Exhibit 10.11




                            SECOND  AMENDED AND RESTATED  SENIOR NOTE  AGREEMENT
                    Between the Registrant  and Principal  Mutual Life Insurance
                    Company
                                       effective September 8, 1997


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::ODMA\PCDOCS\NEWYORK\11036\7
                                                                 EXECUTION COPY












                                                HURCO COMPANIES, INC.

                                             SECOND AMENDED AND RESTATED

                                                   NOTE AGREEMENT

                                            Dated as of September 8, 1997

                                            $12,500,000 Principal Amount
                        10.37% Second Amended and Restated Senior Notes
                                                Due December 1, 2000
















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                                                HURCO COMPANIES, INC.
                                             SECOND AMENDED AND RESTATED
                                                   NOTE AGREEMENT

                                                  Dated as of September 8, 1997

To the Purchaser Named
  in Schedule I Hereto (the "Purchaser")

Ladies and Gentlemen:

         HURCO COMPANIES,  INC., an Indiana corporation (the "Company"),  agrees
with the Purchaser as follows:


SECTION 1.          SECOND AMENDMENT AND RESTATEMENT AND DESCRIPTION OF NOTES

                    1.1 Second  Amendment and  Restatement.  The Company and the
Purchaser  are parties to that  certain Note  Agreement  dated as of December 1,
1990 (the "1990 Agreement")  pursuant to which the Company sold to the Purchaser
on December 20, 1990 $12,500,000  aggregate principal amount of its Senior Notes
(the "1990 Notes").  The Company and the Purchaser amended and restated the 1990
Agreement  pursuant to the Amended and Restated Note  Agreement  dated March 24,
1994 (the "1994  Agreement")  which  replaced in its entirety the 1990 Agreement
and  amended and  restated  the 1990 Notes  pursuant  to the 11.12%  Amended and
Restated  Senior Notes dated March 24, 1994 (the "1994 Notes") which replaced in
its entirety the 1990 Notes. The Company and the Purchaser have agreed that this
Second Amended and Restated Note Agreement (the  "Agreement")  should replace in
its  entirety  the 1994  Agreement  and  that  from  and  after  the date of the
execution and delivery of this Agreement and the  satisfaction of the conditions
set forth in Section] 4 (the "Closing Date"),  the 1994 Agreement shall be of no
force or effect except (i) as  specifically  set forth herein,  (ii) that if any
material  representation or warranty made by the Company  hereunder,  or made by
the Company in any written statement or certificate  furnished by the Company in
connection  with the  issuance  and sale of the 1990  Notes or the 1994 Notes or
furnished by the Company  pursuant to the 1990  Agreement or the 1994  Agreement
proves  incorrect  in any  material  respect as of the date of the  issuance  or
making  thereof (a "Prior  Misstatement"),  the  Purchaser  shall be entitled to
exercise all of its rights and remedies under applicable law with respect to any
Prior  Misstatement other than the declaration of an Event of Default hereunder,
and (iii) that the 1990 Agreement and the 1994 Agreement  evidence the terms and
conditions  under which the Company  heretofore  has  incurred  obligations  and
liabilities  to the  Purchaser,  it being the intent of the parties  hereto that
from and after the Closing  Date,  such  obligations  and  liabilities  shall be
governed by this Agreement and the "Notes" (as defined  below).  Notwithstanding
the  provisions  of  the  preceding  sentence,  in  the  event  that  any  Prior
Misstatement  proves to be fraudulent in any material  respect,  such fraudulent
Prior Misstatement shall constitute an Event of Default hereunder as provided in
Section  8.1(f)(2).  The Purchaser is aware of the  adjustments of the amount of
inventory of the Company  Subsidiaries  as described in the Company's  Report On
Form 10-Q for the period  ending  July 31, 1993 and the  Purchaser  acknowledges
that  such  inventory  adjustments  and the  other  adjustments  of  income  and
financial results caused by such inventory  adjustments,  to the extent accurate
and taken alone, do not reveal a Prior  Misstatement.  The Company has agreed to
execute those certain  Second  Amended and Restated  Notes (the  "Notes"),  each
payable to the Purchaser,  which Notes (i) re-evidence  all of the  indebtedness
heretofore  outstanding  under the 1990  Notes and 1994  Notes,  and (ii) do not
constitute a payment or a novation of the 1990 Notes or the 1994 Notes.

                    1.2  Description  of  Notes.  The  Notes  shall be dated the
Closing Date, shall bear interest from such date at the rate of 10.37% per annum
prior to  maturity,  payable  monthly  on the first day of each  calendar  month
commencing  [September]  1, 1997,  and at maturity,  to bear interest on overdue
principal (including any overdue required or optional  prepayment),  premium, if
any,  and (to the extent  legally  enforceable)  on any overdue  installment  of
interest  at the rate of  12.37%  per  annum,  shall be  expressed  to mature on
December 1, 2000 and to be substantially in the form attached as Exhibit A. Each
required  prepayment of principal shall be considered to be overdue if it is not
paid on its due date.  The term "Notes" as used herein shall include each Second
Amended and Restated  Note  delivered  pursuant to this  Agreement and each Note
delivered in  substitution  or exchange  therefor and, where  applicable,  shall
include  the  singular  number  as  well as the  plural.  Any  reference  to the
Purchaser  in this  Agreement  shall in all  instances  be deemed to include any
nominee of the Purchaser or any separate account or other person on whose behalf
the  Purchaser has acquired the Notes and any Person to whom a Note is assigned.
Concurrently  with  execution and delivery to it of the Notes,  each of the 1994
Notes shall be marked by Purchaser  with the  following  legend:  "This Note has
been amended and, as amended, restated by a promissory note executed pursuant to
an Second  Amended and Restated Note  Agreement,  dated as of September 8, 1997,
executed by Hurco Companies, Inc. and the payee hereof."


SECTION 2.  PREPAYMENT OF NOTES

                    2.1  Required  Prepayments.  In  addition  to payment of all
outstanding  principal of the Notes at maturity and  regardless of the amount of
Notes which may be  outstanding  from time to time,  the Company  shall make the
following prepayments:

                    (a) The Company  shall prepay and there shall become due and
payable on the dates set forth below,  $1,785,714.29  of the principal amount of
the Notes or such  lesser  amount  as would  constitute  payment  in full on the
Notes,  with the remaining  principal  payable on December 1, 2000:  December 1,
1997, December 1, 1998, and December 1, 1999. Each such prepayment shall be at a
price of 100% of the principal  amount prepaid,  together with interest  accrued
thereon to the date of prepayment.

                    (b) The Company  shall prepay and there shall become due and
payable not later than fifteen days after  receipt  thereof,  an amount equal to
the Purchaser's  Pro Rata Share of Asset Sale Proceeds.  Pro Rata Share shall be
determined as of each date that Asset Sale Proceeds are received by the Company.
Such  amounts  shall  be  applied  in  accordance  with  Section  2.2(e),  and a
prepayment  premium  shall be required on each date of  prepayment to the extent
set forth in Section 2.2(d).

                    2.2  Optional  Prepayments.  (a) Upon  notice as provided in
Section 2.3, the Company may prepay the Notes, in whole or in part, in an amount
of not less than $250,000 or in integral  multiples of $10,000 in excess thereof
at the price set forth in Section 2.2(d).

                    (b) In the event  that (i) the  Company  proposes  a merger,
acquisition,    investment,   corporate   reorganization   or   recapitalization
(collectively, a "Proposed Transaction") that would result in the failure by the
Company to comply with, or the breach by the Company of, any of the covenants or
conditions  contained in this Agreement and (ii) such anticipated  noncompliance
or breach is not  consented  to pursuant to the  provisions  of Section  9.1, by
Noteholders  holding  66-_% in  aggregate  principal  amount of the  Notes  then
outstanding within 30 days after a receipt of a written request (a "Request") by
the Company (which Request shall describe in detail the Proposed Transaction and
specify the nature of such  anticipated  noncompliance  or breach) to consent to
such  non-compliance or breach and (iii) the Company  nonetheless  determines to
proceed with the Proposed  Transaction,  then the Company shall  prepay,  at the
price set forth in Section  2.2(d),  upon  notice as  provided  in Section  2.3,
within 150 days following  receipt by the Purchasers of the Request,  the entire
principal amount of all Notes held by each nonconsenting Noteholder prior to the
Company's consummation of the Proposed Transaction.

                    (c) In the event of a Change of Control,  the Company shall,
within ten days after the date of such Change of Control, give written notice to
each holder of a Note of the Change of Control,  accompanied by a certificate of
an  authorized  officer of the  Company  specifying  the nature of the Change of
Control. Such notice shall contain the written, irrevocable offer by the Company
to prepay,  on a date specified in such notice by the Company which shall be not
less than 45 or more than 60  calendar  days  after the  effective  date of such
Change of Control,  the entire principal amount of the Notes held by each holder
at a price equal to 100% of the principal amount of the Notes to be prepaid plus
interest  accrued  to the date of  prepayment  and shall  state  that  notice of
acceptance  of the Company's  offer to prepay under this Section  2.2(c) must be
delivered to the Company  within 30 calendar days after receipt of the Company's
notice.  Any holder may revoke its acceptance of the Company's  offer by written
notice to such effect  delivered to the Company not less than five calendar days
prior to the date fixed for prepayment.

                    (d) Each prepayment made pursuant to paragraph (a) or (b) of
this  Section  2.2 or  Section  2.1(b),  shall  be at a price of (i) 100% of the
principal  amount to be prepaid,  plus interest  accrued  thereon to the date of
prepayment,  if the Reinvestment  Yield, on the applicable  Determination  Date,
equals or exceeds the interest  rate  payable on or in respect of the Notes,  or
(ii) 100% of the principal  amount to be prepaid,  plus interest accrued thereon
to the date of prepayment,  plus a premium,  if the Reinvestment  Yield, on such
Determination  Date,  is less than the interest rate payable on or in respect of
the Notes. The premium shall equal (x) the aggregate present value of the amount
of principal  being prepaid  (taking into account the manner of  application  of
such  prepayment  required by Section 2.2(e) or Section  2.1(b)) and the present
value of the amount of interest  (exclusive  of interest  accrued to the date of
prepayment)  which would have been payable in respect of such  principal  absent
such  prepayment,  determined by discounting  (monthly on the basis of a 360-day
year  composed of twelve 30-day  months) each such amount  utilizing an interest
factor equal to the  Reinvestment  Yield,  less (y) the  principal  amount to be
prepaid.

                    (e) Any  optional  prepayment  pursuant  to Section  2.1(b),
2.2(a),  (b) or (c) of less than all of the Notes  outstanding shall be applied,
to reduce, pro rata, the prepayments and payment at maturity required by Section
2.1.

                    (f) Except as provided in Section 2.1 and this  Section 2.2,
the Notes shall not be prepayable in whole or in part.

                    2.3 Notice of Prepayments.  The Company shall give notice of
any optional  prepayment of the Notes  pursuant to Section 2.2(a) or (b) to each
holder of the Notes not less than 30 days nor more than 60 days  before the date
fixed for prepayment, specifying (i) such date, (ii) the principal amount of the
holder's  Notes to be  prepaid  on such  date,  (iii)  the date as of which  the
premium,  if any, will be calculated and (iv) the accrued interest applicable to
the  prepayment.  Notice  of  prepayment  having  been so given,  the  aggregate
principal  amount of the  Notes  specified  in such  notice,  together  with the
premium if any, and accrued interest thereon shall become due and payable on the
prepayment date.

                    The  Company  also shall give  notice to each  holder of the
Notes by telecopy,  telegram, telex or other same-day written communication,  as
soon as  practicable  but in any event not later than two business days prior to
the prepayment  date, of the premium,  if any,  applicable to such prepayment or
any prepayment  subject to premium referred to in Section 2.1 and the details of
the calculations used to determine the amount of such premium.

                    2.4 Surrender of Notes on Prepayment or Exchange. Subject to
Section 2.5, upon any partial prepayment of a Note pursuant to this Section 2 or
partial  exchange  of a Note  pursuant  to Section  10.3,  such Note may, at the
option of the holder  thereof,  (i) be  surrendered  to the Company  pursuant to
Section 10.3 in exchange for a new Note equal to the principal  amount remaining
unpaid on the  surrendered  Note,  or (ii) be made  available to the Company for
notation  thereon of the portion of the  principal so prepaid or  exchanged.  In
case the entire principal amount of any Note is prepaid or exchanged,  such Note
shall be surrendered to the Company for  cancellation and shall not be reissued,
and no Note shall be issued in lieu of such Note.

                    2.5  Direct  Payment.  Notwithstanding  any other  provision
contained in the Notes or this Agreement, the Company will pay all sums becoming
due on each Note held by the Purchaser or any subsequent Institutional Holder by
wire transfer of immediately available funds to such account as the Purchaser or
such subsequent  Institutional Holder shall have designated in Schedule I, or as
the Purchaser or such subsequent Institutional Holder may otherwise designate by
notice to the Company,  in each case without  presentment and without  notations
being made  thereon,  except that any such Note so paid or prepaid in full shall
be surrendered to the Company for cancellation. Any wire transfer shall identify
such  payment  in the  manner set forth in  Schedule  I and shall  identify  the
payment as principal,  premium,  if any, and/or interest.  The Purchaser and any
subsequent  Institutional  Holder of a Note to which this  Section  2.5  applies
agree  that,  before  selling  or  otherwise  transferring  any such  Note,  the
Purchaser  or it will make a  notation  thereon of the  aggregate  amount of all
payments of  principal  theretofore  made and of the date to which  interest has
been paid.

