EXHBIBIT 10.1













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                            DESA HOLDINGS CORPORATION

                             1998 STOCK OPTION PLAN



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                            DESA HOLDINGS CORPORATION
                             1998 STOCK OPTION PLAN
                                TABLE OF CONTENTS
                                                                   Page

1.       PURPOSE                                                    1
2.       ADMINISTRATION OF THE PLAN                                 1
3.       STOCK SUBJECT TO THE PLAN                                  3
4.       AUTHORITY TO GRANT OPTIONS                                 3
5.       WRITTEN OPTION AGREEMENT                                   4
6.       ELIGIBILITY                                                4
7.       OPTION PRICE                                               4
8.       DURATION OF OPTIONS                                        5
9.       RESTRICTIONS ON EXERCISE OF OPTIONS                        6
10.      EXERCISE OF OPTIONS                                        7
11.      NON-TRANSFERABILITY OF OPTIONS                             9
12.      TERMINATION OF EMPLOYMENT OR INVOLVEMENT OF
         OPTIONEE WITH THE COMPANY                                  9
13.      REQUIREMENTS OF LAW, ETC.                                 10
14.      LEGEND ON CERTIFICATES                                    11
15.      NO RIGHTS AS STOCKHOLDER                                  11
16.      NO EMPLOYMENT OBLIGATION                                  11
17.      CHANGES IN THE COMPANY'S CAPITAL STRUCTURE                11
18.      AMENDMENT OR TERMINATION OF PLAN                          14
19.      CERTAIN RIGHTS OF THE COMPANY                             15
20.      TAX WITHHOLDING                                           15
21.      EFFECTIVE DATE AND DURATION OF THE PLAN                   16

                                       (i)

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                            DESA HOLDINGS CORPORATION

                             1998 STOCK OPTION PLAN


         1.       PURPOSE

         The purpose of this 1998 Stock Option Plan (the "Plan") is to encourage
directors,  officers,  consultants  and and other key employees of DESA Holdings
Corporation  (the "Company") and its  Subsidiaries  (as hereinafter  defined) to
continue their  association  with the Company and its  Subsidiaries by providing
opportunities  for such persons to  participate  in the ownership of the Company
and in its future growth  through the granting of stock options (the  "Options")
which may be options  designed to qualify as incentive stock options (within the
meaning of Section 422 of the  Internal  Revenue  Code of 1986,  as amended [the
"Code"])  (an  "ISO"),  or options  not  intended to qualify for any special tax
treatment  under the Code (a "NQO").  The term  "Subsidiary" as used in the Plan
means a corporation  or other business  organization  of which the Company owns,
directly or indirectly  through an unbroken  chain of  ownership,  fifty percent
(50%) or more of the  total  combined  voting  power of all  classes  of  stock,
partnership  interests or other equity interests.  As of the date of adoption of
this Plan, DESA International, Inc. is a Subsidiary.

         2.       ADMINISTRATION OF THE PLAN

                  (a)  The  Plan  shall  be  administered  by a  committee  (the
"Committee")  consisting of those directors of the Company who shall at any time
and from time to time be serving as members of the Compensation Committee of the
Board of Directors of the Company (the "Board");  provided that, (i) at any time
that Section 16 of the  Securities  and  Exchange  Act of 1934,  as amended (the
"Exchange Act") is applicable to the Company, the Committee shall be composed of
at least two (2)  directors  and each  such  director  shall be a  "Non-Employee
Director"  within the meaning of Rule 16b-3 under the Exchange Act and,  (ii) at
any time that Section 162(m) of the Code is applicable to the Company, each such
director shall be an "outside director" within the meaning of Section 162 of the
Code and the regulations thereunder.

                  (b) The Committee  shall select one of its members as Chairman
and shall hold meetings at such times and places as it may 

                                                       

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determine.  A majority of the  Committee  shall  constitute a quorum.  Acts of a
majority of the members of the Committee present at any meeting of the Committee
at which a quorum is present, or acts consented to or approved in writing by all
of the members of the Committee, shall be the valid acts of the Committee.

                  (c) The  Committee  shall from time to time  determine to whom
Options shall be granted under the Plan, the type of Options granted, the number
of shares of Stock (as  hereinafter  defined)  that may be purchased  under each
such Option and the terms and  conditions  (including but not limited to vesting
provisions) of each such Option. The Committee shall from time to time report to
the Board the names of the  persons to whom  Options  are  granted,  the type of
Options granted,  the number of shares of Stock that may be purchased under each
such Option and the terms and conditions of each such Option.

                  (d) The  Committee  shall  have  the  sole  authority,  in its
absolute discretion,  to adopt, amend and rescind such rules and regulations as,
in its  opinion,  may be  advisable in the  administration  of the Plan,  and to
interpret the Plan, the rules and  regulations,  and the instruments  evidencing
options  granted  under  the Plan and to make all  other  determinations  deemed
necessary or advisable  for the  administration  of the Plan.  All  questions of
interpretation and application of the Plan, such rules and regulations,  Options
granted under the Plan or instruments evidencing Options shall be subject to the
determination of the Committee,  which shall be final, binding and conclusive on
all Optionees (as hereinafter defined).

