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                         SUBORDINATED SECURITY AGREEMENT

                                      among

                               EMAGIN CORPORATION,

                       the SECURED CREDITOR set out herein

                                       and

                            ALLIGATOR HOLDINGS, INC.,

                               as COLLATERAL AGENT

                        --------------------------------

                            Dated as of June 20, 2002

                        --------------------------------

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<PAGE>
ARTICLE I           SECURITY INTERESTS.........................................1

         1.1      Grant of Security Interests..................................1
         1.2      Power of Attorney............................................3

ARTICLE II          GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS..........3

         2.1      Necessary Filings............................................3
         2.2      No Liens.....................................................4
         2.3      Other Financing Statements...................................4
         2.4      Chief Executive Office, Record Locations.....................4
         2.5      Location of Inventory and Equipment..........................4
         2.6      Legal Names; Type of Organization; Jurisdiction of
                  Organization; Location; Organizational Identification
                  Numbers; Changes Thereto; etc................................4
         2.7      Trade Names; Etc.............................................5
         2.8      Certain Significant Transactions.............................5
         2.9      Recourse.....................................................5

ARTICLE III         SPECIAL PROVISIONS CONCERNING ACCOUNTS; CONTRACT
                    RIGHTS; INSTRUMENTS; AND CERTAIN OTHER COMPANY
                    COLLATERAL.................................................5

         3.1      Additional Representations and Warranties....................5
         3.2      Maintenance of Records.......................................6
         3.3      Direction to Account Debtors; Contracting Parties; etc.......6
         3.4      Modification of Terms; etc...................................7
         3.5      Collection...................................................7
         3.6      Instruments..................................................7
         3.7      Assignor Remains Liable Under Accounts.......................7
         3.8      Assignor Remains Liable Under Contracts......................8
         3.9      Further Actions..............................................8

ARTICLE IV          SPECIAL PROVISIONS CONCERNING TRADEMARKS...................8

         4.1      Additional Representations and Warranties....................8
         4.2      Licenses and Assignments.....................................9
         4.3      Infringements................................................9
         4.4      Preservation of Marks........................................9
         4.5      Maintenance of Registration..................................9
         4.6      Future Registered Marks......................................9
         4.7      Remedies.....................................................9

ARTICLE V           SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS
                    AND TRADE SECRETS.........................................10

         5.1      Additional Representations and Warranties...................10
         5.2      Licenses and Assignments....................................10
         5.3      Infringements...............................................10

                                      (i)
<PAGE>
         5.4      Maintenance of Patents or Copyright.........................11
         5.5      Prosecution of Patent Applications..........................11
         5.6      Other Patents and Copyrights................................11
         5.7      Remedies....................................................11

ARTICLE VI          PROVISIONS CONCERNING ALL COMPANY COLLATERAL..............11

         6.1      Protection of Collateral Agent's Security...................11
         6.2      Warehouse Receipts Non-negotiable...........................12
         6.3      Additional Information......................................12
         6.4      Further Actions.............................................12
         6.5      Financing Statements........................................12

ARTICLE VII         REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT...........13

         7.1      Remedies; Obtaining the Company Collateral Upon Default.....13
         7.2      Remedies; Disposition of the Company Collateral.............14
         7.3      Waiver of Claims............................................15
         7.4      Application of Proceeds.....................................15
         7.5      Remedies Cumulative.........................................16
         7.6      Discontinuance of Proceedings...............................16

ARTICLE VIII        INDEMNITY; APPOINTMENT OF COLLATERAL AGENT BY
                    SECURED PARTIES...........................................16

         8.1      Indemnity; Indemnity by Assignor............................16
         8.2      Indemnity Obligations Secured by Company Collateral;
                  Survival....................................................17
         8.3      Appointment and Authorization of Collateral Agent...........17
         8.4      Delegation of Duties........................................18
         8.5      Liability of Collateral Agent...............................18
         8.6      Reliance by Collateral Agent................................19
         8.7      Notice of Default...........................................19
         8.8      Credit Decision.............................................19
         8.9      Reimbursement...............................................20
         8.10     Successor Agent.............................................20
         8.11     Company Collateral Matters..................................20

ARTICLE IX          DEFINITIONS...............................................21

ARTICLE X           MISCELLANEOUS.............................................26

         10.1     Notices.....................................................26
         10.2     Waiver; Amendment...........................................26
         10.3     Obligations Absolute........................................27
         10.4     [Intentionally left blank.].................................27
         10.5     Successors and Assigns......................................27
         10.6     Headings Descriptive........................................27
         10.7     GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE;
                  WAIVER OF JURY TRIAL........................................27

                                      (ii)
<PAGE>
         10.8     Assignor's Duties...........................................28
         10.9     Termination; Release........................................28
         10.10    Counterparts................................................29
         10.11    Severability................................................29
         10.12    The Collateral Agent and the Secured Creditor...............29
         10.13    Benefit of Agreement........................................29
         10.14    Subordination...............................................29

ANNEX A   Schedule of Chief  Executive  Offices  Address(es) of Chief  Executive
          Office
ANNEX B   Schedule of Inventory and Equipment Locations
ANNEX C   Schedule  of  Legal  Names,   Type  of  Organization  (and  Whether  a
          Registered  Organization and/or a Transmitting Utility),  Jurisdiction
          of Organization, Location and Organizational Identification Numbers
ANNEX D   Schedule of Trade and Fictitious Names
ANNEX E   Description of Certain Significant  Transactions  Occurring Within One
          Year Prior to the Date of the Security Agreement
ANNEX F   Schedule of Deposit Accounts
ANNEX G   Form of Control Agreement Regarding Deposit Accounts
ANNEX H   Schedule of Commercial Tort Claims
ANNEX I   Schedule of Marks
ANNEX J   Schedule of Patents
ANNEX K   Schedule of Copyrights
ANNEX L   Grant of Security Interest in United States Trademarks
ANNEX M   Grant of Security Interest in United States Patents
ANNEX N   Grant of Security Interest in United States Copyrights

                [Remainder of this page intentionally left blank]

                                     (iii)

<PAGE>
                         SUBORDINATED SECURITY AGREEMENT

          SUBORDINATED  SECURITY  AGREEMENT,  dated as of June 20, 2002, made by
the undersigned assignor (the "Assignor") in favor of the undersigned  Alligator
Holdings,  Inc., as  Collateral  Agent,  together with any successor  Collateral
Agent  appointed   hereunder  pursuant  to  Section  8.10   (collectively,   the
"Collateral  Agent"),  for the benefit of the undersigned  Secured Creditor (the
"Secured Creditor").  Except as otherwise defined herein, capitalized terms used
herein and defined in the Note Purchase  Agreement  (as defined  below) shall be
used herein as so defined.

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

          WHEREAS,  the Assignor  proposes to enter into a Secured Note Purchase
Agreement,  dated as of June 20, 2002,  with Mortimer D.A.  Sackler (the Secured
Creditor  under this  Agreement),  providing  for the issuance of a secured note
(the  "Note") by the  Assignor  as  contemplated  therein  (the  "Note  Purchase
Agreement");

          WHEREAS, the obligations accruing under the Note to the Assignor shall
be secured by the Subsidiary Collateral upon the terms and conditions set out in
the Security  Agreement and the Company Collateral upon the terms and conditions
set out in this Agreement;

          WHEREAS,  it is a condition  precedent to execution on delivery of the
Note Purchase  Agreement  that the Assignor shall have executed and delivered to
the Collateral Agent this Agreement; and

          WHEREAS, it is a condition precedent to the delivery of this Agreement
that the Assignor provide to the Collateral Agent completed copies of UCC form 1
documentation  suitable  for  filing and  applicable  federal  assignment  forms
required to perfect the security interests granted by the Assignor herein; and

          NOW,  THEREFORE,  in  consideration  of the  benefits  accruing to the
Assignor,  the receipt and  sufficiency  of which are hereby  acknowledged,  the
Assignor  hereby  makes the  following  representations  and  warranties  to the
Collateral  Agent for the benefit of the Secured  Creditor and hereby  covenants
and agrees with the Collateral  Agent for the benefit of the Secured Creditor as
follows:

                                   ARTICLE I

                               SECURITY INTERESTS

          1.1 Grant of Security Interests.

          (a) As security  for the prompt and complete  payment and  performance
when due (whether at stated  maturity,  by  acceleration or otherwise) of all of
its Obligations,  in order to induce the Secured Creditor to enter into the Note
Purchase  Agreement  the  Assignor  does  hereby

<PAGE>
assign and transfer unto the Collateral  Agent, and does hereby pledge and grant
to the Collateral Agent, for the benefit of the Secured  Creditor,  a continuing
security interest in all of the right, title and interest of the Assignor in, to
and under all of the  following  (in each case whether now existing or hereafter
from time to time acquired):

          (i)       each and every Account;

          (ii)      all cash;

          (iii)     the Cash  Collateral  Account  and all  monies,  securities,
                    Instruments and other  investments  deposited or required to
                    be deposited in the Cash Collateral Account;

          (iv)      all computer  programs of the Assignor and all  intellectual
                    property   rights   therein   and  all   other   proprietary
                    information  of the  Assignor,  including but not limited to
                    Trade Secret Rights;

          (v)       all  Contracts,  together with all Contract  Rights  arising
                    thereunder,  including,  without  limitation,  joint venture
                    agreements,  partnership  agreements,  and limited liability
                    company agreements);

          (vi)      all Copyrights;

          (vii)     all Equipment;

          (viii)    all Documents;

          (ix)      all Equipment;

          (x)       all General Intangibles;

          (xi)      all Goods;

          (xii)     all Instruments;

          (xiii)    all Inventory;

          (xiv)     all Investment Property;

          (xv)      all Marks,  together with the registrations and right to all
                    renewals  thereof,  and the  goodwill of the business of the
                    Assignor symbolized by the Marks;

          (xvi)     all Patents;

          (xvii)    all Permits;

          (xviii)   all  Software  and  all  Software   licensing  rights,   all
                    writings,   plans,   specifications   and  schematics,   all
                    engineering drawings, customer lists, goodwill

                                      -2-
<PAGE>
                    and  licenses,  and all recorded data of any kind or nature,
                    regardless of the medium of recording;

          (xix)     all Supporting Obligations;

          (xx)      all manuals, training material, diagrams, know how and other
                    necessary or useful materials to utilize the Company's trade
                    secrets and other business intangibles; and

          (xxi)     all Proceeds  and  products of any and all of the  foregoing
                    (all of the above, the "Company Collateral").

          (b) The security interest of the Collateral Agent under this Agreement
extends to all  Company  Collateral  which the  Assignor  may  acquire,  or with
respect to which the Assignor may obtain rights,  at any time during the term of
this Agreement.

          1.2 Power of Attorney.  The Assignor  hereby  constitutes and appoints
the Collateral Agent its true and lawful attorney,  irrevocably, with full power
after the  occurrence of and during the  continuance  of an Event of Default (in
the  name of the  Assignor  or  otherwise)  to act,  require,  demand,  receive,
compound and give  acquaintance for any and all moneys and claims for moneys due
or to become due to the Assignor under or arising out of the Company Collateral,
to endorse any checks or other instruments or orders in connection therewith and
to file any claims or take any action or  institute  any  proceedings  which the
Collateral  Agent may deem to be necessary or advisable to protect the interests
of the Secured  Creditor,  which  appointment  as  attorney  is coupled  with an
interest.

                                   ARTICLE II

                GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

The  Assignor  represents,   warrants  and  covenants,   which  representations,
warranties and covenants shall survive execution and delivery of this Agreement,
as follows:

          2.1 Necessary  Filings.  All filings,  registrations,  recordings  and
other  actions  necessary  or  appropriate  to create,  preserve and perfect the
security  interest  granted by the  Assignor to the  Collateral  Agent hereby in
respect  of the  Company  Collateral  have been  accomplished  and the  security
interest  granted to the  Collateral  Agent pursuant to this Agreement in and to
the Company  Collateral  creates a valid and,  together  with all such  filings,
registrations,  recordings  and other  actions,  a perfected  security  interest
therein prior to the rights of all other Persons therein and subject to no other
Liens (other than Permitted Liens) and is entitled to all the rights, priorities
and benefits  afforded by the Uniform  Commercial  Code or other relevant law as
enacted in any relevant  jurisdiction to perfected security  interests,  in each
case to the extent that the Company Collateral  consists of the type of property
in which a security  interest may be perfected by possession or control  (within
the  meaning  of the UCC as in  effect  on the date  hereof  in the State of New
York),  by filing a financing  statement  under the Uniform  Commercial  Code as
enacted  in any  relevant  jurisdiction  or by a filing  of a Grant of  Security

                                      -3-
<PAGE>
Interest in the respective  form attached hereto in the United States Patent and
Trademark Office or in the United States Copyright Office.

          2.2 No  Liens.  The  Assignor  is,  and as to all  Company  Collateral
acquired by it from time to time after the date hereof the Assignor will be, the
owner  of  all  Company  Collateral  free  from  any  Lien,  security  interest,
encumbrance  or other  right,  title  or  interest  of any  Person  (other  than
Permitted Liens),  and the Assignor shall defend the Company  Collateral against
all claims  and  demands of all  Persons  at any time  claiming  the same or any
interest therein adverse to the Collateral Agent.

          2.3 Other  Financing  Statements.  As of the date hereof,  there is no
financing  statement (or similar  statement or instrument of registration  under
the law of any jurisdiction) covering or purporting to cover any interest of any
kind in the Company Collateral (other than financing statements filed in respect
of Permitted Liens),  and so long as the Termination Date has not occurred,  the
Assignor  will not  execute or  authorize  to be filed in any public  office any
financing  statement (or similar  statement or instrument of registration  under
the law of any jurisdiction) or statements  relating to the Company  Collateral,
except financing  statements filed or to be filed in respect of and covering the
security  interests  granted  hereby  by  the  Assignor  or in  connection  with
Permitted Liens.

          2.4 Chief  Executive  Office,  Record  Locations.  The chief executive
office of the Assignor is, on the date of this Agreement, located at the address
indicated  on Annex A hereto  for the  Assignor.  During  the period of the four
calendar months preceding the date of this Agreement, the chief executive office
of the Assignor has not been located at any address other than that indicated on
Annex A in accordance  with the  immediately  preceding  sentence,  in each case
unless  each such  other  address  is also  indicated  on Annex A hereto for the
Assignor.

          2.5 Location of Inventory and  Equipment.  All Inventory and Equipment
held on the date  hereof,  or held at any time during the four  calendar  months
prior to the date  hereof,  by the  Assignor is located at one of the  locations
shown on Annex B hereto for the Assignor.

          2.6 Legal Names;  Type of Organization;  Jurisdiction of Organization;
Location; Organizational Identification Numbers; Changes Thereto; etc. The exact
legal  name of the  Assignor,  the type of  organization  of the  Assignor,  the
jurisdiction of organization of the Assignor,  and the Assignor's  Location,  is
listed on Annex C hereto for the  Assignor.  The  Assignor  shall not change its
legal name, its type of  organization,  its  jurisdiction of  organization,  its
Location or its organizational  identification  number (if any) from that listed
on Annex C hereto for the Assignor or those that may have been established after
the  date of this  Agreement  in  accordance  with  the  immediately  succeeding
sentence of this Section 2.6. The Assignor  shall not change its legal name, its
type of organization,  its jurisdiction of  organization,  its Location,  or its
organizational  identification  number (if any),  except  that any such  changes
shall be permitted if (i) it shall have given to the  Collateral  Agent not less
than 15 days' prior written notice of each change to the  information  listed on
Annex C (as adjusted  for any  subsequent  changes  thereto  previously  made in
accordance  with this  sentence),  together  with a supplement  to Annex C which
shall correct all information  contained  therein for the Assignor,  and (ii) in
connection with the respective change or changes, it shall have taken all action
reasonably  requested by the Collateral Agent to maintain the security interests
of the Collateral Agent in the

                                      -4-
<PAGE>
Company  Collateral  intended to be granted hereby at all times fully  perfected
and in full force and effect. In addition,  to the extent that the Assignor does
not have an  organizational  identification  number on the date hereof and later
obtains one, the Assignor shall promptly  thereafter notify the Collateral Agent
of  such  organizational  identification  number  and  shall  take  all  actions
reasonably  satisfactory  to the  Collateral  Agent to the extent  necessary  to
maintain the security interest of the Collateral Agent in the Company Collateral
intended to be granted hereby fully perfected and in full force and effect.

          2.7  Trade  Names;  Etc.  The  Assignor  has not nor  operates  in any
jurisdiction  under,  or in the preceding  five years has had or has operated in
any jurisdiction under, any trade names,  fictitious names or other names except
its legal name as specified in Annex C and such other trade or fictitious  names
as are listed on Annex D hereto for the Assignor.  The Assignor shall not assume
or operate in any  jurisdiction  under any new trade,  fictitious  or other name
until (i) it shall  have  given to the  Collateral  Agent not less than 15 days'
written notice of its intention so to do, clearly  describing  such new name and
the  jurisdictions  in which such new name will be used and providing such other
information  in  connection  therewith as the  Collateral  Agent may  reasonably
request and (ii) with  respect to such new name,  it shall have taken all action
reasonably  requested by the Collateral Agent to maintain the security  interest
of the Collateral Agent in the Company Collateral  intended to be granted hereby
at all times fully perfected and in full force and effect.