                    2.6  Allocation  of  Payments.  Except  in  the  case  of  a
prepayment  pursuant to Section 2.2(b) or (c), if less than the entire principal
amount of all the Notes  outstanding is to be paid, the Company will prorate the
aggregate  principal amount to be paid among the outstanding Notes in proportion
to the unpaid principal.

                    2.7 Payments Due on Saturdays,  Sundays and Holidays. In any
case  where the date of any  required  prepayment  of the Notes or any  interest
payment date on the Notes or the date fixed for any other payment of any Note or
exchange of any Note is a Saturday,  Sunday or a legal holiday or a day on which
banking  institutions in Des Moines,  Iowa are authorized by law to close,  then
such  payment,  prepayment  or exchange need not be made on such date but may be
made on the next  succeeding  business day which is not a Saturday,  Sunday or a
legal holiday or a day on which  banking  institutions  in Des Moines,  Iowa are
authorized by law to close, with the same force and effect as if made on the due
date.


SECTION 3.   REPRESENTATIONS

                    3.1 Representations of the Company. As an inducement to, and
as part of the consideration  for, the Purchaser's  entering into the Agreement,
the Company represents and warrants to the Purchaser as follows:

                    (a) Corporate  Organization and Authority.  The Company is a
corporation  duly organized and validly  existing under the laws of the State of
Indiana,  has all requisite corporate power and authority to own and operate its
properties,  to carry on its business as now conducted and as presently proposed
to be conducted,  to enter into and perform the Agreement and to issue the Notes
and to amend and restate the 1994 Notes.

                    (b)  Qualification  to Do  Business.  The  Company  is  duly
licensed or qualified and in good standing as a foreign  corporation  authorized
to do business in each jurisdiction where the nature of the business  transacted
by  it  or  the  character  of  its  properties   owned  or  leased  makes  such
qualification or licensing necessary, except when the failure to be so qualified
or  licensed  would  not  have  a  material  adverse  effect  on  its  business,
properties, operation or condition, financial or otherwise.

                    (c)  Subsidiaries.  The  Company  has  no  Subsidiaries,  as
defined in Section 5.1,  except those  listed in Annex I, which  correctly  sets
forth the  jurisdiction of  incorporation  and the percentage of the outstanding
Voting Stock or equivalent interest of each Subsidiary which is owned, of record
or  beneficially,  by  the  Company  and/or  one  or  more  Subsidiaries.   Each
Subsidiary,  which is not an Inactive Subsidiary, has been duly organized and is
validly  existing  under  the  laws  of its  jurisdiction  of  incorporation  or
organization and is duly licensed or qualified and in good standing as a foreign
corporation  in  each  other  jurisdiction  where  the  nature  of the  business
transacted by it or the character of its  properties  owned or leased makes such
qualification or licensing  necessary.  Each Subsidiary has full corporate power
and authority to own and operate its  properties and to carry on its business as
now  conducted and as presently  proposed to be conducted.  The Company and each
Subsidiary  have good and marketable  title to all of the shares they purport to
own of the capital stock of each Subsidiary,  free and clear in each case of any
lien or  encumbrance,  and all such  shares  have been duly issued and are fully
paid and  nonassessable.  Each Subsidiary  identified on Annex I as an "Inactive
Subsidiary"  has no assets  in  excess of $2,000 in book  value and does not now
actively engage in any business.

                    (d) Financial Statements.  The consolidated balance sheet of
the  Company  and its  Subsidiaries  as of October  31,  1996,  and the  related
consolidated  statements  of  earnings,  stockholders'  equity and cash flows or
changes in financial  condition,  as applicable,  for the year ended October 31,
1996, accompanied by the report and opinion of Arthur Andersen, LLP, independent
certified public  accountants,  a copy of which has heretofore been delivered to
the Purchaser,  was prepared in accordance  with generally  accepted  accounting
principles  consistently  applied  throughout  the periods  involved  (except as
otherwise noted therein) and present fairly the consolidated financial condition
and  consolidated  results of operations  and cash flows or changes in financial
condition, as applicable,  of the Company and its Subsidiaries for and as of the
end of such year.

                    (e) No Contingent  Liabilities or Adverse  Changes.  Neither
the Company nor any of its Subsidiaries has any contingent liabilities which are
material  to the  Company  and its  Subsidiaries  taken as a whole other than as
indicated on the financial  statements  described in the foregoing paragraph (d)
of this Section 3.1, and since  October 31, 1996,  there have been no changes in
the  condition,  financial  or  otherwise,  of the Company and its  Subsidiaries
except  changes  occurring  in the ordinary  course of business,  none of which,
individually  or in the  aggregate,  has had a  material  adverse  effect on the
business, properties,  operations, assets, or condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole or on the Company's ability
to perform  its  obligations  under this  Agreement  or the Notes and except for
losses in the  ordinary  course of business  which do not result in any Event of
Default.

                    (f) No  Pending  Litigation  or  Proceedings.  Except as set
forth on Schedule 3.1(f), there are no actions,  suits or proceedings pending or
threatened  against or affecting the Company or any of its Subsidiaries,  at law
or in equity or before or by any federal, state, municipal or other governmental
department,  commission,  board, bureau, agency or instrumentality,  domestic or
foreign,  which might result,  either  individually or in the aggregate,  in any
material  adverse change in the business,  properties,  operations or condition,
financial or otherwise,  of the Company and its Subsidiaries taken as a whole or
on the Company's  ability to perform its obligations under this Agreement or the
Notes.

                    (g) Compliance  with Law. (i) Neither the Company nor any of
its Subsidiaries is: (x) in default with respect to any order, writ,  injunction
or decree of any court to which it is a named party; or (y) in default under any
law, rule,  regulation,  ordinance or order relating to its or their  respective
businesses,  the sanctions and penalties resulting from which defaults described
in clauses  (x) and (y) might have a material  adverse  effect on the  business,
properties,  operations,  assets or condition,  financial or  otherwise,  of the
Company and its  Subsidiaries  taken as a whole, or on the Company's  ability to
perform its obligations under this Agreement or the Notes.

                    (ii)  Neither  the  Company  nor  any   Subsidiary  nor  any
Affiliate of the Company is an entity defined as a "designated  national" within
the meaning of the Foreign Assets Control  Regulations,  31 C.F.R. Chapter V, or
for any other reason,  subject to any restriction or prohibition under, or is in
violation of, any federal statute or Presidential  Executive Order, or any rules
or regulations of any  department,  agency or  administrative  body  promulgated
under any such statute or Order,  concerning  trade or other  relations with any
foreign country or any citizen or national thereof or the ownership or operation
of any property.

                    (h) Pension  Reform Act of 1974.  Neither the  amendment and
restatement  of the 1994 Notes by the Notes nor the  consummation  of any of the
other  transactions  contemplated  by this  Agreement  is or will  constitute  a
"prohibited  transaction"  within the  meaning of Section  4975 of the  Internal
Revenue Code of 1986,  as amended (the  "Code"),  or Section 406 of the Employee
Retirement  Income  Security  Act of 1974,  as amended  ("ERISA").  The Internal
Revenue Service has issued a determination  that each "employee  pension benefit
plan," as defined in Section 3 of ERISA (a "Plan"),  established,  maintained or
contributed  to by the Company or any  Subsidiary  (except for any Plan which is
unfunded  and  maintained  primarily  for  the  purpose  of  providing  deferred
compensation for a select group of management or highly  compensated  employees)
is qualified  under Section  401(a) and related  provisions of the Code and that
each related trust or custodial  account is exempt from  taxation  under Section
501(a) of the Code.  All Plans of the  Company or any  Subsidiary  comply in all
material respects with ERISA and other applicable laws. There exist with respect
to the Company or any  Subsidiary no  'multi-employer  plans," as defined in the
Multiemployer  Pension  Plan  Amendments  Act of  1980,  for  which  a  material
withdrawal or termination liability may be incurred. There exist with respect to
all Plans or trusts  established or maintained by the Company or any Subsidiary:
(i) no material accumulated funding deficiency within the meaning of ERISA; (ii)
no termination of any Plan or trust which would result in any material liability
to the Pension Benefit Guaranty  Corporation ("PBGC") or any "reportable event,"
as that term is  defined in ERISA,  which is likely to  constitute  grounds  for
termination  of any  Plan  or  trust  by the  PBGC;  and  (iii)  no  "prohibited
transaction,"  as that term is defined in ERISA,  which is likely to subject any
Plan,  trust or party dealing with any such Plan or trust to any material tax or
penalty on prohibited transactions imposed by Section 4975 of the Code.

                    (i) Title to Properties. The Company and each Subsidiary has
(i) good title in fee simple or its equivalent  under  applicable law to all the
real property owned by it and (ii) good title to all other Property owned by it,
in each case free from all Liens except (x) those securing  Indebtedness  of the
Company or a Subsidiary, which are listed in the attached Annex II and (y) other
Liens that would be permitted pursuant to Section 7.4.

                    (j) Leases.  The Company and each Subsidiary  enjoy peaceful
and  undisturbed  possession  under all leases  under  which the Company or such
Subsidiary  is a  lessee  or is  operating.  None of such  leases  contains  any
provision  which might  materially and adversely  affect the operation or use of
the property so leased.  All of such leases are valid and subsisting and none of
them is in default.

                    (k) Franchises,  Patents,  Trademarks and Other Rights.  The
Company and each  Subsidiary have all  franchises,  permits,  licenses and other
authority  necessary to carry on their  businesses as now being conducted and as
proposed to be conducted,  and none are in default under any of such franchises,
permits,  licenses or other  authority  which are material to their  businesses,
properties,  operations  or condition,  financial or otherwise.  The Company and
each  Subsidiary own or possess all patents,  trademarks,  service marks,  trade
names,  copyrights,  licenses and rights with respect to the foregoing necessary
for the present conduct of their businesses, without any known conflict with the
rights of others  which might  result in any  material  adverse  change in their
businesses, properties, operations or condition, financial or otherwise.

                    (l)  Status of Notes and Sale of Notes.  The Notes have been
duly authorized on the part of the Company and,  constitute the legal, valid and
binding obligations of the Company,  enforceable in accordance with their terms,
except to the extent that  enforcement of the Notes may be limited by applicable
bankruptcy,  insolvency,  reorganization,  moratorium or similar laws of general
application  relating to or affecting the enforcement of the rights of creditors
or by  equitable  principles,  regardless  of whether  enforcement  is sought in
equity or at law.  The issuance of the Notes to amend and restate the 1994 Notes
and  compliance by the Company with all of the  provisions of this Agreement and
of the Notes (i) are within the corporate powers of the Company,  (ii) have been
duly authorized by proper corporate action and (iii) are legal, will not violate
any  provisions  of any law or  regulation  or order of any court,  governmental
authority  or agency and will not result in any breach of any of the  provisions
of, or constitute a default under,  or result in the creation of any Lien on any
property of the Company or any  Subsidiary  under the provisions of, any charter
document,  by-law,  loan agreement or other agreement or instrument to which the
Company or any  Subsidiary is a party or by which any of them or their  property
may be bound.

                    (m) No  Defaults.  No event has  occurred  and no  condition
exists  which,  upon the  issuance  of the Notes to amend and  restate  the 1994
Notes,  would  constitute an Event of Default,  or with the lapse of time or the
giving of notice or both would become an Event of Default, under this Agreement.
Neither the Company nor any Subsidiary is in default under any charter document,
by-law,  loan  agreement or other material  agreement or material  instrument to
which  it is a party  or by which it or its  property  may be  bound  except  as
described in the preceding sentence.

                    (n) Governmental Consent.  Neither the nature of the Company
or any of its Subsidiaries,  their respective businesses or properties,  nor any
relationship  between  the  Company  or any of its  Subsidiaries  and any  other
Person,  nor any  circumstances  in connection with the issuance of the Notes to
amend and  restate  the 1994 Notes is such as to require a consent,  approval or
authorization  of,  or  withholding  of  objection  on the part of,  or  filing,
registration or qualification  with, any  governmental  authority on the part of
the Company in connection  with the execution and delivery of this  Agreement or
the issuance of the Notes to amend and restate the 1994 Notes.

                    (o) Taxes.  Except as set forth on Schedule 3.1(o),  all tax
returns  required  to  be  filed  by  the  Company  or  any  Subsidiary  in  any
jurisdiction  have  been  filed,  and all  taxes,  assessments,  fees and  other
governmental  charges upon the Company or any  Subsidiary,  or upon any of their
respective  properties,  income or franchises,  which are due and payable,  have
been paid timely or within  appropriate  extension  periods or contested in good
faith by  appropriate  proceedings.  The Company  does not know of any  proposed
additional  tax  assessment  against  it or any  Subsidiary  for which  adequate
provision  has not been made on its books.  The federal  income tax liability of
the Company and its  Subsidiaries  has been finally  determined  by the Internal
Revenue  Service and  satisfied  for all taxable  years up to and  including the
taxable year ended [October 31, 1989] and no material  controversy in respect of
additional  taxes due since such date is pending or to the  Company's  knowledge
threatened.  The  provisions  for  taxes on the  books of the  Company  and each
Subsidiary are adequate for all open years and for the current fiscal period.