                  (e) The powers and  determinations  of the Committee set forth
in the Plan (including but not limited to this Section) may be exercised or made
by the Committee or the Board,  as the Board may from time to time direct in its
discretion,  and references in the Plan, in rules or regulations  under the Plan
or in instruments  evidencing  Options shall be understood to refer to the Board
in any such case.

                  (f) The Plan  shall  be  administered  in such a manner  as to
permit those Options granted hereunder and designated under Section 4 as such to
qualify as  incentive  stock  options as  described  in Section  422 of the Code
unless defined elsewhere.

                                      -2-
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         3.       STOCK SUBJECT TO THE PLAN

         The total  number of shares of stock  which may be  subject  to Options
issued  under the Plan (the  "Option  Pool")  shall be  1,462,222  shares of the
Company's  Common  Stock,  $.01 par  value  per  share  ("Stock"),  from  either
authorized but unissued shares or treasury  shares;  provided that the number of
shares  stated in this Section 3 shall be subject to  adjustment  in  accordance
with the provisions of Section 17. If any  outstanding  Option is surrendered or
expires  or  terminates  for any reason or due to any cause  (including  but not
limited to the death or severance of employment of the Optionee),  the shares of
Stock allocable to the  unexercised  portion of such Option may again be subject
to an Option under the Plan.

         4.       AUTHORITY TO GRANT OPTIONS

         The Committee may determine,  from time to time, which key employees of
the Company or any  Subsidiary or other  persons shall be granted  Options under
the  Plan,  the terms and  conditions  (including  but not  limited  to  vesting
provisions)  of the Options and whether an Option  shall be an ISO or a NQO) and
the  number  of shares  which may be  purchased  under  the  Option or  Options;
provided,  however,  that if any  person to whom a grant has been made  fails to
execute and deliver to the  Committee an Option  Agreement  within ten (10) days
after it is submitted to him or her, the Option so granted  shall be voidable by
the Company at its election,  without  further  notice to the Optionee.  Without
limiting the  generality of the  foregoing,  the Committee may from time to time
grant:  (a) to such  eligible  employees  as it shall  determine,  an  Option or
Options to buy a stated number of shares of Stock under the terms and conditions
of the Plan,  which Option or Options will if so designated at the time of grant
constitute  an ISO;  and (b) to such  eligible  directors,  employees  or  other
persons as it shall  determine  an Option or  Options to buy a stated  number of
shares of Stock  under the terms and  conditions  of the Plan,  which  Option or
Options shall constitute a NQO.  Subject only to any applicable  limitations set
forth  elsewhere in the Plan, the number of shares of Stock to be covered by any
Option shall be as determined by the Committee.

                                       -3-
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         5.       WRITTEN OPTION AGREEMENT

         Each Option  granted  hereunder  shall be embodied in a written  option
agreement  (the "Option  Agreement")  substantially  in the form of Exhibit 1 or
Exhibit 2 attached hereto (or in such other form not inconsistent  with the Plan
as the  Committee may  determine),  which shall be signed by the Optionee and by
the Chairman of the Board, the President,  the Chief Operating  Officer,  or the
Chief Financial  Officer of the Company for and in the name and on behalf of the
Company. An Option Agreement  pertaining to an ISO shall contain the restriction
on  exercisability  set forth in  Section  9 and any  Option  Agreement  for any
Option,  whether ISO or NQO, may contain such other  provisions not inconsistent
with  the  Plan as the  Committee  in its sole  and  absolute  discretion  shall
approve.

         6.       ELIGIBILITY

         The persons who shall be eligible for grants of Options  under the Plan
shall be  directors,  officers,  employees  and other  persons,  whether  or not
employees,  who  render  services  of  special  importance  to  the  management,
operation  or  development  of the  Company or a  Subsidiary.  ISOs shall not be
granted to any person who is not an employee of the Company or a  Subsidiary.  A
director,  officer,  employee or other person to whom an Option has been granted
under the Plan, and any successor to such person who may be eligible to exercise
such Option following the death of the employee,  or permitted  assignee of such
person  under  Section 11 of the Plan,  is  sometimes  referred  to herein as an
"Optionee".

         7.       OPTION PRICE

                  (a) Except as otherwise provided in this Section, the price at
which shares of Stock may be purchased  pursuant to an Option shall be specified
by the  Committee  at the time the Option is  granted,  but shall in no event be
less than the par value of such  shares  and not less than one  hundred  percent
(100%) of the fair  market  value (as  hereinafter  defined) of the Stock on the
date  the  Option  is  granted.  In the  case of an  employee  who  owns  (or is
considered  under Section  424(d) of the Code as owning) stock  possessing  more
than ten  percent  (10%) of the total  combined  voting  power of all classes of
stock of the Company or any  Subsidiary,  the price at which shares of Stock may
be so  purchased  pursuant  to an 

                                      -4-
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ISO shall be not less than one hundred and ten percent (110%) of the fair market
value of the Stock on the date the ISO is granted.

