  involving  any  Plan,  (ii)  any  "accumulated  funding
                  deficiency"  (as defined in Section 302 of ERISA),  whether or
                  not waived,  shall exist with respect to any Plan, or any Lien
                  in favor of the PBGC or a Plan  shall  arise on the  assets of
                  Holdings,  the  Borrower or any  Commonly  Controlled  Entity,
                  (iii) a  Reportable  Event  shall  occur with  respect  to, or
                  proceedings shall commence to have a trustee  appointed,  or a
                  trustee shall be appointed, to administer or to terminate, any
                  Single Employer Plan,  which  Reportable Event or commencement
                  of  proceedings  or  appointment  of  a  trustee  is,  in  the
                  reasonable  opinion of the Required Lenders,  likely to result
                  in the  termination  of such Plan for  purposes of Title IV of
                  ERISA,  (iv) any  Single  Employer  Plan shall  terminate  for
                  purposes of Title IV of ERISA,  (v) Holdings,  the Borrower or
                  any Commonly  Controlled  Entity shall,  or in the  reasonable
                  opinion of the Required  Lenders shall be likely to, incur any
                  liability  in  connection  with  a  withdrawal  from,  or  the
                  Insolvency or Reorganization  of, a Multiemployer Plan or (vi)
                  any other event or condition shall occur or exist with respect
                  to a Plan; and in each case in clauses (i) through (vi) above,
                  such event or  condition,  together with all other such events
                  or  conditions,  if any,  could,  in the sole  judgment of the
                  Required  Lenders,  reasonably  be expected to have a Material
                  Adverse Effect; or

         (h)      One or more  judgments  or decrees  shall be  entered  against
                  Holdings, the Borrower or any of their respective Subsidiaries
                  involving  for  Holdings,  the Borrower  and their  respective
                  Subsidiaries  taken as a whole a liability  (not paid or fully
                  covered  by  insurance  as to  which  the  relevant  insurance
                  company has  acknowledged  coverage) of $500,000 or more,  and
                  all such  judgments  or decrees  shall not have been  vacated,
                  discharged,  stayed or bonded  pending  appeal  within 30 days
                  from the entry thereof; or

         (i)      Any of the  Security  Documents  shall  cease,  for any reason
                  (other than by reason of the express release thereof  pursuant
                  to the terms thereof),  to be in full force and effect, or any
                  Loan Party or any Affiliate of any Loan Party shall so assert,
                  or any Lien  created by any of the  Security  Documents  shall
                  cease to be  enforceable  and of the same effect and  priority
                  purported to be created thereby; or

         (j)      The guarantee contained in Section 2 of the Security Agreement
                  shall  cease,  for any  reason  (other  than by  reason of the
                  express release thereof pursuant to the terms thereof),  to be
                  in full force and effect or any Loan Party or any Affiliate of
                  any Loan Party shall so assert;

         (k)      Any Change of Control shall occur; or

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<PAGE>

         (l)      The  Liens  created   pursuant  to  the  Senior  Secured  Note
                  Documents  shall  cease,   for  any  reason,   to  be  validly
                  subordinated  to the  Obligations  or the  obligations  of the
                  Subsidiary   Guarantors  under  the  Security  Agreement,   as
                  provided in the  Intercreditor  Agreement,  or any Loan Party,
                  any  Affiliate of any Loan Party,  the Note Trustee in respect
                  of the Senior  Secured Notes or the holders of at least 25% in
                  aggregate  principal  amount of the Senior Secured Notes shall
                  so assert;

then, and in any such event, (A) if such event is an Event of Default  specified
in clause  (i) or (ii) of  paragraph  (f)  above,  automatically  the Term Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents shall immediately become due and payable,
and (B) if such  event is any other  Event of  Default  with the  consent of the
Required  Lenders,  the  Administrative  Agent may,  or upon the  request of the
Required  Lenders,  the  Administrative  Agent shall, by notice to the Borrower,
declare the Term Loans hereunder (with accrued  interest  thereon) and all other
amounts owing under this  Agreement  and the other Loan  Documents to be due and
payable forthwith, whereupon the same shall immediately become due and payable.

                      SECTION 8. THE ADMINISTRATIVE AGENT

         8.1      APPOINTMENT.  Each Lender hereby  irrevocably  designates  and
appoints  the  Administrative  Agent as the  agent  of such  Lender  under  this
Agreement and the other Loan Documents,  and each Lender irrevocably  authorizes
the  Administrative  Agent, in such capacity,  to take such action on its behalf
under the  provisions  of this  Agreement  and the other Loan  Documents  and to
exercise such powers and perform such duties as are  expressly  delegated to the
Administrative  Agent  by the  terms  of  this  Agreement  and  the  other  Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding  any provision to the contrary elsewhere in this Agreement,  the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary  relationship with any Lender,  and
no  implied  covenants,  functions,  responsibilities,  duties,  obligations  or
liabilities  shall be read into this  Agreement  or any other Loan  Document  or
otherwise exist against the Administrative Agent.

         8.2      DELEGATION OF DUTIES. The Administrative Agent may execute any
of its duties under this  Agreement  and the other Loan  Documents by or through
agents  or  attorneys-in-fact  and  shall  be  entitled  to  advice  of  counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not  be  responsible   for  the  negligence  or  misconduct  of  any  agents  or
attorneys-in-fact selected by it with reasonable care.

         8.3      EXCULPATORY  PROVISIONS.  Neither the Administrative Agent nor
any  of  its  officers,  directors,  employees,  agents,   attorneys-in-fact  or
affiliates  shall be (i) liable for any action  lawfully  taken or omitted to be
taken by it or such Person  under or in  connection  with this  Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable  decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross  negligence or willful  misconduct)
or (ii)  responsible  in any  manner  to any of the  Lenders  for any  recitals,
statements,  representations or warranties made by any Loan Party or any officer
thereof  contained  in this  Agreement  or any  other  Loan  Document  or in any
certificate, report, statement or other document referred to or provided for in,

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or  received  by the  Administrative  Agent under or in  connection  with,  this
Agreement or any other Loan Document or for the value, validity,  effectiveness,
genuineness,  enforceability  or sufficiency of this Agreement or any other Loan
Document  or for any  failure  of any Loan  Party  to  perform  its  obligations
hereunder  or  thereunder.  The  Administrative  Agent  shall  not be under  any
obligation  to any Lender to  ascertain  or to inquire as to the  observance  or
performance  of any of the  agreements  contained  in, or  conditions  of,  this
Agreement or any other Loan  Document,  or to inspect the  properties,  books or
records of any Loan Party.