                    (p) Status under Certain  Statutes.  Neither the Company nor
any Subsidiary is: (i) a "public utility company" or a "holding  company," or an
"affiliate" or a "subsidiary  company" of a "holding company," or an "affiliate"
of such a "subsidiary  company," as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended,  or (ii) a "public  utility" as defined
in the Federal  Power Act, as amended,  or (iii) an  "investment  company" or an
"affiliated  person" thereof or an "affiliated  person" of any such  "affiliated
person," as such terms are  defined in the  Investment  Company Act of 1940,  as
amended.

                    (q) Effect of Other Instruments. Neither the Company nor any
Subsidiary  is bound by any agreement or instrument or subject to any charter or
other corporate restriction which materially and adversely affects the business,
properties, operations, or condition, financial or otherwise, of the Company and
its  Subsidiaries  taken as a whole or the  Company's  ability  to  perform  its
obligations under this Agreement or the Notes.

                    (r) Margin  Stock.  Neither the  Company nor any  Subsidiary
owns or intends to carry or purchase  any "margin  stock"  within the meaning of
Regulation G.

                    (s)  Condition of  Property.  All of the  facilities  of the
Company and each of its Subsidiaries are in sound operating condition and repair
except for  facilities  being  repaired  in the  ordinary  course of business or
facilities  which  individually  or in the  aggregate  are not  material  to the
business,  properties,  operations, or condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole.

                    (t)  Books  and  Records.   The  Company  and  each  of  its
Subsidiaries (i) maintain books, records and accounts in reasonable detail which
accurately  and  fairly  reflect  their  respective  transactions  and  business
affairs,  and (ii) maintain a system of internal  accounting controls sufficient
to provide  reasonable  assurances that  transactions are executed in accordance
with management's general or specific authorization and to permit preparation of
financial   statements  in  accordance   with  generally   accepted   accounting
principles.

                    (u) Full Disclosure.  Neither the Company's Annual Report on
Form 10-K for the year ended October 31, 1996,  the  Company's  Annual Report to
Stockholders  for the year ended  October 31,  1996,  the  financial  statements
referred to in paragraph  (d) of this Section 3.1, nor this  Agreement,  nor any
other written statement or document furnished by the Company to the Purchaser in
connection with the negotiation of this Agreement,  taken together,  contain any
untrue  statement of a material fact or omit a material  fact  necessary to make
the  statements  contained  therein  or herein  not  misleading  in light of the
circumstances  under which they were made;  provided,  however,  there can be no
assurance that projections  provided to the Purchaser,  although believed by the
Company to be reasonable,  will in fact be achieved.  There is no fact known, or
which,  with  reasonable  diligence  would be known,  by the  Company  which the
Company  has not  disclosed  to the  Purchaser  in writing  which has a material
adverse  effect  on or,  so far as the  Company  can now  foresee,  will  have a
material  adverse  effect on the  business,  property,  operations or condition,
financial or otherwise,  of the Company and its Subsidiaries taken as a whole or
the ability of the Company to perform its  undertakings  under and in respect of
this Agreement and the Notes.

                    (v)   Environmental   Compliance.   The   Company  and  each
Subsidiary  (i) is in  compliance in all material  respects with all  applicable
environmental,  transportation,  health and  safety  statutes  and  regulations,
including,  without  limitation,  regulations  promulgated  under  the  Resource
Conservation and Recovery Act of 1976, 42 U.S.C.  ss.ss.  6901 et seq., and (ii)
has not  acquired,  incurred or assumed,  directly or  indirectly,  any material
contingent  liability in connection  with the release or storage of any toxic or
hazardous  waste  or  substance  into  the  environment.  The  Company  and  its
Subsidiaries have not acquired, incurred or assumed, directly or indirectly, any
material contingent liability in connection with a release or other discharge of
any hazardous,  toxic or waste material,  including petroleum,  on, in, under or
into the environment  surrounding  any property owned,  used or leased by any of
them.

                    (w) Stock  Issuance.  Since  October 31,  1996,  neither the
Company nor any  Subsidiary  which is not an Inactive  Subsidiary has issued any
additional  shares of capital  stock  other  than  capital  stock  issued by the
Company upon exercise of employee stock options.

                    3.2   Representations   of  the  Purchaser.   The  Purchaser
represents,  and in entering into this Agreement the Company  understands,  that
(i) the Purchaser is an  Institutional  Holder,  (ii) the Purchaser is accepting
the Notes to amend and restate the 1994 Notes for the purpose of investment  for
the  Purchaser's  own account and not with a view to the resale or  distribution
thereof,   and  (iii)  the  Purchaser  has  no  present  intention  of  selling,
negotiating or otherwise  disposing of the Notes;  provided that the disposition
of  the  Purchaser  property  shall  at  all  times  be and  remain  within  the
Purchaser's  control,  subject,  however,  to compliance with federal securities
laws. The Purchaser  acknowledges  that the Notes have not been registered under
the Securities Act or the laws of any state, and the Purchaser  understands that
the Notes must be held  indefinitely  unless  they are  subsequently  registered
under the Securities Act or an exemption  from such  registration  is available.
The  Purchaser   has  been  advised  that  the  Company  does  not   contemplate
registering,  and is not  legally  required  to  register,  the Notes  under the
Securities Act.


SECTION 4.   CLOSING CONDITIONS

                    This Agreement shall be subject to the following  conditions
to be satisfied on or before the Closing Date:

                    4.1 Representations and Warranties.  The representations and
warranties  of the Company  contained in this  Agreement  or  otherwise  made in
writing in connection herewith shall be true and correct on or as of the Closing
Date and the Company shall have delivered to the Purchaser a certificate to such
effect,  dated the  Closing  Date and  executed  by the  President  or the chief
financial officer of the Company.

                    4.2 Receipt by Purchaser.  The Purchaser shall have received
(i) from Baker & Daniels of  Indianapolis,  Indiana,  counsel  for the  Company,
their opinion, dated as of such Closing Date, in form and substance satisfactory
to the Purchaser and covering substantially the matters set forth or provided in
the attached Exhibit B, and (ii) from the Company the Notes duly executed by the
Company.

                    4.3  Events of  Default.  Except  as  described  in  Section
3.1(m), no event shall have occurred and be continuing on the Closing Date which
would constitute an Event of Default,  as defined in Section 8.1, or with notice
or lapse of time or both would become such an Event of Default,  and the Company
shall have  delivered to the Purchaser a certificate  to such effect,  dated the
Closing Date and executed by the President or the chief financial officer of the
Company.

                    4.4 Payment of Fees and  Expenses.  The  Company  shall have
paid all fees,  expenses,  costs and charges,  including the reasonable fees and
expenses of Sidley & Austin,  the Purchaser's  special counsel,  incurred by the
Purchaser through the Closing Date and incident to the proceedings in connection
with, and transactions contemplated by, this Agreement and the Notes.

                    4.5  Articles;  Good  Standing.  The  Purchaser  shall  have
received  the  Company's  Articles of  Incorporation,  as  amended,  modified or
supplemented  to the Closing  Date,  certified to be correct and complete by the
Secretary of State of Indiana, together with a certification of existence of the
Company from such Secretary of State.

                    4.6  Secretary's  Certificate.   The  Purchaser  shall  have
received a  certificate  dated the Closing Date of the Secretary of the Company,
certifying (i) the names and true signatures of the officers  authorized to sign
this Agreement and the Notes,  (ii) the resolutions of the Board of Directors of
the Company  approving the  transactions  contemplated by this Agreement and the
Notes, and (iii) the Company's by-laws.

                    4.7  Proceedings  and Documents.  All  proceedings  taken in
connection  with  the  transactions  contemplated  by  this  Agreement,  and all
documents   necessary  to  the  consummation  of  such  transactions   shall  be
satisfactory in form and substance to the Purchaser and the Purchaser's  special
counsel,  and the  Purchaser  and the  Purchaser's  special  counsel  shall have
received  copies  (executed  or certified  as may be  appropriate)  of all legal
documents or proceedings which they may reasonably request.


SECTION 5.   INTERPRETATION OF AGREEMENT

                    5.1 Certain Terms Defined.  The terms  hereinafter set forth
when used in this Agreement shall have the following meanings:

                    Advances  - The  revolving  credit  loans made by NBD to the
Company  under  Section  2.4 of the NBD  Agreement,  the term  loan  made by NBD
Michigan to the Company as evidenced by the Fourth Amended and Restated NBD Term
Loan Note of the Company dated January 26, 1996,  and the issuance of letters of
credit under Section 2.4 of the NBD Agreement.

                    Affiliate - Any Person (other than a  Subsidiary)  (i) which
directly  or  indirectly  through  one or more  intermediaries  controls,  or is
controlled  by,  or is under  common  control  with,  the  Company,  (ii)  which
beneficially  owns or holds 5% or more of any class of the  Voting  Stock of the
Company or any  Subsidiary  or (iii) 5% or more of the  Voting  Stock (or in the
case of a Person which is not a corporation, 5% of the equity interest) of which
is beneficially owned or held by the Company or a Subsidiary. The term "control"
means the  possession,  directly or indirectly,  of the power to direct or cause
the direction of the  management and policies of a Person,  whether  through the
ownership of voting securities, by contract or otherwise.

                    Agreement - As defined in Section 1.1.

                    Asset  Sale  Proceeds  -  means  the  proceeds  (net  of all
disposition expenses) of selling or otherwise disposing of assets of the Company
or any  Subsidiary  (other than  inventory,  machinery and equipment sold in the
ordinary course of business upon customary  credit terms and other than sales of
the  Company's  Capital  Stock) to the  extent  that the  aggregate  book  value
(disregarding   any   write-downs   of  such  book  value  other  than  ordinary
depreciation and  amortization) of the assets disposed of in such sales or other
dispositions (a) in any single year exceeds 5% of the Consolidated  Total Assets
at the end of the prior fiscal year, or (b) in any two  successive  fiscal years
exceeds 10% of the  Consolidated  Total  Assets at the end of the fiscal year of
the prior two fiscal years for which the amount of the Consolidated Total Assets
is greater,  less all Asset Sale Proceeds paid under  Section  2.1(b)  resulting
from sales or other  dispositions  during the first of the two successive fiscal
year.

                    Autocon - Autocon Technologies, Inc.

                    Autocon  Guaranties - The  guaranties  dated as of March 24,
1994 and executed by Autocon in favor of the Purchaser and NBD, respectively.

                    Bond Default - The  occurrence  of an Event of Default under
Section  601(h)  or  Section  201(d)(5)  of the  Trust  Indenture,  dated  as of
September  1,  1990  between  The City of  Indianapolis,  Indiana,  and First of
America  Bank -  Indianapolis,  or any  corresponding  default  under  the "Loan
Agreement" referred to therein.

                    Capital  Expenditures - For any period, the aggregate of all
expenditures  (whether  paid in cash or other  assets or accrued as a liability)
during such period  that,  in  conformity  with  generally  accepted  accounting
principles,  are required to be included in or reflected by the Company's  fixed
asset account as reflected in the consolidated balance sheet, including, without
limitation, any Capitalized Lease and capitalized software developments costs of
the Company and its Subsidiaries, computed on a consolidated basis.

                    Capital  Stock - of any person means any equity  securities,
any securities  exchangeable for or convertible into equity securities,  and any
warrants,  rights,  or other  options to  purchase  or  otherwise  acquire  such
securities.

                    Capitalized  Lease - Any lease the  obligation  for  Rentals
with  respect  to  which,  in  accordance  with  generally  accepted  accounting
principles, would be required to be capitalized on a balance sheet of the lessee
or for  which  the  amount  of the  asset  and  liability  thereunder,  as if so
capitalized, would be required to be disclosed in a note to such balance sheet.

                    Change of Control - The  acquisition,  through  purchase  or
otherwise  (including  the  agreement to act in concert  without  more),  by any
Person or group of Persons acting in concert,  directly or indirectly, in one or
more transactions, of beneficial ownership or control of securities representing
more  than 30% of the  combined  voting  power of the  Company's  Voting  Stock,
provided, however, that there shall not be a Change of Control in the event that
an acquisition is made, directly or indirectly, in one or more transactions,  of
the beneficial  ownership or control of securities  representing (a) 50% or more
of the  combined  voting  power of the  Company's  Voting Stock by any Person or
group of Persons  which is  identified  as an  Executive  Officer  or  Executive
Officers of the Company on its then applicable Annual Report on Form 10-K or (b)
30% or more of the  combined  voting  power  of the  Company's  Voting  Stock by
Brynwood Partners Limited Partnership; provided further, however, that Change of
Control shall not be deemed to exist with respect to the acquisitions  described
in (a) above only if such  acquisitions  are approved by a majority of the Board
of  Directors  of the  Company.  For  purposes of this  definition,  "beneficial
ownership"  shall have the meaning set forth in Rule 13d-3 under the  Securities
and Exchange Act of 1934.