                  (b) For  purposes of the Plan,  the "fair  market  value" of a
share  of the  Stock  on any  date  specified  herein,  shall  mean (i) the last
reported sales price,  regular way, or, in the event that no sale takes place on
such date,  the average of the reported  closing bid and asked  prices,  regular
way, in either case (A) on the principal national  securities  exchange on which
the  Stock is  listed  or  admitted  to  trading,  or (B) if not then  listed or
admitted to trading on any national securities exchange,  on the NASDAQ National
Market  System;  or (ii) if the  Stock is not  quoted  on such  National  Market
System,  (A) the average of the closing bid and asked prices on such date in the
over-the-counter  market as reported by NASDAQ,  or (B) if bid and asked  prices
for the Stock on such date  shall not have been  reported  through  NASDAQ,  the
average of the bid and asked  prices for such date as  furnished by any American
or New York Stock Exchange  member firm  regularly  making a market in the Stock
selected  for such purpose by the  Committee;  or (iii) if the Stock is not then
listed  or  admitted  to  trading  on any  national  exchange  or  quoted in the
over-the-counter  market, the fair value thereof determined in good faith by the
Committee as of a date which is within  thirty (30) days of the date as of which
the determination is to be made.

         8.       DURATION OF OPTIONS

         Subject to Section 12 of the Plan,  the duration of any Option shall be
specified  by the  Committee  in the Option  Agreement,  but no Option  shall be
exercisable  after the  expiration  of ten (10)  years from the date as of which
such Option is granted.  In the case of any employee who owns (or is  considered
under  Section  424(d) of the Code as  owning)  stock  possessing  more than ten
percent (10%) of the total combined  voting power of all classes of stock of the
Company or any Subsidiary,  no ISO shall be exercisable  after the expiration of
five (5) years from the date as of which such Option is granted.  The Committee,
in its sole and absolute  discretion,  may extend any Option theretofore granted
subject  to the  aforesaid  limits  and may  provide  that an  Option  shall  be
exercisable during its entire duration or during any lesser period of time.

                                      -5-
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         9.       RESTRICTIONS ON EXERCISE OF OPTIONS

                  (a)  Notwithstanding  any other  provision of the Plan, (i) at
any time that  Section 16 of the Exchange  Act is  applicable  to the Company no
Option  shall be  exercisable  until at least six (6)  months  after the date on
which such Option is granted by the Committee and (ii) the aggregate fair market
value  (determined  as of the time the  Option is  granted)  of the  Stock  with
respect  to which  ISOs may be  exercisable  for the first  time by an  Optionee
during any  calendar  year (under the Plan or any other  incentive  stock option
plan(s) of the Company or any Subsidiary) shall not exceed $100,000.  Subject to
the  foregoing,  each  Option  may be  exercised  so  long  as it is  valid  and
outstanding from time to time, in part or as a whole, in such manner and subject
to such conditions as the Committee,  in its sole and absolute  discretion,  may
provide in the Option Agreement.

         (b) The  Committee  may from time to time  restrict the exercise of any
Option by prohibiting such exercise at any time during which and for such period
of time as any Optionee is engaged in any activity  determined by the Committee,
after  consideration  of the facts  presented  on behalf of the  Company and the
Optionee,  to be  detrimental  to the  best  interests  of the  Company  and its
stockholders.  The  Committee  shall  notify the Optionee in writing of any such
determination  and of the scope and  duration  of any such  restriction.  If the
Committee  notifies an Optionee in writing that such  Optionee is engaged or may
have engaged in such a  detrimental  activity and such Optionee has exercised or
attempts to exercise an Option after such  notification  but prior to a decision
of the Committee based on the  consideration of all facts presented on behalf of
the Company and the  Optionee,  the Company  shall not be required to  recognize
such  exercise  until the  Committee has made its decision and, in the event any
exercise shall have taken place, it shall be of no force and effect (and void ab
initio) if the Committee makes an adverse determination; provided, however, that
if the Committee finds in favor of the Optionee then the Optionee will be deemed
to have exercised  such Option as of the date he or she originally  gave written
notice of his or her attempt to exercise or actual exercise, as the case may be.
The decision of the  Committee as to the  detrimental  nature of the  Optionee's
activities shall be final, binding and conclusive.

                                      -6-
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         10.      EXERCISE OF OPTIONS

                  (a)  Options  shall be  exercised  by the  delivery of written
notice to the Company  setting  forth the number of shares of Stock with respect
to which the  Option is to be  exercised,  accompanied  by payment of the option
price for such shares,  which payment shall be made,  subject to the alternative
provisions of this Section, in cash or by such cash equivalents,  payable to the
order of the Company in an amount in United  States  dollars equal to the option
price for such shares,  as the  Committee  in its sole and  absolute  discretion
shall consider acceptable. Such notice shall be delivered in person to the Chief
Financial  Officer or  Treasurer  of the Company or shall be sent by  registered
mail, return receipt  requested,  to the Chief Financial Officer or Treasurer of
the Company, in which case delivery shall be deemed made on the date such notice
is deposited in the mail.

                  (b)  Alternatively,  at the  discretion  of the  Committee and
subject to such rules as may be  established  by the  Committee,  payment of the
option  price may be made  through a so-called  "cashless  exercise"  procedure,
under which:

                  (i) The Optionee delivers irrevocable instructions to a broker
         to sell  shares of Stock  acquired  upon  exercise of the Option and to
         remit promptly to the Company a sufficient portion of the sale proceeds
         of such  shares  to pay  the  option  price  and  any  withholding  tax
         resulting from such exercise; or

                  (ii) A broker (A) transmits the option price to the Company in
         cash or acceptable cash equivalents,  either (I) against the Optionee's
         notice of exercise and the Company's  confirmation that it will deliver
         to the broker stock  certificates  issued in the name of the broker for
         at least that number of shares  having the fair  market  value equal to
         the  option  price  or (II) as the  proceeds  of a  margin  loan to the
         Optionee;  or (B) agrees to pay the option price to the Company in cash
         or  acceptable  cash  equivalents  upon the  broker's  receipt from the
         Company of stock  certificates  issued in the name of the broker for at
         least that  number of shares  having a fair  market  value equal to the
         option price.