         8.4      RELIANCE BY  ADMINISTRATIVE  AGENT. The  Administrative  Agent
shall be entitled to rely,  and shall be fully  protected  in relying,  upon any
instrument,  writing,  resolution,  notice,  consent,  certificate,   affidavit,
letter, telecopy, telex or teletype message,  statement, order or other document
or  conversation  believed  by it to be  genuine  and  correct  and to have been
signed,  sent or made by the  proper  Person  or  Persons  and upon  advice  and
statements of legal counsel (including,  without limitation, counsel to the Loan
Parties),   independent   accountants   and  other   experts   selected  by  the
Administrative  Agent. The Administrative  Agent may deem and treat the payee of
any Term Note as the owner thereof for all purposes  unless such Term Note shall
have been transferred in accordance with Section 9.6 and all actions required by
such  Section  in  connection  with such  transfer  shall have been  taken.  The
Administrative Agent shall be fully justified in failing or refusing to take any
action  under this  Agreement or any other Loan  Document  unless it shall first
receive such advice or concurrence of the Required  Lenders (or, if so specified
by this  Agreement,  all  Lenders  or any  other  instructing  group of  Lenders
specified  by this  Agreement)  as it deems  appropriate  or it  shall  first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action. The  Administrative  Agent shall in all cases be fully protected in
acting,  or in refraining  from acting,  under this Agreement and the other Loan
Documents  in  accordance  with a request of the  Required  Lenders  (or,  if so
specified  by this  Agreement,  all  Lenders or any other  instructing  group of
Lenders  specified by this Agreement),  and such request and any action taken or
failure to act  pursuant  thereto  shall be binding upon all the Lenders and all
future holders of the Term Loans.

         8.5      NOTICE  OF  DEFAULT.  The  Administrative  Agent  shall not be
deemed to have  knowledge or notice of the occurrence of any Default or Event of
Default  hereunder  unless the  Administrative  Agent shall have received notice
from a Lender, Holdings or the Borrower referring to this Agreement,  describing
such  Default or Event of Default and  stating  that such notice is a "notice of
default".  In the event  that the  Administrative  Agent  shall  receive  such a
notice, the Administrative  Agent shall give notice thereof to the Lenders.  The
Administrative  Agent  shall take such action  with  respect to such  Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, if
so specified by this Agreement,  all Lenders or any other  instructing  group of
Lenders  specified  by this  Agreement);  PROVIDED  that  unless  and  until the
Administrative  Agent shall have received such  directions,  the  Administrative
Agent may (but shall not be  obligated  to) take such  action,  or refrain  from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.

         8.6      NON-RELIANCE ON ADMINISTRATIVE  AGENT AND OTHER LENDERS.  Each
Lender expressly  acknowledges that neither the Administrative  Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates have
made  any   representations  or  warranties  to  it  and  that  no  act  by  the

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Administrative  Agent hereafter taken,  including any review of the affairs of a
Loan Party or any affiliate of a Loan Party,  shall be deemed to constitute  any
representation  or warranty  by the  Administrative  Agent to any  Lender.  Each
Lender  represents to the  Administrative  Agent that it has,  independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such  documents  and  information  as it has  deemed  appropriate,  made its own
appraisal  of  and  investigation  into  the  business,  operations,   property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Term Loans  hereunder and enter
into this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such  documents  and  information  as it shall  deem  appropriate  at the  time,
continue to make its own credit analysis,  appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such  investigation  as it deems  necessary to inform itself as to the business,
operations,  property, financial and other condition and creditworthiness of the
Loan  Parties  and their  affiliates.  Except  for  notices,  reports  and other
documents   expressly   required  to  be   furnished   to  the  Lenders  by  the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or  responsibility  to provide any Lender  with any credit or other  information
concerning  the  business,   operations,   property,   condition  (financial  or
otherwise),  prospects or creditworthiness of any Loan Party or any affiliate of
a Loan Party that may come into the  possession of the  Administrative  Agent or
any  of  its  officers,  directors,  employees,  agents,   attorneys-in-fact  or
affiliates.

         8.7      INDEMNIFICATION.   The   Lenders   agree  to   indemnify   the
Administrative  Agent in its capacity as such (to the extent not  reimbursed  by
Holdings or the Borrower and without  limiting the obligation of Holdings or the
Borrower to do so),  ratably  according to their respective  Aggregate  Exposure
Percentages in effect on the date on which  indemnification is sought under this
Section  (or, if  indemnification  is sought  after the date upon which the Term
Loan  Commitments  shall have terminated and the Term Loans shall have been paid
in  full,  ratably  in  accordance  with  such  Aggregate  Exposure  Percentages
immediately  prior to such  date),  for,  and to save the  Administrative  Agent
harmless  from  and  against,  any and  all  liabilities,  obligations,  losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever that may at any time (including,  without limitation,  at
any time following the payment of the Term Loans) be imposed on,  incurred by or
asserted against the Administrative  Agent in any way relating to or arising out
of, the Term Loan Commitments,  this Agreement,  any of the other Loan Documents
or any  documents  contemplated  by or  referred  to  herein or  therein  or the
transactions  contemplated  hereby or thereby or any action  taken or omitted by
the  Administrative  Agent  under or in  connection  with any of the  foregoing;
PROVIDED  that no Lender  shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or  disbursements  that are found by a final and  nonappealable
decision  of a court  of  competent  jurisdiction  to  have  resulted  from  the
Administrative Agent's gross negligence or willful misconduct. The agreements in
this Section  shall  survive the payment of the Term Loans and all other amounts
payable hereunder.