                    Closing Date - As defined in Section 1.1.

                    Code - As defined in Section 3.1(h).

                    Consolidated   Adjusted   Net   Worth  -  The   consolidated
stockholders' equity (including preferred stock other than preferred stock which
would be  characterized  as Indebtedness  in accordance with generally  accepted
accounting  principles)  of the  Company  and  its  Subsidiaries  determined  in
accordance with generally  accepted  accounting  principles after elimination of
minority  interests,  less the sum of all  goodwill,  trade  names,  trademarks,
patents,  organization expense,  unamortized debt discount and expense and other
similar  intangibles  properly  classified as  intangibles  in  accordance  with
generally  accepted  accounting  principles,  and  excluding  the effects of any
foreign currency translation adjustment.

                    Consolidated   Current  Assets  and   Consolidated   Current
Liabilities  - As of the date of any  determination  thereof,  such  assets  and
liabilities  of the Company and its  Subsidiaries  as shall be  determined  on a
consolidated basis in accordance with generally accepted  accounting  principles
to constitute current assets and current liabilities, respectively.

                    Consolidated Fixed Charges - For any period, the sum of: (i)
interest expense  (including the interest component of Rentals under Capitalized
Leases and capitalized  interest),  of the Company and its Subsidiaries for such
period and (ii)  Rentals of the  Company and its  Subsidiaries  under all leases
other than Capitalized Leases.

                    Consolidated  Income  Available  for Fixed Charges - For any
period,  the sum of (i)  Consolidated  Net Income for such period,  plus (to the
extent deducted in determining Consolidated Net Income), (ii) all provisions for
any federal, state, or other income taxes (including without limitation the SBT)
made by the Company and its  Subsidiaries  during such period and (iii) interest
expense  (including the interest  component of Rentals under Capitalized  Leases
and  capitalized  interest)  of the  Company  and its  Subsidiaries  during such
period; and, (iv) Rentals of the Company under all leases other than Capitalized
Leases.

                    Consolidated Net Income - For any period, the net income and
net losses of the Company and its  Subsidiaries  determined in  accordance  with
generally  accepted  accounting  principles,  but  excluding  therefrom  (i) any
extraordinary  gain or loss so classified in accordance with generally  accepted
accounting  principles and (ii) the net income or loss of any Person (other than
a Subsidiary) in which the Company or any  Subsidiary has an ownership  interest
and,  with  respect to such net income  only to the extent  that it has not been
received by the Company or such  Subsidiary  in the form of  dividends  or other
similar distributions.

                    Consolidated Total Assets - The consolidated total assets of
the  Company  and its  Subsidiaries  determined  in  accordance  with  generally
accepted accounting principles.

                    Consolidated Total  Capitalization - The sum of Consolidated
Adjusted Net Worth and  Consolidated  Total  Indebtedness of the Company and its
Subsidiaries  determined on a  consolidated  basis in accordance  with generally
accepted accounting principles.

                    Consolidated  Total  Indebtedness - The  Indebtedness of the
Company and its Subsidiaries,  determined on a consolidated  basis in accordance
with generally accepted accounting principles which (a) is interest-bearing, and
(b) in accordance  with  generally  accepted  accounting  principles,  should be
reflected on a consolidated  balance sheet for the Company and its  Subsidiaries
as of such date.

                    Contaminant  - Any waste,  pollutant,  hazardous  substance,
toxic substance,  hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste.

                    Determination  Date - The day 3 days  before  the date fixed
for a prepayment  pursuant to a notice required by Section 2.3 or required to be
paid out of Excess Cash Flow or the day 15 days  before the date of  declaration
pursuant to Section 8.2.

                    EBITDAR - For any  period,  the sum of  Consolidated  Income
Available for Fixed Charges for such period,  plus depreciation and amortization
of the Company and its Subsidiaries for such period.

                    Equity  Sale  Proceeds  - The  proceeds  (net of  reasonable
issuance  expenses)  of any sales by the  Company or its  Subsidiaries  of newly
issued  equity  securities  or  treasury  stock  of  the  Company  or any of its
Subsidiaries,  other than (a) sales to officers or  employees  of the Company or
its  Subsidiaries  upon  exercising  options issued  pursuant to the "1990 Stock
Option Plan of Hurco Companies,  Inc.", or the "Hurco Companies, Inc. 1997 Stock
Option and Incentive  Plan", and (b) sales by a Subsidiary to the Company or any
other Subsidiary.

                    ERISA - As defined in Section 3.1(h).

                    Event of Default - As defined in Section 8.1.

                    Exchange  Act - The  Securities  Exchange  Act of  1934,  as
amended, and as it may be further amended from time to time.

                    Guaranties - All obligations (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection)
of a Person guaranteeing or in effect,  guaranteeing any Indebtedness,  dividend
or other,  obligation,  of any other Person in any manner,  whether  directly or
indirectly,  including,  without limitation, all obligations incurred through an
agreement,  contingent  or  otherwise,  by such  Person:  (i) to  purchase  such
Indebtedness  or  obligation  or any  property or assets  constituting  security
therefor,  (ii) to advance or supply  funds (x) for the  purchase  or payment of
such  Indebtedness  or  obligation,  (y) to  maintain  working  capital or other
balance sheet  condition or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation,  (iii) to lease property
or to  purchase  securities  or other  property or  services  primarily  for the
purpose  of  assuring  the owner of such  Indebtedness  or  obligation,  or (iv)
otherwise to assure the owner of the Indebtedness or obligation  against loss in
respect thereof. For the purposes of all computations made under this Agreement,
a Guaranty in respect of any  Indebtedness for borrowed money shall be deemed to
be Indebtedness  equal to the principal amount of such Indebtedness for borrowed
money  which  has been  guaranteed,  and a  Guaranty  in  respect  of any  other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.

                    Inactive Subsidiary - As defined in Section 3.1(c).

                    Indebtedness  -  (i)  All  items  of  borrowings,  including
Capitalized  Leases,  which in accordance  with  generally  accepted  accounting
principles  would be included in determining  total  liabilities as shown on the
liability side of a balance sheet as of the date at which  Indebtedness is to be
determined,  (ii) all Guaranties  (other than  Guaranties of Indebtedness of the
Company by a Subsidiary  or of a Subsidiary by the Company or of a Subsidiary by
a Subsidiary),  letters of credit and endorsements  (other than of notes,  bills
and checks  presented to banks for collection or deposit in the ordinary  course
of business),  in each case to support  Indebtedness of other Persons; and (iii)
all items of  borrowings  secured by any  mortgage,  pledge or Lien  existing on
property owned subject to such  mortgage,  pledge,  or Lien,  whether or not the
borrowings  secured  thereby  shall  have been  assumed  by the  Company  or any
Subsidiary.

                    Institutional  Holder - Any bank,  trust company,  insurance
company,  pension  fund,  mutual fund or other  similar  financial  institution,
including,  without limiting the foregoing,  any "qualified institutional buyer"
within the meaning of Rule 144A under the Securities  Act, which is or becomes a
holder of any Note.

                    Investments - All  investments  made, in cash or by delivery
of property,  directly or indirectly,  in any Person,  whether by acquisition of
shares of capital stock,  indebtedness or other  obligations or securities or by
loan,  advance,  capital  contribution  or otherwise;  provided,  however,  that
"Investments"  shall not mean or include  routine  investments in property to be
used or consumed in the ordinary course of business.

                    IRB L/C - means the  Irrevocable  Letter of Credit  No.  252
issued by NBD  Michigan in favor of First of America  Bank-Indianapolis,  in the
face  amount of  $1,060,274,  and any  letter of credit  issued in  exchange  or
replacement therefor.

                    Lien - Any mortgage, pledge, security interest, encumbrance,
lien or  charge  of any  kind,  including  any  agreement  to  grant  any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the  nature  thereof,  and the  filing  of or  agreement  to file any  financing
statement under the Uniform  Commercial  Code of any  jurisdiction in connection
with any of the foregoing.

                    NBD - NBD Bank, N.A., a national banking association.

                    NBD  Agreement - That certain  Amended and  Restated  Credit
Agreement and Amendment to Reimbursement  Agreement dated as of the Closing Date
between the Company,  NBD and NBD Bank,  as the same may be amended from time to
time.

                    Noteholder - Any holder of a Note.

                    Notes - As defined in Section 1.1.

                    Operating  Leases - Any lease,  the  obligation  for rentals
with  respect  to  which,  in  accordance  with  generally  accepted  accounting
principles,  would not be required to be  capitalized  on a balance sheet of the
lessee.

                    PBGC - As defined in Section 3.1(h).

                    Plan - As defined in Section 3.1(h).

                    Permitted Investments - Any and all of the following

                    ---------------------
its Subsidiaries:

                    (i)  Investments in and loans and advances by the Company to
         a Subsidiary  or to a Person which  simultaneously  as a result of such
         Investment becomes a Subsidiary;

                    (ii) Investments in commercial paper maturing in 270 days or
         less from the date of issuance which,  at the time of acquisition,  (y)
         are accorded  the highest  rating by Standard & Poor's  Corporation  or
         Moody's Investors Service,  Inc. or (z) are accorded the second highest
         rating by Standard & Poor's  Corporation or Moody's Investors  Service,
         Inc.,  provided that the aggregate  Investments held by the Company and
         its Subsidiaries pursuant to this subparagraph (ii)(z) shall not at any
         time exceed $5,000,000;

                    (iii)  certificates  of  deposit  and  banker's  acceptances
         maturing  within one year from the date of issuance of United States or
         Canadian  domiciled  commercial  banks  having (x)  capital and surplus
         aggregating at least  $100,000,000 and (y) long-term deposit ratings of
         "A+" or "Al," respectively, by Standard & Poor's Corporation or Moody's
         Investors Service, Inc.;

                    (iv)   direct  or   indirect   obligations   unconditionally
         guaranteed by the United  States  government  maturing  within one year
         from the date of issuance;

                    (v) tax-exempt floating rate option tender bonds maturing in
         one year or less rated "AA" or better by Standard & Poor's  Corporation
         or Moody's  Investors  Service,  Inc.  and secured by letters of credit
         issued  by  banks  having  capital  and  surplus  aggregating  at least
         $100,000,000;

                    (vi) promissory notes or equity  securities  received by the
         Company in connection with any asset sales permitted under Section 7.7;

                    Permitted Liens - As defined in Section 7.4.

                    Person - Any  individual,  corporation,  partnership,  joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

                    Prior Misstatement - As defined in Section 1.1.

                    Pro Rata  Share - As of any  Date,  for the  Purchaser,  the
percentage  obtained by dividing  (a) the  outstanding  principal  amount of the
Notes as of such  date by (b) the sum of the  outstanding  principal  amount  of
Advances under the NBD Agreement plus the amount  available under the Commitment
under the NBD Agreement plus the face amount of the IRB L/C plus the outstanding
principal amount under the Notes.

                    Property - Any real or personal  or  tangible or  intangible
asset.

                    Reinvestment  Yield  - The sum of (i) the  yield  set  forth
under the  heading  "This  Week" in the weekly  statistical  release  designated
H.15(519)  (or any  successor  publication)  of the  Board of  Governors  of the
Federal Reserve System under the caption "U.S.  Government  Securities--Treasury
Constant Maturities" opposite the maturity corresponding to the Weighted Average
Life to Maturity,  rounded to the nearest month, of the principal  amount of the
Notes to be  prepaid,  plus (ii) .60 of 1% with  respect  to Notes to be prepaid
pursuant to Section  2.2(a) or Notes the  payment of which has been  accelerated
pursuant to Section 8.2 and (iii) .25 of 1% with  respect to Notes to be prepaid
pursuant to Section  2.1(b) or Section  2.2(b) or (c).  If no  maturity  exactly
corresponding  to such rounded  Weighted  Average Life to Maturity  shall appear
therein, yields for the two most closely corresponding published maturities (one
of which occurs prior and the other  subsequent to the Weighted  Average Life to
Maturity)  shall  be  calculated  pursuant  to the  foregoing  sentence  and the
Reinvestment  Yield shall be  interpolated  from such yields on a  straight-line
basis (rounding in each of such relevant  periods,  to the nearest  month).  For
purposes  of  calculating  the  Reinvestment   Yield,  the  most  recent  weekly
statistical  release published prior to the applicable  Determination Date shall
be used.

                    Release  -  Release,  spill,  emission,   leaking,  pumping,
injection, deposit, disposal,  discharge,  dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any property,  including the
movement of Contaminants through or in the air, soil, surface water, groundwater
or property.

                    Rentals - As of the date of any determination  thereof,  all
fixed payments  (including all payments which the lessee is Obligated to make to
the lessor on termination of the lease or surrender of the property)  payable by
the Company or a  Subsidiary,  as lessee or  sublessee  under a lease of real or
personal  property,  but  exclusive  of any  amounts  required to be paid by the
Company or a Subsidiary (whether or not designated as rents or additional rents)
on account of maintenance, repairs, insurance, taxes, assessments,  amortization
and similar charges.  Fixed rents under any so-called  "percentage leases" shall
be computed  solely on the basis of the minimum  rents,  if any,  required to be
paid by the lessee regardless of sales volume or gross revenues.