                                      -7-
<PAGE>

The Optionee's  written notice of exercise of an option  pursuant to a "cashless
exercise" procedure must include the name and address of the broker involved,  a
clear description of the procedure, and such other information or undertaking by
the broker as the Treasurer shall reasonably require.

                  (c)  Alternatively,  at the  discretion  of the  Committee and
subject to such rules as may be  established  by the  Committee,  payment of the
option price may be made,  in whole or in part,  in shares of Stock owned by the
Optionee; provided, however, that the Optionee may not make payment in shares of
Stock that he acquired upon the earlier exercise of any ISO (or other "incentive
stock  option"),  unless and until he has held the shares until at least two (2)
years after the date the ISO (or such other  incentive stock option) was granted
and at least one (1) year after the date the ISO (or such other  incentive stock
option)  was  exercised.  If  payment  is made in whole or in part in  shares of
Stock,  then the Optionee  shall deliver to the Company in payment of the option
price of the shares in respect of which such Option is exercised:

                  (i)  Certificates  registered  in the  name of  such  Optionee
         representing a number of shares of Stock legally and beneficially owned
         by such  Optionee,  fully  vested  and free of all  liens,  claims  and
         encumbrances of every kind, with such  certificates to be duly endorsed
         or  accompanied  by stock  powers duly  endorsed in blank by the record
         holder of the shares of Stock represented by such certificates; and

                  (ii) If the  option  price for the  shares in respect of which
         such Option is exercised exceeds the fair market value of the shares of
         Stock  represented by such certificates on the date of delivery of such
         certificates, cash or such cash equivalents payable to the order to the
         Company,  in an amount in United States  dollars equal to the amount of
         such excess and  otherwise  as the  Committee  in its sole and absolute
         discretion shall consider acceptable.

Notwithstanding the foregoing provisions of this Section, the Committee,  in its
sole and  absolute  discretion,  (A) may  refuse  to  accept  shares of Stock in
payment of the option  price for the shares of Stock with  respect to which such
Option is to be  exercised  and, in that event,  any  certificates  representing
shares of Stock which were  delivered to the Company with such written

                                       -8-
<PAGE>

notice shall be returned to such Optionee together with notice by the Company to
such Optionee of the refusal of the Committee to accept such shares of Stock.

                  (d) As  promptly  as  practicable  after  the  receipt  by the
Company of (i) written  notice  from the  Optionee  setting  forth the number of
shares of Stock with  respect to which such Option is to be  exercised  and (ii)
payment of the option price of such shares in the form required by the foregoing
provisions  of this Section,  the Company  shall,  subject to the  provisions of
Section 13 of the Plan,  cause to be  delivered  to such  Optionee  certificates
representing  the number of shares with respect to which such Option has been so
exercised.

         11.      NON-TRANSFERABILITY OF OPTIONS

         Options shall not be  transferable  by the Optionee  otherwise  than by
will or under  the laws of  descent  and  distribution  and,  during  his or her
lifetime,  shall be exercisable only by the Optionee.  Options shall be null and
void and without  effect upon any attempted  assignment  or transfer,  except as
hereinabove  provided,  including without  limitation any purported  assignment,
whether  voluntary  or by  operation  of law,  pledge,  hypothecation  or  other
disposition contrary to the provisions hereof, or levy of execution, attachment,
trustee process or similar process, whether legal or equitable upon the Options.
Notwithstanding  the  foregoing,  the  Committee  may, in its sole and  absolute
discretion,  permit the transfer of Options which are not ISOs to (a) members of
the Optionee's immediate family (consisting of parents, siblings, issue (natural
or  adopted),  in-laws,  step-parents,  step-children  (natural  or  adopted) or
cousins or (b) trusts or other estate  planning  vehicles solely for the benefit
of the Optionee and such immediate family members of the Optionee or (c) limited
partnerships or limited  liability  companies whose only partners or members are
the Optionee and such immediate family members of such Optionee, subject to such
restrictions and conditions as the Committee may deem advisable or appropriate.

         12.      TERMINATION OF EMPLOYMENT OR INVOLVEMENT
                  OF OPTIONEE WITH THE COMPANY

         For purposes of the Plan,  employment  by or  involvement  with (in the
case of an Optionee who is not an employee) the Company or 

                                       -9-

<PAGE>
a Subsidiary shall be considered  employment by or involvement with the Company.
After the  Optionee's  termination of employment  with or  involvement  with the
Company, the Option shall terminate as provided in the Option Agreement, and the
Option shall be vested only to the extent vested on the date of such termination
of employment.