          2.8  Certain  Significant  Transactions.  During  the one year  period
preceding  the  date  of  this  Agreement,   no  Person  shall  have  merged  or
consolidated  with or into the  Assignor,  and no Person  shall have  liquidated
into, or transferred all or substantially all of its assets to, the Assignor, in
each  case  except  as  described  in  Annex  E  hereto.  With  respect  to  any
transactions  so described in Annex E hereto,  the Assignor shall have furnished
such  information  with  respect to the Person (and the assets of the Person and
locations  thereof) which merged with or into or consolidated with the Assignor,
or was liquidated into or transferred all or substantially  all of its assets to
the Assignor,  and shall have  furnished to the  Collateral  Agent such UCC lien
searches as may have been  requested with respect to such Person and its assets,
to establish that no security  interest  (excluding  Permitted  Liens) continues
perfected on the date hereof with respect to any Person  described above (or the
assets transferred to the Assignor by such Person), including without limitation
pursuant to Section 9-316(a)(3) of the UCC.

          2.9  Recourse.  This  Agreement  is made  with  full  recourse  to the
Assignor and pursuant to and upon all the warranties, representations, covenants
and  agreements  on the part of the Assignor  contained  herein and otherwise in
writing in connection herewith.

                                  ARTICLE III

            SPECIAL PROVISIONS CONCERNING ACCOUNTS; CONTRACT RIGHTS;
                INSTRUMENTS; AND CERTAIN OTHER COMPANY COLLATERAL

          3.1 Additional  Representations  and  Warranties.  As of the time when
each of its Accounts  arises,  the Assignor shall be deemed to have  represented
and  warranted  that each such  Account,  and all records,  papers and documents
relating  thereto (if any) are genuine and what they purport to be, and that all
papers and documents (if any) relating thereto (i) will, to the

                                      -5-
<PAGE>
knowledge  of the  Assignor,  represent  the genuine,  legal,  valid and binding
obligation of the account debtor evidencing  indebtedness unpaid and owed by the
respective account debtor arising out of the performance of labor or services or
the sale or lease and delivery of the merchandise listed therein,  or both, (ii)
will be the only original  writings  evidencing and embodying such obligation of
the  account  debtor  named  therein  (other  than  copies  created  for general
accounting  purposes),  (iii) will, to the  knowledge of the Assignor,  evidence
true and valid  obligations,  enforceable  in accordance  with their  respective
terms, and (iv) will be in compliance and will conform in all material  respects
with all applicable  federal,  state and local laws and  applicable  laws of any
relevant foreign jurisdiction.

          3.2 Maintenance of Records. The Assignor will keep and maintain at its
own cost and expense accurate records of its Accounts and Contracts,  including,
but not limited to,  originals of all  documentation  (including  each Contract)
with respect  thereto,  records of all payments  received,  all credits  granted
thereon,  all  merchandise  returned and all other dealings  therewith,  and the
Assignor  will  make  the  same  available  on the  Assignor's  premises  to the
Collateral Agent for inspection,  at the Assignor's own cost and expense, at any
and all reasonable times upon prior notice to the Assignor.  Upon the occurrence
and during the  continuance  of an Event of  Default  and at the  request of the
Collateral  Agent, the Assignor shall, at its own cost and expense,  deliver all
tangible  evidence of its  Accounts  and  Contract  Rights  (including,  without
limitation,  all documents  evidencing  the Accounts and all Contracts) and such
books and records to the Collateral Agent or to its  representatives  (copies of
which evidence and books and records may be retained by the Assignor).  Upon the
occurrence  and  during  the  continuance  of an  Event  of  Default  and if the
Collateral  Agent so directs,  the  Assignor  shall  legend,  in form and manner
satisfactory to the Collateral Agent, the Accounts and the Contracts, as well as
books,  records and documents (if any) of the Assignor  evidencing or pertaining
to such Accounts and Contracts  with an  appropriate  reference to the fact that
such Accounts and Contracts have been assigned to the Collateral  Agent and that
the Collateral Agent has a security interest therein.

          3.3 Direction to Account Debtors;  Contracting Parties;  etc. Upon the
occurrence and during the continuance of an Event of Default,  if the Collateral
Agent so directs the Assignor,  the Assignor agrees (x) to cause all payments on
account of the Accounts and Contracts to be made directly to the Cash Collateral
Account,  (y) that the Collateral Agent may, at its option,  directly notify the
obligors  with  respect  to any  Accounts  and/or  under any  Contracts  to make
payments with respect  thereto as provided in the preceding  clause (x), and (z)
that the  Collateral  Agent may  enforce  collection  of any such  Accounts  and
Contracts and may adjust, settle or compromise the amount of payment thereof, in
the same manner and to the same  extent as the  Assignor.  Without  notice to or
assent by the Assignor, the Collateral Agent may, upon the occurrence and during
the  continuance  of an Event of Default,  apply any or all amounts  then in, or
thereafter  deposited in, the Cash Collateral  Account toward the payment of the
Obligations  in the  manner  provided  in  Section  7.4 of this  Agreement.  The
reasonable  costs and expenses of collection  (including  reasonable  attorneys'
fees),  whether incurred by an Assignor or the Collateral Agent,  shall be borne
by the  Assignor.  The  Collateral  Agent  shall  deliver a copy of each  notice
referred  to in the  preceding  clause (y) to the  Assignor,  provided  that the
failure by the  Collateral  Agent to so notify the Assignor shall not affect the
effectiveness of such notice or the other rights of the Collateral Agent created
by this Section 3.3.

                                      -6-
<PAGE>
          3.4  Modification  of  Terms;  etc.  Except  in  accordance  with  the
Assignor's  ordinary course of business and consistent with reasonable  business
judgment,  the Assignor shall not rescind nor cancel any indebtedness  evidenced
by any Account or under any  Contract,  or modify any  material  term thereof or
make any material adjustment with respect thereto, nor extend or renew the same,
nor compromise or settle any material  dispute,  claim, suit or legal proceeding
relating thereto, nor sell any Account or Contract, or interest therein, without
the prior  written  consent of the  Collateral  Agent.  The Assignor will not do
anything  to  impair  the  rights of the  Collateral  Agent in the  Accounts  or
Contracts.

          3.5  Collection.  The  Assignor  shall  endeavor  in  accordance  with
reasonable  business  practices to cause to be collected from the account debtor
named in each of its  Accounts or obligor  under any  Contract,  as and when due
(including, without limitation, amounts which are delinquent, such amounts to be
collected in accordance with generally  accepted lawful  collection  procedures)
any and all amounts  owing under or on account of such Account or Contract,  and
apply forthwith upon receipt thereof all such amounts as are so collected to the
outstanding balance of such Account or under such Contract.  Except as otherwise
directed  by  the   Collateral   Agent  after  the  occurrence  and  during  the
continuation  of an Event of Default,  the  Assignor  may allow in the  ordinary
course of business  as  adjustments  to amounts  owing  under its  Accounts  and
Contracts  (i) an  extension  or  renewal  of the time or times of  payment,  or
settlement  for less than the total unpaid  balance,  which the  Assignor  finds
appropriate in accordance with reasonable business judgment and (ii) a refund or
credit  due as a  result  of  returned  or  damaged  merchandise  or  improperly
performed  services or for other reasons which the Assignor finds appropriate in
accordance with reasonable business judgment.  The reasonable costs and expenses
(including,  without  limitation,  reasonable  attorneys'  fees) of  collection,
whether incurred by an Assignor or the Collateral  Agent,  shall be borne by the
Assignor.

          3.6  Instruments.  If the Assignor owns or acquires any  Instrument in
excess of $50,000  constituting  Company Collateral (other than checks and other
payment instruments  received and collected in the ordinary course of business),
the Assignor will within 10 Business Days notify the Collateral Agent thereof.

          3.7 Assignor  Remains Liable Under  Accounts.  Anything  herein to the
contrary  notwithstanding,  the Assignor  shall remain  liable under each of the
Accounts  to observe and perform all of the  conditions  and  obligations  to be
observed and performed by it thereunder, all in accordance with the terms of any
agreement  giving rise to such Accounts.  Neither the  Collateral  Agent nor the
Secured  Creditor shall have any  obligation or liability  under any Account (or
any agreement giving rise thereto) by reason of or arising out of this Agreement
or the receipt by the  Collateral  Agent or the Secured  Creditor of any payment
relating to such Account pursuant hereto,  nor shall the Collateral Agent or the
Secured Creditor be obligated in any manner to perform any of the obligations of
the  Assignor  under or pursuant to any  Account (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  under  any  Account  (or any  agreement  giving  rise
thereto),  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 them or to which they may be entitled at any time or times.

                                      -7-
<PAGE>
          3.8 Assignor  Remains Liable Under  Contracts.  Anything herein to the
contrary  notwithstanding,  the Assignor  shall remain  liable under each of the
Contracts to observe and perform all of the  conditions  and  obligations  to be
observed and performed by it thereunder,  all in accordance with and pursuant to
the terms and provisions of each Contract.  Neither the Collateral Agent nor the
Secured  Creditor shall have any  obligation or liability  under any Contract by
reason of or arising  out of this  Agreement  or the  receipt by the  Collateral
Agent or the Secured Creditor of any payment relating to such Contract  pursuant
hereto,  nor shall the Collateral  Agent or the Secured Creditor be obligated in
any manner to perform any of the  obligations  of the Assignor under or pursuant
to any  Contract,  to make any payment,  to make any inquiry as to the nature or
the sufficiency of any  performance by any party under any Contract,  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 them or to which they
may be entitled at any time or times.

          3.9 Further  Actions.  The Assignor  will,  at its own expense,  make,
execute, endorse,  acknowledge, file and/or deliver to the Collateral Agent from
time to time  such  vouchers,  invoices,  schedules,  confirmatory  assignments,
conveyances, financing statements, transfer endorsements,  certificates, reports
and other  assurances or instruments and take such further steps,  including any
and all actions as may be necessary or required under the Federal  Assignment of
Claims  Act,  relating  to its  Receivables,  Contracts,  Instruments  and other
property or rights  covered by the  security  interest  hereby  granted,  as the
Collateral Agent may reasonably require.

                                   ARTICLE IV

                    SPECIAL PROVISIONS CONCERNING TRADEMARKS

          4.1 Additional Representations and Warranties. The Assignor represents
and warrants  that it is the true and lawful owner of or otherwise has the right
to use the  registered  Marks listed in Annex F hereto for the Assignor and that
said listed Marks  include all United States marks and  applications  for United
States marks  registered in the United  States Patent and Trademark  Office that
the Assignor owns or uses in connection  with its business as of the date hereof
and that  Assignor has not granted any security  interest in the listed Marks to
any other  Person,  except as granted  pursuant to the Company  Senior  Security
Agreement. The Assignor represents and warrants that it owns, is licensed to use
or otherwise has the right to use, all Marks that it uses. The Assignor  further
warrants  that it has no knowledge of any third party claim  received by it that
any  aspect  of the  Assignor's  present  or  contemplated  business  operations
infringes  or will  infringe  any  trademark,  service mark or trade name of any
other Person other than as could not,  either  individually or in the aggregate,
reasonably  be  expected  to  have  a  Material  Adverse  Effect.  The  Assignor
represents and warrants that it is the true and lawful owner of or otherwise has
the right to use all U.S.  trademark  registrations  and applications  listed in
Annex F hereto and that said registrations are valid, subsisting,  have not been
canceled and that the Assignor is not aware of any third-party claim that any of
said  registrations is invalid or unenforceable,  and is not aware that there is
any reason  that any of said  registrations  is invalid  or  unenforceable.  The
Assignor hereby grants to the Collateral  Agent an absolute power of attorney to
sign, upon the occurrence and during the continuance of an Event of Default, any
docu-

                                      -8-
<PAGE>
ment which may be required by the United States  Patent and Trademark  Office in
order to effect an absolute  assignment of all right, title and interest in each
Mark, and record the same.

          4.2 Licenses and Assignments. The Assignor hereby agrees not to divest
itself  of any  right  under  any Mark  absent  prior  written  approval  of the
Collateral Agent.

          4.3  Infringements.   The  Assignor  agrees,  promptly  upon  learning
thereof,  to notify the Collateral  Agent in writing of the name and address of,
and to furnish such pertinent information that may be available with respect to,
any party who the  Assignor  believes is  infringing  or  diluting or  otherwise
violating  any of the  Assignor's  rights in and to any Mark in any manner  that
could reasonably be expected to have a Material Adverse Effect,  or with respect
to any  party  claiming  that the  Assignor's  use of any Mark  material  to the
Assignor's  business violates in any material respect any property right of that
party.  The Assignor  further agrees to prosecute in accordance  with reasonable
business  practices  any Person  infringing  any Mark in any  manner  that could
reasonably be expected to have a Material Adverse Effect.

          4.4  Preservation of Marks. The Assignor agrees to use its Marks which
are material to the Assignor's  business in interstate  commerce during the time
in which this  Agreement is in effect and to take all such other  actions as are
reasonably necessary to preserve such Marks as trademarks or service marks under
the laws of the United  States  (other  than any such Marks  which are no longer
used or useful in its business or operations).

          4.5  Maintenance  of  Registration.  The  Assignor  shall,  at its own
expense,  diligently  process  all  documents  reasonably  required  to maintain
trademark  registrations,  including  but not limited to  affidavits  of use and
applications  for  renewals  of  registration  in the United  States  Patent and
Trademark  Office for all of its material  registered  Marks,  and shall pay all
fees and  disbursements  in connection  therewith and shall not abandon any such
filing of  affidavit  of use or any such  application  of  renewal  prior to the
exhaustion of all  administrative  and judicial  remedies  without prior written
consent of the Collateral  Agent (other than with respect to  registrations  and
applications deemed by the Assignor to be no longer prudent to pursue).

          4.6  Future  Registered  Marks.  If any Mark  registration  is  issued
hereafter  to the  Assignor  as a result  of any  application  now or  hereafter
pending before the United States Patent and Trademark Office,  within 30 days of
receipt of such certificate,  the Assignor shall deliver to the Collateral Agent
a copy of such certificate,  and an assignment for security in such Mark, to the
Collateral  Agent and at the expense of the Assignor,  confirming the assignment
for security in such Mark to the Collateral  Agent  hereunder,  the form of such
security to be substantially in the form of Annex I hereto or in such other form
as may be reasonably satisfactory to the Collateral Agent.

          4.7 Remedies.  If an Event of Default  shall occur and be  continuing,
the Collateral Agent may, by written notice to the Assignor,  take any or all of
the following  actions:  (i) declare the entire right, title and interest of the
Assignor in and to each of the Marks,  together  with all  trademark  rights and
rights of protection to the same, vested in the Collateral Agent for the benefit
of the Secured  Creditor,  in which event such rights,  title and interest shall
immediately  vest,  in the  Collateral  Agent  for the  benefit  of the  Secured
Creditor,  and the  Collateral  Agent shall be entitled to exercise the power of
attorney referred to in Section 4.1 hereof to

                                      -9-
<PAGE>
execute,  cause to be  acknowledged  and  notarized  and  record  said  absolute
assignment with the applicable  agency;  (ii) take and use or sell the Marks and
the goodwill of the Assignor's business symbolized by the Marks and the right to
carry on the  business  and use the assets of the  Assignor in  connection  with
which the Marks have been used;  and (iii)  direct the  Assignor to refrain,  in
which  event the  Assignor  shall  refrain,  from  using the Marks in any manner
whatsoever,  directly or indirectly, and the Assignor shall execute such further
documents that the Collateral  Agent may reasonably  request to further  confirm
this and to transfer  ownership of the Marks and  registrations  and any pending
trademark  application  in the United States Patent and Trademark  Office to the
Collateral Agent.

                                   ARTICLE V

                     SPECIAL PROVISIONS CONCERNING PATENTS,
                          COPYRIGHTS AND TRADE SECRETS

          5.1 Additional Representations and Warranties. The Assignor represents
and  warrants  that it is the true and  lawful  owner of all  rights  in (i) all
United States trade secrets and proprietary information necessary to operate the
business of the Assignor (the "Trade Secret Rights"), (ii) the Patents listed in
Annex G hereto for the  Assignor  and that said  Patents  include all the United
States patents and applications for United States patents that the Assignor owns
as of the date hereof and (iii) the Copyrights  listed in Annex H hereto for the
Assignor and that said  Copyrights  constitute all the United States  copyrights
registered with the United States  Copyright  Office and  applications to United
States  copyrights  that the Assignor  owns as of the date  hereof,  and has not
granted a security interest in the Trade Secret Rights, Patents or Copyrights to
any other  Person,  except as granted  pursuant to the Company  Senior  Security
Agreement.  The Assignor  further warrants that it has no knowledge of any third
party claim that any aspect of the Assignor's  present or contemplated  business
operations  infringes  or will  infringe  any patent of any other  Person or the
Assignor has misappropriated any trade secret or proprietary  information which,
either individually or in the aggregate,  could reasonably be expected to have a
Material  Adverse Effect.  The Assignor hereby grants to the Collateral Agent an
absolute  power  of  attorney  to sign,  upon  the  occurrence  and  during  the
continuance  of any Event of Default,  any document which may be required by the
United  States  Patent  and  Trademark  Office in order to  effect  an  absolute
assignment  of all right,  title and interest in each Patent,  and to record the
same.

          5.2 Licenses and Assignments. The Assignor hereby agrees not to divest
itself of any right under any Patent or Copyright  absent prior written approval
of the Collateral Agent.

