Exhibit 10.2
EXECUTION COPY

                               SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (this  "AGREEMENT"),  dated as of January 10, 2005,
is made by EMPIRE RESORTS,  INC., a Delaware  corporation (the  "COMPANY"),  and
each of its  Subsidiaries  now or hereafter  party  hereto  (such  Subsidiaries,
together with Company,  each, a "DEBTOR" and, collectively,  the "DEBTORS"),  in
favor of BANK OF SCOTLAND,  as agent (together with its successor(s)  thereto in
such capacity. "Agent") for the Banks, in light of the following:

     WHEREAS,  the Company and the other Debtors,  certain lenders (the "BANKS")
and the Agent,  have entered into Loan  Agreement,  dated as of January 10, 2005
(as amended, restated, supplemented or otherwise modified from time to time, the
"LOAN AGREEMENT"),  pursuant to which the Banks have agreed to make available to
the Company a $10,000,000  senior secured  revolving  credit  facility,  and the
other  Debtors  have  guaranteed  the  payment of Loans made by the Banks to the
Company pursuant to such credit facility;

     WHEREAS,  the Company desires to secure its Obligations under the Notes (as
defined in the Loan Agreement),  the Loan Agreement and each other Loan Document
to which it is or may become a party and each other Debtor desires to secure its
Guaranty, the Notes, the Loan Agreement and each other Loan Document to which it
is or may become a party by granting to Agent, for the benefit of itself and the
Banks, security interests in the Collateral as set forth herein; and

     WHEREAS,  to induce the Banks to make Loans and Bank of  Scotland to act in
its  capacity as Agent,  each Debtor  desires to pledge,  grant,  transfer,  and
assign to Agent, for the benefit of itself and the Banks, a security interest in
the Collateral to secure the Obligations, as provided herein.

     NOW, THEREFORE, in consideration of the premises set forth above, the terms
and conditions contained herein and other good and valuable  consideration,  the
receipt and sufficiency of which are hereby acknowledged,  and each intending to
be bound hereby, Agent and each Debtor agree as follows:

1.   DEFINITIONS AND CONSTRUCTION.

     1.1.  DEFINITIONS.  All  capitalized  terms used  herein and not  otherwise
defined herein shall have the meanings  ascribed to them in the Loan  Agreement.
As used in  this  Agreement,  the  following  terms  shall  have  the  following
definitions:

          "ACCOUNT" means an account (as that term is defined in the Code).

          "ACCOUNT  DEBTOR"  means any Person who is  obligated  on an  Account,
chattel paper, or a General Intangible.

          "ADDITIONAL DOCUMENTS" has the meaning set forth in SECTION 2.4(C).





          "AGENT" has the meaning set forth in the preamble hereto.

          "AGENT-RELATED  PERSON" means the Agent, together with its Affiliates,
officers, directors, employees, attorneys, and agents.

          "AGENT'S  LIENS"  means the liens  granted by a Debtor to Agent  under
this Agreement or the other Loan Documents to which such Debtor is a party.

          "AGREEMENT" has the meaning set forth in the preamble hereto.

          "BOOKS" means,  with respect to each Debtor,  all of such Debtor's now
owned or  hereafter  acquired  books and records  (including  all of its Records
indicating,  summarizing, or evidencing its assets (including the Collateral) or
liabilities, all of such Debtor's Records relating to its business operations or
financial condition, and all of its goods or General Intangibles related to such
information).

          "CODE" means the Uniform  Commercial  Code,  as in effect from time to
time in the State of New York;  provided,  however,  that in the event that,  by
reason of mandatory provisions of law, any or all of the attachment, perfection,
priority,  or remedies  with  respect to the Agent's Lien on any  Collateral  is
governed  by  the  Uniform  Commercial  Code  as  enacted  and  in  effect  in a
jurisdiction  other than the State of New York,  the term "Code"  shall mean the
Uniform  Commercial  Code as enacted  and in effect in such  other  jurisdiction
solely for  purposes of the  provisions  thereof  relating  to such  attachment,
perfection, priority, or remedies.

          "COLLATERAL"  means, with respect to each Debtor, all of such Debtor's
now owned or hereafter acquired right, title, and interest in and to each of the
following:

          (a) all of its Accounts,

          (b) all of its Books,

          (c) all of its  commercial  tort claims  described on SCHEDULE  3.6(d)
(and any supplement thereto pursuant to SECTION 2.4(b)),

          (d) all of its Deposit Accounts,

          (e) all of its Equipment,

          (f) all of its General Intangibles,

          (g) all of its Inventory,

          (h) all of its  Investment  Property  (including all of its securities
and Securities Accounts),

          (i) all of its Negotiable Collateral,

          (j) all of its Supporting Obligations,


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          (k) money or other  assets of such Debtor that now or  hereafter  come
into the possession, custody, or control of the Agent, and

          (l) the proceeds and products,  whether tangible or intangible, of any
of the  foregoing,  including  proceeds of insurance  covering any or all of the
foregoing, and any and all Accounts, Books, Deposit Accounts, Equipment, General
Intangibles,  Inventory, Investment Property, Negotiable Collateral,  Supporting
Obligations,  money, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.

Notwithstanding the foregoing, the term Collateral shall in no event include (a)
any  rights  under any  Account,  contract,  license or other  agreement  or any
General  Intangible,  in each case,  to the extent  that the grant of a security
interest under any Security  Document (i) would invalidate the underlying rights
of such Debtor in such General  Intangible,  (ii) is prohibited by such Account,
contract,  license,  agreement,  intellectual  property  or  General  Intangible
without  the  consent  of  any  other  party   thereto   (including   applicable
Gaming/Racing   Authorities,   liquor   agencies  and   authorities   and  other
Governmental  Authorities) (provided,  that each applicable Debtor agrees to use
its reasonable best efforts to obtain such consents), (iii) would give any other
party to such Account,  contract,  license,  agreement or General Intangible the
right to terminate its obligations thereunder,  or (iv) is not permitted without
consent, unless in each case, all necessary consents to such grant of a security
interest have been obtained from the other parties thereto;  provided,  however,
that nothing herein shall be intended to limit the affect of 9406 of the Code or
otherwise  limit or restrict the  conveyance  by such Debtor of any rights under
any such Account, contracts,  licenses, agreements or General Intangibles to the
extent which would not be violative of the  restrictive  terms  thereof;  or (b)
cash,  other  than cash  deposited  in Deposit  Accounts  or  Security  Accounts
(collectively, the "EXCLUDED ASSETS").

          "COLLECTIONS" means all cash, checks,  notes,  instruments,  and other
items of payment (including  insurance proceeds,  proceeds of cash sales, rental
proceeds, and tax refunds).

          "COMMERCIAL  TORT  CLAIM  ASSIGNMENT"  has the  meaning  set  forth in
SECTION 2.4(b).

          "COMPANY" has the meaning set forth in the preamble to this Agreement.

          "CONTROL  AGREEMENT" means,  with respect to the applicable  Debtor, a
control agreement,  in form and substance  reasonably  satisfactory to the Banks
and the Convertible  Note Collateral  Agent,  executed and delivered by (a) such
Debtor, (b) the Agent, and (c) the applicable (i) securities  intermediary (with
respect to a Securities  Account of such Debtor) or (ii) bank (with respect to a
Deposit Account of such Debtor).

          "CONVERTIBLE  NOTE  COLLATERAL  AGENT" means The Bank of New York,  as
collateral  agent under the Convertible  Note Indenture,  and its successors and
assigns in such capacity.

          "CONVERTIBLE NOTE INDENTURE" means the Indenture, dated as of July 26,
2004,  between the Company and The Bank of New York,  as trustee and  collateral
agent, as the same may be amended and restated from time to time.


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          "DEBTOR" and "DEBTORS"  have the meanings set forth in the preamble to
this Agreement.

          "DEPOSIT  ACCOUNT" means any deposit  account (as that term is defined
in the Code).

          "DISPOSITION"  shall have the meaning  ascribed to the term Asset Sale
in the  Loan  Agreement,  and  the  words  "DISPOSE"  and  "DISPOSAL"  shall  be
interpreted similarly.

          "EQUIPMENT"  means equipment (as that term is defined in the Code) and
includes machinery,  machine tools, motors,  furniture,  furnishings,  fixtures,
vehicles (including motor vehicles),  computer hardware, tools, parts, and goods
(other than consumer  goods,  farm products,  or Inventory),  wherever  located,
including all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.

          "EXCLUDED   ASSETS"  is  defined  in  the   definition   of  the  term
"Collateral".

          "GENERAL  INTANGIBLES"  means  general  intangibles  (as that  term is
defined  in the Code),  including  limited  liability  and  limited  partnership
interests,  payment  intangibles,  contract  rights,  rights to payment,  rights
arising under common law, statutes, or regulations,  choses or things in action,
goodwill,  patents,  trade  names,  trade  secrets,  trademarks,   servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists,  rights to payment and other rights
under  any  royalty  or  licensing  agreements,  infringement  claims,  computer
programs,   information   contained  on  computer  disks  or  tapes,   software,
literature,  reports, catalogs,  insurance premium rebates, tax refunds, and tax
refund  claims,  and any other personal  property  other than Accounts,  Deposit
Accounts, goods, Investment Property, and Negotiable Collateral.

          "GOVERNING   DOCUMENTS"  means,  with  respect  to  any  Person,   the
certificate  or  articles of  incorporation,  by-laws,  or other  organizational
documents of such Person.

          "GOVERNMENTAL  AUTHORITY"  means any federal,  state,  local, or other
governmental or administrative  body,  instrumentality,  board,  department,  or
agency or any court,  tribunal,  administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.

          "INDEMNIFIED LIABILITIES" has the meaning set forth in SECTION 8.3.

          "INDEMNIFIED PERSON" has the meaning set forth in SECTION 8.3.