         13.      REQUIREMENTS OF LAW, ETC.

                  (a) The Company shall not be required to transfer any Stock or
to sell or issue any shares  upon the  exercise  of any Option if the  transfer,
sale or issuance of such shares may result in a violation by the Optionee or the
Company of any provisions of any law,  statute or regulation of any governmental
authority.  Without limiting the generality of the foregoing, in connection with
the Securities Act of 1933, as amended (the "Securities Act") and any applicable
state  securities  or "blue  sky"  law (a "Blue  Sky  Law"),  upon the  proposed
transfer of Stock or the proposed  exercise of any Option the Company  shall not
be required to transfer or issue shares  unless the Board has received  evidence
or advice  satisfactory  to it to the effect  that such  transfer or issuance of
shares is pursuant to a  registration  statement in effect under the  Securities
Act and  applicable  Blue Sky Laws or otherwise is subject to an exemption  from
such  registration.  Any  determination in this connection by the Board shall be
final,  binding and  conclusive.  The Company shall not be obligated to take any
other  action  in order to cause the  transfer  of Stock or the  exercise  of an
Option to comply  with any law or  regulations  of any  governmental  authority,
including, without limitation, the Securities Act or applicable Blue Sky Law.

                  (b)  Notwithstanding  any other  provision  of the Plan to the
contrary,  the Company may refuse to permit a transfer of shares of the Stock or
of any Option if in the opinion of its legal  counsel such  transfer may violate
any  federal or state  securities  laws or  subject  the  Company  to  liability
thereunder.  Any sale,  assignment,  transfer,  pledge or other  disposition  of
shares of the Stock received upon exercise of any Option (or any other shares or
securities  derived  therefrom) or of any Option which is not in accordance with
the  provisions  of this Section shall be void and of no effect and shall not be
recognized by the Company.


                                      -10-
<PAGE>

         14.      LEGEND ON CERTIFICATES

         The Committee may cause any  certificate  representing  shares of Stock
acquired upon exercise of an Option (and any other shares or securities  derived
therefrom)  to bear a legend to the effect that the  securities  represented  by
such  certificate  have not been  registered  under  the  Securities  Act or any
applicable Blue Sky Law, and may not be sold, assigned, transferred,  pledged or
otherwise  disposed  of  except  in  accordance  with the  Plan  and  applicable
agreements binding the holder and the Company or any of its stockholders.

         15.      NO RIGHTS AS STOCKHOLDER

         No  Optionee  shall have any rights as a  stockholder  with  respect to
shares  covered  by his or her  Option  until  the date of  issuance  of a stock
certificate for such shares;  except as otherwise  provided in Section 17 of the
Plan, no adjustment for dividends or otherwise  shall be made if the record date
therefor is prior to the date of issuance of such certificate.

         16.      NO EMPLOYMENT OBLIGATION

         The  granting  of any Option  shall not impose  upon the Company or any
Subsidiary  any  obligation to employ or continue to employ any Optionee,  or to
engage or retain the services of any person, and the right of the Company or any
Subsidiary  to terminate  the  employment or services of any person shall not be
diminished  or affected by reason of the fact that an Option has been granted to
him or her.  The  existence  of any Option  shall not be taken  into  account in
determining  any damages  relating to  termination of employment or services for
any reason.

         17.      CHANGES IN THE COMPANY'S CAPITAL STRUCTURE

                  (a) The existence of  outstanding  Options shall not affect in
any way the  right  or  power  of the  Company  or its  stockholders  to make or
authorize any or all any subdivisions, splits, combinations or consolidations of
shares of capital stock of the Company (including the Stock) or the payment of a
dividend in shares of the Stock or other securities of the Company, adjustments,
recapitalizations,  reclassifications,  reorganizations  

                                      -11-

<PAGE>
or other  changes in the  Company's  capital  structure  or its  business or any
merger or  consolidation  of the  Company  or any  issue of  bonds,  debentures,
preferred or preference  stock,  whether or not convertible into or exchangeable
or exercisable for shares of the Stock or other securities,  ranking prior to or
pari passu with the Stock or affecting the rights thereof,  or warrants,  rights
or options to acquire the same, or the dissolution or liquidation of the Company
or any sale or  transfer  of all or any part of its  assets or  business  or any
other corporate act or proceeding, whether of a similar character or otherwise.

                  (b) Subject to the  provisions  of Section  17(d) of the Plan,
the number of shares of the Stock in the Option  Pool (less the number of shares
theretofore  delivered upon exercise of Options) and the number of shares of the
Stock  covered by any  outstanding  Options and the price per share payable upon
exercise thereof  (provided that in no event shall the option price be less than
the par value of such shares)  shall be  appropriately  adjusted by the Board in
the event that the outstanding shares of the Stock are changed into or exchanged
for a different  number or kind of shares or other  securities of the Company or
of another corporation by reason of any reorganization,  merger,  consolidation,
recapitalization,  reclassification,  stock  split,  combination  of shares,  or
dividends  payable  in  capital  stock.  The  decision  of the  Board  as to the
adjustment,  if any,  required by the provisions of this Section shall be final,
binding and conclusive.

                  (c) If the Company merges or consolidates  with a wholly-owned
subsidiary for the purpose of  reincorporating  itself under the laws of another
jurisdiction,  the Optionees  will be entitled to acquire shares of the Stock of
the reincorporated  Company upon the same terms and conditions as were in effect
immediately prior to such reincorporation (unless such reincorporation  involves
a change in the number of shares or the capitalization of the Company,  in which
case proportional  adjustments  shall be made as provided in this Section),  and
the Plan,  unless otherwise  rescinded by the Board, will remain the Plan of the
reincorporated Company.