         8.8      ADMINISTRATIVE   AGENT  IN  ITS   INDIVIDUAL   CAPACITY.   The
Administrative  Agent and its affiliates may make loans to, accept deposits from
and  generally  engage in any kind of business with any Loan Party as though the
Administrative Agent were not the Administrative Agent. With respect to its Term

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Loans made or renewed by it, the Administrative Agent shall have the same rights
and powers under this  Agreement and the other Loan  Documents as any Lender and
may exercise the same as though it were not the  Administrative  Agent,  and the
terms  "Lender" and  "Lenders"  shall  include the  Administrative  Agent in its
individual capacity.

         8.9      SUCCESSOR  ADMINISTRATIVE  AGENT. The Administrative Agent may
resign as  Administrative  Agent  upon 10 days'  notice to the  Lenders  and the
Borrower. If the Administrative Agent shall resign as Administrative Agent under
this  Agreement and the other Loan  Documents,  then the Required  Lenders shall
appoint  from  among  the  Lenders a  successor  agent  for the  Lenders,  which
successor  agent shall (unless an Event of Default under Section 7(a) or Section
7(f) with respect to the Borrower  shall have  occurred  and be  continuing)  be
subject to approval by the Borrower  (which  approval shall not be  unreasonably
withheld or  delayed),  whereupon  such  successor  agent  shall  succeed to the
rights,   powers  and  duties  of  the   Administrative   Agent,  and  the  term
"Administrative  Agent"  shall mean such  successor  agent  effective  upon such
appointment and approval,  and the former Administrative  Agent's rights, powers
and duties as  Administrative  Agent shall be  terminated,  without any other or
further  act or deed on the part of such former  Administrative  Agent or any of
the parties to this Agreement or any holders of the Term Loans.  If no successor
agent has accepted  appointment as  Administrative  Agent by the date that is 10
days  following a retiring  Administrative  Agent's notice of  resignation,  the
retiring  Administrative Agent's resignation shall nevertheless thereupon become
effective,  and the  Lenders  shall  assume and perform all of the duties of the
Administrative  Agent hereunder until such time, if any, as the Required Lenders
appoint  a  successor   agent  as  provided   for  above.   After  any  retiring
Administrative  Agent's  resignation as Administrative  Agent, the provisions of
this Section 8 shall inure to its benefit as to any actions  taken or omitted to
be taken by it while it was the  Administrative  Agent under this  Agreement and
the other Loan Documents.

         8.10     AUTHORIZATION   TO   RELEASE   LIENS   AND   GUARANTEES.   The
Administrative Agent is hereby irrevocably  authorized by each of the Lenders to
effect any release of Liens or guarantee obligations contemplated by Section 5.1
of the Intercreditor Agreement.

                            SECTION 9. MISCELLANEOUS

         9.1      AMENDMENTS  AND WAIVERS.  Neither this  Agreement or any other
Loan Document,  nor any terms hereof or thereof may be amended,  supplemented or
modified  except in  accordance  with the  provisions  of this  Section 9.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may, or
(with the written consent of the Required Lenders) the Administrative  Agent and
each Loan Party party to the relevant Loan Document may, from time to time,  (a)
enter into written  amendments,  supplements or modifications  hereto and to the
other Loan Documents  (including  amendments and restatements hereof or thereof)
for the purpose of adding any  provisions  to this  Agreement  or the other Loan
Documents  or  changing  in any manner the rights of the  Lenders or of the Loan
Parties  hereunder or thereunder or (b) waive,  on such terms and  conditions as
may be specified in the instrument of waiver,  any of the  requirements  of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences;  PROVIDED,  HOWEVER,  that no such  waiver and no such  amendment,
supplement or modification shall:

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                  (i)      forgive  the  principal  amount or  extend  the final
                           scheduled  date of maturity of any Term Loan,  extend
                           the  scheduled  date of any  amortization  payment in
                           respect of any Term Loan,  reduce the stated  rate of
                           any  interest or fee payable  hereunder or extend the
                           scheduled  date of any payment  thereof,  or increase
                           the amount or extend the expiration  date of any Term
                           Loan  Commitment  of any Lender;  require  additional
                           consents to be obtained  with  respect to the sale or
                           any assignment or  participations of any interests of
                           the  Lenders  hereunder,  in each  case  without  the
                           consent of the  Administrative  Agent and each Lender
                           directly affected thereby;

                  (ii)     amend, modify or waive any provision of this Section,
                           or reduce any  percentage  specified  in or otherwise
                           amend or modify the  definition of Required  Lenders,
                           consent to the assignment or transfer by the Borrower
                           of any of  its  rights  and  obligations  under  this
                           Agreement and the other Loan  Documents,  release all
                           or substantially all of the Collateral or release all
                           or  substantially  all of the  Subsidiary  Guarantors
                           from their guarantee  obligations  under the Security
                           Agreement,  in each case  without  the consent of the
                           Administrative Agent and all Lenders;

                  (iii)    reduce the percentage  specified in the definition of
                           Required  Lenders  without the written consent of the
                           Administrative Agent and all Lenders;

                  (iv)     amend, modify or waive any provision of Section 8, or
                           any other  provision of this Agreement  affecting the
                           rights and obligations of the  Administrative  Agent,
                           without the consent of the Administrative Agent; or

                  (v)      amend,  modify or waive any provision of Section 2.12
                           without the consent of the  Administrative  Agent and
                           each Lender directly affected thereby.

Any such waiver and any such amendment,  supplement or modification  shall apply
equally to each of the Lenders and shall be binding upon the Loan  Parties,  the
Lenders,  the Administrative  Agent and all future holders of the Term Loans. In
the case of any waiver,  the Loan  Parties,  the Lenders and the  Administrative
Agent shall be restored to their former position and rights  hereunder and under
the other Loan  Documents,  and any Default or Event of Default  waived shall be
deemed to be cured and not  continuing;  but no such waiver  shall extend to any
subsequent or other Default or Event of Default,  or impair any right consequent
thereon.  Any  such  waiver,  amendment,  supplement  or  modification  shall be
effected by a written instrument signed by the parties required to sign pursuant
to the  foregoing  provisions  of this  Section;  PROVIDED,  that delivery of an
executed  signature page of any such instrument by facsimile  transmission shall
be effective as delivery of a manually executed counterpart thereof.