          "INSOLVENCY  PROCEEDING" means any proceeding  commenced by or against
any Person under any provision of the  Bankruptcy  Code or under any other state
or  federal  bankruptcy  or  insolvency  law,  assignments  for the  benefit  of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization,  arrangement, or other similar
relief.


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          "INTELLECTUAL PROPERTY" means, with respect to any Debtor, all of such
Debtor's right,  title and interest in and to all of the following now owned and
existing and hereafter  arising,  created or acquired  property and products and
proceeds thereof:

               (i)  patents   and  patent   applications,   including,   without
          limitation,  rights in the inventions and  improvements  described and
          claimed therein, and those patents listed on EXHIBIT A attached hereto
          and  hereby  made a part  hereof,  and  (a) all  reissues,  divisions,
          continuations, renewals, extensions and continuations-in-part thereof,
          (b) all income,  royalties,  damages,  proceeds  and  payments now and
          hereafter  due or payable  under or with respect  thereto,  including,
          without   limitation,   damages  and   payments  for  past  or  future
          infringements  thereof,  (c) the  right to sue for past,  present  and
          future infringements thereof, and (d) all rights corresponding thereto
          throughout the world (all of the foregoing  patents and  applications,
          together  with the items  described in clauses  (a)-(d) of this clause
          (i), are sometimes  hereinafter referred to individually as a "PATENT"
          and, collectively, as the "PATENTS"); and

               (ii) trademarks, trademark registrations, trademark applications,
          trade names and tradestyles,  brand names, service marks, service mark
          registrations  and  service  mark  applications,   including,  without
          limitation,  the trademarks,  trade names, brand names,  service marks
          and  applications  and  registrations  thereof  listed  on  EXHIBIT  B
          attached hereto and hereby made a part hereof, and (a) all renewals or
          extensions thereof, (b) all income, royalties,  proceeds,  damages and
          payments  now and  hereafter  due or  payable  with  respect  thereto,
          including, without limitation, damages and payments for past or future
          infringements  thereof,  (c) the  right to sue for past,  present  and
          future infringements thereof, and (d) all rights corresponding thereto
          throughout the world (all of the foregoing trademarks, trade names and
          tradestyles,   brand  names,   service  marks  and   applications  and
          registrations  thereof,  together with the items  described in clauses
          (a)-(d) of this clause (ii),  are  sometimes  hereinafter  referred to
          individually as a "TRADEMARK" and, collectively, as the "TRADEMARKS");
          and

               (iii)  rights under or  interests  in any patent,  trademark,  or
          copyright  license  agreements  with any other Person (to the extent a
          security  interest may be granted in such rights without violating the
          terms  of any  such  license  agreement)  with  respect  to any of the
          Intellectual Property or any other patent, trademark,  service mark or
          any  application  or  registration  thereof or any other trade name or
          tradestyle  between  such Debtor and any other  Person,  whether  such
          Debtor is a licensor or  licensee  under any such  license  agreement,
          including,  without  limitation,  the  licenses  listed  on  EXHIBIT C
          attached  hereto and hereby made a part  hereof (all of the  foregoing
          license agreements and such Debtor's rights thereunder are referred to
          collectively as the "LICENSES"); and

               (iv) the goodwill of such Debtor's  business  connected  with and
          symbolized by the Trademarks; and


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               (v)   copyrights,    copyright    registrations   and   copyright
          applications,  used in the  United  States and  elsewhere,  including,
          without   limitation,   the  copyright   registrations  and  copyright
          applications  listed on  EXHIBIT  D  attached  hereto  and made a part
          hereof,  and (a)  renewals  or  extensions  thereof,  (b) all  income,
          royalties, proceeds, damages and payments now and hereafter due and/or
          payable with respect thereto, including,  without limitation,  damages
          and payments for past or future  infringements  thereof, (c) the right
          to sue for past, present and future infringements thereof, and (d) all
          rights  corresponding   thereto  throughout  the  world  (all  of  the
          foregoing   copyrights,    copyright   registrations   and   copyright
          applications,  together with the items  described in clauses  (a)-(d),
          are sometimes hereinafter individually and/or collectively referred to
          as the "COPYRIGHTS"); and

               (vi) all trade secrets, formulas,  processes,  devices, know-how,
          or compilations of information  (including  technical  information and
          non-technical information such as customer lists and marketing plans),
          collectively referred to as trade secrets,  which are not available to
          others and which are maintained as  confidential  by such Debtor,  and
          the right to prevent  misappropriation  and  unauthorized  disclosures
          thereof and all rights corresponding thereto throughout the world (all
          of the  foregoing  trade secrets and  associated  rights are sometimes
          hereinafter individually and/or collectively referred to as the "TRADE
          SECRETS").

          "INTERCREDITOR AGREEMENT" means the Intercreditor Agreement,  dated as
of January 10, 2005,  among the Debtors,  the Convertible  Note Collateral Agent
and the Agent,  as amended and  restated  from time to time.

          "INVENTORY" means inventory (as that term is defined in the Code).

          "INVESTMENT  PROPERTY"  means  investment  property  (as that  term is
defined in the Code).

          "LOAN DOCUMENTS" means,  collectively,  the Loan Agreement, the Notes,
this Agreement and the other Security Documents.

          "NEGOTIABLE  COLLATERAL"  means  letters of  credit,  letter of credit
rights,  instruments,  promissory notes,  drafts,  documents,  and chattel paper
(including electronic chattel paper and tangible chattel paper).

          "OBLIGATIONS" means all debts, principal, interest (including any
interest that, but for the commencement of an Insolvency Proceeding, would have
accrued), premiums, liabilities (including all amounts owed by any Debtor
pursuant hereto), obligations (including indemnification obligations), fees,
charges, costs, reasonable expenses (including any expenses that, but for the
commencement of an Insolvency Proceeding, would have accrued), guaranties,
covenants, and duties of any kind and description owing by any Debtor to the
Agent or any other Secured Party pursuant to or evidenced by the Loan Documents
and irrespective of whether for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including all interest not paid when due and all
reasonable expenses that any Debtor is required to pay or reimburse by the Loan


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Documents,  by  law,  or  otherwise.  Any  reference  in this  Agreement  to the
Obligations shall include all extensions, modifications, renewals or alterations
thereof, both prior and subsequent to any Insolvency Proceeding.

          "PERMITTED  DISPOSITIONS" means Dispositions consummated in accordance
with the terms of Section 8.8 of the Loan Agreement.

          "PERMITTED  PROTEST" means the right of any Debtor to protest any Lien
(other than any Lien that  secures the  Obligations),  taxes (other than payroll
taxes or taxes that are the subject of a United  States  federal  tax lien),  or
rental  payment,  provided that (a) a reserve with respect to such obligation is
established  on the Books of such  Debtor in such  amount as is  required  under
GAAP, (b) any such protest is instituted  promptly and prosecuted  diligently by
such Debtor in good faith, and (c) while any such protest is pending, there will
be no  impairment  of the  enforceability,  validity,  or priority of any of the
Agent's Liens.

          "RECORD" means  information  that is inscribed on a tangible medium or
which  is  stored  in an  electronic  or  other  medium  and is  retrievable  in
perceivable form.

          "SECURED PARTIES" means, collectively, the Agent and the Banks.

          "SECURITIES  ACCOUNT"  means a  securities  account  (as that  term is
defined in the Code).

          "SUPPORTING  OBLIGATION" means a  letter-of-credit  right or secondary
obligation  that  supports  the payment or  performance  of an Account,  chattel
paper, document, General Intangible, instrument, or Investment Property.

          "UNITED STATES" means the United States of America.

          "VOIDABLE TRANSFER" has the meaning set forth in SECTION 12.7.

     1.2.  CODE.  Any terms used in this  Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein;  provided,  however,  that to the extent that the Code is used to define
any term herein and such term is defined  differently  in different  Articles of
the Code, the definition of such term contained in Article 9 shall govern.

     1.3.  CONSTRUCTION.  Unless the context of this Agreement  clearly requires
otherwise,  references  to the plural  include the  singular,  references to the
singular  include the  plural,  the terms  "includes"  and  "including"  are not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning  represented  by the  phrase  "and/or."  The words  "hereof,"  "herein,"
"hereby,"  "hereunder,"  and  similar  terms  in this  Agreement  refer  to this
Agreement  as a whole and not to any  particular  provision  of this  Agreement.
Section, subsection, clause, schedule, and exhibit references herein are to this
Agreement  unless  otherwise  specified.  Any reference in this Agreement to any
agreement,  instrument,  or document shall include all alterations,  amendments,
changes,  extensions,  modifications,  renewals,  replacements,   substitutions,
joinders,  and supplements,  thereto and thereof,  as applicable (subject to any
restrictions   on   such   alterations,    amendments,    changes,   extensions,
modifications, renewals, replacements,  substitutions, joinders, and supplements


                                      -7-


set forth herein). Any reference herein to the satisfaction or repayment in full
of the  Obligations  shall mean the repayment in full in cash of all Obligations
other than contingent indemnification  Obligations.  Any reference herein to any
Person shall be construed to include such Person's  successors and assigns.  Any
requirement of a writing contained herein shall be satisfied by the transmission
of a Record and any Record  transmitted  shall constitute a  representation  and
warranty  as to the  accuracy  and  completeness  of the  information  contained
therein.

     1.4.  SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.

2.   CREATION OF SECURITY INTEREST.

     2.1.  GRANT OF SECURITY  INTEREST.  Each Debtor hereby grants to the Agent,
for the benefit of itself and the other Secured Parties,  a continuing  security
interest in all of its right,  title, and interest in all currently existing and
hereafter  acquired  or  arising  Collateral  of such  Debtor in order to secure
prompt  repayment of any and all of the Obligations in accordance with the terms
and conditions of the Loan  Documents and in order to secure prompt  performance
by such Debtor of each of its covenants and duties under the Loan Documents. The
Agent's  Liens in and to the  Collateral  of such  Debtor  shall  attach  to all
Collateral of such Debtor without any further action on the part of the Agent or
such Debtor.  Anything contained in this Agreement or any other Loan Document to
the contrary notwithstanding,  except for Permitted Dispositions,  no Debtor has
any  authority,  express  or  implied,  to Dispose of any item or portion of the
Collateral.