          5.3  Infringements.   The  Assignor  agrees,  promptly  upon  learning
thereof,  to  furnish  the  Collateral  Agent  in  writing  with  all  pertinent
information  available  to  the  Assignor  with  respect  to  any  infringement,
contributing  infringement  or active  inducement  to  infringe in any Patent or
Copyright  or to  any  claim  that  the  practice  of any  Patent  or use of any
Copyright  violates any property right of a third party,  or with respect to any
misappropriation  of any Trade  Secret  Right or any claim that  practice of any
Trade Secret Right violates any property  right of a third party,  in each case,
in any manner which, either  individually or in the aggregate,  could reasonably
be expected to have a Material  Adverse  Effect.  The Assignor  further  agrees,
absent  direction  of the  Collateral  Agent  to  the  contrary,  to  diligently
prosecute,  in accordance  with its  reasonable  business  judgment,  any Person
infringing  any Patent or  Copyright  or any Person

                                      -10-
<PAGE>
misappropriating  any Trade Secret  Right,  in each case to the extent that such
infringement or misappropriation, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

          5.4  Maintenance  of Patents or  Copyright.  At its own  expense,  the
Assignor shall make timely payment of all  post-issuance  fees required pursuant
to 35 U.S.C.  ss.  41 to  maintain  in force its  rights  under  each  Patent or
Copyright,  absent prior written consent of the Collateral Agent (other than any
such Patents or Copyrights which are no longer used or useful in its business or
operations).

          5.5  Prosecution  of  Patent  Applications.  At its own  expense,  the
Assignor shall  diligently  prosecute all material  applications  for (i) United
States  Patents listed in Annex G hereto and (ii)  Copyrights  listed on Annex H
hereto, in each case for the Assignor and shall not abandon any such application
prior to  exhaustion of all  administrative  and judicial  remedies  (other than
applications  deemed by the Assignor to be no longer prudent to pursue),  absent
written consent of the Collateral Agent.

          5.6 Other Patents and Copyrights. Within 30 days of the acquisition or
issuance of a United States Patent,  registration of a Copyright, or acquisition
of a registered  Copyright,  or of filing of an application  for a United States
Patent or Copyright,  the Assignor shall deliver to the Collateral  Agent a copy
of said Copyright or Patent,  or certificate or registration  of, or application
therefor,  as the case may be, with an assignment for security as to such Patent
or Copyright,  as the case may be, to the Collateral Agent and at the expense of
the  Assignor,  confirming  the  assignment  for  security,  the  form  of  such
assignment for security to be  substantially in the form of Annex J or K hereto,
as appropriate,  or in such other form as may be reasonably  satisfactory to the
Collateral Agent.

          5.7 Remedies.  If an Event of Default  shall occur and be  continuing,
the Collateral Agent may, by written notice to the Assignor,  take any or all of
the following actions:  (i) declare the entire right, title, and interest of the
Assignor in each of the Patents and Copyrights  vested in the  Collateral  Agent
for the benefit of the Secured Creditor,  in which event such right,  title, and
interest shall  immediately  vest in the Collateral Agent for the benefit of the
Secured  Creditor,  in which case the  Collateral  Agent  shall be  entitled  to
exercise  the power of  attorney  referred  to in Section 5.1 hereof to execute,
cause to be  acknowledged  and notarized and to record said absolute  assignment
with the  applicable  agency;  (ii) take and  practice  or sell the  Patents and
Copyrights;  and (iii)  direct  the  Assignor  to  refrain,  in which  event the
Assignor  shall  refrain,  from  practicing the Patents and using the Copyrights
directly or indirectly, and the Assignor shall execute such further documents as
the  Collateral  Agent may  reasonably  request  further to confirm  this and to
transfer ownership of the Patents and Copyrights to the Collateral Agent for the
benefit of the Secured Creditor.

                                   ARTICLE VI

                  PROVISIONS CONCERNING ALL COMPANY COLLATERAL

          6.1 Protection of Collateral  Agent's  Security.  The Assignor will do
nothing to impair the rights of the Collateral Agent in the Company  Collateral.
The  Assignor  will at all

                                      -11-
<PAGE>
times maintain insurance,  at the Assignor's own expense, to the extent and in a
manner consistent with commercially reasonable business practice.  Except to the
extent otherwise permitted to be retained by the Assignor,  the Collateral Agent
shall, at the time any proceeds of such insurance are distributed to the Secured
Creditor,  apply such  proceeds in  accordance  with  Section  7.4  hereof.  The
Assignor assumes all liability and responsibility in connection with the Company
Collateral  acquired  by it and  the  liability  of  the  Assignor  to  pay  the
Obligations shall in no way be affected or diminished by reason of the fact that
such  Company  Collateral  may be lost,  destroyed,  stolen,  damaged or for any
reason whatsoever unavailable to the Assignor.

          6.2 Warehouse Receipts Non-negotiable.  To the extent practicable, the
Assignor  agrees  that if any  warehouse  receipt  or receipt in the nature of a
warehouse  receipt is issued with respect to any of its Inventory,  the Assignor
shall request that such warehouse receipt or receipt in the nature thereof shall
not be  "negotiable"  (as such  term is used in  Section  7-104  of the  Uniform
Commercial  Code as in  effect  in any  relevant  jurisdiction  or  under  other
relevant law).

          6.3  Additional  Information.  The Assignor  will, at its own expense,
from time to time upon the reasonable request of the Collateral Agent,  promptly
(and in any event  within 10 days after its receipt of the  respective  request)
furnish to the  Collateral  Agent such  information  with respect to the Company
Collateral  (including the identity of the Company Collateral or such components
thereof  as may have  been  requested  by the  Collateral  Agent,  the value and
location of such Company Collateral, etc.) as may be requested by the Collateral
Agent. Without limiting the forgoing, the Assignor agrees that it shall promptly
(and in any event  within 10 days after its receipt of the  respective  request)
furnish to the Collateral  Agent such updated Annexes hereto as may from time to
time be reasonably requested by the Collateral Agent.

          6.4 Further  Actions.  The Assignor  will, at its own expense and upon
the  reasonable  request  of  the  Collateral  Agent,  make,  execute,  endorse,
acknowledge,  file and/or deliver to the Collateral Agent from time to time such
lists,  descriptions  and  designations  of its  Company  Collateral,  warehouse
receipts,  receipts  in the  nature  of  warehouse  receipts,  bills of  lading,
documents of title, vouchers,  invoices,  schedules,  confirmatory  assignments,
conveyances, financing statements, transfer endorsements,  certificates, reports
and other  assurances or instruments and take such further steps relating to the
Company Collateral and other property or rights covered by the security interest
hereby  granted,  which the  Collateral  Agent deems  reasonably  appropriate or
advisable to perfect,  preserve or protect its security  interest in the Company
Collateral.

          6.5 Financing  Statements.  The Assignor agrees to execute and deliver
to the Collateral Agent such financing statements, in form reasonably acceptable
to the  Collateral  Agent,  as the  Collateral  Agent  may  from  time  to  time
reasonably request or as are reasonably necessary or desirable in the opinion of
the Collateral Agent to establish and maintain a valid,  enforceable,  perfected
security  interest in the Company  Collateral  as provided  herein and the other
rights and security  contemplated  hereby.  The Assignor will pay any applicable
filing  fees,  recordation  taxes and related  expenses  relating to its Company
Collateral. The Assignor hereby authorizes the Collateral Agent to file any such
financing  statements  without the signature of the Assignor where  permitted by
law (and such authorization  includes  describing the Company Collateral as "all
assets" of the Assignor).

                                      -12-
<PAGE>
                                  ARTICLE VII

                 REMEDIES UPON OCCURRENCE OF AN EVENT OF DEFAULT

          7.1 Remedies;  Obtaining  the Company  Collateral  Upon  Default.  The
Assignor  agrees  that,  if any Event of  Default  shall  have  occurred  and be
continuing,  then and in every such case, the Collateral  Agent,  in addition to
any rights now or hereafter  existing  under  applicable law and under the other
provisions of this Agreement,  shall have all rights as a secured creditor under
any UCC, and such additional  rights and remedies to which a secured creditor is
entitled under the laws in effect in all relevant jurisdictions and may:

          (i) personally, or by agents or attorneys, immediately take possession
     of the Company  Collateral  or any part  thereof,  from the Assignor or any
     other  Person who then has  possession  of any part thereof with or without
     notice  or  process  of law,  and for  that  purpose  may  enter  upon  the
     Assignor's  premises  where any of the  Company  Collateral  is located and
     remove  the  same  and use in  connection  with  such  removal  any and all
     services, supplies, aids and other facilities of the Assignor;

          (ii) instruct the obligor or obligors on any agreement,  instrument or
     other  obligation  (including,  without  limitation,  the  Accounts and the
     Contracts) constituting the Company Collateral to make any payment required
     by the terms of such agreement,  instrument or other obligation directly to
     the Collateral  Agent and may exercise any and all remedies of the Assignor
     in respect of such Company Collateral;

          (iii)  instruct all banks which have entered into a control  agreement
     with  the  Collateral   Agent  to  transfer  all  monies,   securities  and
     instruments held by such depositary bank to the Cash Collateral Account;

          (iv) sell,  assign or  otherwise  liquidate  any or all of the Company
     Collateral  or any part thereof in accordance  with Section 7.2 hereof,  or
     direct the Assignor to sell,  assign or otherwise  liquidate  any or all of
     the  Company  Collateral  or any part  thereof,  and,  in each  case,  take
     possession of the proceeds of any such sale or liquidation;

          (v) take possession of the Company Collateral or any part thereof,  by
     directing  the  Assignor in writing to deliver  the same to the  Collateral
     Agent at any reasonable place or places designated by the Collateral Agent,
     in which event the Assignor shall at its own expense:

               (x)  forthwith  cause the same to be moved to the place or places
          so  designated  by the  Collateral  Agent and there  delivered  to the
          Collateral Agent;

               (y) store and keep any Company  Collateral  so  delivered  to the
          Collateral Agent at such place or places pending further action by the
          Collateral Agent as provided in Section 7.2 hereof; and

               (z) while the  Company  Collateral  shall be so stored  and kept,
          provide such security and maintenance  services as shall be reasonably
          necessary  to protect the same and to preserve and maintain it in good
          condition;

                                      -13-
<PAGE>
          (vi) license or  sublicense,  whether on an exclusive or  nonexclusive
     basis, any Marks,  Patents or Copyrights included in the Company Collateral
     for such term and on such  conditions  and in such manner as the Collateral
     Agent shall in its sole judgment determine;

          (vii) apply any monies  constituting  Company  Collateral  or proceeds
     thereof in accordance with the provisions of Section 7.4; and

          (viii) take any other  action as specified in clauses (1) through (5),
     inclusive, of Section 9-607 of the UCC;

it being  understood  that the  Assignor's  obligation so to deliver the Company
Collateral  is of the  essence of this  Agreement  and that,  accordingly,  upon
application to a court of equity having jurisdiction, the Collateral Agent shall
be entitled to a decree requiring  specific  performance by the Assignor of said
obligation.

          7.2 Remedies;  Disposition of the Company Collateral.  If any Event of
Default  shall have  occurred  and be  continuing,  then any Company  Collateral
repossessed by the Collateral  Agent under or pursuant to Section 7.1 hereof and
any other Company  Collateral  whether or not so  repossessed  by the Collateral
Agent, may be sold, assigned,  leased or otherwise disposed of under one or more
contracts or as an entirety, and without the necessity of gathering at the place
of sale the property to be sold, and in general in such manner,  at such time or
times, at such place or places and on such terms as the Collateral Agent may, in
compliance with any mandatory  requirements  of applicable law,  determine to be
commercially  reasonable.  Any of the Company  Collateral may be sold, leased or
otherwise  disposed of, in the condition in which the same existed when taken by
the  Collateral  Agent or after any  overhaul  or repair at the  expense  of the
Assignor  which  the  Collateral   Agent  shall  determine  to  be  commercially
reasonable.  Any such sale, lease or other  disposition may be effected by means
of a public disposition or private disposition,  effected in accordance with the
applicable  requirements  (in  each  case if and to the  extent  applicable)  of
Sections 9-610 through 9-613 of the UCC and/or such other mandatory requirements
of applicable  law as may apply to the  respective  disposition.  The Collateral
Agent  may,  without  notice or  publication,  adjourn  any  public  or  private
disposition or cause the same to be adjourned from time to time by  announcement
at the time and place fixed for the  disposition,  and such  disposition  may be
made at any time or place to which the disposition  may be so adjourned.  To the
extent  permitted by any such  requirement of law, the Secured  Creditor may bid
for and become the  purchaser  (and may pay all or any  portion of the  purchase
price by  crediting  Obligations  against  the  purchase  price) of the  Company
Collateral or any item thereof,  offered for disposition in accordance with this
Section 7.2 without  accountability  to the Assignor.  If, under applicable law,
the  Collateral  Agent shall be  permitted  to make  disposition  of the Company
Collateral within a period of time which does not permit the giving of notice to
the  Assignor as herein  above  specified,  the  Collateral  Agent need give the
Assignor only such notice of disposition as shall be required by such applicable
law.  The  Assignor  agrees  to do or cause to be done all such  other  acts and
things as may be reasonably  necessary to make such  disposition or dispositions
of all or any  portion  of the  Company  Collateral  valid  and  binding  and in
compliance  with  any and  all  applicable  laws,  regulations,  orders,  writs,
injunctions,   decrees  or  awards  of  any  and  all  courts,   arbitrators  or
governmental  instrumentalities,  domestic or foreign,  having jurisdiction over
any such sale or sales, all at the Assignor's expense.

                                      -14-
<PAGE>
          7.3 Waiver of Claims.  Except as otherwise provided in this Agreement,
THE ASSIGNOR  HEREBY WAIVES,  TO THE EXTENT  PERMITTED BY APPLICABLE LAW, NOTICE
AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION
OR  THE  COLLATERAL  AGENT'S  DISPOSITION  OF ANY  OF  THE  COMPANY  COLLATERAL,
INCLUDING,  WITHOUT  LIMITATION,  ANY AND ALL PRIOR  NOTICE AND  HEARING FOR ANY
PREJUDGMENT  REMEDY OR REMEDIES,  and the Assignor hereby further waives, to the
extent permitted by law:

          (i) all damages  occasioned  by such taking of  possession or any such
     disposition  except  any  damages  which  are  the  direct  result  of  the
     Collateral Agent's gross negligence or willful misconduct (as determined by
     a court of competent jurisdiction in a final and non-appealable decision);

          (ii) all other requirements as to the time, place and terms of sale or
     other  requirements  with  respect  to the  enforcement  of the  Collateral
     Agent's rights hereunder; and

          (iii)  all  rights  of  redemption,  appraisement,   valuation,  stay,
     extension or moratorium  now or hereafter in force under any applicable law
     in order to  prevent  or delay the  enforcement  of this  Agreement  or the
     absolute  sale of the Company  Collateral or any portion  thereof,  and the
     Assignor,  for itself and all who may claim under it, insofar as it or they
     now or hereafter lawfully may, hereby waives the benefit of all such laws.

Any sale of, or the grant of options to purchase, or any other realization upon,
any Company Collateral shall operate to divest all right, title, interest, claim
and demand, either at law or in equity, of the Assignor therein and thereto, and
shall be a  perpetual  bar both at law and in equity  against the  Assignor  and
against  any and all  Persons  claiming  or  attempting  to  claim  the  Company
Collateral  so sold,  optioned  or realized  upon,  or any part  thereof,  from,
through and under the Assignor.

          7.4 Application of Proceeds.

          (a) All  moneys  collected  by the  Collateral  Agent upon any sale or
other  disposition  of the Company  Collateral,  together  with all other moneys
received by the Collateral Agent hereunder, shall be applied as follows.

          (i) first, to the payment of all amounts owing the Collateral Agent of
     the  type  described  in  clauses  (iii)  and  (iv)  of the  definition  of
     "Obligations";

          (ii)  second,  to the extent  proceeds  remain  after the  application
     pursuant to the  preceding  clause (i), an amount equal to the  outstanding
     Obligations shall be paid to the Secured Creditor; and

          (iii)  third,  to the extent  proceeds  remain  after the  application
     pursuant  to  the  preceding  clauses  (i)  through  (ii),  inclusive,  and
     following the  termination  of this Agreement  pursuant to Section  10.9(a)
     hereof,  to the Assignor or to whomever may be lawfully entitled to receive
     such surplus.

                                      -15-
<PAGE>
          (b)  This  Agreement  is  made  with  full  recourse  to the  Assignor
(including,  without  limitation,  with  full  recourse  to  all  assets  of the
Assignor)  and  pursuant  to  and  upon  all  the  warranties,  representations,
covenants  and  agreements  on the part of the Assignor  contained  herein,  and
otherwise in writing in connection herewith.