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<PAGE>

                  If, in connection with any proposed  amendment,  modification,
waiver or  termination  (a  "PROPOSED  CHANGE")  requiring  the  consent  of all
affected Lenders, the consent of Required Lenders is obtained but the consent of
other  Lenders  whose consent is required is not obtained (any such Lender whose
consent is not obtained as described in this Section 9.1 being  referred to as a
"NON-CONSENTING   LENDER"),   then,   so  long  as  the  Lender  acting  as  the
Administrative Agent is not a Non-Consenting  Lender, at the Borrower's request,
an Eligible Assignee acceptable to the Administrative Agent shall have the right
with  the  Administrative  Agent's  consent  and in the  Administrative  Agent's
reasonable  discretion  (but shall have no  obligation)  to  purchase  from such
Non-Consenting Lender, and such Non-Consenting Lender agrees that it shall, upon
the Administrative  Agent's request, sell and assign to the Lender acting as the
Administrative Agent or such Eligible Assignee, all of the applicable Term Loans
of such  Non-Consenting  Lender for an amount equal to the principal  balance of
all  applicable  Term Loans held by the  Non-Consenting  Lender and all  accrued
interest  and fees with  respect  thereto  through  the date of sale;  PROVIDED,
HOWEVER,  that such  purchase and sale shall not be  effective  until (i) in the
case of any Proposed Change which reduces the stated rate of any interest or fee
payable hereunder,  the Borrower shall have paid such  Non-Consenting  Lender an
amount equal to the prepayment  premium set forth in Section 2.5(b),  if any, on
the  aggregate  outstanding  principal  amount of all Term Loans subject to such
sale  and  purchase  (which  sale  and  purchase  shall  constitute  a  optional
prepayment  of such Term  Loans) and (ii) the  Administrative  Agent  shall have
received  from  such  Eligible  Assignee  an  agreement  in form  and  substance
satisfactory to the Administrative  Agent and the Borrower whereby such Eligible
Assignee  shall agree to be bound by the terms hereof.  Each Lender agrees that,
if it becomes a  Non-Consenting  Lender,  it shall  execute  and  deliver to the
Administrative  Agent an  Assignment  an  Acceptance  to evidence  such sale and
purchase  and shall  deliver to the  Administrative  Agent any Term Note (if the
assigning  Lender's  Term Loans are  evidenced  by Term  Notes)  subject to such
Assignment  and  Acceptance;   PROVIDED,   HOWEVER,  that  the  failure  of  any
Non-Consenting  Lender to execute an Assignment and Acceptance  shall not render
such sale and purchase (and the corresponding assignment) invalid.

         9.2      NOTICES.  All  notices,  requests  and  demands to or upon the
respective  parties  hereto to be effective  shall be in writing  (including  by
telecopy or by electronic  mail in "portable  document  format"  (".pdf") form),
and, unless otherwise  expressly  provided herein,  shall be deemed to have been
duly given or made when delivered,  or three Business Days after being deposited
in the mail, postage prepaid, or, in the case of telecopy notice, when received,
addressed  (a) in the case of  Holdings,  the  Borrower  and the  Administrative
Agent,  as  follows  and (b) in the  case of the  Lenders,  as set  forth  in an
administrative  questionnaire  delivered to the Administrative  Agent or, in the
case of a  Lender  which  becomes  a  party  to this  Agreement  pursuant  to an
Assignment and Acceptance,  in such Assignment and Acceptance or (c) in the case
of any party,  to such other address as such party may  hereafter  notify to the
other parties hereto:

         Holdings and the Borrower:  National Coal Corp.
                                     8915 George Williams Road
                                     Knoxville, Tennessee  37923
                                     Attention:  Chief Financial Officer
                                     Telecopy:  (865) 691-9982
                                     Email: mlove@nationalcoal.com

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<PAGE>

         with a copy to:             Stubbs Alderton & Markiles, LLP
                                     15260 Ventura Boulevard, 20th Floor
                                     Sherman Oaks, California 91403
                                     Attention:  John McIlvery, Esq.
                                     Telecopy:  (818) 474-8602
                                     Email: jmcilvery@biztechlaw.com

         The Administrative Agent:   Guggenheim Corporate Funding, LLC
                                     135 East 57th Street
                                     New York, New York 10022
                                     Attention:  Managing Director/Tony Minella
                                     Telecopy: (212) 644-8107
                                     E-Mail: tony.minella@guggenheimpartners.com

         with a copy to:             Weil, Gotshal & Manges LLP
                                     767 Fifth Avenue,
                                     New York, New York 10153-0119
                                     Attention:  Douglas Urquhart, Esq.
                                     Telecopy:  (212) 310-8007
                                     E-Mail: douglas.urquhart@weil.com

PROVIDED that any notice,  request or demand to or upon the Administrative Agent
or any other Lender shall not be effective until received.

         9.3      NO WAIVER;  CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising,  on the part of the Administrative Agent or any Lender, any
right,  remedy,  power or privilege  hereunder or under the other Loan Documents
shall operate as a waiver thereof;  nor shall any single or partial  exercise of
any right,  remedy,  power or privilege  hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights,  remedies,  powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.

         9.4      SURVIVAL    OF    REPRESENTATIONS    AND    WARRANTIES.    All
representations  and warranties made herein,  in the other Loan Documents and in
any  document,   certificate  or  statement  delivered  pursuant  hereto  or  in
connection  herewith  shall survive the execution and delivery of this Agreement
and the making of the Term Loans and other extensions of credit hereunder.