     2.2.  NEGOTIABLE  COLLATERAL.  In the  event  that any  Collateral  of any
Debtor,   including  proceeds,   is  evidenced  by  or  consists  of  Negotiable
Collateral,  and to the extent  that the  perfection  or priority of the Agent's
security interest is dependent on or enhanced by possession,  such Debtor, shall
endorse and deliver  physical  possession of such Negotiable  Collateral with an
individual  value in  excess  of  $20,000  to the  Agent to be  administered  in
accordance with the terms of the Intercreditor Agreement.

     2.3.  COLLECTION  OF  ACCOUNTS,   GENERAL   INTANGIBLES,   AND  NEGOTIABLE
COLLATERAL.  At any time after the occurrence and during the  continuation of an
Event of  Default,  the Agent or the  Agent's  designee  may (a) notify  Account
Debtors of such Debtor that such Debtor's  Accounts,  chattel paper,  or General
Intangibles  have been  assigned  to the Agent or that the Agent has a  security
interest  therein,  or (b) collect such Debtor's  Accounts,  chattel  paper,  or
General  Intangibles  directly and the collection  costs and expenses arising in
connection therewith shall be for the account of such Debtor. Each Debtor agrees
that it will hold in trust for the Agent,  as the  Agent's  trustee,  any of its
Collections  that it receives and immediately  will deliver such  Collections at
any time that an Event of Default is  outstanding to the Agent in their original
form as received by such Debtor (together with any necessary endorsements).

     2.4.  FILING OF FINANCING STATEMENTS;  COMMERCIAL TORT CLAIMS; DELIVERY OF
ADDITIONAL DOCUMENTATION REQUIRED.

          (a) Each  Debtor  shall and  hereby  authorizes  the Agent to file any
financing  statement  necessary  or  desirable to  effectuate  the  transactions
contemplated by the Loan Documents,  and any continuation statement or amendment


                                      -8-


with respect thereto, in any appropriate filing office; provided,  however, that
no such authorization shall obligate the Agent to make any such filing.

          (b) If any Debtor  acquires any commercial  tort claims after the date
hereof for a claim of at least  $20,000,  such Debtor shall promptly (but in any
event within 5 Business Days after such  acquisition) (i) deliver to the Agent a
written  description of such commercial  tort claim,  (ii) execute and deliver a
supplement  to this  Agreement,  pursuant  to which such  Debtor  shall  grant a
perfected  security  interest in all of its right,  title and interest in and to
such  commercial  tort claim to the Agent,  as security for the  Obligations  (a
"COMMERCIAL  TORT  CLAIM  ASSIGNMENT")  and  (iii)  not  in  limitation  but  in
furtherance  of clause (c) below,  file a financing  statement or amendment to a
previously filed and effective  financial  statement  describing such commercial
tort claim with sufficient  particularity to the extent necessary to perfect the
Agent's Lien therein.

          (c)  Each  Debtor  shall  prepare,  execute  and  deliver  to,  and if
applicable,   file,  any  and  all  financing  statements,   original  financing
statements  in  lieu  of  continuation   statements,   amendments  to  financing
statements,   fixture  filings,  security  agreements,   pledges,   assignments,
Commercial Tort Claim  Assignments,  endorsements of certificates of title,  and
all  other  documents  (collectively,  the  "ADDITIONAL  DOCUMENTS")  as  may be
necessary (and to the extent the Agent is a party thereto, in form and substance
reasonably  satisfactory  to the Agent) to create,  perfect,  and  continue  the
perfection of or to improve the priority of the Agent's Liens in the  Collateral
of such Debtor  (whether now owned or hereafter  arising or acquired or tangible
or  intangible),  or to fully  consummate all of the  transactions  contemplated
hereby and under the other Loan Documents.  Not in limitation but in furtherance
of  the  foregoing,  each  Debtor  shall  comply  with  its  obligations  in the
immediately preceding sentence as such obligations relate to the preparation and
filing by it of a Code financing statement,  together with any applicable filing
fees, within 10 days of the date hereof (or if later, the date it became a party
hereto) in the applicable filing office,  and following the filing thereof shall
provide the Agent with evidence of the same. To the maximum extent  permitted by
applicable law, such Debtor  authorizes the Agent to execute any such Additional
Documents in such Debtor's name and  authorizes  the Agent to file such executed
Additional Documents in any appropriate filing office;  provided,  however, that
no such  authorization  shall  obligate  the Agent to take any such  action.  In
addition,  no less frequently  than annually,  each Debtor shall (i) provide the
Agent  with  a  report  of  all  new  material  patents,   patent  applications,
trademarks,   trademark  applications,   copyrights  or  copyright  applications
acquired or generated  by such Debtor  during the prior period and (ii) cause to
be prepared,  executed, and delivered to the Agent supplemental schedules to the
applicable  Security  Documents  to  identify  such  patents,   copyrights,  and
trademarks  as being  subject  to the  security  interests  created  thereunder;
provided,  however,  that no Debtor shall register or apply to register with (A)
the United  States  Copyright  Office any  unregistered  copyrights  (whether in
existence on the Closing Date or  thereafter  acquired,  arising,  or developed)
unless within 30 days of any such  registration or application for registration,
such Debtor  executes and delivers to the Agent and files with the United States
Copyright   Office  a  copy  of  this  Agreement  in  proper  form  for  filing,
supplemental schedules to this Agreement,  or such other documentation as may be
necessary  in order to perfect and  continue  the  perfection  of or protect the
Agent's Liens on such copyrights  following such  registration or (B) the United
States  Patent and  Trademark  Office  any  unregistered  patents or  trademarks


                                      -9-


(whether in existence on the Closing Date or thereafter  acquired,  arising,  or
developed)  unless within 30 days of any such  registration  or application  for
registration, the applicable Person executes and delivers to the Agent and files
with the United States Patent and Trademark  Office a copy of this  Agreement in
proper form for filing,  supplemental schedules to this Agreement, or such other
documentation  as  may be  necessary  in  order  to  perfect  and  continue  the
perfection  of or  protect  the  Agent's  Liens on such  patents  or  trademarks
following  such  registration.  Each  Debtor,  to  the  extent  it  executes  an
intellectual  property and security  agreement,  shall submit such  intellectual
property  and security  agreement  for filing with the United  States  Copyright
Office or the United States Patent and Trademark Office, as applicable, together
with all necessary  filing,  registration or similar fees, within 15 days of the
date of the execution  thereof,  and  following  such  submission  thereof shall
provide the Agent with evidence of the same.

     2.5. POWER OF ATTORNEY. Each Debtor hereby irrevocably makes,  constitutes,
and appoints the Agent (and any of the Agent's  officers,  employees,  or agents
designated by the Agent) as such Debtor's true and lawful  attorney,  with power
to (a) if such Debtor  refuses to, or fails timely to execute and deliver any of
the  documents  described in SECTION 2.4, sign the name of such Debtor on any of
the documents described in SECTION 2.4, (b) at any time that an Event of Default
has occurred and is  continuing,  sign such Debtor's name on any invoice or bill
of lading  relating to the  Collateral of such Debtor,  drafts  against  Account
Debtors,  or notices to Account  Debtors,  (c) send requests for verification of
such Debtor's  Accounts at any time when an Event of Default has occurred and is
continuing,  (d)  endorse  such  Debtor's  name  on  any of  its  payment  items
(including all of its  Collections)  that may come into the Agent's  possession,
(e) at any time that an Event of Default has occurred and is  continuing,  make,
settle, and adjust all claims under such Debtor's policies of insurance and make
all determinations and decisions with respect to such policies of insurance, and
(f) at any time that an Event of Default has occurred and is continuing,  settle
and adjust disputes and claims respecting such Debtor's Accounts, chattel paper,
or General Intangibles directly with Account Debtors, for amounts and upon terms
that the  Agent  determines  to be  reasonable,  and the  Agent  may cause to be
executed and delivered  any documents and releases that the Agent  determines to
be necessary.  The appointment of the Agent as such Debtor's attorney,  and each
and every one of its rights and  powers,  being  coupled  with an  interest,  is
irrevocable until all of the Obligations (other than contingent  indemnification
obligations) have been paid and performed in full.

     2.6. RIGHT TO INSPECT.  The Agent (through any of its officers,  employees,
or agents)  shall have the right (but not the  obligation)  to inspect the Books
and make  copies or  abstracts  thereof and to check,  test,  and  appraise  the
Collateral,  or any portion thereof,  in order to verify each Debtor's financial
condition  or the amount,  quality,  value,  condition  of, or any other  matter
relating to, the Collateral at such reasonable  times and intervals as the Agent
may designate, and so long as no Default or Event of Default has occurred and is
continuing,  with reasonable prior notice.  Not in limitation but in furtherance
of the immediately preceding sentence, the Agent shall have the right to inspect
each  Debtor's  premises  and  to  examine  such  Debtor's  books,  records  and
operations,   including,  without  limitation,  such  Debtor's  quality  control
processes,  and each Debtor  agrees (i) to  maintain  the quality of any and all
products in connection with which the material  Trademarks are used,  consistent
with  the  quality  of  said  products  (as  determined  by such  Debtor  in its
commercially  reasonable  business judgment) and (ii) to provide the Agent, upon
the Agent's  reasonable  request  from time to time,  with a  certificate  of an
officer of such Debtor certifying such Debtor's compliance with the foregoing.