                  (d)  Unless  otherwise  determined  by the  Board  in its sole
discretion  and except as otherwise  provided in Section  17(c) of the Plan,  if
while unexercised  Options remain  outstanding under the Plan (i) the Company is
merged or consolidated with another corporation or other entity,  whether or not
the Company is the 
                                      -12-

<PAGE>
surviving  entity,  or (ii) the  Company  is  liquidated  or sells or  otherwise
disposes of all or substantially  all of its assets to another entity,  or (iii)
there takes place a Change in Control (as hereinafter defined), or (iv) in other
circumstances  in which the Board in its sole and absolute  discretion  deems it
appropriate for the provisions of this paragraph to apply,  (A) the purchaser(s)
of the  Company's  assets or capital  stock may, in his, her or its  discretion,
deliver to the Optionee,  to the extent that the right to purchase shares of the
Stock  under the Option has  vested,  the same kind of  consideration  (less the
price per share payable upon exercise  thereof) that is delivered to the holders
of the  Stock as a result  of such  merger,  consolidation,  liquidation,  sale,
disposition,  Change in Control or other  circumstances or (B) the Board may, in
its sole  determination,  cancel  the  Option,  to the  extent  not  theretofore
exercised, in exchange for consideration in cash or in kind, which consideration
in the case of (A) or (B) shall be equal in value to the  value of those  shares
of stock or other  consideration the Optionee would have received had the Option
been  exercised  (to the  extent it has vested  and not been  exercised)  and no
disposition of the shares so acquired upon such exercise been made prior to such
merger,  consolidation,  liquidation,  sale,  disposition,  Change in Control or
other  circumstances,  less the price per share payable upon  exercise  thereof.
Upon receipt of such consideration by the Optionee, the Option shall immediately
terminate and be of no further force and effect,  including  with respect to the
vested  and  unvested  portion  thereof.   The  value  of  the  stock  or  other
consideration  the Optionee would have received if the Option had been exercised
shall be determined in good faith by the Board. In addition,  in the case of any
such merger, consolidation, liquidation, sale, disposition, Change in Control or
other  circumstance,  the Board  may,  in its sole  discretion,  accelerate  the
vesting of the Option.

                  (e) For purposes of this Section,  a "Change in Control" shall
be deemed to have occurred if any person, or any two or more persons acting as a
group,  and all  affiliates  of such person or  persons,  who prior to such time
owned less than fifty percent (50%) of the then outstanding  Common Stock of the
Company,  shall acquire such additional  shares of the Company's Common Stock in
one or more  transactions,  or series of transactions,  such that following such
transaction or  transactions,  such person or group and affiliates  beneficially
own fifty percent (50%) or more of the Company's Common Stock  outstanding;  and
"Common  Stock" shall mean the Stock,  

                                      -13-

<PAGE>
or if changed,  the capital stock of the Company as it shall be constituted from
time  to  time  entitling  the  holders   thereof  to  share  generally  in  the
distribution  of  all  assets   available  for  distribution  to  the  Company's
stockholders  after the  distribution  to any  holders  of  capital  stock  with
preferential rights.

                  (f) Upon dissolution or liquidation of the Company, the Option
shall  terminate,  but the  Optionee (if at such time in the  employment  of the
Company)  shall  have  the  right,  immediately  prior  to such  dissolution  or
liquidation,  to  purchase  shares of the Stock  pursuant  to the  Option to the
extent such Option is then vested.

                  (g) No fraction of a share of Stock  shall be  purchasable  or
deliverable  upon the  exercise of the Option,  but in the event any  adjustment
hereunder of the number of shares  covered by the Option shall cause such number
to include a fraction of a share, such fraction shall be adjusted to the nearest
smaller whole number of shares.

                  (h)  Except as  expressly  provided  herein,  the issue by the
Company  of  shares  of Stock or other  securities  of any  class or  series  or
securities  convertible  into or  exchangeable  or exercisable for shares of the
Stock or other  securities  of any class or series for cash or  property  or for
labor or services  either  upon  direct  sale or upon the  exercise of rights or
warrants to subscribe  therefor,  or upon conversion of shares or obligations of
the Company convertible into such shares or other securities,  shall not affect,
and no adjustment  by reason  thereof shall be made with respect to, the number,
class or price of shares of the Stock then subject to outstanding Options.

         18.      AMENDMENT OR TERMINATION OF PLAN

         The Board may, in its sole and absolute discretion,  modify,  revise or
terminate the Plan at any time and from time to time;  provided,  however,  that
without  the  further  approval  of the  holders of at least a  majority  of the
outstanding  shares of Stock, the Board may not (a) may not materially  increase
the  benefits  accruing  to  Optionees  or  grantees  under the Plan or make any
"modifications"  as  that  term  is  defined  under  Section  424(h)(3)  (or its
successor)  of the Code if such  increase  in benefits  or  modifications  would
adversely  affect the  qualification  of the Plan or any Options for  "incentive
stock option"  treatment  under Section 422 of the Code; 

                                      -14-
<PAGE>

(b) may not change the  aggregate  number of shares of Stock which may be issued
under ISOs pursuant to the provisions of the Plan, except as provided in Section
17 of the Plan; (c) may not reduce the option price at which ISOs may be granted
to an amount less than the minimum  amount  defined by Section 7; or (d) may not
change  the class of  persons  eligible  to receive  ISOs.  Notwithstanding  the
preceding  sentence,  the Board shall in all events have the power and authority
to make  such  changes  in the Plan and in the  regulations  and  administrative
provisions  hereunder or in any outstanding Option as, in the opinion of counsel
for the Company, may be necessary or appropriate from time to time to enable any
STE-1  Option  granted  pursuant  to the Plan to qualify as an  incentive  stock
option or such other form of stock option as may be defined  under the Code,  as
amended  from time to time,  so as to receive  preferential  federal  income tax
treatment.