                    Reportable Event - As defined in Section 3.1(h).

                    Restricted Investments - Any Investment which is not a
Permitted Investment.

                    SBT - means the so-called Single Business Tax imposed by the
State of Michigan.

                    Securities Act - The Securities Act of 1933, as amended, and
as it may be further amended from time to time.

                    Subordinated   Indebtedness  -  Any  Indebtedness  which  is
subordinate in right of payment to the Notes.

                    Subsidiary  - Any  corporation  of which the majority of the
outstanding shares of Voting Stock are owned or controlled by the Company.

                    Voting Stock - Capital  stock of any class of a  corporation
having power under ordinary circumstances to vote for the election of members of
the board of  directors  of such  corporation,  or  persons  performing  similar
functions  (whether  or not at the time  stock of any class  shall have or might
have  special  voting  powers  or  rights  by  reason  of the  happening  of any
contingency).

                    Weighted  Average  Life  to  Maturity  - As  applied  to any
prepayment of principal of the Notes,  at any date, the number of years obtained
by  dividing  (a) the  then  outstanding  principal  amount  of the  Notes to be
prepaid, into (b) the sum of the products obtained by multiplying (i) the amount
of each then remaining  installment,  sinking fund,  serial  maturity,  or other
required  payment,  including  payment  at  final  maturity,  foregone  by  such
prepayment  in the case of a prepayment of the Notes by (ii) the number of years
(calculated  to the nearest  1/12th) which will elapse between such date and the
making of such payment.

                    Wholly Owned - When applied to a Subsidiary,  any Subsidiary
100% of the  Voting  Stock of which is owned by the  Company  and/or  its Wholly
Owned Subsidiaries.

                    Terms which are defined in other  Sections of this Agreement
shall have the meanings specified therein.

                    5.2 Accounting Principles.  Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting  computation is required to be made for
the  purposes  of this  Agreement,  the same  shall be done in  accordance  with
generally  accepted  accounting  principles  in force in the  United  States  of
America  at  the  time  of  determination,  except  where  such  principles  are
inconsistent with the requirements of this Agreement.

                    5.3 Valuation  Principles.  Except where indicated expressly
to the contrary by the use of terms such as "fair value" or "market value," each
asset,  each  liability  and each capital  item of any Person,  and any quantity
derivable by a computation involving any of such assets,  liabilities or capital
items,  shall be taken at the net book value  thereof  for all  purposes of this
Agreement. "Net book value" with respect to any asset, liability or capital item
of any  Person  shall  mean the  amount  at which  the same is  recorded  or, in
accordance  with  generally  accepted  accounting  principles,  should have been
recorded  in the books of account  of such  Person,  as reduced by any  reserves
which have been or, in accordance with generally accepted accounting principles,
should have been set aside with respect  thereto,  but in every case (whether or
not permitted in  accordance  with  generally  accepted  accounting  principles)
without giving effect to any write-up,  write-down or write-off  (other than any
write-down or write-off  the entire amount of which was charged to  Consolidated
Net  Income or to a  reserve  which was a charge  to  Consolidated  Net  Income)
relating thereto which was made after the date of this Agreement.

                    5.4 Direct or Indirect Actions.  Where any provision in this
Agreement  refers to action to be taken by any  Person,  or which such Person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.


SECTION 6.  AFFIRMATIVE COVENANTS

                    The Company  agrees that,  for so long as any amount remains
unpaid on any Note:

                    6.1  Corporation  Existence.  The Company will  maintain and
preserve, and will cause each Subsidiary to maintain and preserve, its corporate
existence and right to carry on its business and use, and cause each  Subsidiary
to use,  its best  efforts to  maintain,  preserve,  renew and extend all of its
rights, powers,  privileges and franchise necessary to the proper conduct of its
business;   provided,   however,  that  the  foregoing  shall  not  prevent  any
transaction permitted by Section 7.7.

                    6.2  Insurance.  The Company will insure and keep insured at
all times all of its properties and all of its  Subsidiaries'  properties  which
are of an insurable  nature and of the  character  usually  insured by companies
operating  similar  properties,  against  loss or damage by fire and from  other
causes customarily insured against by companies engaged in similar businesses in
such amounts as are usually insured against by such companies.  The Company also
will maintain for itself and its  Subsidiaries  at all times adequate  insurance
against loss or damage from such hazards and risks to the person and property of
others as are usually insured against by companies operating  properties similar
to the properties of the Company and its Subsidiaries.  All such insurance shall
be carried with financially  sound and reputable  insurers rated A:XII or better
by A.M. Best Company, Inc. The Company shall furnish to the Purchaser within ten
days after the Closing Date a summary of insurance presently in force.

                    6.3 Taxes, Claims for Labor and Materials.  The Company will
pay and discharge when due, and will cause each  Subsidiary to pay and discharge
when due, all taxes, assessments and governmental charges or levies imposed upon
it or its property or assets,  or upon properties  leased by it (but only to the
extent  required to do so by the applicable  lease),  prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might become a
Lien upon its  property  or assets,  provided  that  neither the Company nor any
Subsidiary shall be required to pay any such tax,  assessment,  charge,  levy or
claim,  the  payment  of which is being  contested  in good  faith and by proper
proceedings  that  will stay the  forfeiture  or sale of any  property  and with
respect to which adequate  reserves are maintained in accordance  with generally
accepted accounting principles.

                    6.4  Maintenance of  Properties.  The Company will maintain,
preserve and keep,  and will cause each  Subsidiary  to  maintain,  preserve and
keep,  its  properties  (whether  owned in fee or a leasehold  interest) in good
repair and working order, ordinary wear and tear excepted, and from time to time
will make all necessary repairs, replacements, renewals and additions.

                    6.5 Maintenance of Records.  The Company will keep, and will
cause each  Subsidiary  to keep, at all times proper books of record and account
in  which  full,  true  and  correct  entries  will be made of all  dealings  or
transactions  of or in  relation to the  business  and affairs of the Company or
such Subsidiary,  in accordance with generally  accepted  accounting  principles
consistently  applied throughout the period involved (except for such changes as
are disclosed in such financial statements or in the notes thereto and concurred
in by the independent  certified public accountants),  and the Company will, and
will cause each  Subsidiary to, provide  reasonable  protection  against loss or
damage to such books of record and account.

                    6.6  Financial  Information  and  Reports.  The Company will
furnish to the Purchaser and to any other Institutional  Holder (in duplicate if
or such other holder so request), the following:

                    (a) As soon as  available  and in any  event  within 50 days
after the end of each of the first three  quarterly  accounting  periods of each
fiscal year of the Company, a consolidated and a consolidating  balance sheet of
the Company and its  Subsidiaries as of the end of such period and  consolidated
and  consolidating  statements of earnings and cash flows of the Company and its
Subsidiaries for the periods  beginning on the first day of such fiscal year and
the first day of such quarterly accounting period and ending on the date of such
balance sheet, setting forth in comparative form the corresponding  consolidated
figures for the  corresponding  periods of the  preceding  fiscal  year,  all in
reasonable  detail  prepared in accordance  with generally  accepted  accounting
principles  consistently  applied  throughout  the period  involved  (except for
changes  disclosed  in such  financial  statements  or in the notes  thereto and
concurred in by the Company's  independent  certified  public  accountants)  and
certified by the chief financial officer or principal  accounting officer of the
Company (i)  outlining  the basis of  presentation,  and (ii)  stating  that the
information presented in such statements presents fairly the financial condition
of the  Company  and its  Subsidiaries  and the  results of  operations  for the
period, subject to customary year-end audit adjustments;

                    (b) As soon as  available  and in any event  within 110 days
after  the last  day of each  fiscal  year a  consolidated  and a  consolidating
balance sheet of the Company and its  Subsidiaries  as of the end of such fiscal
year and the related  consolidated  and  consolidating  statements  of earnings,
stockholders'  equity and cash flows for such fiscal year,  in each case setting
forth  in  comparative  form  figures  for the  preceding  fiscal  year,  all in
reasonable  detail,  prepared in accordance with generally  accepted  accounting
principles  consistently  applied  throughout  the period  involved  (except for
changes  disclosed  in such  financial  statements  or in the notes  thereto and
concurred in by independent  certified public  accountants) and accompanied by a
report  as to the  consolidated  balance  sheet  and  the  related  consolidated
statements of Arthur Andersen, LLP or any firm of independent public accountants
of recognized  national standing selected by the Company to the effect that such
financial  statements have been prepared in conformity  with generally  accepted
accounting  principles  and  present  fairly,  in  all  material  respects,  the
financial condition of the Company and its Subsidiaries and that the examination
of such financial statements by such accounting firm has been made in accordance
with generally accepted auditing standards;

                    (c)  Together  with  the  financial   statements   delivered
pursuant to  paragraphs  (a) and (b) of this Section 6.6, a  certificate  of the
chief financial officer or principal  accounting officer, (i) to the effect that
such officer has  reexamined the terms and provisions of this Agreement and that
at the date of such  certificate,  during the periods  covered by such financial
reports  and as of the end of such  periods,  the Company is not, or was not, in
default  in the  fulfillment  of any of the  terms,  covenants,  provisions  and
conditions of this Agreement and that no Event of Default,  or event which, with
the lapse of time or the giving of  notice,  or both,  would  become an Event of
Default, is occurring or has occurred as of the date of such certificate, during
such periods and as of the end of such periods, or if the signer is aware of any
such default, event or Event of Default, he shall disclose in such statement the
nature thereof, its period of existence and what action, if any, the Company has
taken or proposes to take with respect  thereto,  and (ii)  stating  whether the
Company is in compliance  with Sections 7.1 through 7.15 and setting  forth,  in
sufficient  detail,  the  information  and  computations  required to  establish
whether or not the Company was in compliance  with the  requirements of Sections
7.1 through 7.15 during the periods covered by the financial  reports then being
furnished and as of the end of such periods;

                    (d) Together with the financial reports  delivered  pursuant
to paragraph (b) of this Section 6.6, a certificate of the independent certified
public  accountants  (i) stating that in making the  examination  necessary  for
expressing  an  opinion  on such  financial  statements,  nothing  came to their
attention that caused them to believe that there is in existence or has occurred
any  Event of  Default  hereunder,  or any  event  (the  occurrence  of which is
ascertainable  by accountants in the course of normal audit  procedures)  which,
with the lapse of time or the giving of notice,  or both,  would become an Event
of Default  hereunder or, if such accountants  shall have obtained  knowledge of
any such event or Event of Default, describing the nature thereof and the length
of time it has existed and (ii) acknowledging that holders of the Notes may rely
on their opinion on such financial statements;

                    (e)  Within 15 days  after  the  Company  obtains  knowledge
thereof,  notice  of any  litigation  not  fully  covered  by  insurance  or any
governmental  proceeding  pending against the Company or any Subsidiary in which
the damages sought exceed $500,000 or which might otherwise materially adversely
affect the business, property, operations or condition,  financial or otherwise,
of the Company and its Subsidiaries taken as a whole;

                    (f)  As  soon  as  available,   copies  of  each   financial
statement, notice, report and proxy statement which the Company shall furnish to
its  stockholders;  copies of each  registration  statement and periodic  report
which the Company may file with the Securities and Exchange Commission,  and any
other similar or successor agency of the Federal  government  administering  the
Securities Act, the Exchange Act or the Trust Indenture Act of 1939, as amended;
copies of each  report  relating  to the  Company  or its  securities  which the
Company  may file with any  securities  exchange  on which any of the  Company's
securities may be registered;  copies of any orders in any material  proceedings
to which  the  Company  or any of its  Subsidiaries  is a party,  issued  by any
governmental  agency,  Federal or state, having jurisdiction over the Company or
any of its Subsidiaries; and, except at such times as the Company is a reporting
company  under  Section 13 or 15(d) of the Exchange Act or has complied with the
requirements  for the  exemption  from  registration  under the Exchange Act set
forth in Rule 12g-3-2(b),  such financial or other  information as any holder of
the Notes may  reasonably  determine is required to permit such holder to comply
with the  requirements  of Rule 144A under the Securities Act in connection with
the resale by it of the Notes;

                    (g) As  soon as  available,  a copy  of  each  other  report
submitted to the Company or any Subsidiary by independent  accountants  retained
by the Company or any Subsidiary in connection with any interim or special audit
made by them of the books of the Company or any Subsidiary;

                    (h)  Within ten days after  receipt  thereof,  a copy of any
notice that (i) any violation of any federal,  state or local  environmental law
or  regulation  may have  been  committed  or is about  to be  committed  by the
Company,  (ii) any  administrative or judicial complaint or order has been filed
or is about to be filed against the Company alleging  violations of any federal,
state or local  environmental law or regulation or requiring the Company to take
any action in connection with any Release of any Contaminant  into the indoor or
outdoor  environment,  or (iii)  alleging  that the  Borrower  may be  liable or
responsible  for costs  associated with a response to or cleanup of a Release of
any  Contaminant  into the indoor or outdoor  environment  or any damages caused
thereby;

                    (i) Such  additional  information  as the  Purchaser or such
other  Institutional  Holder of the Notes may reasonably  request concerning the
Company and its Subsidiaries.