                                      -10-


     2.7.  CONTROL  AGREEMENTS.  Each  Debtor  agrees  that  it  will  take  all
commercially  reasonable  steps in order  for the  Agent to  obtain  control  in
accordance with Sections 8-106,  9-104, 9-105, 9-106, and 9-107 of the Code with
respect to all of its Securities Accounts, Deposit Accounts,  electronic chattel
paper,  Investment  Property,  and  letter-of-credit  rights (other than Deposit
Accounts and Securities  Accounts having an average closing balance of less than
(i) $20,000,  individually, or (ii) $50,000, in the aggregate, in each case, for
any five  consecutive  Business Day period).  Upon the occurrence and during the
continuance of an Event of Default,  the Agent may notify any bank or securities
intermediary  subject to a Control Agreement to liquidate the applicable Deposit
Account or Securities Account or any related Investment  Property  maintained or
held thereby and remit the proceeds thereof to the Agent.

3.   REPRESENTATIONS AND WARRANTIES.

          In order to induce the Agent to enter into this Agreement, each Debtor
makes the following  representations  and warranties to the Agent which shall be
true,  correct,  and  complete,  in all material  respects,  as of the date such
Debtor became a party hereto,  and such  representations  and  warranties  shall
survive the execution and delivery of this Agreement:

     3.1. AS TO EQUITY  INTERESTS OF SUBSIDIARIES.  The Collateral  comprised of
Capital  Stock of any Issuer that is (a) a  Subsidiary  of such Debtor and (b) a
general  partnership,  limited  partnership or limited liability company (i) are
not dealt in or traded on securities exchanges or in securities markets, (ii) do
not have terms expressly  providing that they are securities governed by Article
8 of the Code as in effect in the  jurisdiction in which such Issuer was formed,
and  (iii)  are not  investment  company  securities,  and are  not,  therefore,
"securities" governed by Article 8 of the Code.

     3.2. NO  ENCUMBRANCES.  Such Debtor has good and marketable  title to, or a
valid  leasehold  interest in, its personal  property  assets and such  personal
property  assets of such Debtor is free and clear of Liens except for  Permitted
Liens.

     3.3. EQUIPMENT. All of the Equipment of such Debtor is used or held for use
in its business and, except for Equipment that is substantially worn, damaged or
obsolete, is fit for such purposes.

     3.4.  LOCATION OF INVENTORY AND EQUIPMENT.  The Inventory of such Debtor is
located at the  locations  identified  on SCHEDULE 3.4 (as such  Schedule may be
updated pursuant to SECTION 4.3).

     3.5.  INVENTORY  RECORDS.  Such Debtor keeps  correct and accurate  records
itemizing and  describing the type,  quality,  and quantity of its Inventory and
the book value thereof.

     3.6.  STATE  OF   INCORPORATION;   LOCATION  OF  CHIEF  EXECUTIVE   OFFICE;
ORGANIZATIONAL IDENTIFICATION NUMBER; COMMERCIAL TORT CLAIMS.

          (a) The  jurisdiction  of  organization of such Debtor is set forth on
SCHEDULE 3.6(a).

                                      -11-


          (b) The chief  executive  office  of such  Debtor  is  located  at the
address  indicated on SCHEDULE 3.6(b) (as such Schedule may be updated  pursuant
to SECTION 4.3).

          (c) Such Debtor's  organizational  identification numbers, if any, are
identified on SCHEDULE 3.6(c).

          (d) As of the date such Debtor became a party hereto,  such Debtor did
not hold any  commercial  tort claims,  except as set forth on SCHEDULE  3.6(d).

     3.7. DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.

          (a) Such Debtor is duly  organized  and existing and in good  standing
under the laws of the  jurisdiction  of its  organization  and  qualified  to do
business in any state where the failure to be so qualified  reasonably  could be
expected  to have a material  adverse  effect on (A) the  properties,  business,
operations,  earnings, assets, liabilities or condition (financial or otherwise)
of the Company and its  Subsidiaries,  taken as a whole, (B) the ability of such
Debtor to  perform  its  obligations  in all  material  respects  under any Loan
Document or (C) the consummation of any of the transactions  contemplated  under
any of the Loan Documents (each, a "MATERIAL ADVERSE EFFECT").

          (b) Set forth on SCHEDULE  3.7(b) is a complete and  accurate  list of
such Debtor's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their  organization,  (ii) the number of shares of each  class of Capital  Stock
authorized  for  each  of  such  Subsidiaries,  and  (iii)  the  number  and the
percentage  of the  outstanding  shares of each such  class  owned  directly  or
indirectly  by such Debtor.  All of the  outstanding  Capital Stock of each such
Subsidiary that is a corporation has been,  validly issued and is fully paid and
non-assessable.

          (c)   Except  as  set  forth  on   SCHEDULE   3.7(b),   there  are  no
subscriptions,  options,  warrants,  or calls  relating  to any  shares  of such
Debtor's  Subsidiaries'  Capital  Stock,  including  any right of  conversion or
exchange  under  any  outstanding  security  or  other  instrument.  None of the
Debtor's Subsidiaries is subject to any obligation  (contingent or otherwise) to
repurchase  or  otherwise   acquire  or  retire  any  shares  of  such  Debtor's
Subsidiaries' Capital Stock or any security convertible into or exchangeable for
any such Capital Stock.

     3.8. DUE AUTHORIZATION; NO CONFLICT.

          (a) The execution,  delivery,  and  performance by such Debtor of this
Agreement  and the other  Loan  Documents  to which it is a party have been duly
authorized by all necessary action on the part of such Debtor.

          (b) The execution,  delivery,  and  performance by such Debtor of this
Agreement  and the other Loan  Documents  to which it is a party do not and will
not (i) violate any  provision  of federal,  state,  or local law or  regulation
applicable to such Debtor, the Governing Documents of such Debtor, or any order,
judgment, or decree of any court or other Governmental Authority binding on such
Debtor,  except where such violation  could not reasonably be expected to have a
Material  Adverse  Effect,  (ii)  conflict  with,  result  in a  breach  of,  or
constitute  (with  due  notice  or lapse of time or both) a  default  under  any
contractual  obligation  of such  Debtor,  except such  conflict or breach which


                                      -12-


could not reasonably be expected to have a Material Adverse Effect, (iii) result
in or require the creation or  imposition  of any Lien of any nature  whatsoever
upon any  properties or assets of such Debtor,  other than Permitted  Liens,  or
(iv) require any approval of the holders of such  Debtor's  Capital Stock or any
approval  or consent  of any Person  under any  contractual  obligation  of such
Debtor,  other than (x) consents or approvals  that have been  obtained and that
are still in force and effect and (y) those  consents and  approvals the failure
to obtain could not reasonably be expected to have a Material Adverse Effect.

          (c) Other than the filing of financing  statements and the recordation
of the Mortgages,  the execution,  delivery,  and  performance by such Debtor of
this  Agreement and the other Loan  Documents to which such Debtor is a party do
not and will not require any  registration  with,  consent,  or approval  of, or
notice to, or other action with or by, any  Governmental  Authority,  other than
(x)  consents or approvals  that have been  obtained and that are still in force
and effect and (y) those  consents and approvals the failure to obtain could not
reasonably be expected to have a Material Adverse Effect.

          (d) This  Agreement and the other Loan  Documents to which such Debtor
is a party,  and all other  documents  contemplated  hereby  and  thereby,  when
executed  and  delivered  by such Debtor  will be the legally  valid and binding
obligations of such Debtor,  enforceable  against such Debtor in accordance with
their  respective  terms,  except as  enforcement  may be limited  by  equitable
principles or by bankruptcy, insolvency, reorganization,  moratorium, or similar
laws relating to or limiting creditors' rights generally.

          (e) The  Agent's  Liens on the  Collateral  of such Debtor are validly
created,  perfected, and, subject to the Intercreditor Agreement, first priority
liens, subject only to Permitted Liens.

     3.9. INTELLECTUAL PROPERTY.

          (a) To such Debtor's  knowledge,  such Debtor owns, or holds  licenses
in, all  trademarks,  trade names,  copyrights,  patents and  licenses  that are
necessary  to  the  conduct  of  its  business  as  currently   conducted.   The
Intellectual  Property  listed  on  EXHIBITS  A,  B,  C,  and  D,  respectively,
constitute all of the Registered Intellectual Property now owned by such Debtor,
and the Intellectual Property listed on EXHIBIT C constitute all of the material
Licenses now owned by such Debtor.

          (b)  None  of the  issued  patents,  patent  applications,  registered
trademarks,   trademark   applications,   registered   copyrights  or  copyright
applications  (collectively,  the  "REGISTERED  INTELLECTUAL  PROPERTY") of such
Debtor has been adjudged  invalid or  unenforceable  nor has any such Registered
Intellectual  Property of such Debtor been  cancelled,  in whole or in part, and
each such Intellectual Property of such Debtor is presently subsisting.

          (c) To the knowledge of such Debtor, none of the Intellectual Property
of such Debtor  infringes  upon the rights or property of any other Person or is
currently being challenged in any way.

                                      -13-


          (d)  There  are no  pending  or,  to the  knowledge  of  such  Debtor,
threatened claims, litigation, proceedings or other investigations regarding any
of the Intellectual Property of such Debtor.

          (e)  Each of the  Intellectual  Property  material  to  such  Debtor's
business  is  valid  and  enforceable,  and such  Debtor  has  adopted  adequate
precautions  to  protect  its Trade  Secrets  from  unauthorized  or  accidental
disclosure.

          (f) Such  Debtor is the sole and  exclusive  owner of the  entire  and
unencumbered  right,  title and interest in and to the  Registered  Intellectual
Property  of such  Debtor,  free and  clear of any  liens,  security  interests,
mortgages, charges and encumbrances,  including,  without limitation,  licenses,
consent-to-use  agreements,  shop rights and covenants by such Debtor not to sue
third Persons (except for Permitted Liens).

          (g) Such Debtor has adopted,  used and is  currently  using all of the
Trademarks, and, to the knowledge of such Debtor, such Debtor's use thereof does
not infringe the intellectual property rights of any person or entity.