         9.5      PAYMENT  OF  EXPENSES.  The  Borrower  agrees  (a)  to  pay or
reimburse the Administrative Agent for all their reasonable  out-of-pocket costs
and  expenses  incurred  in  connection  with the  syndication  of the Term Loan

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Facility and the  development,  preparation and execution of, and any amendment,
supplement or  modification  to, this Agreement and the other Loan Documents and
any other  documents  prepared  in  connection  herewith or  therewith,  and the
consummation  and  administration  of the transactions  contemplated  hereby and
thereby,  including,  without limitation,  the reasonable fees and disbursements
and other  charges  of counsel to the  Administrative  Agent and the  charges of
Intralinks, (b) to pay or reimburse each Lender and the Administrative Agent for
all their costs and expenses  incurred in  connection  with the  enforcement  or
preservation  of any rights under this  Agreement,  the other Loan Documents and
any other  documents  prepared in connection  herewith or therewith,  including,
without  limitation,  the fees  and  disbursements  of  counsel  (including  the
allocated fees and  disbursements and other charges of in-house counsel) to each
such Lender and of counsel to the Administrative  Agent, (c) to pay,  indemnify,
or reimburse each Lender and the Administrative  Agent for, and hold each Lender
and the  Administrative  Agent  harmless  from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying,  stamp,  excise  and  other  taxes,  if any,  which  may be  payable  or
determined  to be payable in  connection  with the execution and delivery of, or
consummation or  administration  of any of the transactions  contemplated by, or
any amendment,  supplement or modification of, or any waiver or consent under or
in respect  of,  this  Agreement,  the other Loan  Documents  and any such other
documents and (d) to pay, indemnify or reimburse each Lender, the Administrative
Agent, their respective  affiliates,  and their respective officers,  directors,
trustees,  employees,   advisors,  agents  and  controlling  persons  (each,  an
"INDEMNITEE")  for, and hold each  Indemnitee  harmless from and against any and
all  other  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,  the other Loan Documents and any such other
documents,  including,  without limitation, any of the foregoing relating to the
use of proceeds of the Term Loans or the  violation  of,  noncompliance  with or
liability under, any Environmental Law applicable to the operations of Holdings,
the Borrower or any of their respective  Subsidiaries or any of their Properties
and the fees and  disbursements and other charges of legal counsel in connection
with  claims,  actions or  proceedings  by any  Indemnitee  against the Borrower
hereunder (all the foregoing in this clause (d), collectively,  the "INDEMNIFIED
LIABILITIES"), PROVIDED, that the Borrower shall have no obligation hereunder to
any  Indemnitee  with  respect to  Indemnified  Liabilities  to the extent  such
Indemnified  Liabilities  are found by a final and  nonappealable  decision of a
court  of  competent  jurisdiction  to  have  resulted  solely  from  the  gross
negligence or willful  misconduct  of such  Indemnitee.  No Indemnitee  shall be
liable  for  any  damages  arising  from  the  use by  unauthorized  persons  of
information or other materials sent through  electronic,  telecommunications  or
other information  transmission  systems that are intercepted by such persons or
for any special, indirect,  consequential or punitive damages in connection with
the Term Loan  Facility.  Without  limiting  the  foregoing,  and to the  extent
permitted by applicable  law, the Borrower agrees not to assert and to cause its
Subsidiaries  not  to  assert,  and  hereby  waives  and  agrees  to  cause  its
Subsidiaries  so to waive,  all rights for  contribution  or any other rights of
recovery with respect to all claims,  demands,  penalties,  fines,  liabilities,
settlements,  damages,  costs and expenses of whatever kind or nature,  under or
related  to  Environmental  Laws,  that any of them  might  have by  statute  or
otherwise  against any  Indemnitee.  All amounts due under this Section shall be
payable not later than 30 days after written demand therefor. Statements payable
by the Borrower  pursuant to this Section  shall be submitted to the Borrower at

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the address of the Borrower set forth in Section 9.2, or to such other Person or
address  as may be  hereafter  designated  by the  Borrower  in a notice  to the
Administrative  Agent. The agreements in this Section shall survive repayment of
the Term Loans and all other amounts payable hereunder.

         9.6      SUCCESSORS AND ASSIGNS;  PARTICIPATIONS  AND ASSIGNMENTS.  (a)
This Agreement  shall be binding upon and inure to the benefit of Holdings,  the
Borrower,  the Lenders, the Administrative Agent, all future holders of the Term
Loans and their respective successors and assigns,  except that the Borrower may
not assign or transfer  any of its rights or  obligations  under this  Agreement
without the prior written consent of the Administrative Agent and each Lender.

         (b)      Any  Lender  may,  without  the  consent of the  Borrower,  in
                  accordance  with  applicable  law,  at any time sell to one or
                  more banks,  financial institutions or other entities (each, a
                  "PARTICIPANT")  participating interests in any Term Loan owing
                  to such Lender or any other interest of such Lender  hereunder
                  and under the other Loan  Documents.  In the event of any such
                  sale by a Lender of a participating interest to a Participant,
                  such Lender's  obligations  under this  Agreement to the other
                  parties to this Agreement shall remain unchanged,  such Lender
                  shall remain solely  responsible for the performance  thereof,
                  such Lender  shall remain the holder of any such Term Loan for
                  all  purposes   under  this   Agreement  and  the  other  Loan
                  Documents, and the Borrower and the Administrative Agent shall
                  continue  to deal  solely  and  directly  with such  Lender in
                  connection  with such Lender's  rights and  obligations  under
                  this Agreement and the other Loan Documents. In no event shall
                  any Participant under any such participation have any right to
                  approve any  amendment or waiver of any  provision of any Loan
                  Document,  or any consent to any  departure  by any Loan Party
                  therefrom, except to the extent that such amendment, waiver or
                  consent would  require the consent of all Lenders  pursuant to
                  Section 9.1. The Borrower  agrees that if amounts  outstanding
                  under this Agreement and the Term Loans are due or unpaid,  or
                  shall have been  declared or shall have become due and payable
                  upon the occurrence of an Event of Default,  each  Participant
                  shall,  to the maximum extent  permitted by applicable law, be
                  deemed  to  have  the  right  of  setoff  in  respect  of  its
                  participating  interest in amounts owing under this  Agreement
                  to the  same  extent  as if the  amount  of its  participating
                  interest  were  owing  directly  to it as a Lender  under this
                  Agreement,  PROVIDED  that, in purchasing  such  participating
                  interest,  such Participant  shall be deemed to have agreed to
                  share with the  Lenders  the  proceeds  thereof as provided in
                  Section 9.7(a) as fully as if such  Participant  were a Lender
                  hereunder.  The  Borrower  also agrees  that each  Participant
                  shall be entitled to the benefits of Sections  2.13,  2.14 and
                  2.15  with  respect  to its  participation  in the Term  Loans
                  outstanding  from time to time as if such  Participant  were a
                  Lender;  PROVIDED  that,  in the case of  Section  2.14,  such
                  Participant  shall have complied with the requirements of said
                  Section,  PROVIDED,  FURTHER,  that no  Participant  shall  be
                  entitled to receive any  greater  amount  pursuant to any such
                  Section than the transferor Lender would have been entitled to
                  receive  in  respect  of  the  amount  of  the   participation
                  transferred by such transferor  Lender to such Participant had
                  no such transfer occurred.