                    6.7 Inspection of Properties  and Records.  The Company will
allow,  and will cause  each  Subsidiary  to allow,  any  representative  of the
Purchaser or any other  Institutional  Holder,  so long as the Purchaser or such
other  Institutional   Holder  holds  any  Note,  at  the  Purchaser's  or  such
Institutional  Holder's  expense,  to visit and  inspect  any of its  properties
(other than trade secrets related to technology), to examine its books of record
and account and to discuss its affairs,  finances and accounts with its officers
and its public  accountants  (and by this provision the Company  authorizes such
accountants  to discuss  with the  Purchaser  or such  Institutional  Holder its
affairs,  finances and  accounts),  all at such  reasonable  times upon 24 hours
notice and as often as the Purchaser or such Institutional Holder may reasonably
request.  So  long  as a  Default  or  Event  of  Default  has  occurred  and is
continuing, the Company agrees to pay the costs of any inspections made pursuant
to this  Section  6.7.  Any  proprietary  or other  confidential,  competitively
sensitive  information  obtained by the Purchaser or any other  Noteholder shall
not be disclosed to any Person except (i) in connection  with the enforcement of
obligations of the Company under the Notes or this  Agreement,  (ii) in response
to a subpoena or other legal process,  (iii) as otherwise required by applicable
law or regulation  or (iv) in connection  with the sale or transfer of the Notes
to a subsequent proposed purchaser or transferee.

                    6.8 ERISA.  (a) The Company agrees that all  assumptions and
methods used to determine the  actuarial  valuation of employee  benefits,  both
vested and unvested,  under any Plan of the Company or any Subsidiary,  and each
such Plan, whether now existing or adopted after the date hereof, will comply in
all material respects with ERISA and other applicable laws.

                    (b)  The  Company  will  not at any  time  permit  any  Plan
established, maintained or contributed to by it or any Subsidiary or "affiliate"
(as defined in Section 407(d)(7) of ERISA) to:

                           (i)      engage in any "prohibited transaction" as
such term is defined in
         Section 4975 of the Code or in Section 406 of ERISA;

                           (ii) incur any  "accumulated  funding  deficiency" as
         such term is defined in Section 302 of ERISA, whether or not waived; or

                           (iii) be  terminated  under  circumstances  which are
         likely to result in the  imposition  of a lien on the  property  of the
         Company or any Subsidiary  pursuant to Section 4068 of ERISA, if and to
         the extent such termination is within the control of the Company;

if the event or  condition  described  in clauses  (i),  (ii) or (iii)  above is
likely  to  subject  the  Company  or any  Subsidiary  or ERISA  affiliate  to a
liability  which,  in the  aggregate,  is material in relation to the  business,
property,  operations, or condition,  financial or otherwise, of the Company and
its Subsidiaries taken as a whole.

                    (c)  Upon  the  request  of  the   Purchaser  or  any  other
Institutional  Holder,  the Company will furnish a copy of the annual  report of
each Plan (Form 5500)  required to be filed with the Internal  Revenue  Service.
Copies of annual  reports  shall be  delivered  no later  than 30 days after the
later of the date such report has been filed with the Internal  Revenue  Service
or the date the copy is requested.

                    (d) Promptly upon the occurrence  thereof,  the Company will
give the Purchaser and each other  Institutional  Holder written notice of (i) a
reportable  event with respect to any Plan; (ii) the institution of any steps by
the Company, any Subsidiary,  any ERISA affiliate,  the PBGC or any other person
to terminate any Plan;  (iii) the  institution of any steps by the Company,  any
Subsidiary,  or any ERISA affiliate to withdraw from any Plan; (iv) a prohibited
transaction  in  connection  with any Plan;  (v) any  material  increase  in the
contingent  liability  of the  Company  or any  Subsidiary  with  respect to any
post-retirement  welfare  liability;  or (vi) the  taking  of any  action by the
Internal  Revenue  Service,  the Department of Labor or the PBGC with respect to
any of the foregoing which, in any of the events  specified above,  would result
in any material liability of the Company or any of its Subsidiaries.

                    6.9 Compliance with Laws. The Company will comply,  and will
cause each Subsidiary to comply,  with all laws, rules and regulations  relating
to its or their  respective  businesses,  other than laws, rules and regulations
the  failure to comply  with which or, the  sanctions  and  penalties  resulting
therefrom,  individually or in the aggregate,  would not have a material adverse
effect  on the  business,  property,  operations,  or  condition,  financial  or
otherwise,  of the  Company  or such  Subsidiary,  and would  not  result in the
creation of a Lien which, if incurred in the ordinary course of business,  would
not be  permitted  by Section  7.4 on any of the  property of the Company or any
Subsidiary;  provided,  however, that the Company and its Subsidiaries shall not
be  required  to  comply  with  laws,  rules and  regulations  the  validity  or
applicability  of which are being  contested  in good  faith and by  appropriate
proceedings;  provided  that the  failure  to comply  with such  laws,  rules or
regulations   would  not  have  a  material  adverse  effect  on  the  business,
properties,  operations,  assets or condition,  financial or  otherwise,  of the
Company and its Subsidiaries taken as a whole.

                    6.10 Acquisition of Notes. The Company will forthwith cancel
any Notes in any manner or at any time acquired by the Company or any Subsidiary
or Affiliate and such Notes shall not be deemed to be outstanding for any of the
purposes of this Agreement or the Notes.

                    6.11 Private Placement  Number.  The Company consents to the
filing of copies of this  Agreement with Standard & Poor's  Corporation  and the
National  Association of Insurance  Commissioners to obtain a private  placement
number.

                    6.12   Fiscal Year.  The Company will at all times maintain
 a fiscal year ending on
                           -----------
October 31 of each calendar year.


SECTION 7.  NEGATIVE COVENANTS

                    The Company  agrees that,  for so long as any amount remains
unpaid on any Note:

                    7.1 Net Worth.  The Company  will not at any time permit its
Consolidated  Adjusted Net Worth to be less than (a)  $20,000,000,  plus (b) the
cumulative  amount equal to 50% of its  Consolidated  Net Income  subsequent  to
April 30, 1997 at the end of the fiscal quarter, plus (c) an amount equal to 75%
of  the  aggregate  Equity  Sale  Proceeds   received  by  the  Company  or  its
Subsidiaries  after the  Closing  Date and on or prior to the end of the  fiscal
quarter.

                    7.2 Indebtedness.  The Company will not, and will not permit
any Subsidiary to, create,  assume, incur,  guarantee or otherwise become liable
for, directly or indirectly, any Indebtedness, other than:

                    (i)    Indebtedness Under the Notes;

                    (ii) The  Indebtedness  outstanding  under the NBD Agreement
and Indebtedness secured by IRB L/C;

                    (iii) Indebtedness (other than Indebtedness  permitted under
subsections  (i)  and  (ii))  in  aggregate  outstanding  principal  amount  not
exceeding  15% of the  Consolidated  Adjusted  Net Worth of the  Company and its
Subsidiaries from time to time in the aggregate; and

                    (iv)  Indebtedness of any Subsidiary of the Company owing to
the Company or to any other Subsidiary of the Company.

                    7.3 Fixed Charge Ratio.  The Company will not, as of the end
of any fiscal  quarter,  permit the ratio of Consolidated  Income  Available for
Fixed Charges to Consolidated  Fixed Charges for the preceding  twelve months to
be less than 1.25 to 1.0.

                    7.4 Liens.  The  Company  will not,  and will not permit any
Subsidiary  to,  create,  assume,  or incur,  or permit  to exist,  directly  or
indirectly, any Lien on its properties or assets, whether now owned or hereafter
acquired, except for the following Liens ("Permitted Liens"):

                    (a)  Liens  existing  on  property  of  the  Company  or any
Subsidiary  as of the date of this  Agreement  that are described in Annex II to
this Agreement;

                    (b) Liens for taxes, assessments or governmental charges not
then due and  delinquent  or the  validity of which is being  contested  in good
faith and by proper  proceedings  that will stop the  forfeiture  or sale of any
property  and  with  respect  to  which  adequate  reserves  are  maintained  in
accordance with generally accepted accounting principles;

                    (c) Liens  arising in  connection  with  court  proceedings,
provided the  execution of such Liens is  effectively  stayed and such Liens are
contested in good faith;

                    (d) Liens arising in the ordinary course of business and not
incurred in connection  with the borrowing of money,  including  encumbrances in
the nature of zoning restrictions,  easements, rights and restrictions of record
on the use of real  property,  landlord's  and  lessor's  liens in the  ordinary
course of business,  which do not  materially  interfere with the conduct of the
business  of the  Company  and its  Subsidiaries  taken  as a  whole  and do not
materially affect the value of the Property subject to such Liens;

                    (e) Liens as security for Indebtedness  permitted by Section
7.2 which in the aggregate does not exceed 5% of Consolidated Adjusted Net Worth
of the Company existing from time to time;

                    (f) Liens on Property acquired or constructed by the Company
or a  Subsidiary  and created  contemporaneously  with or within 120 days of the
acquisition or construction of such Property,  in each case to secure or provide
for all or a  portion  of the  Purchase  Price  or  construction  costs  of such
Property;  provided  that (x) such Liens do not extend to other  Property of the
Company or any Subsidiary and (y) the aggregate principal amount of Indebtedness
secured by all such Liens does not exceed 100% of the fair  market  value of the
Property  subject to such Liens as measured on the date of  acquisition or final
completion of construction of such Property;

                    (g) Liens resulting from extensions,  renewals, refinancings
and  refundings  of  Indebtedness  secured by Liens  permitted by paragraph  (a)
above,  provided  there is no  increase  in the  original  principal  amount  of
Indebtedness secured thereby and any new Lien attaches only to the same property
theretofore subject to such earlier Lien; and

                    (h) Liens on equipment  granted to lessors  under  operating
leases described in Section 7.13 and under Capitalized Leases.

                    7.5    Restricted Payments.  The Company will not, except
as hereinafter provided:

                    (a)  declare  or  pay  any  dividends,  either  in  cash  or
property,  on any shares of its capital stock of any class (except  dividends or
other distributions payable solely in shares of capital stock of the Company);

                    (b)  directly  or  indirectly,  or through  any  Subsidiary,
purchase,  redeem or retire any shares of its capital  stock or any class or any
warrants,  rights or options to  purchase  or acquire  any shares of its capital
stock  (other  than in  exchange  for or out of the net cash  proceeds  from the
substantially  concurrent  issuance or sale of other shares of capital  stock of
the Company subsequent to the Closing Date);

                    (c) make any other payment or distribution,  either directly
or indirectly or through any Subsidiary, in respect of its capital stock;

                    (d) make any  payment,  either  directly  or  indirectly  or
through any Subsidiary, of principal of any Subordinated Indebtedness other than
at the expressed  maturity date thereof and scheduled  mandatory  prepayments or
redemptions  thereof in accordance with the original terms of such  Subordinated
Indebtedness; or

                    (e) make, or permit any  Subsidiary to make,  any Restricted
Investment which in the aggregate would exceed 15% of Consolidated  Adjusted Net
Worth;

(all  such  declarations,   payments,   purchases,   redemptions,   retirements,
distributions  and  investments  being herein  collectively  called  "Restricted
Payments") if, after giving effect thereto such Restricted  Payment  constitutes
or would,  with the giving of notice or passage of time,  constitute an Event of
Default.

                    The Company will not declare any dividend which  constitutes
a Restricted  Payment  payable more than 60 days after its date of  declaration.
Any dividend  which complies with the provisions of this Section 7.5 on the date
of its  declaration  shall be deemed to comply on its date of payment,  provided
that any intervening  event giving rise to  noncompliance is not the result of a
Restricted Payment.

                    7.6 Merger or Consolidation.  The Company will not, and will
not permit any Subsidiary to, merge or consolidate with any other Person, except
that:

                    (a) The  Company  may  consolidate  with or  merge  into any
Person or permit any other Person to merge into it,  provided  that  immediately
after giving effect thereto,

                           (1) The Company is the successor  corporation  or, if
         the Company is not the successor corporation, the successor corporation
         is a  corporation  organized  under  the laws of a state of the  United
         States of America  or the  District  of  Columbia  and shall  expressly
         assume in writing the  Company's  obligations  under the Notes and this
         Agreement;

                           (2) There  shall  exist no Event of  Default or event
         which,  with the  passage of time or giving of notice,  or both,  would
         constitute an Event of Default; and

                           (3)      The Company or such successor corporation
could incur at least $1.00
         of additional Indebtedness;

                    (b) Any Subsidiary may (i) merge into the Company or another
Wholly Owned Subsidiary or (ii) merge into any Person which, as a result of such
merger,  concurrently becomes a Subsidiary,  provided in each such instance that
there shall exist no Event of Default or event  which,  with the passage of time
or giving of Notice, or both, would constitute an Event of Default.