          (h) Such  Debtor has no written  notice or  knowledge  of any suits or
actions  commenced or threatened  with reference to or in connection with any of
the Intellectual Property of such Debtor.

          (i) No trademark  opposition  or  cancellation  proceedings  have been
filed in the prior  three  years with the  United  States  Patent and  Trademark
Office against any of the Trademarks of such Debtor.

          (j) The  Licenses  of such  Debtor,  complete  copies of which will be
provided  to the  Agent  at its  request,  are  valid  and  binding  agreements,
enforceable in accordance  with their terms  (subject,  as to the enforcement of
remedies, to applicable bankruptcy, reorganization,  insolvency and similar laws
from time to time in effect). Each of the material Licenses of such Debtor is in
full  force  and  effect  and has not been  amended  or  abrogated  and,  to the
knowledge of such Debtor,  there is no default under any of the Licenses of such
Debtor.

     3.10. DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS.  Set forth on SCHEDULE 3.10
(as such  schedule  may be amended  from time to time by such Debtor and, to the
extent  required by SECTION 2.7  consented  to by the Agent as  evidenced by the
execution and delivery by such Debtor, the applicable securities intermediary or
bank and the Agent of a Control  Agreement) is a listing of all of such Debtor's
Deposit Accounts and Securities Accounts,  including,  with respect to each bank
or securities  intermediary (a) the name and address of such Person, and (b) the
account numbers of the Deposit Accounts or Securities  Accounts  maintained with
such Person.

4.   AFFIRMATIVE COVENANTS.

          Each Debtor  covenants  and agrees that,  until payment in full of the
Obligations  (other than contingent  indemnification  obligations),  such Debtor
shall do all of the following:

                                      -14-


     4.1. MAINTENANCE OF PROPERTIES. Maintain and preserve all of its properties
which are  necessary  or useful in the proper  conduct to its  business  in good
working order and condition,  ordinary wear and tear excepted, and comply at all
times  with the  provisions  of all  material  leases  to which it is a party as
lessee, so as to prevent any loss or forfeiture thereof or thereunder.

     4.2. INSURANCE.

          (a) At such Debtor's expense, maintain insurance respecting its assets
wherever  located,  covering loss or damage by fire, theft,  explosion,  and all
other hazards and risks and in such amounts as ordinarily are insured against by
other Persons engaged in the same or similar businesses.  Such Debtor also shall
maintain  business  interruption,   public  liability,   and  product  liability
insurance,  as well as insurance  against  larceny,  embezzlement,  and criminal
misappropriation.  Such  Debtor  shall  deliver  copies of all such  policies or
certificates  of insurance  evidencing the same to the Agent with an endorsement
naming the Agent as loss  payee  (under a  satisfactory  lender's  loss  payable
endorsement) or additional insured, as appropriate.  Each policy of insurance or
endorsement  shall contain a clause  requiring the insurer to give not less than
30 days prior written  notice to the Agent in the event of  cancellation  of any
such policy for any reason whatsoever.

          (b) Such Debtor shall give the Agent  prompt  notice of any loss in an
amount in excess of $20,000  covered by such  insurance.  If an Event of Default
shall have occurred and is outstanding, the Agent shall have the exclusive right
(but not the  obligation)  to adjust any losses claimed under any such insurance
policies,  without any  liability to such Debtor  whatsoever  in respect of such
adjustments.  Any monies  received as payment  for any loss under any  insurance
policy mentioned above (other than liability  insurance  policies) or as payment
of any award or compensation for condemnation or taking by eminent domain, shall
be  deposited  into a Deposit  Account of such  Debtor  with  respect to which a
Control  Agreement is in effect unless  directed by the Agent to be paid over to
the Agent at any time an Event of Default is  outstanding,  in which case,  such
payment shall be paid over to the Agent.

          (c) Such Debtor will not take out  separate  insurance  concurrent  in
form or  contributing  in the event of loss with that  required to be maintained
under this SECTION 4.2,  unless the Agent is included  thereon as an  additional
insured or loss payee under a lender's  loss  payable  endorsement.  Such Debtor
promptly shall notify the Agent  whenever such separate  insurance is taken out,
specifying  the  insurer  thereunder  and full  particulars  as to the  policies
evidencing  the same, and copies of such policies or  certificates  of insurance
evidencing the same shall be promptly provided to the Agent.

     4.3. LOCATION OF INVENTORY AND EQUIPMENT.  Keep such Debtor's Inventory and
Equipment  only at the  locations  identified  on  SCHEDULE  3.4  and its  chief
executive offices only at the locations identified on SCHEDULE 3.6(B); provided,
however,  that such Debtor may amend SCHEDULE 3.4 and SCHEDULE 3.6(B) so long as
such amendment occurs by prompt written notice to the Agent, so long as such new
location is within the continental United States or Canada.

     4.4. NEW  INTELLECTUAL  PROPERTY.  If, before all  Obligations  (other than
contingent indemnification  obligations) shall have been satisfied in full, such
Debtor shall (i) become aware of any existing Registered  Intellectual  Property
of such Debtor of which such Debtor has not previously  informed the Agent, (ii)


                                      -15-


obtain rights to any Registered  Intellectual Property, or (iii) become entitled
to the benefit of any material  Intellectual  Property  which  benefit is not in
existence on the date  hereof,  the  provisions  of this  Agreement  above shall
automatically  apply  thereto  and such  Debtor  shall give to the Agent  prompt
written  notice  thereof.  Such Debtor shall  prepare an amendment  (in form and
substance  reasonably  satisfactory to the Agent) to EXHIBITS A, B, C, and D, as
applicable,  to include any such  Intellectual  Property,  and such Debtor shall
file or refile this Agreement with the United States Patent and Trademark Office
and United States Copyright Office. Such Debtor shall promptly execute,  deliver
and file with any  necessary  Governmental  Authority  any and all documents and
instruments necessary or advisable to record or preserve the Agent's interest in
all  Intellectual  Property  added to  EXHIBITS  A, B, C, and D pursuant to this
Section.

     4.5.  DUTIES OF SUCH DEBTOR.  Such Debtor shall have the duty to the extent
commercially  reasonable  and in such  Debtor's  good faith  business  judgment,
desirable:  (i) to file and  prosecute to  diligently  any patent,  trademark or
service  mark  applications  of such  Debtor  pending  as of the date  hereof or
hereafter   until  all  Obligations   (other  than  contingent   indemnification
obligations)  shall have been paid in full, (ii) except as otherwise provided in
the Loan  Agreement  or any other Loan  Document,  to preserve  and maintain all
rights in the material Intellectual Property of such Debtor (including,  but not
limited to, with respect to  Trademarks,  the filing of  affidavits  of use and,
incontestability,  where applicable,  under ss.ss.8 and 15 of the Lanham Act (15
U.S.C. ss. 1058, 1065) and renewals and, to the extent commercially  reasonable,
initiating opposition or cancellation proceedings or litigation against users of
the same or  confusingly  similar marks who  seriously  threaten the validity or
rights of such Debtor in its material Trademarks),  and (iii) to ensure that the
Registered Intellectual Property of such Debtor is and remains enforceable. Such
Debtor shall not knowingly or unreasonably  abandon any right to file a material
patent,  trademark or service mark  application,  or abandon any pending  patent
application,  or any other material Intellectual Property, of such Debtor unless
such Debtor,  in the exercise of its commercially  reasonable  business judgment
determines  that such  abandonment  will not  materially  and adverse effect its
business.

     4.6.  FOREIGN PATENTS,  COPYRIGHTS AND TRADEMARKS.  Upon the occurrence and
during the  continuance of an Event of Default,  at the request of the Agent and
at  the  sole  cost  and  expense  (including,  without  limitation,  reasonable
attorneys' fees) of such Debtor,  such Debtor shall take all actions and execute
and  deliver  any and all  instruments,  agreements,  assignments,  certificates
and/or documents,  reasonably  required by the Agent to collaterally  assign any
and all of such Debtor's foreign patent,  copyright and trademark  registrations
and applications  now owned or hereafter  acquired to and in favor of the Agent.
Upon the execution and delivery of any such collateral assignments or documents,
the terms "Patents",  "Copyrights", and "Trademarks" as used herein with respect
to such Debtor  shall  automatically  be deemed  amended to include such foreign
patent,  copyright  and trademark  registrations  and  applications  without any
action required by any person or entity.

     4.7. POST-CLOSING INTELLECTUAL PROPERTY SEARCHES. Each Debtor shall provide
to the Agent true and complete copies of intellectual property searches from the
United States Patent and Trademark Office relating to such Debtor within 30 days
of the date hereof.

                                      -16-


5.   NEGATIVE COVENANTS.

          Each Debtor  covenants and agrees that, until the Obligations are paid
and performed in full (other than contingent indemnification obligations),  such
Debtor will not do any of the following:

     5.1. DISPOSAL OF ASSETS. Other than Permitted Dispositions,  Dispose of any
of such Debtor's assets.

     5.2. CHANGE NAME. Change such Debtor's name, organizational  identification
number,  state of  organization  or  organizational  identity unless such Debtor
shall within ten Business Days of any such change provide  written notice to the
Agent of such change and file any financing  statements  or  amendments  thereto
necessary to continue the perfection and priority of the Agent's Liens.

     5.3. DEPOSIT ACCOUNTS AND SECURITIES  ACCOUNTS.  Maintain,  on or after the
date  that is 30 days  following  the  Closing  Date,  any  Deposit  Account  or
Securities  Account having an average  closing balance in excess of (i) $20,000,
individually,  or (ii) $50,000,  in the  aggregate,  in each case,  for any five
consecutive Business Day period unless such Debtor and the applicable securities
intermediary  or bank have  entered  into a  Control  Agreement  governing  such
Deposit Account o Securities Account, as the case may be, in order to perfect or
improve the priority of the Agent's Liens therein.