         (c)      Any Lender (an "ASSIGNOR")  may, in accordance with applicable
                  law and upon written notice to the  Administrative  Agent,  at
                  any time and from time to time assign to any Eligible Assignee
                  or,  with the  consent  of the  Administrative  Agent  and the
                  Borrower  (which,  in each  case,  shall  not be  unreasonably
                  withheld  or  delayed),   to  an  additional  bank,  financial
                  institution or other entity (each,  an "ASSIGNEE")  all or any
                  part  of its  rights  and  obligations  under  this  Agreement

                                       69
<PAGE>

                  pursuant to an Assignment and Acceptance, substantially in the
                  form of Exhibit D (an "ASSIGNMENT AND  ACCEPTANCE"),  executed
                  by such Assignee and such Assignor (and,  where the consent of
                  the Administrative Agent and the Borrower is required pursuant
                  to the foregoing  provisions,  by the Administrative Agent and
                  the Borrower) and  delivered to the  Administrative  Agent for
                  its acceptance and recording in the Register; PROVIDED that no
                  such  assignment to an Assignee  (other than any Lender or any
                  Affiliate,   Related  Fund  or  Control  Investment  Affiliate
                  thereof)  shall be in an  aggregate  principal  amount of less
                  than  $1,000,000  (other than in the case of an  assignment of
                  all of a  Lender's  interests  under this  Agreement),  unless
                  otherwise  agreed  by  the  Administrative  Agent.  Upon  such
                  execution,  delivery, acceptance and recording, from and after
                  the effective date determined  pursuant to such Assignment and
                  Acceptance,  (x)  the  Assignee  thereunder  shall  be a party
                  hereto and,  to the extent  provided  in such  Assignment  and
                  Acceptance,  have  the  rights  and  obligations  of a  Lender
                  hereunder  with Term Loans as set forth  therein,  and (y) the
                  Assignor  thereunder  shall,  to the extent  provided  in such
                  Assignment and  Acceptance,  be released from its  obligations
                  under this  Agreement  (and, in the case of an Assignment  and
                  Acceptance   covering   all  of  an   Assignor's   rights  and
                  obligations under this Agreement, such Assignor shall cease to
                  be a party hereto,  except as to Section 2.13, 2.14 and 9.5 in
                  respect  of the  period  prior to such  effective  date).  For
                  purposes of the minimum  assignment  amounts set forth in this
                  paragraph,  multiple  assignments by two or more Related Funds
                  shall be  aggregated.  Notwithstanding  any  provision of this
                  Section, the consent of the Borrower shall not be required for
                  any  assignment  that  occurs  at any time  when any  Event of
                  Default shall have occurred and be continuing.

         (d)      The  Administrative  Agent shall,  on behalf of the  Borrower,
                  maintain at its  address  referred to in Section 9.2 a copy of
                  each Assignment and Acceptance  delivered to it and a register
                  (the   "REGISTER")  for  the  recordation  of  the  names  and
                  addresses of the Lenders and the Term Loan  Commitment of, and
                  principal  amount of the Term Loans owing to, each Lender from
                  time to time. The entries in the Register shall be conclusive,
                  in the  absence  of  manifest  error,  and the  Borrower,  the
                  Administrative  Agent and the Lenders  shall treat each Person
                  whose name is  recorded  in the  Register  as the owner of the
                  Term  Loans and any Term  Notes  evidencing  such  Term  Loans
                  recorded  therein  for all  purposes  of this  Agreement.  Any
                  assignment  of any Term Loan,  whether or not  evidenced  by a
                  Term Note,  shall be effective only upon  appropriate  entries
                  with respect thereto being made in the Register (and each Term
                  Note shall  expressly so provide).  Any assignment or transfer
                  of all or part of a Term Loan  evidenced  by a Term Note shall
                  be  registered  on  the  Register  only  upon   surrender  for
                  registration  of  assignment  or  transfer  of the  Term  Note
                  evidencing  such Term  Loan,  accompanied  by a duly  executed
                  Assignment  and  Acceptance;  thereupon  one or more  new Term
                  Notes in the same aggregate  principal  amount shall be issued
                  to the  designated  Assignee,  and the old Term Notes shall be
                  returned by the  Administrative  Agent to the Borrower  marked
                  "canceled".