          7.5 Remedies Cumulative. Each and every right, power and remedy hereby
specifically  given to the Collateral  Agent shall be in addition to every other
right,  power and remedy  specifically  given to the Collateral Agent under this
Agreement, or now or hereafter existing at law, in equity or by statute and each
and every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time or  simultaneously  and as often and
in such  order as may be deemed  expedient  by the  Collateral  Agent.  All such
rights,  powers  and  remedies  shall  be  cumulative  and the  exercise  or the
beginning  of the  exercise  of one shall not be deemed a waiver of the right to
exercise any other or others.  No delay or omission of the  Collateral  Agent in
the  exercise of any such right,  power or remedy and no renewal or extension of
any of the Obligations shall impair any such right,  power or remedy or shall be
construed  to be a waiver of any Default or Event of Default or an  acquiescence
thereof.  No notice to or demand on the Assignor in any case shall entitle it to
any other or  further  notice or demand in  similar  or other  circumstances  or
constitute a waiver of any of the rights of the Collateral Agent to any other or
further action in any circumstances  without notice or demand. In the event that
the Collateral Agent shall bring any suit to enforce any of its rights hereunder
and shall be entitled to judgment,  then in such suit the  Collateral  Agent may
recover  reasonable  expenses,  including  reasonable  attorneys'  fees, and the
amounts thereof shall be included in such judgment.

          7.6 Discontinuance of Proceedings.  In case the Collateral Agent shall
have instituted any proceeding to enforce any right,  power or remedy under this
Agreement by foreclosure,  sale,  entry or otherwise,  and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Collateral Agent, then and in every such case the Assignor, the
Collateral Agent and each holder of any of the Obligations  shall be restored to
their  former  positions  and  rights  hereunder  with  respect  to the  Company
Collateral  subject to the security  interest created under this Agreement,  and
all rights,  remedies and powers of the Collateral Agent shall continue as if no
such proceeding had been instituted.

                                  ARTICLE VIII

          INDEMNITY; APPOINTMENT OF COLLATERAL AGENT BY SECURED PARTIES

          8.1 Indemnity; Indemnity by Assignor.

          (a)  The  Assignor  agrees  to  indemnify,   reimburse  and  hold  the
Collateral Agent, the Secured Creditor and their respective successors, assigns,
employees,  affiliates and agents  (hereinafter  in this Section 8.1 referred to
individually as "Indemnitee," and collectively as  "Indemnitees")  harmless from
any and all liabilities,  obligations,  damages,  injuries,  penalties,  claims,
demands,   actions,  suits,  judgments  and  any  and  all  costs,  expenses  or
disbursements  (including  reasonable  attorneys'  fees and  expenses)  (for the
purposes of this Section 8.1 and Section  8.5(b) the foregoing are  collectively
called "expenses") of whatsoever kind and nature imposed on, asserted against or
incurred by any of the Indemnitees in any way relating to or

                                      -16-
<PAGE>
arising out of this  Agreement  or any other  document  executed  in  connection
herewith  or  in  any  other  way  connected  with  the  administration  of  the
transactions  contemplated  hereby or thereby or the  enforcement  of any of the
terms of, or the  preservation  of any rights under any  thereof,  or in any way
relating to or arising out of the manufacture,  ownership,  ordering,  purchase,
delivery,  control,  acceptance,   lease,  financing,   possession,   operation,
condition,  sale, return or other disposition,  or use of the Company Collateral
(including,  without  limitation,  latent  or  other  defects,  whether  or  not
discoverable),  the  violation  of the  laws  of any  country,  state  or  other
governmental  body or unit,  any tort  (including,  without  limitation,  claims
arising or imposed under the doctrine of strict liability,  or for or on account
of injury to or the death of any Person (including any Indemnitee),  or property
damage),  or contract  claim;  provided that no Indemnitee  shall be indemnified
pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent
caused by the gross  negligence  or willful  misconduct of such  Indemnitee  (as
determined by a court of competent  jurisdiction  in a final and  non-appealable
decision). The Assignor agrees that upon written notice by any Indemnitee of the
assertion of such a  liability,  obligation,  damage,  injury,  penalty,  claim,
demand,  action, suit or judgment, the Assignor shall assume full responsibility
for the  defense  thereof.  Each  Indemnitee  agrees to use its best  efforts to
promptly  notify the Assignor of any such assertion of which such Indemnitee has
knowledge.

          (b) Without  limiting the  application of Section  8.1(a) hereof,  the
Assignor  agrees  to pay or  reimburse  the  Collateral  Agent  for  any and all
reasonable  fees,  costs and expenses  incurred in connection with the creation,
preservation  or  protection  of the  Collateral  Agent's Liens on, and security
interest in, the Company Collateral, including, without limitation, all fees and
taxes in connection with the recording or filing of instruments and documents in
public offices, payment or discharge of any taxes or Liens upon or in respect of
the Company  Collateral,  premiums  for  insurance  with  respect to the Company
Collateral and all other fees, costs and expenses in connection with protecting,
maintaining  or preserving the Company  Collateral  and the  Collateral  Agent's
interest  therein,  whether  through  judicial  proceedings or otherwise,  or in
defending or prosecuting  any actions,  suits or  proceedings  arising out of or
relating to the Company Collateral.

          (c) If and to the extent that the  obligations  of the Assignor  under
this Section 8.1 are unenforceable for any reason, the Assignor hereby agrees to
make  the  maximum   contribution  to  the  payment  and  satisfaction  of  such
obligations which is permissible under applicable law.

          8.2 Indemnity Obligations Secured by Company Collateral; Survival. Any
amounts  paid by any  Indemnitee  as to which such  Indemnitee  has the right to
reimbursement  shall constitute  Obligations  secured by the Company Collateral.
The indemnity  obligations of the Assignor contained in this Section 8.1 and 8.2
shall continue in full force and effect  notwithstanding the full payment of all
of the other Obligations and notwithstanding the full payment of the Note issued
under the Note Purchase Agreement.

          8.3 Appointment and  Authorization  of Collateral  Agent.  The Secured
Creditor hereby irrevocably  (subject to Section 8.10) appoints,  designates and
authorizes  the  Collateral  Agent to take such  action on his behalf  under the
provisions  of this  Agreement  and the Note and to  exercise  such  powers  and
perform  such  duties  as are  expressly  delegated  to it by the  terms of this
Agreement or the Note,  together with such powers as are  reasonably  incidental
thereto.

                                      -17-
<PAGE>
Notwithstanding  any  provision  to the  contrary  contained  elsewhere  in this
Agreement  or the  Note,  the  Collateral  Agent  shall  not  have  any  duty or
responsibility except those expressly set forth herein, nor shall the Collateral
Agent  have or be deemed to have any  fiduciary  relationship  with the  Secured
Creditor,  and  no  implied  covenants,  functions,  responsibilities,   duties,
obligations  or  liabilities  shall be read into this  Agreement  or the Note or
otherwise exist against the Collateral Agent.

          8.4 Delegation of Duties.  The Collateral Agent may execute any of its
duties  under this  Agreement  or the Note by or through  agents,  employees  or
attorneys-in-fact  and shall be  entitled  to advice of counsel  concerning  all
matters pertaining to such duties. The Collateral Agent shall not be responsible
for the  negligence  or  misconduct  of any  agent or  attorney-in-fact  that it
selects with reasonable care.

          8.5 Liability of Collateral Agent.

          (a) None of the Collateral  Agent nor any of its directors,  officers,
employees  or agents  shall (i) be liable for any action  taken or omitted to be
taken by any of them under or in connection  with this  Agreement or the Note or
the  transactions  contemplated  hereby (except for its own gross  negligence or
willful  misconduct),  or (ii)  be  responsible  in any  manner  to the  Secured
Creditor  for any recital,  statement,  representation  or warranty  made by the
Assignor or any subsidiary or affiliate of the Assignor, or any officer thereof,
contained  in this  Agreement  or in the Note,  or in any  certificate,  report,
statement or other  document  referred to or provided for in, or received by the
Collateral Agent under or in connection with, this Agreement or the Note, or the
validity,  effectiveness,  genuineness,  enforceability  or  sufficiency of this
Agreement or the Note,  or for any failure of the Assignor or any other party to
this Agreement or the Note to perform its  obligations  hereunder or thereunder.
The Collateral  Agent shall not be under any obligation to the Secured  Creditor
to ascertain or to inquire as to the  observance  or  performance  of any of the
agreements  contained  in, or conditions  of, this  Agreement or the Note, or to
inspect  the  properties,  books  or  records  of  the  Assignor  or  any of the
Assignor's subsidiaries or affiliates.

          (b) The Secured  Creditor  hereby agrees to  indemnify,  reimburse and
hold the Collateral Agent and its respective  successors,  assigns and employees
(hereinafter  in this  Section  8.5(b)  referred  to  individually  as an "Agent
Indemnitee," and collectively as "Agent Indemnitees")  harmless from any and all
expenses of whatsoever kind and nature imposed on, asserted  against or incurred
by any of the Agent Indemnitees relating to or arising out of the performance by
the Collateral Agent of its obligations under this Agreement as Collateral Agent
or other document executed in connection  herewith or in any other way connected
with the  administration of the transactions  contemplated  hereby or thereby by
the Collateral  Agent as the Collateral  Agent or the  enforcement of any of the
terms of, or the  preservation  of any rights under any  thereof,  or in any way
relating to or arising out of the manufacture,  ownership,  ordering,  purchase,
delivery,  control,  acceptance,   lease,  financing,   possession,   operation,
condition,  sale, return or other disposition,  or use of the Company Collateral
(including,  without  limitation,  latent  or  other  defects,  whether  or  not
discoverable),  the  violation  of the  laws  of any  country,  state  or  other
governmental  body or unit,  any tort  (including,  without  limitation,  claims
arising or imposed under the doctrine of strict liability,  or for or on account
of injury to or the death of any Person  (including  any Agent  Indemnitee),  or
property damage), or contract claim;

                                      -18-
<PAGE>
provided that no Agent Indemnitee shall be indemnified  pursuant to this Section
8.5(b) for  losses,  damages or  liabilities  to the extent  caused by the gross
negligence or willful  misconduct of such Agent  Indemnitee  (as determined by a
court of competent jurisdiction in a final and non-appealable decision).

          8.6  Reliance  by  Collateral  Agent.  The  Collateral  Agent shall be
entitled to rely,  and shall be fully  protected  in relying,  upon any writing,
resolution,   notice,  consent,   certificate,   affidavit,   letter,  telegram,
facsimile,   telex  or  telephone  message,   statement  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 counsel to the Assignor),  independent  accountants and
other experts  selected by the Collateral  Agent.  The Collateral Agent shall be
fully  justified in failing or refusing to take any action under this  Agreement
or the Note unless it shall first  receive  such  advice or  concurrence  of the
Secured Creditor as it deems  appropriate  and, if it so requests,  confirmation
from the Secured  Creditor of his obligation to indemnify the  Collateral  Agent
against any and all  liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.  The Collateral  Agent shall in
all cases be fully protected in acting, or in refraining from acting, under this
Agreement  or the Note in  accordance  with a request or consent of the  Secured
Creditor  and such  request  and any action  taken or  failure  to act  pursuant
thereto shall be binding upon the Secured Creditor.

          8.7 Notice of  Default.  The  Collateral  Agent shall not be deemed to
have  knowledge or notice of the occurrence of any Default unless the Collateral
Agent  shall have  received  written  notice  from the  Secured  Creditor or the
Assignor  referring to this Agreement,  describing such Default and stating that
such  notice is a "notice of  default".  The  Collateral  Agent will  notify the
Secured  Creditor of its receipt of any such notice.  The Collateral Agent shall
take such action with respect to such Default as may be requested by the Secured
Creditor;  provided that unless and until the Collateral  Agent has received any
such request, the Collateral Agent may (but shall not be obligated to) take such
action, or refrain from taking such action,  with respect to Default as it shall
deem advisable or in the best interest of the Secured Creditor.

          8.8  Credit  Decision.  The  Secured  Creditor  acknowledges  that the
Collateral Agent has not made any  representation or warranty to it, and that no
act by the Collateral Agent hereafter taken, including any review of the affairs
of the Assignor, shall be deemed to constitute any representation or warranty by
the Collateral Agent to the Secured Creditor. The Secured Creditor represents to
the Collateral  Agent that he has,  independently  and without reliance upon the
Collateral  Agent and based on such  documents and  information as he has deemed
appropriate,  made his own  appraisal of and  investigation  into the  business,
prospects,   operations,   property,   financial   and   other   condition   and
creditworthiness  of the Assignor,  and made his own decision to enter into this
Agreement and the Note and to complete the transactions  contemplated  hereunder
and thereunder. The Secured Creditor also represents that he will, independently
and without  reliance upon the Collateral  Agent and based on such documents and
information as he shall deem  appropriate at the time,  continue to make his own
analysis,  appraisals  and  decisions in taking or not taking  action under this
Agreement, the Note and the transactions  contemplated thereby, and to make such
investigations  as he deems  necessary  to inform  himself  as to the  business,
prospects,   operations,   property,   financial   and   other   condition   and
creditworthiness  of the Assignor.  The Collateral Agent shall not have any duty
or  responsibility  to provide  the

                                      -19-
<PAGE>
Secured Creditor with any credit or other  information  concerning the business,
prospects,    operations,    property,   financial   or   other   condition   or
creditworthiness  of the  Assignor  which  may come into the  possession  of the
Collateral Agent.

          8.9  Reimbursement.  To the extent the Assignor does not reimburse the
Collateral Agent within 60 days of billing, the Secured Creditor shall reimburse
the  Collateral  Agent  upon  demand  for any  costs or  out-of-pocket  expenses
(including  attorneys fees and costs)  incurred by the  Collateral  Agent to the
extent  such  costs  or  out-of-pocket  expenses  arise in  connection  with the
administration,   modification,   amendment  or  enforcement   (whether  through
negotiations,  legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under this Agreement, or any document contemplated by
or referred to herein, to the extent that the Collateral Agent is not reimbursed
for such expenses by or on behalf of the Assignor;  provided that the Collateral
Agent will use its  reasonable  efforts to obtain the  approval  of the  Secured
Creditor  before  incurring  any material  reimbursable  costs or expenses.  The
undertaking  in this Section shall  survive the  cancellation  of the Note,  any
foreclosure  under, or modification,  release or discharge of, any or all of the
documents  contemplated  by the  Note,  termination  of this  Agreement  and the
resignation or replacement of the Collateral Agent.

          8.10 Successor  Agent.  The Collateral  Agent may resign as Collateral
Agent at any time, and shall resign as Collateral Agent if requested to do so by
the Secured Creditor. If the Collateral Agent resigns under this Agreement,  the
Secured  Creditor shall appoint a new Collateral  Agent by the effective date of
such  resignation  notice.  Upon the acceptance of its  appointment as successor
agent  hereunder,  such successor agent shall succeed to all the rights,  powers
and duties of the  retiring  Collateral  Agent and the term  "Collateral  Agent"
shall  mean  such  successor   agent,  and  the  retiring   Collateral   Agent's
appointment,  powers and duties as Collateral  Agent shall be terminated.  After
any retiring Collateral Agent's  resignation  hereunder as Collateral 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 Collateral Agent under this Agreement.
If no successor agent has accepted  appointment as Collateral  Agent by the date
which is 30 days following a retiring  Collateral Agent's notice of resignation,
the retiring Collateral Agent's resignation shall nevertheless  thereupon become
effective  and the  Secured  Creditor  shall  perform  all of the  duties of the
Collateral  Agent  hereunder  until such time,  if any, as the Secured  Creditor
shall appoint a successor agent as provided for above.

          8.11 Company  Collateral  Matters.  The Secured  Creditor  irrevocably
authorizes the Collateral Agent, at its option and in its discretion, to release
any Lien or security  interest  granted to or held by the Collateral Agent under
the Security Agreements (a) upon cancellation of the Note and payment in full of
all obligations of the Assignor thereunder; (b) constituting property sold or to
be  sold  or  disposed  of as  part of or in  connection  with  any  disposition
permitted by this  Agreement  or the Note;  or (c) if  approved,  authorized  or
ratified  in writing by the Secured  Creditor.  Upon  request by the  Collateral
Agent at any time,  the Secured  Creditor will confirm in writing the Collateral
Agent's  authority to release,  or subordinate its interest in, particular types
or items of Company Collateral pursuant to this Section 8.11.

                                      -20-
<PAGE>
                                   ARTICLE IX

                                   DEFINITIONS

          The following  terms shall have the meanings  herein  specified.  Such
definitions shall be equally  applicable to the singular and plural forms of the
terms defined.

          "Account"  shall  mean any  "account"  as such term is  defined in the
Uniform  Commercial  Code as in  effect  on the date  hereof in the State of New
York,  and in any event shall include but shall not be limited to, all rights to
payment of any monetary  obligation,  whether or not earned by performance,  (i)
for  property  that has been or is to be sold,  leased,  licensed,  assigned  or
otherwise disposed of, (ii) for services rendered or to be rendered, (iii) for a
policy of  insurance  issued or to be issued,  (iv) for a  secondary  obligation
incurred or to be incurred, (v) for energy provided or to be provided,  (vi) for
the use or hire of a vessel under a charter or other contract, (vii) arising out
of the use of a credit or charge  card or  information  contained  on or for use
with the card,  or  (viii) as  winnings  in a  lottery  or other  game of chance
operated  or  sponsored  by a State,  governmental  unit of a State,  or  person
licensed or authorized to operate the game by a State or governmental  unit of a
State.

          "Agreement"  shall mean this  Subordinated  Security  Agreement as the
same may be modified,  supplemented  or amended from time to time in  accordance
with its terms.

          "Assignor"  shall have the meaning  provided in the first paragraph of
this Agreement.

          "Cash  Collateral  Account"  shall  mean  a  Cash  Collateral  Account
maintained  with, and in the sole dominion and control of, the Collateral  Agent
for the benefit of the Secured Creditor.

          "Collateral  Agent"  shall  have the  meaning  provided  in the  first
paragraph of this Agreement.