     5.4.  RESTRICTIONS  ON FUTURE  AGREEMENTS.  Except as  otherwise  permitted
pursuant to the Loan Agreement,  without the prior written consent of the Agent,
Dispose, grant a Lien on, encumber or assign any or all of, or grant any license
or sublicense under (other than as commercially reasonable in such Debtor's good
faith business  judgment),  the Intellectual  Property of such Debtor,  or enter
into any other  agreement  with  respect to the  Intellectual  Property  of such
Debtor,  and such Debtor  further  agrees that it shall not  knowingly  take any
action or  knowingly  permit  any  action to be taken by others  subject  to its
control, including, without limitation,  licensees or sublicensees, or knowingly
fail to take any action,  which would materially,  diversely affect the validity
or enforcement of the Agent's  rights subject to this  Agreement,  other than in
the ordinary course of business.

6.   AGENT'S RIGHTS AND REMEDIES.

     6.1. RIGHTS AND REMEDIES. Upon the occurrence, and during the continuation,
of an Event of Default,  the Agent (at its election (or at the  direction of the
Required  Banks but  without  notice of its  election  (or such  direction)  and
without  demand) may (but shall not be  obligated  to) do any one or more of the
following, all of which are authorized by each Debtor:

          (a) Proceed directly and at once, without notice,  against such Debtor
to collect  and  recover  the full  amount or any  portion  of the  Obligations,
without first  proceeding  against any other Debtor,  or against any security or
collateral for the Obligations;

          (b) Settle or adjust  disputes and claims  directly with such Debtor's
Account for amounts and upon terms which the Agent considers advisable;

                                      -17-


          (c) Cause such Debtor to hold all of its  returned  Inventory in trust
for the Agent and  segregate  all such  Inventory  from all other assets of such
Debtor or in such Debtor's possession;

          (d) Without  notice to or demand upon such Debtor,  make such payments
and do such acts as the Agent  considers  necessary or reasonable to protect its
security  interests  in  the  Collateral  (including,   without  limitation,  in
connection  with the filing or recording any documents  (including  all taxes in
connection  therewith) in public offices, the payment or discharge of any taxes,
counsel  fees,  maintenance  fees,  encumbrances  or  otherwise  in  protecting,
maintaining  or  preserving  the  Intellectual  Property of such  Debtor,  or in
defending or prosecuting any actions or proceedings arising out of or related to
the  Intellectual  Property of such  Debtor,  shall be borne by and paid by such
Debtor on demand by the Agent on behalf of the Secured Parties and until so paid
shall bear interest at the Past Due Rate set forth in the Loan Agreement).  Such
Debtor agrees to assemble the  Collateral if the Agent so requires , and to make
the  Collateral  available to the Agent at a place that the Agent may  designate
which is reasonably convenient to both parties. Such Debtor authorizes the Agent
to enter the  premises  where the  Collateral  is located,  to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase,  contest,
or compromise  any Lien that conflicts with the priority of the Agent's Liens in
and to the Collateral and to pay all expenses incurred in connection  therewith,
which expenses  shall be for the account of such Debtor.  With respect to any of
such Debtor's  owned or leased  premises,  such Debtor hereby grants the Agent a
license  to enter  into  possession  of such  premises  and to occupy  the same,
without  charge,  in order to  exercise  any of the  Agent's  rights or remedies
provided herein, at law, in equity, or otherwise;

          (e)  Without  notice  to such  Debtor  (such  notice  being  expressly
waived),  and without  constituting  an acceptance of any  collateral in full or
partial  satisfaction of an obligation (within the meaning of the Code), set off
and apply to the  Obligations  any and all (i)  balances  and  deposits  of such
Debtor held by the Agent,  or (ii)  Indebtedness at any time owing to or for the
credit or the account of such Debtor held by the Agent;

          (f) Hold,  as cash  collateral,  any and all  balances and deposits of
such Debtor held by the Agent to secure the full and final  repayment  of all of
the Obligations (other than contingent indemnification obligations);

          (g) Ship, reclaim,  recover, store, finish, maintain,  repair, prepare
for sale,  advertise for sale, and sell (in the manner  provided for herein) the
Collateral  of such Debtor.  Such Debtor hereby grants to the Agent a license or
other right to use, without charge, such Debtor's labels,  patents,  copyrights,
trade secrets, trade names,  trademarks,  service marks, and advertising matter,
or any property of a similar  nature,  as it pertains to the  Collateral of such
Debtor,  in completing  production  of,  advertising  for sale,  and selling any
Collateral  of such Debtor and such  Debtor's  rights under all licenses and all
franchise agreements shall inure to the Agent's benefit;

          (h) Sell all or any part of the  Collateral of such Debtor at either a
public  or  private  sale,  or  both,  by  way  of  one  or  more  contracts  or
transactions, for cash or on terms, in such manner and at such places (including
such Debtor's premises) as is commercially reasonable.  It is not necessary that
such Collateral of such Debtor be present at any such sale;

                                      -18-


          (i) Except in those  circumstances  where no notice is required  under
the Code,  the Agent shall give notice of the  disposition  of the Collateral of
such Debtor as follows:

               (i) The Agent  shall give such  Debtor a notice in writing of the
          time and place of public  sale,  or, if the sale is a private  sale or
          some other  disposition  other than a public sale is to be made of the
          Collateral of such Debtor, the time on or after which the private sale
          or other disposition is to be made; and

               (ii) The notice shall be personally delivered or mailed,  postage
          prepaid,  to such  Debtor as  provided  in SECTION 9, at least 10 days
          before the earliest time of  disposition  set forth in the notice;  no
          notice  needs to be given prior to the  disposition  of any portion of
          the  Collateral  of such Debtor that is  perishable  or  threatens  to
          decline  speedily in value or that is of a type  customarily sold on a
          recognized market;

          (j) The Agent or any other  Secured  Party may credit bid and purchase
at any public sale;

          (k) The Agent may seek the appointment of a receiver or keeper to take
possession of all or any portion of the  Collateral of such Debtor or to operate
same and,  to the maximum  extent  permitted  by  applicable  law,  may seek the
appointment  of such a receiver  without the  requirement  of prior  notice or a
hearing;

          (l) The use by the Agent for the benefit of the Secured Parties of all
Intellectual  Property of such Debtor shall be worldwide and as extensive as the
rights of such  Debtor to use such  Intellectual  Property of such  Debtor,  and
without any liability  for royalties or other related  charges from the Agent or
the other Secured  Parties to such Debtor,  solely for the purpose of completing
production of, advertising for sale and selling any Intellectual Property.

          (m) The Agent for the  benefit of the Secured  Parties  shall have the
right,  but  shall  in no way be  obligated,  to  bring  suit in its own name to
enforce  the  Intellectual  Property  of such  Debtor,  only after the Agent has
tendered  notice to such Debtor of the Agent's  desire to initiate such suit and
such  Debtor has  declined in writing to itself  pursue  such suit,  and, if the
Agent shall  commence any such suit,  such Debtor  shall,  at the request of the
Agent,  do any and all lawful acts and execute any and all proper  documents and
instruments  reasonably  required  by the Agent for the  benefit of the  Secured
Parties in aid of such enforcement.

          (n) The  Agent  shall  have  the  right  and be  authorized  (but  not
obligated)  to (i) endorse such Debtor's  name on all  applications,  documents,
papers and  instrument  necessary or  desirable  for the Agent in the use of the
Intellectual  Property  of such  Debtor,  or (ii)  take any other  actions  with
respect to the  Intellectual  Property  of such Debtor as the Agent deems in its
commercially  reasonable  judgment  to be in the best  interest  of the  Secured
Parties,  or (iii) grant or issue any exclusive or  non-exclusive  license under
the  Intellectual  Property  of such  Debtor to any  person or  entity,  or (iv)
assign, pledge, sell, convey or otherwise transfer title in or dispose of any of
the Intellectual Property of such Debtor to any person or entity.

          (o) The Agent shall have all other  rights and  remedies  available at
law or in equity or pursuant to any other Loan Documents; and

                                      -19-


          (p) Be entitled to any deficiency that exists after disposition of the
Collateral as provided above by immediate  payment from each Debtor.  Any excess
will be returned,  without  interest and subject to the rights of third Persons,
by Agent to the applicable Debtor.

     Beyond the exercise of reasonable  care in the custody  thereof,  the Agent
shall have no duty as to any  Collateral in its  possession or control or in the
possession  or  control  of any agent or bailee or any  income  thereon or as to
preservation  of rights  against  prior  parties or any other rights  pertaining
thereto  and the Agent  shall not be  responsible  for filing any  financing  or
continuation  statements or recording any documents or instruments in any public
office at an time or times or otherwise perfecting or maintaining the perfection
of any  security  interest  in a  Collateral.  The Agent shall be deemed to have
exercised  reasonable care in the custody of the Collateral in its possession if
the  Collateral  is  accorded  treatment  substantially  equal to that  which it
accords its own property and shall not be liable or responsible  for any loss or
diminution  in the  value  of any of the  Collateral,  by  reason  of the act or
omission of any carrier,  forwarding agency or other agent or bailee selected by
the Agent in good faith.

     The Agent shall not be responsible for the existence,  genuineness or value
of  any  of  the  Collateral  or  for  the  validity,  perfection,  priority  or
enforceability  of the  Liens  in any of the  Collateral,  whether  impaired  by
operation  of law or by reason of any of any  action or  omission  to act on its
part hereunder,  except to the extent such action or omission  constitutes gross
negligence or willful  misconduct on the part of the Agent,  for the validity or
sufficiency of the Collateral or any agreement or assignment  contained therein,
for the validity of the title of the Debtor to the Collateral,  for insuring the
Collateral or for the payment of taxes,  charges,  as  assessments or Liens upon
the Collateral or otherwise as to the maintenance of the  Collateral.  The Agent
shall have no duty to ascertain or inquire as to the  performance  or observance
of any of the terms of this Agreement or the Loan Documents by the Debtors.