         (e)      Upon its receipt of an Assignment and  Acceptance  executed by
                  an  Assignor  and an  Assignee  (and,  in any case  where  the
                  consent of any other Person is required by Section 9.6(c),  by
                  each  such  other   Person)   together  with  payment  to  the
                  Administrative  Agent of a registration  and processing fee of
                  $3,500 (treating multiple,  simultaneous  assignments by or to
                  two or more Related Funds as a single assignment) (except that
                  no such  registration  and  processing fee shall be payable in
                  the case of an  Assignee  which is  already  a Lender or is an
                  affiliate or Related Fund of a Lender or a Person under common
                  management with a Lender),  the Administrative Agent shall (i)
                  promptly accept such Assignment and Acceptance and (ii) on the

                                       70
<PAGE>

                  effective  date   determined   pursuant   thereto  record  the
                  information  contained therein in the Register and give notice
                  of such  acceptance  and  recordation  to the Borrower.  On or
                  prior  to  such  effective  date,  the  Borrower,  at its  own
                  expense,  upon  request,  shall  execute  and  deliver  to the
                  Administrative  Agent  (in  exchange  for the Term Note of the
                  assigning  Lender)  a new  Term  Note  to the  order  of  such
                  Assignee  in an amount  equal to the  applicable  Term  Loans,
                  assumed or  acquired by it  pursuant  to such  Assignment  and
                  Acceptance and, if the Assignor has retained Term Loans,  upon
                  request,  a new Term Note to the order of the  Assignor  in an
                  amount equal to the applicable Term Loans, as the case may be,
                  retained  by it  hereunder.  Such new Term Note or Term  Notes
                  shall be dated the Closing Date or Delayed Draw Funding  Date,
                  as applicable,  and shall otherwise be in the form of the Term
                  Note or Term Notes replaced thereby.

         (f)      The parties to this Agreement  acknowledge that the provisions
                  of this Section concerning  assignments of Term Loans and Term
                  Notes  relate  only to  absolute  assignments  and  that  such
                  provisions  do  not  prohibit  assignments  creating  security
                  interests  in Term Loans and Term  Notes,  including,  without
                  limitation,  any pledge or  assignment by a Lender of any Term
                  Loan or Term Note to any Federal  Reserve  Bank in  accordance
                  with applicable law.

         9.7      ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITED LENDER")
shall at any time receive any payment of all or part of the Obligations owing to
it, or  receive  any  collateral  in respect  thereof  (whether  voluntarily  or
involuntarily,  by  set-off,  pursuant  to events or  proceedings  of the nature
referred to in Section 7(f), or  otherwise),  in a greater  proportion  than any
such payment to or collateral  received by any other Lender,  if any, in respect
of such other Lender's  Obligations,  such  Benefited  Lender shall purchase for
cash from the other  Lenders a  participating  interest in such  portion of each
such other  Lender's  Obligations,  or shall provide such other Lenders with the
benefits of any such  collateral,  as shall be necessary to cause such Benefited
Lender to share the excess payment or benefits of such  collateral  ratably with
each of the  Lenders;  PROVIDED,  HOWEVER,  that if all or any  portion  of such
excess payment or benefits is thereafter  recovered from such Benefited  Lender,
such purchase shall be rescinded,  and the purchase price and benefits returned,
to the extent of such recovery, but without interest.

         (b)      In addition to any rights and remedies of the Lenders provided
                  by law, each Lender shall have the right, without prior notice
                  to Holdings or the Borrower,  any such notice being  expressly
                  waived by Holdings and the Borrower to the extent permitted by
                  applicable  law,  upon any amount  becoming due and payable by
                  Holdings  or the  Borrower  hereunder  (whether  at the stated
                  maturity,  by  acceleration  or  otherwise),  to set  off  and
                  appropriate and apply against such amount any and all deposits
                  (general or special, time or demand, provisional or final), in
                  any currency,  and any other credits,  indebtedness or claims,
                  in any  currency,  in each case  whether  direct or  indirect,
                  absolute or contingent, matured or unmatured, at any time held
                  or owing by such Lender or any branch or agency  thereof to or
                  for the credit or the account of Holdings or the Borrower,  as
                  the case may be.  Each  Lender  agrees  promptly to notify the
                  Borrower  and the  Administrative  Agent after any such setoff
                  and application made by such Lender, PROVIDED that the failure
                  to give such  notice  shall not  affect the  validity  of such
                  setoff and application.

                                       71
<PAGE>

         9.8      COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts  taken together shall be deemed to constitute one and the same
instrument.  Delivery  of an  executed  signature  page  of  this  Agreement  by
facsimile  transmission,  by  electronic  mail  in  "portable  document  format"
(".pdf")  form,  or by any other  electronic  means  intended  to  preserve  the
original graphic and pictorial  appearance of a document,  shall be effective as
delivery of a manually executed  counterpart hereof. A set of the copies of this
Agreement  signed by all the parties  shall be lodged with the  Borrower and the
Administrative Agent. 9.9 SEVERABILITY.  Any provision of this Agreement that 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.

         9.10     INTEGRATION.  This  Agreement  and the  other  Loan  Documents
represent the entire  agreement of Holdings,  the Borrower,  the  Administrative
Agent and the Lenders with respect to the subject matter hereof and thereof, and
there  are no  promises,  undertakings,  representations  or  warranties  by the
Administrative  Agent or any  Lender  relative  to  subject  matter  hereof  not
expressly set forth or referred to herein or in the other Loan Documents.

         9.11     GOVERNING LAW. THIS  AGREEMENT AND THE RIGHTS AND  OBLIGATIONS
OF THE PARTIES  UNDER THIS  AGREEMENT  SHALL BE GOVERNED BY, AND  CONSTRUED  AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

         9.12     SUBMISSION TO JURISDICTION;  WAIVERS. Each of Holdings and the
Borrower hereby irrevocably and unconditionally:

         (a)      submits  for itself and its  Property  in any legal  action or
                  proceeding  relating  to this  Agreement  and the  other  Loan
                  Documents  to  which  it is a party,  or for  recognition  and
                  enforcement  of  any  judgment  in  respect  thereof,  to  the
                  non-exclusive  general jurisdiction of the courts of the State
                  of New York,  the courts of the United  States of America  for
                  the Southern  District of New York, and appellate  courts from
                  any thereof;

         (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 Holdings or the Borrower,
                  as the case may be at its  address set forth in Section 9.2 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

                                       72
<PAGE>

         (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 referred to in this Section any special, exemplary,
                  punitive or consequential damages.

         9.13     ACKNOWLEDGMENTS.  Each of  Holdings  and the  Borrower  hereby
acknowledges that:

         (a)      it has been advised by counsel in the  negotiation,  execution
                  and delivery of this Agreement and the other Loan Documents;

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

         (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  Administrative  Agent and the
                  Lenders or among Holdings, the Borrower and the Lenders.