          "Company Collateral" shall have the meaning provided in Section 1.1(a)
of this Agreement.

          "Company Senior Security  Agreement" shall mean the Security Agreement
dated as of November 20, 2001 among the Assignor,  the Secured  Creditors  named
therein and Versus Support Services, Inc., as Collateral Agent.

          "Contract  Rights"  shall mean all rights of the  Assignor  under each
Contract,  including,  without limitation, (i) any and all rights to receive and
demand  payments under any or all Contracts,  (ii) any and all rights to receive
and compel  performance  under any or all  Contracts and (iii) any and all other
rights, interests and claims now existing or in the future arising in connection
with any or all Contracts.

          "Contracts"  shall mean all contracts  between the Assignor and one or
more additional parties (including, without limitation, licensing agreements and
any  partnership  agreements,  joint venture  agreements  and limited  liability
company agreements).

                                      -21-
<PAGE>
          "Copyrights"  shall  mean any  United  States  copyright  owned by the
Assignor,  including any  registrations of any copyrights,  in the United States
Copyright Office or any foreign  equivalent  office,  as well as any application
for a  copyright  registration  now or  hereafter  made with the  United  States
Copyright Office or any foreign equivalent office by the Assignor.

          "Default"  shall mean any event which with notice or lapse of time, or
both, would constitute an Event of Default.

          "Documents"  shall  mean  "documents"  as such term is  defined in the
Uniform  Commercial  Code as in  effect  on the date  hereof in the State of New
York.

          "Equipment"  shall mean any "equipment" as such term is defined in the
Uniform  Commercial  Code as in  effect  on the date  hereof in the State of New
York,  and in any  event,  shall  include,  but shall  not be  limited  to,  all
machinery, equipment,  furnishings, fixtures and vehicles now or hereafter owned
by the Assignor and any and all additions, substitutions and replacements of any
of the foregoing and all accessions thereto, wherever located, together with all
attachments,  components,  parts, equipment and accessories installed thereon or
affixed thereto.

          "Event  of  Default"  shall  mean any  payment  default  on any of the
Obligations after the expiration of any applicable grace period.

          "General Intangibles" shall mean "general intangibles" as such term is
defined in the  Uniform  Commercial  Code as in effect on the date hereof in the
State of New York.

          "Goods"  shall mean  "goods"  as such term is  defined in the  Uniform
Commercial Code as in effect on the date hereof in the State of New York.

          "Indemnitee" shall have the meaning provided in Section 8.1(a) of this
Agreement.

          "Instrument"  shall mean  "instruments" as such term is defined in the
Uniform  Commercial  Code as in  effect  on the date  hereof in the State of New
York.

          "Inventory"  shall mean  merchandise,  inventory  and  goods,  and all
additions,  substitutions and replacements  thereof and all accessions  thereto,
wherever  located,  together with all goods,  supplies,  incidentals,  packaging
materials,   labels,   materials   and  any  other   items  used  or  usable  in
manufacturing,  processing,  packaging  or  shipping  same,  in  all  stages  of
production from raw materials through work in process to finished goods, and all
products and proceeds of whatever sort and wherever  located any portion thereof
which may be returned,  rejected,  reclaimed or  repossessed  by the  Collateral
Agent  from  the  Assignor's  customers,  and  shall  specifically  include  all
"inventory" as such term is defined in the Uniform  Commercial Code as in effect
on the date hereof in the State of New York.

          "Investment Property" shall mean "investment property" as such term is
defined in the  Uniform  Commercial  Code as in effect on the date hereof in the
State of New York.

                                      -22-
<PAGE>
          "Liens"  shall mean any security  interest,  deed of trust,  mortgage,
pledge, lien, claim, charge,  encumbrance,  title retention agreement,  lessor's
interest  in a  financing  lease or  analogous  instrument,  in,  of,  or on the
Assignor's property.

          "Location" of the Assignor,  shall mean the  Assignor's  "location" as
determined pursuant to Section 9-307 of the UCC.

          "Marks"  shall  mean  all  right,  title  and  interest  in and to any
trademarks,  service marks and trade names now held or hereafter acquired by the
Assignor,  including any registration of any trademarks and service marks in the
United States Patent and Trademark  Office or in any  equivalent  foreign office
and any trade dress including logos and/or designs used by the Assignor.

          "Material  Adverse Effect" shall mean a material adverse effect on the
business,  property, assets,  liabilities (actual or contingent),  operations or
condition  (financial or otherwise) of the  Assignor,  the  Subsidiary,  and any
other subsidiary of the Company or Subsidiary taken as a whole.

          "Obligations"  shall mean (i) the full and prompt  payment when due of
all obligations and indebtedness  (including,  without limitation,  indemnities,
fees and interest thereon) of the Assignor to the Secured Creditor,  whether now
existing or hereafter incurred under,  arising out of, or in connection with the
Note Purchase  Agreement and the Note issued  thereunder and the due performance
and compliance by the Assignor with all of the terms,  conditions and agreements
contained in the Note Purchase  Agreement and the Note issued  thereunder;  (ii)
any and all sums  advanced  by the  Assignee  in order to  preserve  the Company
Collateral or preserve its security interest in the Company Collateral; (iii) in
the  event  of  any   proceeding  for  the  collection  or  enforcement  of  any
indebtedness,  obligations,  or  liabilities  of the Assignor  after an Event of
Default  shall have  occurred  and be  continuing,  the  reasonable  expenses of
retaking,  holding,  preparing for sale or lease, selling or otherwise disposing
of or realizing on the Company Collateral, or of any exercise by the Assignee of
its rights hereunder,  together with reasonable attorneys' fees and court costs;
and (iv) all amounts paid by any Indemnitee as to which such  Indemnitee has the
right to reimbursement under Section 8.1 of this Agreement.

          "Patents" shall mean any patent to which the Assignor now or hereafter
has any right,  title or  interest  therein,  and any  divisions,  continuations
(including,  but  not  limited  to,   continuations-in-parts)  and  improvements
thereof,  as well as any  application  for a patent now or hereafter made by the
Assignor.

          "Permits"  shall mean,  to the extent  permitted to be assigned by the
terms  thereof or by  applicable  law, all licenses,  permits,  rights,  orders,
variances, franchises or authorizations of or from any governmental authority or
agency.

          "Permitted Liens" shall mean

          (i) inchoate Liens for taxes,  assessments or governmental  charges or
     levies not yet due or Liens for taxes,  assessments or governmental charges
     or levies being contested in good faith and by appropriate  proceedings for
     which adequate  reserves have been established in accordance with generally
     accepted accounting principles;

                                      -23-
<PAGE>
          (ii) Liens in respect of property or assets of the  Assignor or any of
     its subsidiaries imposed by law, which were incurred in the ordinary course
     of business  and do not secure  indebtedness  for borrowed  money,  such as
     carriers',  warehousemen's,  materialmen's  and mechanics'  liens and other
     similar Liens arising in the ordinary course of business,  and (x) which do
     not in the aggregate materially detract from the value of Assignor's or the
     Subsidiary's property or assets or materially impair the use thereof in the
     operation  of the business of Assignor or the  Subsidiary  or (y) which are
     being contested in good faith by appropriate proceedings, which proceedings
     have the effect of  preventing  the  forfeiture  or sale of the property or
     assets subject to any such Lien;

          (iii)  leases or  subleases  granted to other  Persons not  materially
     interfering with the conduct or value of the business of Assignor or any of
     its   subsidiaries   and   non-assignable,   non-exclusive   licenses   and
     sub-licenses to third parties;

          (iv) Liens upon assets of the  Assignor or the  Subsidiary  subject to
     capitalized lease  obligations,  provided that (x) such Liens only serve to
     secure the payment of  indebtedness  arising under such  capitalized  lease
     obligation  and (y) the  Lien  encumbering  the  asset  giving  rise to the
     capitalized lease obligation does not encumber any asset of Assignor or the
     Subsidiary;

          (v) Liens placed upon  equipment or machinery and used in the ordinary
     course of business of the Assignor or the Subsidiary and placed at the time
     of the  acquisition  thereof by the Assignor or the Subsidiary or within 90
     days thereafter to secure indebtedness  incurred to pay all or a portion of
     the purchase price thereof or to secure  indebtedness  incurred  solely for
     the purpose of financing the acquisition of any such equipment or machinery
     or  extensions,  renewals or  replacements  of any of the foregoing for the
     same or a lesser amount;

          (vi) easements, rights-of-way,  restrictions,  encroachments and other
     similar charges or encumbrances, and minor title deficiencies, in each case
     not securing  indebtedness and not materially  interfering with the conduct
     or value of the business of Assignor or the Subsidiary;

          (vii) Liens arising from precautionary UCC financing statement filings
     regarding  operating  leases or  bailee  arrangements  entered  into in the
     ordinary course of business;

          (viii)  Liens  arising out of the  existence of judgments or awards in
     respect  of  which  Assignor  or the  Subsidiary  shall  in good  faith  be
     prosecuting  an appeal or  proceedings  for  review and in respect of which
     there shall have been secured a subsisting  stay of execution  pending such
     appeal or proceedings,  provided that the aggregate  amount of all cash and
     the fair market value of all other property  subject to such Liens does not
     exceed $50,000 at any time outstanding;

          (ix) statutory and common law  landlords'  liens under leases to which
     the Assignor or the Subsidiary is a party;

          (x) Liens  incurred in the ordinary  course of business in  connection
     with  workers  compensation  claims,   unemployment  insurance  and  social
     security  benefits and Liens

                                      -24-
<PAGE>
     securing the  performance  of bids,  tenders,  leases and  contracts in the
     ordinary  course  of  business,   statutory   obligations,   surety  bonds,
     performance  bonds and other  obligations of a like nature  incurred in the
     ordinary course of business and consistent with past practice (exclusive of
     obligations  in respect of the payment for borrowed  money),  provided that
     the  aggregate  amount of all cash and the fair  market  value of all other
     property subject to all Liens permitted by this clause (x) shall not at any
     time exceed $50,000; and

          (xi) other  Liens  incidental  to the  conduct of the  business of the
     Assignor or any of the Subsidiary  that (i) were not incurred in connection
     with  indebtedness,  (ii) do not  materially  detract from the value of the
     assets  subject to such Liens or  materially  impair the use thereof in the
     operation  of such  business  (provided  to the extent  that any such Liens
     attach to any  Company  Collateral  such Liens shall be junior to the Liens
     created in favor of the Collateral  Agent) and (iii) do not at any time for
     all such Liens encumber cash and other property  having an aggregate  value
     in excess of, or secure outstanding  obligations in the aggregate in excess
     of $10,000; and

          (xii) first Lien in favor of the secured  creditors  under the Company
     Senior Security Agreement.

          "Proceeds"  shall mean all  "proceeds"  as such term is defined in the
Uniform Commercial Code as in effect in the State of New York on the date hereof
and, in any event,  shall also  include,  but not be limited to, (i) any and all
proceeds  of any  insurance,  indemnity,  warranty  or  guaranty  payable to the
Collateral  Agent or the  Assignor  from time to time with respect to any of the
Company  Collateral,  (ii) any and all payments (in any form whatsoever) made or
due and  payable  to the  Assignor  from  time to time in  connection  with  any
requisition,  confiscation,  condemnation,  seizure or  forfeiture of all or any
part of the Company  Collateral  by any  governmental  authority  (or any person
acting  under  color of  governmental  authority)  and  (iii)  any and all other
amounts from time to time paid or payable under or in connection with any of the
Company Collateral.

          "Secured  Creditor" shall have the meaning provided in the preamble to
this Agreement.

          "Software"  shall  mean  "software"  as such  term is  defined  in the
Uniform  Commercial  Code as in  effect  on the date  hereof in the State of New
York.

          "Subsidiary" shall mean Virtual Vision, Inc., a Delaware corporation.

          "Supporting  Obligations"  shall mean any  "supporting  obligation" as
such term is defined  in the  Uniform  Commercial  Code as in effect on the date
hereof in the State of New York, now or hereafter  owned by the Assignor,  or in
which the Assignor has any rights,  and, in any event, shall include,  but shall
not be limited to all of the Assignor's rights in any letter-of-credit  right or
secondary  obligation  that  supports  the  payment or  performance  of, and all
security  for,  any  Account,  Document,   General  Intangible,   Instrument  or
Investment Property.

          "Termination  Date" shall have the meaning provided in Section 10.9(a)
of this Agreement.

                                      -25-
<PAGE>
          "Trade Secret  Rights" shall have the meaning  provided in Section 5.1
of this Agreement.

          "UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the relevant jurisdiction.

                                   ARTICLE X

                                  MISCELLANEOUS

          10.1  Notices.  Except as  otherwise  specified  herein,  all notices,
requests,  demands or other  communications  to or upon the  respective  parties
hereto shall be sent or delivered by hand, overnight mail or courier service and
all such notices and  communications  shall,  when mailed,  delivered or sent by
courier,  be  effective  when  deposited  in the mails,  delivered  or overnight
courier,  as the case may be,  except  that  notices and  communications  to the
Collateral  Agent or the Assignor  shall not be effective  until received by the
Collateral  Agent or the  Assignor,  as the case may be. All  notices  and other
communications shall be in writing and addressed as follows:

          (a)       if to the Assignor:

                    eMagin Corporation
                    2070 Route 52
                    Hopewell Junction, NY  12533
                    Attention:  Chief Financial Officer
                    Telephone No.:  (845) 892-1900
                    Telecopier No.:  (845) 892-1901

          (b)       if to the Collateral Agent, at:

                    Alligator Holdings, Inc.
                    444 Park Avenue South, 11th Floor
                    New York, NY 10016
                    Attn: Mr. Steven W. Gold, President
                    Telephone No.:  (212) 696-4848
                    Fax. No.:  (212) 696-1231; and

          (c) if to  the  Secured  Creditor,  at  such  address  as the  Secured
     Creditor shall have specified in the Note Purchase Agreement;

or at such other  address or  addressed to such other  individual  as shall have
been furnished in writing by any Person described above to the party required to
give notice hereunder.

          10.2  Waiver;  Amendment.  None of the  terms and  conditions  of this
Agreement may be changed,  waived,  modified or varied in any manner  whatsoever
unless in writing duly signed by the Assignor and the Collateral Agent (with the
written consent of the Secured Creditor);

                                      -26-
<PAGE>
          10.3 Obligations  Absolute.  The obligations of the Assignor hereunder
shall  remain in full  force and  effect  without  regard  to,  and shall not be
impaired  by,  (a)  any  bankruptcy,  insolvency,  reorganization,  arrangement,
readjustment,  composition,  liquidation  or the like of the  Assignor;  (b) any
exercise  or  non-exercise,  or any  waiver  of,  any  right,  remedy,  power or
privilege  under or in respect of this  Agreement;  or (c) any  amendment  to or
modification  of any  security  for any of the  Obligations;  whether or not the
Assignor shall have notice or knowledge of any of the foregoing.

          10.4 [Intentionally left blank.]

          10.5 Successors and Assigns.  This Agreement shall be binding upon the
Assignor  and its  successors  and assigns and shall inure to the benefit of the
Collateral Agent and the Secured  Creditor and their  respective  successors and
assigns. All agreements, statements,  representations and warranties made by the
Assignor  herein or in any  certificate  or other  instrument  delivered  by the
Assignor or on its behalf under this Agreement  shall be considered to have been
relied upon by the Secured Creditor and shall survive the execution and delivery
of this Agreement  regardless of any investigation  made by the Secured Creditor
or on his behalf.

          10.6  Headings  Descriptive.  The headings of the several  sections of
this Agreement are inserted for convenience only and shall not in any way affect
the meaning or construction of any provision of this Agreement.

          10.7 GOVERNING LAW; SUBMISSION TO JURISDICTION;  VENUE; WAIVER OF JURY
TRIAL.

          (a) THIS  AGREEMENT  AND THE RIGHTS  AND  OBLIGATIONS  OF THE  PARTIES
HEREUNDER  SHALL BE CONSTRUED IN  ACCORDANCE  WITH AND BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.  ANY LEGAL  ACTION OR  PROCEEDING  WITH  RESPECT  TO THIS
AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES FOR THE SOUTHERN  DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS  AGREEMENT,  THE  ASSIGNOR  HEREBY  IRREVOCABLY  ACCEPTS  FOR ITSELF AND IN
RESPECT  OF ITS  PROPERTY,  GENERALLY  AND  UNCONDITIONALLY,  THE  NON-EXCLUSIVE
JURISDICTION OF THE AFORESAID  COURTS.  THE ASSIGNOR HEREBY FURTHER  IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION  OVER THE ASSIGNOR,  AND
AGREES NOT TO PLEAD OR CLAIM IN ANY LEGAL ACTION OR  PROCEEDING  WITH RESPECT TO
THIS AGREEMENT  BROUGHT IN ANY OF THE AFORESAID COURTS THAT ANY SUCH COURT LACKS
JURISDICTION OVER THE ASSIGNOR. THE ASSIGNOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES  THEREOF BY  REGISTERED  OR CERTIFIED  MAIL,
POSTAGE  PREPAID,  TO THE  ASSIGNOR  AT ITS  ADDRESS  FOR NOTICES AS PROVIDED IN
SECTION 10.1 ABOVE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
THE ASSIGNOR HEREBY  IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS
AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR
PROCEEDING  COM-

                                      -27-
<PAGE>
MENCED  HEREUNDER  THAT  SUCH  SERVICE  OF  PROCESS  WAS IN ANY WAY  INVALID  OR
INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL AGENT UNDER
THIS AGREEMENT,  OR THE SECURED  CREDITOR,  TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL  PROCEEDINGS OR OTHERWISE  PROCEED AGAINST
THE ASSIGNOR IN ANY OTHER JURISDICTION.