                    7.7 Sale of  Assets.  The  Company  will  not,  and will not
permit any Subsidiary to, sell, lease, transfer or otherwise dispose of all or a
substantial portion of its business, assets, rights, revenues or property, real,
personal  or  mixed,  tangible  or  intangible,  whether  in one or a series  of
transactions,  other than (i) inventory sold in the ordinary  course of business
upon customary credit terms, (ii) trade-ins of any equipment in conjunction with
acquiring  replacement  equipment,  (iii) sales of the Company's  Capital Stock,
(iv) leases of real  property,  (v) sales of obsolete or surplus  machinery  and
equipment  in the ordinary  course of business so long as the purchase  price is
paid in cash or immediately  available funds, if,  immediately  before and after
such  transaction,  no Event of Default or event which, with the passage of time
or giving of notice,  or both,  would constitute an Event of Default shall exist
or shall have  occurred  and be  continuing,  and (vi) other sales,  leases,  or
transfers  or  dispositions  so long as (A) no Event of Default or event  which,
with the passage of time or giving of notice, or both, would constitute an Event
of Default  shall exist or shall have  occurred and be  continuing,  and (B) all
Asset Sale  Proceeds  from such sales and  dispositions  are applied as required
under Section 2.2(e).

                    7.8 Disposition of Stock of  Subsidiaries.  The Company will
not, and will not permit any Subsidiary to, issue,  sell or transfer the capital
stock of a Subsidiary without the prior written consent of the Purchaser.

                    7.9  Change  in  Business..  Neither  the  Company  nor  any
Subsidiary  will  engage in any  business  substantially  different  from  their
current businesses.

                    7.10 Transactions with Affiliates. The Company will not, and
will not permit any  Subsidiary  to, enter into any  transaction  (including the
furnishing of goods or services) with an Affiliate except in the ordinary course
of business as presently conducted and on terms and conditions no less favorable
to the  Company  or such  Subsidiary  than  would be  obtained  in a  comparable
arm's-length transaction with a person not an Affiliate.

                    7.11 Consolidated Tax Returns. The Company will not file, or
consent to the filing of, any  consolidated  Federal  income tax return with any
Person  other  than a  Subsidiary,  except to the  extent  that the  Company  is
required under the Code to do otherwise.

                    7.12  Capital  Expenditures.  The Company  will not make any
Capital Expenditure if the aggregate amount of Capital  Expenditures made by the
Company  and its  Subsidiaries  during any  fiscal  quarter,  together  with the
Capital Expenditures made during the prior three fiscal quarters,  would exceed,
on a consolidated  basis, an amount equal to the greater of (i) the amount which
would allow the ratio of EBITDAR to the sum of  Consolidated  Fixed Charges plus
Capital  Expenditures  to be not  less  than  1.25 to 1.0 for  the  four  fiscal
quarters immediately  preceding the date of the proposed Capital Expenditure and
(ii) the consolidated  depreciation and amortization  expense of the Company and
its Subsidiaries for such four fiscal quarter period.

                    7.13  Operating  Leases.  The  Company  shall not permit its
consolidated  aggregate  payment  obligations  under operating  leases to exceed
$2,600,000 during any consecutive four quarter fiscal period of the Company.
                    7.14 Negative Pledge Limitation.  The Company will not enter
into any agreement with any person other than the Purchaser under this Agreement
or NBD pursuant to the NBD  Agreement  which  prohibits or limits the ability of
the Company or any  Subsidiary to create,  incur,  assume or suffer to exist any
Lien upon any of its assets,  rights,  revenues, or property,  real, personal or
mixed, tangible or intangible, whether now owned or hereafter acquired.

                    7.15 Amendment to NBD Agreement.  The Company agrees that it
will not enter into any amendment,  modification  or agreement  which would have
the effect of  increasing  the amount of any fee payable  under or in connection
with the NBD Agreement.


SECTION 8.  EVENTS OF DEFAULT AND REMEDIES THEREFOR

                    8.1    Nature of Events.  An "Event of Default" shall exist
if any one or more of the
                           ----------------
following occurs:

                    (a) Default in the  payment of  interest  when due on any of
the Notes and continuance of such default for a period of five days;

                    (b)  Default in the payment of (i) the  principal  of any of
the Notes or the premium  thereon,  if any, at maturity,  upon  acceleration  of
maturity or at any date fixed for  prepayment,  or (ii) any other amount payable
hereunder not covered by clause (a) or (b)(i), and in each case,  continuance of
such default for a period of five days;

                    (c) Default  shall occur (1) in the payment of the principal
of,  premium,  or  interest  on any other  Indebtedness  of the  Company  or its
Subsidiaries,  aggregating  in excess of  $500,000  as and when due and  payable
(whether  by lapse of time,  declaration,  call for  redemption  or  otherwise),
excluding a Bond Default, (ii) under any mortgage, agreement or other instrument
of the Company or any Subsidiary securing such Indebtedness or under or pursuant
to which such  Indebtedness  aggregating in excess of $500,000 is issued,  (iii)
under any leases other than Capitalized Leases of the Company or any Subsidiary,
with  aggregate  Rentals  in excess of  $500,000  or (iv)  with  respect  to any
combination of the foregoing  involving  Indebtedness and/or Rentals aggregating
in excess of $500,000  regardless  of whether such  defaults  would be Events of
Default  hereunder,  and (x) any such  defaults  with  respect to the payment of
money shall continue, unless waived, beyond the period of grace, if any, allowed
with respect  thereto  and, (y) solely in the case of any default not  involving
the payment of money,  such default shall  continue,  unless waived,  beyond the
period of grace,  if any,  allowed  with  respect  thereto if the effect of such
default is to  accelerate  or to permit the  acceleration  of such  Indebtedness
and/or Rentals;

                    (d) Default in the observance or performance of Section 6.7,
7.1 through 7.15 or 8.7 which is not remedied within ten days following  written
notice thereof to the Company;

                    (e) Default in the  observance or  performance  of any other
covenant or provision of this Agreement which is not remedied within thirty days
following written notice thereof to the Company;

                    (f) (1) Any  representation  or warranty made by the Company
in this Agreement or made by the Company in any written statement or certificate
furnished by the Company in  connection  with the issuance of the Notes to amend
and  restate  the 1994  Notes  or  furnished  by the  Company  pursuant  to this
Agreement,  proves  incorrect  in any  material  respect  as of the  date of the
issuance or making thereof of; or (2) any Prior Misstatement proves to have been
fraudulent  in any  material  respect as of the date of the  issuance  or making
thereof;  and in each  case  such  failure  continues  for more  than  five days
following written notice thereof to the Company;

                    (g) Any  judgments,  writs or warrants of  attachment or any
similar processes individually or in the aggregate in excess of $1,000,000 shall
be  entered  or filed  against  the  Company or any  Subsidiary  or against  any
property or assets of either and either (i) remain unpaid,  unvacated,  unbonded
or  unstayed  (through  appeal  or  otherwise)  prior to the  expiration  of the
applicable period of limitations for taking action necessary to stay enforcement
thereof,  or if such action  shall have been taken,  a final order  denying such
stay shall have been rendered,  or (ii) enforcement  proceedings shall have been
commenced by any creditor upon any such judgment or order;

                    (h) The  Company or any  Subsidiary  shall incur a "Distress
Termination"  (as defined in Title IV of ERISA) of any Plan or any trust created
thereunder  which  results in  material  liability  to the PBGC,  the PBGC shall
institute proceedings to terminate any Plan or any trust created thereunder,  or
a trustee  shall be  appointed by a United  States  District  Court  pursuant to
Section 4042(b) of ERISA to administer any Plan or any trust created thereunder;
or

                    (i)    The Company or any Subsidiary shall

                    (i)  generally not pay its debts as they become due or admit
         in writing its inability to pay its debts generally as they become due;

                    (ii) file a petition in bankruptcy or for  reorganization or
         for the adoption of an arrangement  under the Federal  Bankruptcy Code,
         or any similar  applicable  bankruptcy or insolvency  law, as now or in
         the future amended (herein  collectively  called "Bankruptcy Laws"), or
         an answer or other  pleading  admitting or failing to deny the material
         allegations of such a petition or seeking, consenting to or acquiescing
         in relief  provided for under the  Bankruptcy  Laws, or take action for
         the purpose of effecting any of the foregoing;

                    (iii)  make an assignment of all or a substantial part of
its property for the
         benefit of its creditors;

                    (iv) seek or consent to or acquiesce in the appointment of a
         receiver,  liquidator,  custodian  or  trustee  of it or  for  all or a
         substantial part of its property;

                    (v)    be finally adjudicated a bankrupt or insolvent;

                    (vi) be subject to a proceeding  under any  Bankruptcy  Laws
         filed against it, which such  proceeding  shall remain  undismissed  or
         unstayed for a period of 60 days;

                    (vii) be subject to the entry of a court order,  which shall
         not be  vacated,  set aside or  stayed  within 30 days from the date of
         entry, appointing a receiver, liquidator, custodian or trustee of it or
         for all or a substantial part of its property,  or entering of an order
         for relief pursuant to an involuntary case, or effecting an arrangement
         in, bankruptcy or for a reorganization  pursuant to the Bankruptcy Laws
         or for any other judicial  modification  or alteration of the rights of
         creditors; or

                    (viii)  be   subject  to  the   assumption   of  custody  or
         sequestration  by  a  court  of  competent  jurisdiction  of  all  or a
         substantial part of its property,  which custody or sequestration shall
         not be suspended or terminated within 30 days from its inception.

                    8.2 Remedies on Default. When any Event of Default described
in  paragraphs  (a) through (h) of Section 8.1 has  happened  and is  continuing
other  than a  Forbearance  Default,  the  holder or  holders of at least 25% in
principal  amount of the Notes  then  outstanding  may by notice to the  Company
declare the entire principal, together with the premium set forth below, and all
interest  accrued  on all Notes to be, and such Notes  shall  thereupon  become,
forthwith due and payable,  without any  presentment,  demand,  protest or other
notice  of any kind,  all of which are  expressly  waived.  Notwithstanding  the
foregoing, when (i) any Event of Default described in paragraphs (a), (b) or (c)
of Section 8.1 has happened and is  continuing,  any holder may by notice to the
Company declare the entire principal, together with the premium set forth below,
and all  interest  accrued on the Notes then held by such holder to be, and such
Notes  shall  thereupon   become,   forthwith  due  and  payable,   without  any
presentment,  demand,  protest  or other  notice of any  kind,  all of which are
expressly waived and (ii) where any Event of Default  described in paragraph (i)
of Section 8.1 has happened, then all outstanding Notes shall immediately become
due and  payable  without  presentment,  demand or notice of any kind.  Upon the
Notes or any of them  becoming  due and payable as  aforesaid,  the Company will
forthwith pay to the holders of such Notes the entire  principal of and interest
accrued on such Notes,  plus a premium in the event that the Reinvestment  Yield
shall, on the  Determination  Date, be less than the interest rate payable on or
in respect of the Notes.  Such  premium  shall equal (x) the  aggregate  present
value of the principal so  accelerated  and the  aggregate  present value of the
interest which would have been payable in respect of such principal  absent such
accelerated  payment,  determined  by  discounting  (monthly  on the  basis of a
360-day year  composed of twelve  30-day  months) each such amount  utilizing an
interest factor equal to the Reinvestment  Yield,  less (y) the principal amount
to be prepaid.

                    8.3 Annulment of  Acceleration  of Notes.  The provisions of
Section 8.2 are subject to the  condition  that if the  principal of and accrued
interest on the Notes have been declared  immediately  due and payable by reason
of the  occurrence of any Event of Default  described in paragraphs  (a) through
(h),  inclusive,  of Section 8.1, the holder or holders of 66-2/3%. in aggregate
principal amount of the Notes then outstanding may, by written  instrument filed
with the  Company,  rescind  and annul  such  declaration  and the  consequences
thereof,  provided  that  (i) at the  time  such  declaration  is  annulled  and
rescinded  no judgment or decree has been  entered for the payment of any monies
due pursuant to the Notes or this  Agreement,  (ii) all arrears of interest upon
all the Notes  and all  other  sums  payable  under  the  Notes  and under  this
Agreement  (except  any  principal,  interest  or premium on the Notes which has
become due and payable solely by reason of such  declaration  under Section 8.2)
shall have been duly paid and (iii) each and every other Event of Default  shall
have been cured or waived;  and provided  further,  that no such  rescission and
annulment  shall extend to or affect any subsequent  default or Event of Default
or impair any right consequent thereto.

                    8.4  Other  Remedies.  If any  Event  of  Default  shall  be
continuing other than a Forbearance Default, any holder of Notes may enforce its
rights  by  suit in  equity,  by  action  at law,  or by any  other  appropriate
proceedings,  whether for the specific  performance (to the extent  permitted by
law) of any covenant or agreement contained in this Agreement or in the Notes or
in aid of the exercise of any power granted in this  Agreement,  and may enforce
the  payment  of any Note  held by such  holder  and any of its  other  legal or
equitable rights.

                    8.5  Conduct No Waiver:  Collection  Expenses.  No course of
dealing on the part of any holder of Notes, nor any delay or failure on the part
of any holder of Notes to exercise any of its rights,  shall operate as a waiver
of such rights or otherwise prejudice such holder's rights, powers and remedies.
If the Company fails to pay, when due, the principal of, or the interest on, any
Note, or fails to comply with any other provision of this Agreement, the Company
will pay to each holder, to the extent permitted by law, on demand, such further
amounts as shall be sufficient to cover the cost and expenses, including but not
limited to reasonable  attorneys fees,  incurred by such holders of the Notes in
collecting  any sums due on the  Notes or in  otherwise  enforcing  any of their
rights.