         9.14     CONFIDENTIALITY.  Each  of the  Administrative  Agent  and the
Lenders agrees to keep confidential all non-public information provided to it by
any Loan Party  pursuant to this Agreement that is designated by such Loan Party
as confidential;  PROVIDED that nothing herein shall prevent the  Administrative
Agent  or  any  Lender  from   disclosing  any  such   information  (a)  to  the
Administrative  Agent, any other Lender or any affiliate of any thereof,  (b) to
any  Participant or Assignee (each, a  "TRANSFEREE")  or prospective  Transferee
that  agrees to comply  with the  provisions  of this  Section or  substantially
equivalent  provisions,  (c)  to  any  of  its  employees,   directors,  agents,
attorneys,  accountants and other  professional  advisors,  (d) to any financial
institution  that is a  direct  or  indirect  contractual  counterparty  in swap
agreements or such contractual  counterparty's  professional advisor (so long as
such  contractual  counterparty  or  professional  advisor  to such  contractual
counterparty agrees to be bound by the provisions of this Section), (e) upon the
request or demand of any Governmental Authority having jurisdiction over it, (f)
in response to any order of any court or other Governmental  Authority or as may
otherwise be required pursuant to any Requirement of Law, (g) in connection with
any litigation or similar proceeding, (h) that has been publicly disclosed other
than in breach of this  Section,  (i) to the National  Association  of Insurance
Commissioners or any similar  organization or any nationally  recognized  rating
agency that requires access to information about a Lender's investment portfolio
in  connection  with  ratings  issued  with  respect  to such  Lender  or (j) in
connection  with the  exercise of any remedy  hereunder  or under any other Loan
Document.  Notwithstanding anything herein to the contrary, any party subject to
confidentiality  obligations  hereunder or under any other related document (and
any employee,  representative  or other agent of such party) may disclose to any
and all persons,  without  limitation  of any kind,  such  party's U.S.  federal
income tax treatment and tax structure of the transactions  contemplated by this
Agreement  relating  to such  party  and all  materials  of any kind  (including
opinions  or other tax  analyses)  that are  provided to it relating to such tax
treatment  and  tax  structure.  However,  no  such  party  shall  disclose  any
information  relating  to such tax  treatment  or tax  structure  to the  extent
nondisclosure  is  reasonably  necessary  in order  to  comply  with  applicable
securities laws.

                                       73
<PAGE>

         9.15     ACCOUNTING  CHANGES. In the event that any "Accounting Change"
(as defined below) shall occur and such change results in a change in the method
of calculation  of financial  covenants,  standards or terms in this  Agreement,
then the Borrower and the Administrative  Agent agree to enter into negotiations
in order to amend such  provisions of this Agreement so as to equitably  reflect
such Accounting  Change with the desired result that the criteria for evaluating
the  Borrower's  financial  condition  shall be the same after  such  Accounting
Change as if such Accounting  Change had not been made.  Until such time as such
an  amendment  shall have been  executed  and  delivered  by the  Borrower,  the
Administrative   Agent  and  the  Required  Lenders,  all  financial  covenants,
standards  and  terms in this  Agreement  shall  continue  to be  calculated  or
construed as if such  Accounting  Change had not occurred.  "Accounting  Change"
refers to any change in accounting  principles  required by the  promulgation of
any rule,  regulation,  pronouncement  or  opinion by the  Financial  Accounting
Standards Board of the American Institute of Certified Public Accountants or, if
applicable, the SEC.

         9.16     INTERCREDITOR AGREEMENT. Each Lender hereunder (a) agrees that
it will be bound by and will take no actions  contrary to the  provisions of the
Intercreditor  Agreement and (b)  authorizes  and  instructs the  Administrative
Agent to enter into the  Intercreditor  Agreement on behalf of such Lender.  The
foregoing  provisions  are  intended as an  inducement  to the Lenders to extend
credit and such are intended third party  beneficiaries  of such  provisions and
the provisions of the Intercreditor Agreement.

         9.17     WAIVERS  OF  JURY   TRIAL.   HOLDINGS,   THE   BORROWER,   THE
ADMINISTRATIVE  AGENT AND THE LENDERS  HEREBY  IRREVOCABLY  AND  UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

                            [SIGNATURE PAGE FOLLOWS]

                                       74
<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be duly executed and delivered by their proper and duly  authorized
officers as of the day and year first above written.

                                          NATIONAL COAL CORP.,
                                          as Holdings

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

                                          NATIONAL COAL CORPORATION,
                                          as Borrower

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

                                          GUGGENHEIM CORPORATE FUNDING, LLC, as
                                          Administrative Agent

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

                                       75
<PAGE>

                                          GUGGENHEIM CORPORATE FUNDING, LLC,
                                          as Lender

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

                                          MIDLAND NATIONAL LIFE INSURANCE
                                          COMPANY, as a Lender

                                          By: Guggenheim Partners Advisory
                                          Company, as Agent

                                          By:  /S/ MICHAEL DAMASO
                                               --------------------------------
                                               Name:  Michael Damaso
                                               Title: Managing Director

                                          NORTH AMERICAN COMPANY FOR LIFE AND
                                          HEALTH INSURANCE, as a Lender

                                          By: Guggenheim Partners Advisory
                                          Company, as Agent

                                          By:  /S/ MICHAEL DAMASO
                                               --------------------------------
                                               Name:  Michael Damaso
                                               Title: Managing Director

                                       76EXHIBIT 10.2
                                                               Execution Version

================================================================================

                        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

================================================================================

<PAGE>

                                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

                                       i
<PAGE>

                                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

                                       ii
<PAGE>

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

                                      iii
<PAGE>

                        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

<PAGE>

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

                                       2
<PAGE>

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.

                                       3
<PAGE>

         "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.

                                       4
<PAGE>

          "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).

                                       5
<PAGE>

         "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.

                                       6
<PAGE>

         "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.

                                       7
<PAGE>

         "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

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                           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

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<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).

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<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

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