          (b) THE ASSIGNOR HEREBY  IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID  ACTIONS OR
PROCEEDINGS  ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT  BROUGHT IN THE
COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES  NOT TO  PLEAD  OR CLAIM IN ANY  SUCH  COURT  THAT  ANY  SUCH  ACTION  OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

          (c) EACH OF THE PARTIES TO THIS AGREEMENT  HEREBY  IRREVOCABLY  WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,  PROCEEDING OR COUNTERCLAIM  ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

          10.8  Assignor's  Duties.  It is  expressly  agreed,  anything  herein
contained to the contrary notwithstanding, that the Assignor shall remain liable
to perform all of the  obligations,  if any,  assumed by it with  respect to the
Company  Collateral and the Collateral  Agent shall not have any  obligations or
liabilities  with respect to any Company  Collateral by reason of or arising out
of this  Agreement,  nor shall the Collateral  Agent be required or obligated in
any manner to perform or fulfill any of the obligations of the Assignor under or
with respect to any Company Collateral.

          10.9 Termination; Release.

          (a)  After  the  Termination  Date,  this  Agreement  shall  terminate
(provided that all indemnities set forth herein including, without limitation in
Section 8.1 hereof, shall survive such termination) and the Collateral Agent, at
the request and expense of the Assignor,  will  promptly  execute and deliver to
the Assignor a proper instrument or instruments  (including  Uniform  Commercial
Code termination  statements on form UCC-3)  acknowledging  the satisfaction and
termination of this Agreement, and will duly assign, transfer and deliver to the
Assignor (without  recourse and without any  representation or warranty) such of
the Company  Collateral as may be in the possession of the Collateral  Agent and
as has not theretofore  been sold or otherwise  applied or released  pursuant to
this  Agreement.  As used in this Agreement,  "Termination  Date" shall mean the
date  upon  which  the Note  issued  under the Note  Purchase  Agreement  is not
outstanding and all Obligations then due and payable have been paid in full.

          (b) At any time that the Assignor  desires that the  Collateral  Agent
take any  action  to  acknowledge  or give  effect  to any  release  of  Company
Collateral pursuant to the foregoing Section 10.9(a), the Assignor shall deliver
to the Collateral Agent a certificate signed

                                      -28-
<PAGE>
by a senior  officer of the Assignor  stating that the release of the respective
Company Collateral is permitted pursuant to such Section 10.9(a).

          10.10  Counterparts.  This  Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,  each
of which when so executed and delivered  shall be an original,  but all of which
shall together  constitute one and the same  instrument.  A set of  counterparts
executed by all the parties  hereto  shall be lodged with the  Assignor  and the
Collateral Agent. Execution of counterparts may be by facsimile.

          10.11   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.

          10.12 The Collateral  Agent and the Secured  Creditor.  The Collateral
Agent  will hold in  accordance  with this  Agreement  all items of the  Company
Collateral at any time received under this Agreement. It is expressly understood
and agreed that the obligations of the Collateral Agent as holder of the Company
Collateral and interests  therein and with respect to the  disposition  thereof,
and otherwise under this  Agreement,  are only those expressly set forth in this
Agreement.  The Collateral Agent shall act hereunder on the terms and conditions
set forth herein.

          10.13 Benefit of Agreement.  This Agreement  shall be binding upon the
parties  hereto and their  respective  successors and assigns and shall inure to
the  benefit  of and be  enforceable  by  each  of the  parties  hereto  and its
successors and assigns.

          10.14 Subordination.  Notwithstanding anything contained herein to the
contrary,  the Secured  Creditor  recognizes  and  acknowledges  that all of the
Collateral  Agent's and its respective rights and remedies  hereunder are junior
and  subordinate  in right to the prior rights and  remedies of the  "Collateral
Agent"  and the  "Secured  Creditors"  (each as defined  in the  Company  Senior
Security  Agreement) under the Company Senior Security  Agreement,  and that the
relative  rights and priorities to and in the Company  Collateral as between the
Collateral Agent and the Secured Creditor,  on the one hand, and the "Collateral
Agent"  and the  "Secured  Creditors"  (each as defined  in the  Company  Senior
Security  Agreement),  on the other  hand is set forth in  Section 4 of the Note
Purchase Agreement.

    [Remainder of this page intentionally left blank; signature page follows]

                                      -29-
<PAGE>
          IN WITNESS  WHEREOF,  the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.

          ASSIGNOR:

                                        EMAGIN CORPORATION, as Assignor

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

          SECURED PARTY:

                                        ----------------------------------------
                                                 Mortimer D. A. Sackler

                                        Address:  15 East 62nd Street
                                                  New York, NY 10021

<PAGE>
Accepted and Agreed to:

ALLIGATOR HOLDINGS, INC.,
  as Collateral Agent

By:
   ------------------------------------
   Name:       Mr. Steven W. Gold
   Title:      President<PAGE>
                                                                   EXHIBIT 10.2

                                     FORM OF
                CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

<PAGE>

                                      INDEX

<Table>
<S>                                                                         <C>
ARTICLE I DEFINITIONS; SCHEDULES..............................................4
   1.1      Definitions.......................................................6
   1.2      Schedules and Exhibits............................................6
ARTICLE II TRANSACTIONS.......................................................6
   2.1      Contribution by New Gauley to NNG LLC of Assets...................6
   2.2      Contribution by WPP to WPP LLC of Assets..........................7
   2.3      Contribution by Great Northern to GNP LLC of Assets...............7
   2.4      Contribution by Ark to ACIN LLC of Assets.........................7
   2.5      Contribution by New Gauley to the MLP of Interest in NNG LLC......8
   2.6      Contribution by WPP to the MLP of Interest in WPP LLC.............8
   2.7      Contribution by Great Northern to the MLP of Interest in GNP
              LLC.............................................................8
   2.8      Contribution by Ark to the MLP of Interest in ACIN LLC............8
   2.9      Public Cash Contribution..........................................8
   2.10     Public Cash Contribution to Ark...................................8
   2.11     MLP Receipt of Public Cash........................................8
   2.12     Ark Receipt of Public Cash........................................9
   2.13     NNG LLC Receipt of Offering Proceeds..............................9
   2.14     WPP LLC Receipt of Offering Proceeds..............................9
   2.15     GNP LLC Receipt of Offering Proceeds..............................9
   2.16     Contribution by New Gauley to GP LP of its SPLs...................9
   2.17     Contribution by WPP to GP LP of its SPLs..........................9
   2.18     Contribution by Great Northern to GP LP of its SPLs...............9
   2.19     Contribution by Ark to GP LP of its SPLs..........................9
   2.20     Conversion of SPLs................................................9
   2.21     Payment of Transaction Costs, Offering Proceeds and Capital
              Expenditures....................................................9
   2.22     Contribution by the MLP to the OLLC of the Membership Interests
              in the LLCs.....................................................9
   2.23     Exercise of the Shoe..............................................9
ARTICLE III ASSUMPTION OF CERTAIN LIABILITIES................................10
   3.1      Assumption by the NNG LLC of the New Gauley Debt.................10
   3.2      Assumption by the WPP LLC of the WPP Debt........................10
   3.3      Assumption by the GNP LLC of the Great Northern Debt.............10
ARTICLE IV TITLE MATTERS.....................................................11
   4.1      Encumbrances.....................................................11
   4.2      Disclaimer of Warranties; Subrogation; Waiver of Bulk Sales
              Laws...........................................................11
ARTICLE V FURTHER ASSURANCES.................................................13
   5.1      Further Assurances...............................................13
   5.2      Power of Attorney................................................13
ARTICLE VI MISCELLANEOUS.....................................................13
   6.1      Order of Completion of Transactions..............................13
   6.2      Consents; Restriction on Assignment..............................14
   6.3      Costs............................................................14
   6.4      Headings; References; Interpretation.............................14
   6.5      Successors and Assigns...........................................15
   6.6      No Third Party Rights............................................15
</Table>

                                       i
<PAGE>

<Table>
<S>                                                                         <C>
   6.7      Counterparts.....................................................15
   6.8      Governing Law....................................................15
   6.9      Severability.....................................................15
   6.10     Deed; Bill of Sale; Assignment...................................15
   6.11     Amendment or Modification........................................15
   6.12     Integration......................................................15
</Table>

                                       ii
<PAGE>

                CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

         THIS CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT (this
"Agreement") is made, entered into and effective as of the [____] day of [JULY],
2002, by and among New Gauley Coal Corporation, a West Virginia corporation
("New Gauley"); Western Pocahontas Properties Limited Partnership, a Delaware
limited partnership ("WPP"); Great Northern Properties Limited Partnership, a
Delaware limited partnership ("Great Northern"); Ark Land Company, a Delaware
corporation ("Ark"); NNG LLC, a Delaware limited liability company ("NNG LLC");
WPP LLC, a Delaware limited liability company ("WPP LLC"); GNP LLC, a Delaware
limited liability company ("GNP LLC"); ACIN LLC, a Delaware limited liability
company ("ACIN LLC"); Robertson Coal Management LLC, a Delaware limited
liability company ("RCM LLC"); NRP (Operating) LLC, a Delaware limited liability
company (the "OLLC"); GP Natural Resource Partners LLC, a Delaware limited
liability company ("GP LLC"); NRP (GP) LP, a Delaware limited partnership ("GP
LP"); and Natural Resource Partners L.P., a Delaware limited partnership (the
"MLP").

                                    RECITALS

         WHEREAS, GP LLC and GP LP have formed the MLP pursuant to the Delaware
Revised Uniform Limited Partnership Act for the purpose of, among other things,
acquiring, owning and operating certain assets of New Gauley, WPP, Great
Northern and Ark used in the business of owning and managing coal properties;

         WHEREAS, in furtherance of accomplishing the objectives and purposes
set forth in the preceding recital, the following actions have been taken prior
to the date hereof:

         1.       New Gauley has formed NNG LLC to which New Gauley contributed
                  $1,000 in exchange for all the membership interests in NNG
                  LLC.

         2.       WPP has formed WPP LLC to which WPP contributed $1,000 in
                  exchange for all the membership interests in WPP LLC.

         3.       Great Northern has formed GNP LLC to which Great Northern
                  contributed $1,000 in exchange for all the membership
                  interests in GNP LLC.

         4.       Ark has formed ACIN LLC to which Ark contributed $1,000 in
                  exchange for all the membership interest in ACIN LLC.

         5.       Corbin J. Robertson, Jr. ("CR") and Ark have formed GP LLC to
                  which CR has contributed $527.50 in -- exchange for a 57.75%
                  member interest and Ark has contributed $422.50 in exchange
                  for a 42.25% member interest.

         6.       CR has formed RCM LLC to which CR contributed his 57.75%
                  interest in GP LLC in exchange for all the membership interest
                  in RCM LLC.

         7.       New Gauley, WPP, Great Northern, Ark and GP LLC have formed GP
                  LP to which New Gauley has contributed $18.40 in exchange for
                  a 1.8399816% limited partner interest, WPP has contributed
                  $460.80 in exchange for a 46.0795392%

                                        1
<PAGE>
                  limited partner interest, Great Northern has contributed
                  $98.30 in exchange for a 9.8299017% limited partner interest,
                  Ark has contributed $422.50 in exchange for a 42.2495775%
                  limited partner interest and GP LLC has contributed $0.01 in
                  exchange for a 0.001% general partner interest.(1)

         8.       GP LP and GP LLC have formed the MLP to which GP LP has
                  contributed $20 in exchange for the 2% general partner
                  interest (including 65% of the incentive distribution rights
                  of the MLP (the "Incentive Distribution Rights")), and GP LLC
                  has contributed $980 in exchange for a 98% limited partner
                  interest.

         9.       The MLP has formed the OLLC to which it has contributed $1,000
                  in exchange for all the membership interests in the OLLC.

         WHEREAS, concurrently with the consummation of the transactions
contemplated hereby, each of the following shall occur:

         10.      New Gauley will contribute certain assets to NNG LLC as a
                  capital contribution and in exchange for membership interests
                  and an assumption of certain debt related to the assets.

         11.      WPP will contribute certain assets to WPP LLC as a capital
                  contribution and in exchange for membership interests and an
                  assumption of certain debt related to the assets.

         12.      Great Northern will contribute certain assets to GNP LLC as a
                  capital contribution and in exchange for membership interests
                  and an assumption of certain debt related to the assets.

         13.      Ark will contribute assets to ACIN LLC as a capital
                  contribution and in exchange for membership interests.

         14.      New Gauley will contribute its membership interests in NNG LLC
                  to the MLP in exchange for (a) a 0.0368% special limited
                  partner interest ("SPL"), (b) 127,555 common units
                  representing common limited partner interests ("Common
                  Units"), constituting a 0.5% interest in the MLP, (c) 220,892
                  subordinated units, representing subordinated limited partner
                  interests of the MLP ("Subordinated Units"), constituting a
                  0.9% interest in the MLP and (d) 0.8% of the Incentive
                  Distribution Rights.

         15.      WPP will contribute its interest in WPP LLC to the MLP in
                  exchange for (a) a 10.9216% SPL, (b) 3,458,304 Common Units,
                  constituting a 14.1% interest in the MLP, (c) 5,531,904
                  Subordinated Units, constituting a 22.7% interest in the MLP,
                  (d) 19.94% of the Incentive Distribution Rights and (e) the
                  right to receive $11,520 as reimbursement for certain capital
                  expenditures.

-----------------------
(1) Ark has an aggregate 42.25% interest in GP LP based on its 42.2495775%
limited partner interest and its 0.0004225% general partner interest.

                                        2
<PAGE>
         16.      Great Northern will contribute its interest in GNP LLC to the
                  MLP in exchange for (a) a 0.1966% SPL, (b) 671,389 Common
                  Units, constituting a 2.8% interest in the MLP, (c) 1,180,092
                  Subordinated Units, constituting a 4.8% interest in the MLP
                  and (d) 4.26% of the Incentive Distribution Rights.

         17.      Ark will contribute its interest in ACIN LLC to the MLP in
                  exchange for (a) a 0.8450% SPL, (b) 5,072,112 Common Units,
                  constituting a 20.8% interest in the MLP, (c) 5,072,112
                  Subordinated Units, constituting a 20.8% interest in the MLP
                  and (d) 10% of the Incentive Distribution Rights.

         18.      The public, through the Underwriters, will contribute
                  $51,975,000 ($48,596,625 net of the Underwriters' 6.5% spread)
                  to the MLP in exchange for 2,598,750 Common Units,
                  constituting a 10.6% interest in the MLP.

         19.      The public, through the Underwriters, will pay $38,025,000
                  ($35,410,781 net of the Underwriters' spread) to Ark in
                  exchange for 1,901,250 Common Units, constituting a 7.8%
                  interest in the MLP.

         20.      New Gauley will contribute its SPLs to GP LP as capital
                  contribution to continue its interest in GP LP.

         21.      WPP will contribute its SPLs to GP LP as capital contribution
                  to continue its interest in GP LP.

         22.      Great Northern will contribute its SPLs to GP LP as capital
                  contribution to continue its interest in GP LP.

         23.      Ark will contribute its SPLs to GP LP as capital contribution
                  to continue its interest in GP LP.

         24.      The SPLs held by GP LP will be converted to an additional
                  general partner capital interest in the MLP.

         25.      The MLP (a) will pay the transaction expenses,(2) estimated to
                  be $5,000,000, (b) will contribute some of the remaining cash
                  to NNG LLC ($1,635,000), WPP LLC ($36,000,000) and GNP LLC
                  ($7,485,105) which, in turn will use the funds to retire all
                  or a portion of their debt ($1,635,000, $36,000,000 and
                  $7,485,105, respectively), (c) will distribute $11,520 to WPP
                  to reimburse it for certain capital expenditures and (d) will
                  retain $1,000,000 for working capital.

         26.      The MLP will contribute its interests in NNG LLC, WPP LLC, GNP
                  LLC, and ACIN LLC to the OLLC as a capital contribution.

-----------------------
(2) The MLP will reimburse the parties for prior payments made by them of
transaction expenses; ACIN LLC will pay 42.25% or reimburse the MLP for 42.25%
of the transaction expenses including retained working capital (which share is
estimated to be $2,535,000).

                                        3
<PAGE>
         27.      [If the over-allotment option (the "Shoe") is exercised in
                  full, 57.75% of the net proceeds ($7,289,494) will be
                  contributed to the MLP which, in turn, will contribute a
                  portion ($1,437,832) to the OLLC which, in turn, will
                  contribute a portion to GNP LLC ($1,437,832) which will use
                  the funds to retire the balance of its debt; the balance of
                  the proceeds ($5,851,662) will be used by the MLP to redeem
                  311,040 of the Common Units held by WPP and 1,883 of the
                  Common Units held by New Gauley at a price of $18.70 per unit
                  ($20 less the Underwriters' spread) in reimbursement of
                  certain capital expenditures. To the extent the Shoe is not
                  exercised, Great Northern and New Gauley will purchase up to
                  66,353 and 10,537 of the Common Units, respectively, with the
                  proceeds being used, as described above, to retire debt of New
                  Gauley and GNP LLC. The balance (42.25%) of the net proceeds
                  will be paid to Ark in exchange for its share (42.25%) of the
                  Common Units sold pursuant to the exercise of the Shoe.](3)
                  [update depending on whether Shoe is exercised.]