     6.2. REMEDIES  CUMULATIVE.  The rights and remedies of the Agent under this
Agreement,  the  other  Loan  Documents,  and  all  other  agreements  shall  be
cumulative.  The Agent shall have all other rights and remedies not inconsistent
herewith as provided  under the Code,  by law, or in equity.  No exercise by the
Agent of one right or remedy shall be deemed an  election,  and no waiver by the
Agent of any Event of Default shall be deemed a continuing  waiver.  No delay by
the Agent shall constitute a waiver, election, or acquiescence by it.

7.   TAXES AND EXPENSES.

          If any Debtor  fails to pay any monies  (whether  taxes,  assessments,
rents, insurance premiums, or, in the case of leased properties or assets, rents
or other amounts  payable under such leases) due to third  Persons,  or fails to
make any deposits or furnish any required  proof of payment or deposit,  in each
case, to the extent required under the terms of this Agreement, then, the Agent,
in its sole  discretion and without prior notice to such Debtor,  may (but shall
not be  obligated  to) do any or all of the  following:  (a) make payment of the
same or any  part  thereof  or (b) in the case of the  failure  to  comply  with
SECTION 4.2 hereof, if an Event of Default shall occur and be continuing, obtain
and maintain  insurance  policies of the type  described in SECTION 4.2 and take
any action with respect to such  policies as the Agent deems  prudent.  Any such
amounts paid by the Agent shall  constitute  Obligations  owing to the Agent and
any such payments shall not constitute an agreement by the Agent to make similar
payments  or  deposits  in the  future  or a waiver by the Agent of any Event of


                                      -20-


Default under this  Agreement.  The Agent need not inquire as to, or contest the
validity  of,  any such  expense,  tax,  or Lien and the  receipt  of the  usual
official  notice for the payment  thereof shall be conclusive  evidence that the
same was validly due and owing.

8.   WAIVERS; INDEMNIFICATION.

     8.1.  DEMAND;  PROTEST.  Each  Debtor  waives  demand,  protest,  notice of
protest,  notice of  default or  dishonor,  notice of  payment  and  nonpayment,
nonpayment at maturity, release, compromise,  settlement,  extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by the
Agent on which such Debtor may in any way be liable.

     8.2.  AGENT'S  LIABILITY FOR COLLATERAL OF EACH DEBTOR.  Each Debtor hereby
agrees that:  (a) so long as the Agent  complies with its  obligations,  if any,
under  the  Code,  the  Agent  shall  not in any  way or  manner  be  liable  or
responsible for: (i) the safekeeping of the Collateral of such Debtor,  (ii) any
loss or damage  thereto  occurring  or arising in any manner or fashion from any
cause, (iii) any diminution in the value thereof,  or (iv) any act or default of
any carrier,  warehouseman,  bailee, forwarding agency, or other Person, and (b)
all risk of loss,  damage, or destruction of the Collateral of such Debtor shall
be borne by such Debtor.

     8.3.  INDEMNIFICATION.  Each  Debtor  shall,  jointly and  severally,  pay,
indemnify,  defend,  and hold the  Agent-Related  Persons (each, an "INDEMNIFIED
PERSON")  harmless (to the fullest extent permitted by law) from and against any
and all  claims,  demands,  suits,  actions,  investigations,  proceedings,  and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses  actually  incurred in connection  therewith or in connection  with the
enforcement  of  this  indemnification  (as  and  when  they  are  incurred  and
irrespective of whether suit is brought), at any time asserted against,  imposed
upon,  or  incurred by any of them (a) in  connection  with or as a result of or
related to the execution, delivery, enforcement,  performance, or administration
(including any  restructuring or workout with respect hereto) of this Agreement,
any of the other Loan  Documents,  or the  transactions  contemplated  hereby or
thereby,  and (b) with respect to any investigation,  litigation,  or proceeding
related to this  Agreement  or any other Loan  Document,  or any act,  omission,
event,  or  circumstance  in any  manner  related  thereto  (all the  foregoing,
collectively,  the  "INDEMNIFIED  LIABILITIES").  The  foregoing to the contrary
notwithstanding,  such Debtor shall have no obligation to any Indemnified Person
under this SECTION 8.3 with respect to any Indemnified Liability that a court of
competent  jurisdiction  finally  determines  to have  resulted  from the  gross
negligence or willful  misconduct of such  Indemnified  Person.  This  provision
shall survive the termination of this Agreement and the repayment in full of the
Obligations.   If  any  Indemnified  Person  makes  any  payment  to  any  other
Indemnified  Person with  respect to an  Indemnified  Liability as to which such
Debtor was required to indemnify the Indemnified  Person receiving such payment,
the  Indemnified  Person making such payment is entitled to be  indemnified  and
reimbursed  by  such  Debtor  with  respect  thereto.  WITHOUT  LIMITATION,  THE
FOREGOING  INDEMNITY  SHALL APPLY TO EACH  INDEMNIFIED  PERSON  WITH  RESPECT TO
INDEMNIFIED  LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF
ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

                                      -21-


9.   NOTICES.

          All notices and other  communications  hereunder  to Agent shall be in
writing  and shall be mailed,  sent or  delivered  in  accordance  with the Loan
Agreement and all notices and other communications hereunder to any Debtor shall
be in  writing  and shall be  mailed,  sent or  delivered  in care of Company in
accordance with the Loan Agreement.

10.  CHOICE OF LAW; JURY TRIAL WAIVER.

          (a) THIS  AGREEMENT  SHALL BE GOVERNED BY AND  CONSTRUED IN ACCORDANCE
WITH THE  LAWS OF THE  STATE OF NEW  YORK,  AS  APPLIED  TO  CONTRACTS  MADE AND
PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE  JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR  PROCEEDING  ARISING  OUT OF OR
RELATING TO THIS AGREEMENT.

          (b) EACH DEBTOR  HEREBY  IRREVOCABLY  WAIVES,  TO THE  FULLEST  EXTENT
PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS  CONTEMPLATED BY
THIS AGREEMENT.

11.  AMENDMENTS; WAIVERS.

     11.1.  AMENDMENTS AND WAIVERS.  Except as set forth herein, no amendment or
waiver of any  provision of this  Agreement,  and no consent with respect to any
departure by any Debtor herefrom, shall be effective unless the same shall be in
writing  and  signed by the Agent and such  Debtor  and then any such  waiver or
consent  shall be effective  only in the specific  instance and for the specific
purpose for which given.

     11.2. NO WAIVERS;  CUMULATIVE REMEDIES. No failure by the Agent to exercise
any right, remedy, or option under this Agreement or any other Loan Document, or
delay by the Agent in exercising the same, will operate as a waiver thereof.  No
waiver by the Agent will be effective unless it is in writing,  and then only to
the extent  specifically  stated.  No waiver by the Agent on any occasion  shall
affect or diminish the Agent's rights  thereafter to require strict  performance
by each Debtor of any provision of this Agreement. The Agent's rights under this
Agreement and the other Loan  Documents  will be cumulative and not exclusive of
any other right or remedy that the Agent may have.

12.  GENERAL PROVISIONS.

     12.1.  EFFECTIVENESS.  This Agreement shall be binding and deemed effective
when executed by each Debtor and the Agent.

     12.2. SUCCESSORS. This Agreement shall bind and inure to the benefit of the
respective  successors  and assigns of each of the parties;  provided,  however,


                                      -22-


that no party may assign this Agreement or any rights or duties  hereunder other
than pursuant to the terms of the Loan Agreement.

     12.3. SECTION HEADINGS. Headings and numbers have been set forth herein for
convenience  only.  Unless the contrary is compelled by the context,  everything
contained in each Section applies equally to this entire Agreement.

     12.4. INTERPRETATION; GOVERNMENT REGULATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed  against the Agent, any other
Secured  Party  or any  Debtor,  whether  under  any  rule  of  construction  or
otherwise.  On the contrary, this Agreement has been reviewed by all parties and
shall be construed  and  interpreted  according  to the ordinary  meaning of the
words used so as to accomplish fairly the purposes and intentions of all parties
hereto.

     12.5. SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable  from every  other  provision  of this  Agreement  for the  purpose of
determining the legal enforceability of any specific provision.

     12.6. COUNTERPARTS: ELECTRONIC EXECUTION. This Agreement may be executed in
any number of counterparts  and by different  parties on separate  counterparts,
each of which,  when executed and delivered,  shall be deemed to be an original,
and all of which,  when taken  together,  shall  constitute but one and the same
Agreement.   Delivery  of  an  executed   counterpart   of  this   Agreement  by
telefacsimile  or other  electronic  method of transmission  shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party  delivering an executed  counterpart of this Agreement by telefacsimile or
other electronic  method of transmission also shall deliver an original executed
counterpart  of this  Agreement but the failure to deliver an original  executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.

     12.7.  REVIVAL AND  REINSTATEMENT  OF  OBLIGATIONS.  If the  incurrence  or
payment of the  Obligations  by any Debtor or the  transfer by any Debtor to the
Agent of any  property  of such  Debtor  should for any reason  subsequently  be
declared  to be void or  voidable  under any state or federal  law  relating  to
creditors'  rights,  including  provisions  of the  Bankruptcy  Code relating to
fraudulent conveyances,  preferences,  or other voidable or recoverable payments
of money or transfers of property (collectively,  a "VOIDABLE TRANSFER"), and if
the  Agent  is  required  to  repay or  restore,  in whole or in part,  any such
Voidable Transfer, or elects to do so upon the reasonable advice of its counsel,
then, as to any such Voidable Transfer,  or the amount thereof that the Agent is
required  or  elects  to  repay  or  restore,  and as to all  reasonable  costs,
expenses, and attorneys fees of the Agent related thereto, the liability of such
Debtor automatically shall be revived,  reinstated, and restored and shall exist
as though such Voidable Transfer had never been made.