                    8.6 Remedies  Cumulative.  No right or remedy conferred upon
or  reserved  to any holder of Notes  under this  Agreement  is  intended  to be
exclusive  of any other  right or remedy,  and every  right and remedy  shall be
cumulative  and in  addition  to every  other  right or remedy  given under this
Agreement or now or hereafter existing under any applicable law. Every right and
remedy given by this  Agreement or by applicable  law to any holder of Notes may
be exercised  from time to time and as often as may be deemed  expedient by such
holder, as the case may be.

                    8.7 Notice of Default.  With respect to Events of Default or
claimed  defaults  other than a Forbearance  Default,  the Company will give the
following notices:

                    (a) The Company  promptly  will  furnish to each holder of a
Note  notice  in  writing  by  registered  or  certified  mail,  return  receipt
requested,  of the occurrence of an Event of Default or an event which, with the
lapse of time or the  giving  of  notice,  or  both,  would  become  an Event of
Default.  Such notice shall  specify the nature of such  default,  the period of
existence thereof and what action the Company has taken or is taking or proposes
to take with respect thereto.

                    (b) If the  holder of any Note or of any other  evidence  of
Indebtedness  of the  Company  or any  Subsidiary  gives any notice or takes any
other action with respect to a claimed default,  the Company will forthwith give
written notice thereof to each holder of the then outstanding Notes,  describing
the notice or action and the nature of the claimed default.

SECTION 9.          AMENDMENTS, WAIVERS AND CONSENTS

                    9.1 Matters  Subject to  Modification.  Any term,  covenant,
agreement or condition of this  Agreement  may, with the consent of the Company,
be amended,  or  compliance  therewith may be waived  (either  generally or in a
particular instance and either  retroactively or prospectively),  if the Company
shall have  obtained the consent in writing of the holder or holders of at least
66-2/3% in aggregate principal amount of outstanding Notes;  provided,  however,
that,  without the written  consent of the holder or holders of all of the Notes
then outstanding, no such waiver, modification, alteration or amendment shall be
effective  which will (i) change the time of  payment  (including  any  required
prepayment)  of the  principal of or the  interest on any Note,  (ii) reduce the
principal amount thereof or the premium,  if any, or reduce the rate of interest
thereon,  (iii) change any provision of any instrument affecting the preferences
between holders of the Notes or between holders of the Notes and other creditors
of the Company,  or (iv) change any of the  provisions  of Section 8.1,  Section
8.2, Section 8.3 or this Section 9.

                    For  the  purpose  of  determining  whether  holders  of the
requisite  principal  amount of Notes  have  made or  concurred  in any  waiver,
consent,  approval,  notice or other communication  under this Agreement,  Notes
held in the name of, or owned  beneficially  by, the Company,  any Subsidiary or
any Affiliate thereof, shall not be deemed outstanding.

                    9.2  Solicitation of Holders of Notes.  The Company will not
solicit,  request or negotiate  for or with  respect to any  proposed  waiver or
amendment of any of the  provisions  of this  Agreement or the Notes unless each
holder of the Notes (irrespective of the amount of Notes then owned by it) shall
concurrently  be  informed  thereof by the  Company  and shall be  afforded  the
opportunity  of  considering  the same and shall be supplied by the Company with
sufficient  information  to enable it to make an informed  decision with respect
thereto.  Executed or true and correct copies of any waiver or consent  effected
pursuant to the  provisions  of this Section 9 shall be delivered by the Company
to each holder of outstanding  Notes  forthwith  following the date on which the
same  shall have been  executed  and  delivered  by the holder or holders of the
requisite  percentage of outstanding  Notes.  The Company will not,  directly or
indirectly,  pay  or  cause  to be  paid  any  remuneration,  whether  by way of
supplemental  or additional  interest,  fee or  otherwise,  to any holder of the
Notes as  consideration  for or as an  inducement  to the  entering  into by any
holder  of the  Notes  of any  waiver  or  amendment  of  any of the  terms  and
provisions of this Agreement unless such  remuneration is concurrently  paid, on
the same terms, ratably to each holder of the then outstanding Notes.

                    9.3 Binding Effect. Any such amendment or waiver shall apply
equally to all the  holders of the Notes and shall be  binding  upon them,  upon
each  future  holder of any Note and upon the  Company  whether or not such Note
shall have been marked to indicate such  amendment or waiver.  No such amendment
or waiver  shall extend to or affect any  obligation  not  expressly  amended or
waived or impair any right related thereto.


SECTION 10.         FORM OF NOTES, REGISTRATION, TRANSFER, EXCHANGE AND
REPLACEMENT

                    10.1 Form of Notes. The Notes initially delivered under this
Agreement will be in the form of two fully registered Notes in the form attached
as  Exhibit  A. The  Notes are  issuable  only in fully  registered  form and in
denominations  of at  least  $100,000  (or  the  remaining  outstanding  balance
thereof, if less than $100,000).

                    10.2 Note  Register.  The Company  shall cause to be kept at
its principal  office a register (the "Note  Register") for the registration and
transfer of the Notes.  The names and  addresses  of the  holders of Notes,  the
transfer  thereof and the names and  addresses of the  transferees  of the Notes
shall be  registered  in the Note  Register.  The Company may deem and treat the
person in whose name a Note is so registered as the holder and owner thereof for
all purposes and shall not be affected by any notice to the contrary,  until due
presentment  of such Note for  registration  of  transfer  as  provided  in this
Section 10.

                    10.3 Issuance of New Notes upon  Exchange or Transfer.  Upon
surrender for exchange or  registration of transfer of any Note at the office of
the Company  designated for notices in accordance with Section 11.2, the Company
shall  execute  and  deliver,  at its  expense,  one or more  new  Notes  of any
authorized  denominations  requested by the holder of the surrendered Note, each
dated the date to which interest has been paid on the Notes so surrendered  (or,
if no interest has been paid,  the date of such  surrendered  Note),  but in the
same aggregate unpaid principal amount as such surrendered  Note, and registered
in the name of such person or persons as shall be  designated in writing by such
holder.  Every Note  surrendered  for  registration  of  transfer  shall be duly
endorsed,  or be accompanied by a written  instrument of transfer duly executed,
by the holder of such Note or by his attorney duly  authorized  in writing.  The
Company may condition its issuance of any new Note in connection with a transfer
by any Person on compliance by the  transferee of the  representations  required
under Section 3.2, by  Institutional  Holders on compliance with Section 2.5 and
on the  payment  to the  Company of a sum  sufficient  to cover any stamp tax or
other governmental charge imposed in respect of such transfer.

                    10.4   Replacement  of  Notes.   Upon  receipt  of  evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss,  theft or destruction upon delivery of a
bond of indemnity in such form and amount as shall be reasonably satisfactory to
the Company or in the event of such mutilation  upon surrender and  cancellation
of the Note, the Company,  without charge to the holder  thereof,  will make and
deliver a new Note,  of like tenor in lieu of such lost,  stolen,  destroyed  or
mutilated  Note.  If any such  lost,  stolen or  destroyed  Note is owned by the
Purchaser or any other Institutional Holder, then the affidavit of an authorized
officer of such owner setting forth the fact of loss,  theft or destruction  and
of its  ownership  of the Note at the time of such  loss,  theft or  destruction
shall be accepted as satisfactory  evidence  thereof,  and no further  indemnity
shall be required as a condition  to the  execution  and delivery of a new Note,
other than a written agreement of such owner (in form reasonably satisfactory to
the Company) to indemnify the Company.



SECTION 11.         MISCELLANEOUS

                    11.1 Expenses.  Whether or not the transactions contemplated
herein shall be  consummated,  the Company agrees to pay directly all reasonable
expenses in  connection  with the  preparation,  execution  and delivery of this
Agreement,  the Notes, and all other documents delivered in connection herewith,
and the transactions contemplated by such documents,  including, but not limited
to,  out-of-pocket  expenses,  filing fees of Standard & Poor's  Corporation  in
connection with obtaining a private  placement  number,  reasonable  charges and
disbursements  of special  counsel,  photocopying and printing costs and charges
for shipping the Notes,  adequately insured, to the Purchaser at its home office
or at such  other  address  as the  Purchaser  may  designate,  and all  similar
expenses (including the reasonable fees and expenses of counsel) relating to any
amendments, waivers or consents in connection with this Agreement, the Notes and
the other documents delivered in connection herewith, including, but not limited
to,  any such  amendments,  waivers or  consents  resulting  from any  work-out,
renegotiation or restructuring relating to the performance by the Company of its
obligations under this Agreement, the Notes and the other documents delivered in
connection  herewith.  The  Company  also  agrees  that it will pay and save the
Purchaser harmless against any and all liability with respect to stamp and other
documentary  taxes, if any, which may be payable,  or which may be determined to
be payable in connection  with the  execution and delivery of this  Agreement or
the Notes (but not in connection  with a transfer of any Notes),  whether or not
any Notes are then  outstanding.  The  obligations  of the  Company  under  this
Section 11.1 shall survive the retirement of the Notes.

                    11.2 Notices. Except as otherwise expressly provided herein,
all  communications  provided  for in this  Agreement  shall be in  writing  and
delivered or sent by registered or certified mail, return receipt requested,  or
by overnight courier (i) if to the Purchaser, to the address set forth below the
Purchaser's  name in Annex I, or to such other  address as the  Purchaser may in
writing designate,  (ii) if to any other holder of the Notes, to such address as
the holder may designate in writing to the Company, and (iii) if to the Company,
to Hurco Companies, Inc., One Technology Way, Indianapolis, Indiana 46268, or to
such other address as the Company may in writing designate.

                    11.3  Reproduction  of  Documents.  This  Agreement  and all
documents relating hereto, including,  without limitation, (i) consents, waivers
and modifications  which may hereafter be executed,  (ii) documents  received by
the  Purchaser in connection  with the execution and delivery of this  Agreement
(except the Notes themselves), and (iii) financial statements,  certificates and
other  information  previously or hereafter  furnished to the Purchaser,  may be
reproduced  by  the  Purchaser  by  any  photographic,  photostatic,  microfilm,
micro-card,  miniature  photographic or other similar process, and the Purchaser
may  destroy  any  original  document  so  reproduced.  The  Company  agrees and
stipulates  that any such  reproduction  which is legible shall be admissible in
evidence as the  original  itself in any judicial or  administrative  proceeding
(whether  or  not  the  original  is  in  existence  and  whether  or  not  such
reproduction  was made by the  Purchaser in the regular  course of business) and
that any  enlargement,  facsimile or further  reproduction of such  reproduction
shall likewise be admissible in evidence; provided that nothing herein contained
shall preclude the Company from  objecting to the admission of any  reproduction
on the basis that such  reproduction  is not  accurate,  has been  altered or is
otherwise incomplete.

                    11.4  Successors  and Assigns.  This Agreement will inure to
the  benefit  of and be binding  upon the  parties  hereto and their  respective
successors and assigns.

                    11.5 Law Governing.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.  No provision of
this  Agreement may be waived,  changed or modified,  or the  discharge  thereof
acknowledged,  orally,  except by an  agreement  in writing  signed by the party
against whom the enforcement of any waiver, change, modification or discharge is
sought.

                    11.6 Headings.  The headings of the sections and subsections
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.

                    11.7   Counterparts.   This   Agreement   may  be   executed
simultaneously  in one or more  counterparts,  each of which  shall be deemed an
original,  but all such counterparts shall together  constitute one and the same
instrument,  and it shall not be necessary in making proof of this  Agreement to
produce or account for more than one such  counterpart or  reproduction  thereof
permitted by Section 11.3.

                    11.8 Reliance on and Survival of Provisions.  All covenants,
representations   and  warranties   made  by  the  Company  herein  and  in  any
certificates delivered pursuant to this Agreement,  whether or not in connection
with a closing,  (i) shall be deemed to have been relied upon by the  Purchaser,
notwithstanding any investigation  heretofore or hereafter made by the Purchaser
or on the  Purchaser's  behalf  and (ii)  shall  survive  the  delivery  of this
Agreement and the Notes.

                    11.9 Integration and Severability.  This Agreement  embodies
the entire  agreement and  understanding  between the Purchaser and the Company,
and supersedes all prior agreements and  understandings  relating to the subject
matter  hereof.  In case  any one or more of the  provisions  contained  in this
Agreement or in any Note, or application thereof,  shall be invalid,  illegal or
unenforceable in any respect,  the validity,  legality and enforceability of the
remaining  provisions contained in this Agreement and in any Note, and any other
application thereof, shall not in any way be affected or impaired thereby.

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<PAGE>


                    IN WITNESS  WHEREOF,  the  Company  and the  Purchaser  have
caused this Agreement to be executed and delivered by their  respective  officer
or officers thereunto duly authorized.

                                            HURCO COMPANIES, INC.


                                            By:     /s/ Roger J. Wolf__________
                                            Title:  Senior Vice President
                           and Chief Financial Officer


                               PRINCIPAL MUTUAL LIFE INSURANCE COMPANY


                                            By:     /s/ Sarah J. Pitts
                                            Title:  Counsel


                                            By:     /s/ Austin J. Ramzy
                                            Title:  Assistant Director
                                                    Investment Securities