         NOW, THEREFORE, in consideration of their mutual undertakings and
agreements hereunder, the parties to this Agreement undertake and agree as
follows:

                                   ARTICLE I
                             DEFINITIONS; SCHEDULES

         1.1      Definitions. The following capitalized terms have the meanings
given below.

                  "ACIN LLC" has the meaning assigned to such term in the
opening paragraph.

                  "Agreement" has the meaning assigned to such term in the
opening paragraph.

                  "Ark" has the meaning assigned to such term in the opening
paragraph.

                  "Ark Assets" has the meaning assigned to such term in Section
2.4.

                  "Attorney-in-Fact" has the meaning assigned to such term in
Section 5.2.

                  "Beneficial Owner" has the meaning assigned to such term in
Section 6.2.

                  "Common Units" has the meaning assigned to such term in
Recital 14.

                  "Contributing Parties" has the meaning assigned to such term
in Section 5.2.

                  "Conveyed Assets" has the meaning assigned to such term in
Section 5.2.

                  "CR" has the meaning assigned to such term in Recital 5.

                  "Effective Date" means July [________], 2002.

-----------------------------
(3) If the Shoe is not exercised, there will be $99,968 additional working
capital equal to the spread of the units bought by Great Northern (66,353) and
New Gauley (10,537) as they will pay the same price as the public and no spread
will be paid on them.

                                        4
<PAGE>
                  "Effective Time" means 12:01 a.m. Eastern Standard Time on the
Effective Date.

                  "GNP LLC" has the meaning assigned to such term in the opening
paragraph.

                  "GP LLC" has the meaning assigned to such term in the opening
paragraph.

                  "GP LP" has the meaning assigned to such term in the opening
paragraph.

                  "Great Northern" has the meaning assigned to such term in the
opening paragraph.

                  "Great Northern Assets" has the meaning assigned to such term
in Section 2.3.

                  "Great Northern Debt" has the meaning assigned to such term in
Section 2.3.

                  "Incentive Distribution Rights" has the meaning assigned to
such term in Recital 8.

                  "Initial Offering" has the meaning assigned to such term in
the Partnership Agreement.

                  "Laws" means any and all laws, statutes, ordinances, rules or
regulations promulgated by a governmental authority, orders of a governmental
authority, judicial decisions, decisions of arbitrators or determinations of any
governmental authority or court.

                  "MLP" has the meaning assigned to such term in the opening
paragraph.

                  "New Gauley" has the meaning assigned to such term in the
opening paragraph.

                  "New Gauley Assets" has the meaning assigned to such term in
Section 2.1.

                  "New Gauley Debt" has the meaning assigned to such term in
Section 2.1.

                  "NNG" has the meaning assigned to such term in the opening
paragraph.

                  "Offering Costs" has the meaning assigned to such term in
Section 2.21.

                  "Offering Proceeds" has the meaning assigned to such term in
Section 2.11.

                  "OLLC" has the meaning assigned to such term in the opening
paragraph.

                  "Omnibus Agreement" has the meaning assigned to such term in
the Partnership Agreement.

                  "Partnership Agreement" means the Agreement of Limited
Partnership of the MLP, as it may be amended and restated from time to time.

                  "RCM LLC" has the meaning assigned to such term in the opening
paragraph.

                                        5
<PAGE>
                  "Restriction" has the meaning assigned to such term in Section
6.2.

                  "Restriction Asset" has the meaning assigned to such term in
Section 6.2.

                  "Shoe" has the meaning assigned to such term in Recital 27.

                  "SPL" has the meaning assigned to such term in Recital 14.

                  "Subordinated Units" has the meaning assigned to such term in
Recital 14.

                  "Underwriters" has the meaning assigned to such term in the
Partnership Agreement.

                  "WPP" has the meaning assigned to such term in the opening
paragraph.

                  "WPP Assets" has the meaning assigned to such term in Section
2.2.

                  "WPP Debt" has the meaning assigned to such term in Section
2.2.

                  "WPP LLC" has the meaning assigned to such term in the opening
paragraph.

         1.2      Schedules and Exhibits. The following schedules and exhibits
are attached hereto:

                  Schedule 2.1 - New Gauley Assets

                  Schedule 2.2 - WPP Assets

                  Schedule 2.3 - Great Northern Assets

                  Schedule 2.4 - Ark Assets

                                   ARTICLE II
                                  TRANSACTIONS

         2.1 Contribution by New Gauley to NNG LLC of Assets. New Gauley hereby
contributes, transfers and assigns to NNG LLC, its successors and assigns, for
its and their own use forever, all right, title and interest of New Gauley in
and to all the assets described on Schedule 2.1 (the "New Gauley Assets") and
NNG LLC hereby accepts the New Gauley Assets, as a capital contribution and in
exchange for an assumption of $1,635,000 in debt related to the New Gauley
Assets (the "New Gauley Debt"); provided, however, that subject to the rights of
NNG LLC, its successors and assigns to use or consume the same in connection
with its coal mining operations, New Gauley reserves, for itself and its
successors and assigns, all of its interest in timber, oil and gas and the
surface estate of the assets described on Schedule 2.1 and such reserved
interests are not included in the New Gauley Assets.

             TO HAVE AND TO HOLD the New Gauley Assets unto NNG LLC, its
successors and assigns, together with all and singular the rights and
appurtenances thereto in

                                        6
<PAGE>
anywise belonging, subject, however, to the terms and conditions stated in this
Agreement, and in such instruments of conveyance forever.

         2.2 Contribution by WPP to WPP LLC of Assets. WPP hereby contributes,
transfers and assigns to WPP LLC, its successor and assigns, for its and their
use forever, all right, title and interest of WPP in and to all the assets
described on Schedule 2.2 ("WPP Assets") and WPP LLC hereby accepts the WPP
Assets as a capital contribution, and in exchange for an assumption of
$36,000,000 in debt related to the WPP Assets (the "WPP Debt"); provided,
however, that subject to the rights of WPP LLC, its successors and assigns to
use or consume the same in connection with its coal mining operations, WPP
reserves, for itself and its successors and assigns, all of its interest in
timber, oil and gas and the surface estate of the assets described on Schedule
2.2 and such reserved interests are not included in the WPP Assets.

             TO HAVE AND TO HOLD the WPP Assets unto WPP LLC, its successors and
assigns, together with all and singular the rights and appurtenances thereto in
anywise belonging, subject, however, to the terms and conditions stated in this
Agreement, and in such instruments of conveyance forever.

         2.3 Contribution by Great Northern to GNP LLC of Assets. Great Northern
hereby contributes, transfers and assigns to GNP LLC, its successor and assigns,
for its and their use forever, all right, title and interest of Great Northern
in and to all the assets described on Schedule 2.3 (the "Great Northern Assets")
and GNP LLC hereby accepts the Great Northern Assets as a capital contribution
and in exchange for an assumption of $8,922,937 in debt related to the Great
Northern Assets (the "Great Northern Debt"); provided, however, that subject to
the rights of GNP LLC, its successors and assigns to use or consume the same in
connection with its coal mining operations, Great Northern reserves, for itself
and its successors and assigns, all of its interest in timber, oil and gas and
the surface estate of the assets described on Schedule 2.3 and such reserved
interests are not included in the Great Northern Assets.

             TO HAVE AND TO HOLD the Great Northern Assets unto GNP LLC, its
successors and assigns, together with all and singular the rights and
appurtenances thereto in anywise belonging, subject, however, to the terms and
conditions stated in this Agreement, and in such instruments of conveyance
forever.

         2.4 Contribution by Ark to ACIN LLC of Assets. Ark hereby contributes,
transfers and assigns to ACIN LLC, its successor and assigns, for its and their
use forever, all right, title and interest of Ark in and to all the assets
described on Schedule 2.4 ("Ark Assets") and ACIN LLC hereby accepts the Ark
Assets as a capital contribution; provided, however, that subject to the rights
of ACIN LLC, its successors and assigns to use or consume the same in connection
with its coal mining operations, Ark reserves, for itself and its successors and
assigns, (a)(i) the oil and gas estate and (ii) the coal bed methane estate (to
the extent it is not included in the oil and gas estate reserved above)
contained within certain properties (4) located in Harlan and Letcher Counties,
Kentucky and Wise County, Virginia of the assets described on Schedule 2.4 and
(b) an [eighty] percent royalty interest in the coal bed methane estate (to the
extent not reserved in

--------------------------------------------------------------------------------
        (4) These properties contain an oil and gas lease to Columbia Natural
Resources, Inc. This lease does not include the coal bed methane, but grants
Columbia a right of first option as to any lease of the coal bed methane.

                                        7
<PAGE>
clause (a)(ii) above) of the assets described on Schedule 2.4 and such reserved
interests referenced in clauses (a) and (b) above are not included in the Ark
Assets.

             TO HAVE AND TO HOLD the Ark Assets unto ACIN LLC, its successors
and assigns, together with all and singular the rights and appurtenances thereto
in anywise belonging, subject, however, to the terms and conditions stated in
this Agreement, and in such instruments of conveyance forever.

         2.5 Contribution by New Gauley to the MLP of Interest in NNG LLC. New
Gauley hereby grants, contributes, transfers, assigns and conveys to the MLP,
all of its membership interests in NNG LLC in exchange for (a) a 0.0368% SPL,
(b) 127,555 Common Units, constituting a 0.5% interest in the MLP, (c) 220,892
Subordinated Units, constituting a 0.9% interest in the MLP and (d) 0.8% of the
Incentive Distribution Rights.

         2.6 Contribution by WPP to the MLP of Interest in WPP LLC. WPP hereby
grants, contributes, transfers, assigns and conveys to the MLP all of its
membership interests in WPP LLC in exchange for (a) a 0.9216% SPL, (b) 3,458,304
Common Units, constituting a 14.2% interest in the MLP, (c) 5,531,904
Subordinated Units, constituting a 22.7% interest in the MLP, (d) 19.94% of the
Incentive Distribution Rights and (d) the right to receive $11,520 as
reimbursement for certain capital contributions.

         2.7 Contribution by Great Northern to the MLP of Interest in GNP LLC.
Great Northern hereby grants, contributes, transfers, assigns and conveys to the
MLP all of its membership interests in GNP LLC in exchange for (a) a 0.1966%
SPL, (b) 671,389 Common Units, constituting a 2.8% interest in the MLP, (c)
1,180,092 Subordinated Units, constituting a 4.8% interest in the MLP and (d)
4.26% of the Incentive Distribution Rights.

         2.8 Contribution by Ark to the MLP of Interest in ACIN LLC. Ark hereby
grants, contributes, transfers, assigns and conveys to the MLP all of its
membership interest in ACIN LLC in exchange for (a) a 0.8450% SPL, (b) 5,072,112
Common Units, constituting a 20.8% interest in the MLP, (c) 5,072,112
Subordinated Units, constituting a 20.8% interest in the MLP and (d) 10% of the
Incentive Distribution Rights.

         2.9 Public Cash Contribution. The parties to this Agreement acknowledge
a cash contribution of $48,596,625 (being a gross contribution of $51,975,000
reduced by the Underwriters' 6.5% spread) from the public to the MLP in exchange
for 2,598,750 Common Units, representing a 10.6% limited partner interest in the
MLP.

         2.10 Public Cash Contribution to Ark. The parties to this Agreement
acknowledge a cash contribution of $35,410,781 (being a gross contribution of
$38,025,000 reduced by the Underwriters' 6.5% spread) from the public to Ark in
exchange for 1,901,250 Common Units, representing a 7.8% interest in the MLP.

         2.11 MLP Receipt of Public Cash. The MLP acknowledges receipt of
$48,596,625 in cash obtained from the Initial Offering (the "Offering Proceeds")
as a capital contribution to the MLP.

                                        8
<PAGE>
         2.12 Ark Receipt of Public Cash. Ark acknowledges receipt of
$35,410,781 in cash obtained from the Initial Offering in exchange for 1,901,250
Common Units, representing a 7.8% limited partner interest in the MLP.

         2.13 NNG LLC Receipt of Offering Proceeds. NNG LLC acknowledges receipt
of $1,635,000 in cash obtained from the MLP.

         2.14 WPP LLC Receipt of Offering Proceeds. WPP LLC acknowledges receipt
of $36,000,000 in cash obtained from the MLP.

         2.15 GNP LLC Receipt of Offering Proceeds. GNP LLC acknowledges receipt
of $7,485,105 in cash obtained from the MLP.

         2.16 Contribution by New Gauley to GP LP of its SPLs. New Gauley hereby
grants, contributes, transfers, assigns and conveys to GP LP, as a capital
contribution, its SPLs to continue its interest in GP LP, and GP LP hereby
accepts the same.

         2.17 Contribution by WPP to GP LP of its SPLs. WPP hereby contributes,
transfers and assigns to GP LP, as a capital contribution, its SPLs to continue
its interest in GP LP, and GP LP hereby accepts the same.

         2.18 Contribution by Great Northern to GP LP of its SPLs. Great
Northern herby contributes, transfers and assigns to GP LP, as a capital
contribution, its SPLs to continue its interest in GP LP, and GP LP hereby
accepts the same.

         2.19 Contribution by Ark to GP LP of its SPLs. Ark hereby contributes,
transfers and assigns to GP LP, as a capital contribution, its SPLs to continue
its interest in GP LP, and GP LP hereby accepts the same.

         2.20 Conversion of SPLs. The parties acknowledge that the SPLs held by
GP LP will be converted to an additional general partner interest in the MLP.

         2.21 Payment of Transaction Costs, Offering Proceeds and Capital
Expenditures. The parties to this Agreement acknowledge that the MLP has used
all of such capital contribution (a) to pay transaction costs accrued in
connection with the Initial Offering, including without limitation the
Underwriters' 6.5% spread, that are due and payable or that have previously been
paid (collectively, the "Offering Costs") and (b) to pay the balance of the
Offering Proceeds to the NNG LLC ($1,635,000), WPP LLC ($36,000,000) and GNP LLC
($7,485,105) as a capital contribution in each of NNG LLC, WPP LLC and GNP LLC
which, in turn will use the funds to retire a portion of their debt ($1,635,000,
$36,000,000 and $7,485,105, respectively) and (c) to distribute $11,520 to WPP
as reimbursement for certain capital expenditures.

         2.22 Contribution by the MLP to the OLLC of the Membership Interests in
the LLCs. The MLP hereby contributes, transfers and assigns to the OLLC, as a
capital contribution, the MLP's interests in NNG LLC, WPP LLC, GNP LLC and ACIN
LLC, respectively.

         2.23 Exercise of the Shoe. [The parties to this Agreement hereby
acknowledge that the MLP shall contribute a portion ($1,437,832) of the net
proceeds from the exercise of the

                                        9
<PAGE>
Shoe to the OLLC as a capital contribution which shall, in turn, contribute that
portion to GNP LLC ($1,437,832), which shall be used to retire the balance of
its debt. The balance of the net proceeds from the exercise of the Shoe
($5,851,662) shall be used by the MLP to redeem 311,040 of the Common Units held
by WPP and 1,883 of the Common Units held by New Gauley at a price of $18.70 per
unit for reimbursement of capital expenditures. To the extent the Shoe is not
exercised, Great Northern and New Gauley will purchase up to 66,353 and 10,537
Common Units, respectively, and the net proceeds will be used as described
above, to retire debt of New Gauley and Great Northern LLC. The balance (42.25%)
of the net proceeds will be paid to Ark in exchange for its share (42.25%) of
the Common Units sold to Ark pursuant to the exercise of the Shoe.] [Update
depending on whether Shoe is exercised.]

                                  ARTICLE III
                        ASSUMPTION OF CERTAIN LIABILITIES

         3.1 Assumption by the NNG LLC of the New Gauley Debt. In connection
with the capital contribution by New Gauley to NNG LLC, as set forth in Section
2.1 above, NNG LLC hereby assumes and agrees to duly and timely pay, perform and
discharge the New Gauley Debt, to the full extent that New Gauley has been
heretofore or would have been in the future obligated to pay, perform and
discharge the New Gauley Debt were it not for such execution and delivery of
this Agreement; provided however that said assumption and agreement to duly and
timely pay, perform and discharge the New Gauley Debt shall not (i) increase the
obligation of NNG LLC with respect to the New Gauley Debt beyond that of New
Gauley, (ii) waive any valid defense that was available to New Gauley with
respect to the New Gauley Debt or (iii) enlarge any rights or remedies of any
third party with respect to the New Gauley Debt.

         3.2 Assumption by the WPP LLC of the WPP Debt. In connection with the
capital contribution by WPP to WPP LLC, as set forth in Section 2.2 above, WPP
LLC hereby assumes and agrees to duly and timely pay, perform and discharge the
WPP Debt, to the full extent that WPP has been heretofore or would have been in
the future obligated to pay, perform and discharge the WPP Debt were it not for
such contribution and the execution and delivery of this Agreement; provided
however that said assumption and agreement to duly and timely pay, perform and
discharge the WPP Debt shall not (i) increase the obligation of the WPP LLC with
respect to the WPP Debt beyond that of WPP, (ii) waive any valid defense that
was available to WPP with respect to the WPP Debt or (iii) enlarge any rights or
remedies of any third party with respect to the WPP Debt.