         19.      CERTAIN RIGHTS OF THE COMPANY

         The Committee may, in its sole and absolute discretion, also require an
employee or other person,  as a condition to receiving any Option, to enter into
a noncompetition agreement or other agreement in such form as the Committee may,
from time to time in its sole and absolute discretion, determine.

         20.      TAX WITHHOLDING

                  (a) To the extent  required by law the Company shall  withhold
income and other taxes with respect to any income  recognized  by an Optionee or
other  person  relating to any Options  granted  under this Plan.  It shall be a
condition  to  the   Optionee's   receipt  of  any  Options  that  the  Optionee
acknowledges  and agrees to the Company's  withholding of taxes and further that
if the amount of any  consideration  payable to the Optionee is  insufficient to
pay such taxes,  upon the request of the Company the  Optionee  shall pay to the
Company  an  amount  sufficient  for the  Company  to  satisfy  tax  withholding
requirements.

                  (b) Without  limiting the foregoing,  the Committee may in its
discretion  permit any withholding  obligation to be paid in whole or in part in
the form of Stock, by withholding  from the shares to be issued upon exercise of
an NQO or by accepting  delivery  from the  Optionee of shares of Stock  already
owned by the Optionee in connection  with  withholding in respect of exercise of

                                      -15-
<PAGE>

an NQO.  The  fair  market  value  of the  shares  for  such  purposes  shall be
determined  exclusively by the Committee.  However, an Optionee may not make any
such  payment  of  withholding  taxes in the form of shares of Stock  previously
acquired by him or her pursuant to the exercise of any ISO unless and until such
shares  shall  have been held by him or her for at least two (2) years  from the
date such  option was granted and at least one (1) year from the date the option
was exercised.  If payment of  withholding  taxes is made in whole or in part in
shares of Stock already owned by the Optionee,  then the Optionee  shall deliver
to the Company certificates  registered in the name of the Optionee representing
shares of Stock legally and  beneficially  owned by such Optionee,  fully vested
and free of all liens,  claims and encumbrances of every kind, such certificates
to be duly endorsed or accompanied by stock powers duly endorsed in blank by the
record holder of the shares represented by such certificates.

         21.      EFFECTIVE DATE AND DURATION OF THE PLAN

         The Plan  shall  become  effective  and  shall be  deemed  to have been
adopted as of March 19, 1998,  subject only to  ratification by the holders of a
majority of the  outstanding  shares of capital  stock  entitled to vote thereon
(voting as a single class) within twelve (12) months after such date. Unless the
Plan shall have terminated earlier, the Plan shall terminate on the tenth (10th)
anniversary of its effective  date,  and no Option shall be granted  pursuant to
the Plan after the day preceding the tenth (10th)  anniversary  of its effective
date.

         The Plan supersedes the 1997 Stock Option Plan of the Company,  adopted
on November 26, 1997.



                                      -16-

<PAGE>

                                    EXHIBIT 1
                            to 1998 Stock Option Plan

                         Form of Stock Option Agreement

                            DESA Holdings Corporation

                             Stock Option Agreement


Specific Terms of the Option

         Subject to the terms and conditions hereinafter set forth and the terms
and  conditions  of the DESA  Holdings  Corporation  1998 Stock Option Plan (the
"Plan"), DESA Holdings Corporation, a Delaware corporation (the "Company", which
term  shall  include,   unless  the  context  otherwise  clearly  requires,  all
Subsidiaries  [as  defined  in the  Plan]  of the  Company)  hereby  grants  the
following option (the "Option") to purchase Common Stock,  par value,  $0.01 per
share (the "Stock") of the Company:

         A.       Name of person to whom the Option is granted (the
                  "Optionee"):              __________________________.

         B.       Date of grant of Option:   _______________.

         C.       An Option for _______ shares of Stock.

         D.       Option Price (per share) payable upon exercise: $ _______.

         E.       Term of  Option:  Subject  to  Section  3 below,  this  Option
                  expires  at 5:00  p.m.  Central  Time  (Standard  or  Daylight
                  Savings, as applicable) _______________.

         F.       Exercise  Schedule:  Subject  to the  provisions  of Section 3
                  below,  this  Option  shall vest and become  exercisable  with
                  respect  to the  number  of  shares  of the Stock and upon the
                  attainment of certain performance goals on or prior to the end
                  of  certain  performance  periods,  as  shown  on  Schedule  I
                  attached hereto and incorporated herein.