     12.8. INTEGRATION.  This Agreement, together with the other Loan Documents,
reflects  the  entire   understanding   of  the  parties  with  respect  to  the
transactions  contemplated  hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

                                      -23-


     12.9.   DEBTORS   REMAIN   LIABLE.   Anything   herein   to  the   contrary
notwithstanding:

          (a) Debtors will remain  liable  under the  contracts  and  agreements
included in the Collateral to the extent set forth therein, and will perform all
of their duties and obligations  under such contracts and agreements to the same
extent as if this Agreement had not been executed;

          (b) the  exercise  by Agent of any of its  rights  hereunder  will not
release  any  Debtor  from  any of its  duties  or  obligations  under  any such
contracts or agreements included in the Collateral; and

          (c) none of Agent or any Bank will have any  obligation  or  liability
under any contracts or agreements  included in the  Collateral by reason of this
Agreement,  nor  will  any  such  Person  be  obligated  to  perform  any of the
obligations or duties of any Debtor  thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.

     12.10.  COLLATERAL  COMPRISED  OF EQUITY  INTERESTS  OF  SUBSIDIARIES.  The
provisions of the Pledge  Agreement,  as they relate to Collateral  comprised of
Capital  Stock of  Subsidiaries  of any Debtor  are  incorporated  by  reference
herein, MUTATIS MUTANDIS.

     12.11.  CONTINUING  SECURITY  INTEREST.   This  Agreement  shall  create  a
continuing  security  interest in the Collateral  and shall:  (i) remain in full
force and effect until payment in full of all Obligations (other than contingent
indemnification  obligations);   (ii)  be  binding  upon  each  Debtor  and  its
successors and assigns, except as otherwise provided in the Loan Agreement;  and
(iii)  inure  to the  benefit  of Agent  and its  successors,  transferees,  and
assigns.  Upon the payment in full of all  Obligations  (other  than  contingent
indemnification  obligations),  the  security  interests  granted  herein  shall
automatically  terminate  and all rights to the  Collateral  shall revert to the
applicable Debtor.  Upon any termination of any security interest referred to in
this SECTION 12.11, Agent will, at Debtors' expense, execute and deliver to each
Debtor  such  documents  without  recourse,  representation  or warranty as such
Debtor shall reasonably request to evidence such termination.

     12.12.  SECURITY INTEREST ABSOLUTE. To the maximum extent permitted by law,
all rights of Agent, all security  interests  hereunder,  and all obligations of
each Debtor hereunder,  shall be absolute and unconditional irrespective of:

             (a)  any  lack  of  validity  or   enforceability  of  any  of  the
Obligations or any other agreement or instrument relating thereto, including any
of the Loan Documents;

             (b) any change in the time,  manner,  or place of payment of, or in
any other  term of, all or any of the  Obligations,  or any other  amendment  or
waiver of or any consent to any departure from any of the Loan Documents, or any
other agreement or instrument relating thereto;

             (c)  any  exchange,   release,   or  non-perfection  of  any  other
collateral,  or any release or  amendment  or waiver of or consent to  departure
from any guaranty for all or any of the Obligations; or

                                      -24-


             (d) any other  circumstances  that  might  otherwise  constitute  a
defense available to, or a discharge of, any Debtor.

To the maximum  extent  permitted by law, each Debtor hereby waives any right to
require  Agent to: (A) proceed  against or exhaust any  security  held from such
Debtor; or (B) pursue any other remedy in Agent's power whatsoever.

     12.13. POSTPONEMENT OF SUBROGATION.  Each Debtor hereby agrees that it will
not  exercise  any rights  which it may  acquire by reason of any  payment  made
hereunder, whether by way of subrogation,  reimbursement or otherwise, until the
prior payment in full of all Obligations (other than contingent  indemnification
obligations).  Subject to the terms of the Intercreditor  Agreement,  any amount
paid to any Debtor on account of any payment made hereunder prior to the payment
in full of all Obligations (other than contingent  indemnification  obligations)
shall be held in trust for the benefit of Agent,  and shall  immediately be paid
to Agent for application against the Obligations,  whether matured or unmatured,
in  accordance  with the  terms of the Loan  Agreement.  In  furtherance  of the
foregoing, for so long as any Obligations (other than contingent indemnification
obligations)  remain  outstanding,  each Debtor  shall  refrain  from taking any
action or commencing any proceeding  against the Company or any other Debtor (or
any of their  respective  successors or assigns,  whether in connection  with an
Insolvency  Proceeding  or  otherwise)  to  recover  any  amounts  in respect of
payments made under this Agreement to Agent.

     12.14.  APPLICABLE  GAMING LAWS. The Agent  acknowledges,  understands  and
agrees on behalf of itself and the other Secured Parties that the  Gaming/Racing
Laws may impose certain licensing or transaction approval  requirements prior to
the exercise of the rights and remedies  granted to it under this Agreement with
respect  to the  Collateral  subject  to the  Gaming/Racing  Laws.  All  rights,
remedies,  and powers provided in this Agreement  relative to the Collateral may
be exercised  only to the extent that the exercise  thereof does not violate any
applicable  mandatory  provision of the  applicable  Gaming/Racing  Laws and all
provisions  of this  Agreement  relative to the  Collateral  are  intended to be
subject to all applicable mandatory  provisions of the applicable  Gaming/Racing
Laws  and to be  limited  solely  to the  extent  necessary  to not  render  the
provisions  of this  Agreement  invalid or  unenforceable,  in whole or in part.
Notwithstanding the immediately preceding sentence:

          (a) if any  consent  under  the  Gaming/Racing  Laws  is  required  in
connection with the taking of any of the actions which may be taken by the Agent
in the exercise of its rights hereunder, then each Debtor agrees to use its best
efforts to secure such consent and to cooperate  with the Agent in obtaining any
such consent,  and upon the occurrence and during the  continuation of any Event
of Default, each Debtor shall promptly execute and/or cause the execution of all
applications, certificates, instruments, and other documents and papers that the
Agent may be required to file in order to obtain any necessary  approvals  under
the  Gaming/Racing  Laws,  and if such Debtor  fails or refuses to execute  such
documents,  the Agent or the court with  jurisdiction may execute such documents
on behalf of such Debtor; and

          (b) any other provision of this Agreement to the contrary,  nothing in
this  Agreement,  shall (i) effect any transfer of any  ownership  interest in a
Debtor or (ii) effect any transfer,  sale, purchase,  lease or hypothecation of,


                                      -25-


or any borrowing or loaning of money against, or any establishment of any voting
trust  agreement or other similar  agreement with respect to any  certificate of
suitability or any owner's license  heretofore  issued to any person,  including
any Debtor, under any of the Gaming/Racing Laws.

     12.15.  FURTHER ASSURANCES.  Each Debtor agrees to execute and deliver such
further agreement,  instruments and documents, and to perform such further acts,
as the Agent shall  reasonably  request  from time to time in order to carry out
the purpose of this  Agreement  and  agreements  set forth  herein.  Each Debtor
agrees, that to the extent it has any Intellectual Property described in EXHIBIT
A, B or C if it does not file a copy of this  Agreement  with the United  States
Patent  and  Trademark  Office  and  the  United  States  Copyright  Office,  as
applicable,  the Agent shall be  entitled  (but not  obligated)  to so file this
Agreement at the sole cost and expense of such Debtor.

     12.16.  INTERCREDITOR  AGREEMENT.  If  the  Intercreditor  Agreement  is in
effect,

          (a) the Liens  granted  hereunder in favor of Agent for the benefit of
itself and the Banks in respect of the  Collateral and the exercise of any right
related  thereto  thereby  shall be subject,  in each case,  to the terms of the
Intercreditor Agreement; and

          (b) in the event of any direct conflict  between the express terms and
provisions of this Agreement and of the Intercreditor  Agreement,  the terms and
provisions of the Intercreditor Agreement shall control.

                          [Signature pages to follow.]




                                      -26-



     IN WITNESS  THEREOF,  the parties  hereto have caused this  Agreement to be
executed d delivered as of the date first above written.

                                      COMPANY:

                                      EMPIRE RESORTS, INC.

                                      BY:/s/ Scott A. Kaniewski
                                         ---------------------------------------
                                             Name:  Scott A. Kaniewski
                                             Title: CFO


                                      GUARANTORS:

                                      ALPHA MONTICELLO, INC.

                                      BY: /s/ Scott A. Kaniewski
                                         ---------------------------------------
                                             Name:  Scott A. Kaniewski
                                             Title: President


                                      ALPHA CASINO MANAGEMENT INC.


                                      BY: /s/ Scott A. Kaniewski
                                         ---------------------------------------
                                             Name:  Scott A. Kaniewski
                                             Title: President

                                      MOHAWK MANAGEMENT, LLC


                                      BY: /s/ Scott A. Kaniewski
                                         ---------------------------------------
                                             Name:  Scott A. Kaniewski
                                             Title: Manager



                                      -27-



                                     MONTICELLO CASINO
                                     MANAGEMENT, LLC



                                     BY: /s/ Scott A. Kaniewski
                                        ----------------------------------------
                                             Name:  Scott A. Kaniewski
                                             Title: Manager


                                     MONTICELLO RACEWAY
                                     DEVELOPMENT COMPANY, LLC



                                     BY: /s/ Scott A. Kaniewski
                                         ---------------------------------------
                                             Name:  Scott A. Kaniewski
                                             Title: Manager


                                     MONTICELLO RACEWAY
                                     MANAGEMENT, INC.



                                     BY: /s/ Thomas W. Aro
                                         ---------------------------------------
                                             Name:  Thomas W. Aro
                                             Title: President


                                     AGENT:

                                     BANK OF SCOTLAND

                                     BY: /s/ Karen Weich
                                         ---------------------------------------
                                             Name:  Karen Weich
                                             Title: Assitant Vice President


                                      -28-