         3.3 Assumption by the GNP LLC of the Great Northern Debt. In connection
with the capital contribution by Great Northern to GNP LLC, as set forth in
Section 2.3 above, GNP LLC hereby assumes and agrees to duly and timely pay,
perform and discharge the Great Northern Debt, to the full extent that Great
Northern has been heretofore or would have been in the future obligated to pay,
perform and discharge the Great Northern Debt were it not for such contribution
and the execution and delivery of this Agreement; provided however that said
assumption and agreement to duly and timely pay, perform and discharge the Great
Northern Debt shall not (i) increase the obligation of the MLP with respect to
the Great Northern Debt beyond that of Great Northern, (ii) waive any valid
defense that was available to Great Northern

                                       10
<PAGE>
with respect to the Great Northern Debt or (iii) enlarge any rights or remedies
of any third party with respect to the Great Northern Debt.

                                   ARTICLE IV
                                  TITLE MATTERS

         4.1 Encumbrances.

             (a) Except to the extent provided in Article II or any other
document executed in connection with this Agreement or the Initial Offering
including, without limitation, the Omnibus Agreement, the contribution and
conveyance of the various Conveyed Assets (as defined below) as reflected in
this Agreement are made expressly subject to (i) all recorded and specifically
identified unrecorded liens, encumbrances, agreements, defects, restrictions,
adverse claim and all laws, rules, regulations, ordinances, judgments and orders
of governmental authorities or tribunals having or asserting jurisdiction over
the Conveyed Assets and operations conducted thereon or therewith, in each case
to the extent the same are valid and enforceable and affect the Conveyed Assets,
including, without limitation, (ii) all matters that a current on the ground
survey or visual inspection of the Conveyed Assets would reflect, (iii) the
applicable liabilities assumed in Article III, and (iv) all matters contained in
the applicable provisions of Article II.

             (b) To the extent that certain jurisdictions in which the Conveyed
Assets are located may require that documents be recorded in order to evidence
the transfers of title reflected in this Agreement, then the provisions set
forth in Section 4.1(a) immediately above shall also be applicable to the
conveyances under such documents.

         4.2 Disclaimer of Warranties; Subrogation; Waiver of Bulk Sales Laws.

             (a) EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR
DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE INITIAL OFFERING INCLUDING,
WITHOUT LIMITATION THE OMNIBUS AGREEMENT, THE PARTIES TO THIS AGREEMENT
ACKNOWLEDGE AND AGREE THAT NONE OF THE PARTIES TO THIS AGREEMENT HAS MADE, DOES
NOT MAKE, AND EACH SUCH PARTY SPECIFICALLY NEGATES AND DISCLAIMS, ANY
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS, OR GUARANTIES OF
ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS, IMPLIED, OR STATUTORY, ORAL
OR WRITTEN, PAST OR PRESENT, REGARDING (A) THE VALUE, NATURE, QUALITY, OR
CONDITION OF ANY ASSET, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL, GEOLOGY,
OR ENVIRONMENTAL CONDITION OF ANY ASSET GENERALLY, INCLUDING THE PRESENCE OR
LACK OF HAZARDOUS SUBSTANCES OR OTHER MATTERS ON THE CONVEYED ASSETS, (B) THE
INCOME TO BE DERIVED FROM THE CONVEYED ASSETS, (C) THE SUITABILITY OF THE
CONVEYED ASSETS FOR ANY AND ALL ACTIVITIES AND USES THAT MAY BE CONDUCTED
THEREON, (D) THE COMPLIANCE OF OR BY THE CONVEYED ASSETS OR THEIR OPERATION WITH
ANY LAWS (INCLUDING WITHOUT LIMITATION ANY ZONING, ENVIRONMENTAL PROTECTION,
POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS), OR (E)
THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF THE CONVEYED ASSETS. EXCEPT TO THE EXTENT PROVIDED IN ANY
OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE

                                       11
<PAGE>
INITIAL OFFERING INCLUDING, WITHOUT LIMITATION, THE OMNIBUS AGREEMENT, THE
PARTIES TO THIS AGREEMENT ACKNOWLEDGE AND AGREE THAT EACH HAS HAD THE
OPPORTUNITY TO INSPECT THE RESPECTIVE CONVEYED ASSETS, AND EACH IS RELYING
SOLELY ON ITS OWN INVESTIGATION OF THE RESPECTIVE CONVEYED ASSETS AND NOT ON ANY
INFORMATION PROVIDED OR TO BE PROVIDED BY ANY OF THE PARTIES TO THIS AGREEMENT.
EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION WITH THIS AGREEMENT OR THE INITIAL OFFERING INCLUDING, WITHOUT
LIMITATION, THE OMNIBUS AGREEMENT, NONE OF THE PARTIES TO THIS AGREEMENT IS
LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS,
REPRESENTATIONS OR INFORMATION PERTAINING TO THE CONVEYED ASSETS FURNISHED BY
ANY AGENT, EMPLOYEE, SERVANT OR THIRD PARTY. EXCEPT TO THE EXTENT PROVIDED IN
ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR
THE INITIAL OFFERING INCLUDING, WITHOUT LIMITATION, THE OMNIBUS AGREEMENT, EACH
OF THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THAT TO THE MAXIMUM EXTENT
PERMITTED BY LAW, THE CONTRIBUTION OF THE CONVEYED ASSETS AS PROVIDED FOR HEREIN
IS MADE IN AN "AS IS", "WHERE IS" CONDITION WITH ALL FAULTS, AND THE CONVEYED
ASSETS ARE CONTRIBUTED AND CONVEYED SUBJECT TO ALL OF THE MATTERS CONTAINED IN
THIS SECTION. THIS SECTION SHALL SURVIVE SUCH CONTRIBUTION AND CONVEYANCE OR THE
TERMINATION OF THIS AGREEMENT. THE PROVISIONS OF THIS SECTION HAVE BEEN
NEGOTIATED BY THE PARTIES TO THIS AGREEMENT AFTER DUE CONSIDERATION AND ARE
INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR
WARRANTIES, WHETHER EXPRESS, IMPLIED, OR STATUTORY, WITH RESPECT TO THE CONVEYED
ASSETS THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT, OR
OTHERWISE, EXCEPT AS SET FORTH IN THIS AGREEMENT OR ANY OTHER DOCUMENT EXECUTED
OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE INITIAL OFFERING,
INCLUDING, WITHOUT LIMITATION, THE OMNIBUS AGREEMENT.

             (b) To the extent that certain jurisdictions in which the Conveyed
Assets are located may require that documents be recorded in order to evidence
the transfers of title reflected in this Agreement, then the disclaimers set
forth in Section 4.2(a) immediately above shall also be applicable to the
conveyances under such documents, except as otherwise provided in such document.

             (c) The contributions of the Conveyed Assets made under this
Agreement are made with full rights of substitution and subrogation of the
respective parties receiving such contributions, and all persons claiming by,
through and under such parties, to the extent assignable, in and to all
covenants and warranties by the predecessors-in-title of the parties
contributing the Conveyed Assets, and with full subrogation of all rights
accruing under applicable statutes of limitation and all rights of action of
warranty against all former owners of the Conveyed Assets.

             (d) Each of the parties to this Agreement agrees that the
disclaimers contained in this Section 4.2 are "conspicuous" disclaimers. Any
covenants implied by statute or law by the use of the words "grant," "convey,"
"bargain," "sell," "assign," "transfer," "deliver," or "set over" or any of them
or any other words used in this Agreement or any exhibits hereto are hereby
expressly disclaimed, waived or negated.

                                       12
<PAGE>
             (e) Each of the parties to this Agreement hereby waives compliance
with any applicable bulk sales law or any similar law in any applicable
jurisdiction in respect of the transactions contemplated by this Agreement.

                                   ARTICLE V
                               FURTHER ASSURANCES

         5.1 Further Assurances. From time to time after the date hereof, and
without any further consideration, the parties to this Agreement agree to
execute, acknowledge and deliver all such additional deeds, assignments, bills
of sale, conveyances, instruments, notices, releases, acquittances and other
documents, and will do all such other acts and things, all in accordance with
applicable law, as may be necessary or appropriate (i) more fully to assure that
the applicable parties to this Agreement own all of the properties, rights,
titles, interests, estates, remedies, powers and privileges granted by this
Agreement, or which are intended to be so granted, (ii) more fully and
effectively to vest in the applicable parties to this Agreement and their
respective successors and assigns beneficial and record title to the interests
contributed and assigned by this Agreement or intended so to be and (iii) more
fully and effectively to carry out the purposes and intent of this Agreement.

         5.2 Power of Attorney. Each party (collectively, the "Contributing
Parties") that has conveyed assets (collectively, the "Conveyed Assets") as
reflected by this Agreement hereby constitutes and appoints GP LP (the
"Attorney-in-Fact"), its true and lawful attorney-in-fact with full power of
substitution for it and in its name, place and stead or otherwise on behalf of
the applicable Contributing Party and its successors and assigns, and for the
benefit of the Attorney-in-Fact to demand and receive from time to time the
Conveyed Assets contributed and to execute in the name of the applicable
Contributing Party and its successors and assigns instruments of conveyance,
instruments of further assurance and to give receipts and releases in respect of
the same, and from time to time to institute and prosecute in the name of the
applicable Contributing Party for the benefit of the Attorney-in-Fact, any and
all proceedings at law, in equity or otherwise which the Attorney-in-Fact may
deem proper in order to (i) collect, assert or enforce any claims, rights or
titles of any kind in and to the Conveyed Assets, (ii) defend and compromise any
and all actions, suits or proceedings in respect of any of the Conveyed Assets,
and (iii) do any and all such acts and things in furtherance of this Agreement
as the Attorney-in-Fact shall deem advisable. Each Contributing Party hereby
declares that the appointment hereby made and the powers hereby granted are
coupled with an interest and are and shall be irrevocable and perpetual and
shall not be terminated by any act of any Contributing Party or its successors
or assigns or by operation of law.

                                   ARTICLE VI
                                  MISCELLANEOUS

         6.1 Order of Completion of Transactions. The transactions provided for
in Articles II (except as otherwise noted) and III of this Agreement shall be
completed on the Effective Date in the following order:

             First, the transactions provided for in Article II shall be
completed in the order set forth therein; and

                                       13
<PAGE>

             Second, the transactions provided for in Article III shall be
completed in the order set forth therein.

         6.2 Consents; Restriction on Assignment. If there are prohibitions
against or conditions to the contribution and conveyance of one or more of the
Conveyed Assets without the prior written consent of third parties, including,
without limitation, governmental agencies (other than consents of a ministerial
nature which are normally granted in the ordinary course of business), which if
not satisfied would result in a material breach of such prohibitions or
conditions or would give an outside party the right to terminate rights of the
party to whom the applicable assets were intended to be conveyed (the
"Beneficial Owner") with respect to such portion of the Conveyed Assets (herein
called a "Restriction"), then any provision contained in this Agreement to the
contrary notwithstanding, the transfer of title to or interest in each such
portion of the Conveyed Assets (herein called the "Restriction Asset") pursuant
to this Agreement shall not become effective unless and until such Restriction
is satisfied, waived or no longer applies. When and if such a Restriction is so
satisfied, waived or no longer applies, to the extent permitted by applicable
law and any applicable contractual provisions, the assignment of the Restriction
Asset subject thereto shall become effective automatically as of the Effective
Time, without further action on the part of any party to this Agreement. Each of
the applicable parties to this Agreement that were involved with the conveyance
of a Restriction Asset agree to use their reasonable best efforts to obtain on a
timely basis satisfaction of any Restriction applicable to any Restriction Asset
conveyed by or acquired by any of them. The description of any portion of the
Conveyed Assets as a "Restriction Asset" shall not be construed as an admission
that any Restriction exists with respect to the transfer of such portion of the
Conveyed Assets. In the event that any Restriction Asset exists, the applicable
party agrees to continue to hold such Restriction Asset in trust for the
exclusive benefit of the applicable party to whom such Restriction Asset was
intended to be conveyed and to otherwise use its reasonable best efforts to
provide such other party with the benefits thereof, and the party holding such
Restriction Asset will enter into other agreements, or take such other action as
it may deem necessary, in order to ensure that the applicable party to whom such
Restriction Asset was intended to be conveyed has the assets and concomitant
rights necessary to enable the applicable party to operate such Restriction
Asset in all material respects as it was operated prior to the Effective Time.

         6.3 Costs. The MLP shall pay all sales, use and similar taxes arising
out of the contributions, conveyances and deliveries to be made hereunder, and
shall pay all documentary, filing, recording, transfer, deed, and conveyance
taxes and fees required in connection therewith. In addition, the MLP shall be
responsible for all costs, liabilities and expenses (including court costs and
reasonable attorneys' fees) incurred in connection with the satisfaction or
waiver of any Restriction pursuant to Section 6.2.

         6.4 Headings; References; Interpretation. All Article and Section
headings in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any of the provisions hereof.
The words "hereof," "herein" and "hereunder" and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole, including
without limitation, all Schedules attached hereto, and not to any particular
provision of this Agreement. All references herein to Articles, Sections, and
Schedules shall, unless the context requires a different construction, be deemed
to be references to the Articles, Sections and

                                       14
<PAGE>
Schedules of this Agreement, respectively, and all such Schedules attached
hereto are hereby incorporated herein and made a part hereof for all purposes.
All personal pronouns used in this Agreement, whether used in the masculine,
feminine or neuter gender, shall include all other genders, and the singular
shall include the plural and vice versa. The use herein of the word "including"
following any general statement, term or matter shall not be construed to limit
such statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters, whether or not
non-limiting language (such as "without limitation," "but not limited to," or
words of similar import) is used with reference thereto, but rather shall be
deemed to refer to all other items or matters that could reasonably fall within
the broadest possible scope of such general statement, term or matter.

         6.5 Successors and Assigns. The Agreement shall be binding upon and
inure to the benefit of the parties signatory hereto and their respective
successors and assigns.

         6.6 No Third Party Rights. The provisions of this Agreement are
intended to bind the parties signatory hereto as to each other and are not
intended to and do not create rights in any other person or confer upon any
other person any benefits, rights or remedies and no person is or is intended to
be a third party beneficiary of any of the provisions of this Agreement.

         6.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.

         6.8 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas applicable to contracts made
and to be performed wholly within such state without giving effect to conflict
of law principles thereof, except to the extent that it is mandatory that the
law of some other jurisdiction, wherein the Conveyed Assets are located, shall
apply.

         6.9 Severability. If any of the provisions of this Agreement are held
by any court of competent jurisdiction to contravene, or to be invalid under,
the laws of any political body having jurisdiction over the subject matter
hereof, such contravention or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as if it did not contain
the particular provision or provisions held to be invalid, and an equitable
adjustment shall be made and necessary provision added so as to give effect to
the intention of the parties as expressed in this Agreement at the time of
execution of this Agreement.

         6.10 Deed; Bill of Sale; Assignment. To the extent required and
permitted by applicable law, this Agreement shall also constitute a "deed,"
"bill of sale" or "assignment" of the Conveyed Assets.

         6.11 Amendment or Modification. This Agreement may be amended or
modified from time to time only by the written agreement of all the parties
hereto and affected thereby.

         6.12 Integration. This Agreement and the instruments referenced herein
supersede all previous understandings or agreements between the parties, whether
oral or written, with respect to its subject matter. This Agreement and such
instruments contain the entire understanding of the parties with respect to the
subject matter hereof and thereof. No understanding, representation, promise or
agreement, whether oral or written, is intended to be or shall be

                                       15
<PAGE>
included in or form part of this Agreement unless it is contained in a written
amendment hereto executed by the parties hereto after the date of this
Agreement.

                  [Remainder of page intentionally left blank.]

                                       16
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.

                                     New Gauley Coal Corporation

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

                                     Western Pocahontas Properties Limited
                                     Partnership

                                     By:   Western Pocahontas Corporation, its
                                           general partner
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

                                     Great Northern Properties Limited
                                     Partnership

                                     By:   GNP Management Corporation, its
                                           general partner
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

                                     Ark Land Company

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

                          Signature Page 1 of 3 to the
                Contribution, Conveyance and Assumption Agreement

<PAGE>

                                     NNG LLC

                                     By:   NRP (Operating) LLC, its sole
                                           operating manager
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

                                     WPP LLC

                                     By:   NRP (Operating) LLC, its sole
                                           operating manager
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

                                     GNP LLC

                                     By:   NRP (Operating) LLC, its sole
                                           operating manager
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

                                     ACIN LLC

                                     By:   NRP (Operating) LLC, its sole
                                           operating manager
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

                                     Robertson Coal Management LLC

                                     By:   Corbin J. Robertson, Jr., its sole
                                           operating manager
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

                          Signature Page 2 of 3 to the
                Contribution, Conveyance and Assumption Agreement

<PAGE>

                                     NRP (Operating) LLC

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

                                     GP Natural Resource Partners LLC

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

                                     NRP (GP) LP

                                     By:   GP Natural Resource Partners LLC,
                                           its general partner
                                           Name:
                                                -------------------------------
                                           Title:
                                                 ------------------------------

                                     Natural Resource Partners L.P.

                                     By:   NRP (GP) LP, its general partner
                                           By:    GP Natural Resource Partners
                                                  LLC, NRP (GP) LP's general
                                                  partner
                                                  Name:
                                                      -------------------------
                                                  Title:
                                                        -----------------------

                          Signature Page 3 of 3 to the
                Contribution, Conveyance and Assumption Agreement

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