DESA HOLDINGS CORPORATION                   The undersigned  hereby accepts
                                            the grant of the  Option on
                                            all  the  terms  set  forth
                                            herein and in the Plan:

By:_______________________                  __________________________________
Title:_________________                     (Signature of Optionee)

                                            Date:___________________

                                            Optionee's Address:

                                            __________________________________
                                            __________________________________
                                            __________________________________



<PAGE>

OTHER TERMS OF THE OPTION

         WHEREAS,  the Compensation  Committee (the "Committee") of the Board of
Directors of the Company has authorized the grant of this stock option  pursuant
and subject to the terms of the Plan, a copy of which the Optionee  acknowledges
has been delivered to the Optionee and is hereby incorporated herein;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  and  agreements  herein  contained,  the  Company  and the  Optionee,
intending to be legally bound, covenant and agree as set forth on the first page
hereof and as follows:

         1. Grant.  Pursuant  and subject to the Plan,  the Company  does hereby
grant to the Optionee a stock option (the "Option") to purchase from the Company
the number of shares of Stock set forth in  Section C on the first  page  hereof
upon the terms  and  conditions  set  forth in the Plan and upon the  additional
terms and conditions contained in this agreement (this "Option Agreement"). This
Option is a [incentive]  [nonqualified]  stock option and [is] [is not] intended
to qualify for special  federal  income tax  treatment  as an  "incentive  stock
option" pursuant to Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").

         2. Option  Price.  This Option may be exercised at the option price per
share of Stock set  forth in  Section D on the first  page  hereof,  subject  to
adjustment as provided herein and in the Plan.

         3. Term and  Exercisability of Option.  This Option shall expire on the
earlier  of (a) the date  determined  pursuant  to  Section E on the first  page
hereof and (b) the date determined  pursuant to Section 8 of the Plan, and shall
be exercisable  prior to such  expiration in accordance  with and subject to the
terms  and  conditions  set  forth in the Plan  (including  but not  limited  to
Sections 9 and 10 of the Plan) and those terms and conditions, if any, set forth
in  Section  F on the  first  page  hereof.  If  the  Optionee's  employment  or
involvement  with the Company is terminated for Cause (as defined in Schedule II
hereto)  or  the  Optionee  voluntarily  terminates  his or  her  employment  or
involvement with the Company,  at any time, for any reason or for no reason,  in
either  such  case,  (excluding  a  Resignation  for Good  Reason as 

                                       -2-

<PAGE>

defined in Schedule II to this Option  Agreement)  the Option hereby  granted to
the Optionee  shall  terminate on the date of such  termination of employment or
involvement.  If the Optionee is terminated by the Company  without Cause or the
Optionee  resigns for Good Reason at any time, the Option shall terminate on the
date of such  termination  of  employment  or  involvement  with  respect to the
unvested portion thereof,  and with respect to the vested portion of the Option,
on the day  which is three  months  after  such  termination  of  employment  or
involvement.  If the Optionee is  terminated  by the Company due to the death or
Disability  (as  defined in  Schedule  II) of the  Optionee,  the  Option  shall
terminate  with  respect  to any  unvested  portion  thereof on the date of such
termination of employment or involvement, and with respect to the vested portion
of the Option, on the 181st day after the date of such termination of employment
or  involvement.  If the Optionee dies before this Option has been  exercised in
full,  the personal  representative  of the Optionee may exercise this Option as
set forth in the preceding sentence.

         4. Method of Exercise.  To the extent that the right to purchase shares
of Stock has accrued  hereunder,  this Option may be exercised from time to time
by written notice to the Company  substantially  in the form attached  hereto as
Exhibit A,  stating  the number of shares  with  respect to which this Option is
being exercised,  and accompanied by payment in full of the option price for the
number of shares to be delivered,  by means of payment acceptable to the Company
in accordance with Section 10 of the Plan.  Subject to the Plan and to Section 7
hereof,  as soon as  practicable  after its receipt of such notice,  the Company
shall,  without  transfer or issue tax to the Optionee (or other person entitled
to exercise this Option),  deliver to the Optionee (or other person  entitled to
exercise this Option), at the principal executive offices of the Company or such
other place as shall be mutually  acceptable,  a certificate or certificates for
such shares out of theretofore authorized but unissued shares or treasury shares
of the Stock as the Company may elect; provided,  however, that the time of such
delivery  may be postponed by the Company for such period as may be required for
it with reasonable diligence to comply with any applicable  requirements of law.
Payment of the option price may be made in cash or cash equivalents or otherwise
in  accordance  with  Section 10 of the Plan.  If the  Optionee (or other person
entitled to exercise this Option) fails to pay for and accept delivery of all of
the shares specified in such notice upon 

                                       -3-

<PAGE>
tender of  delivery  thereof,  his or her right to  exercise  this  Option  with
respect to such shares not paid for may be terminated by the Company.

         5. Forfeiture;  Restrictions on Exercise. This Option may be subject to
forfeiture upon the occurrence of the events specified in Section 12 of the Plan
or Section 3 of this Option  Agreement  or  restrictions  on  exercise  upon the
occurrence of events specified in Section 9 of the Plan.

         6.  Nonassignability  of  Option  Rights.  This  Option  shall  not  be
assignable or  transferable  by the Optionee except as provided in Section 11 of
the Plan.

         7.  Compliance  with Securities Act. The Company shall not be obligated
to sell or  issue  any  shares  of Stock or  other  securities  pursuant  to the
exercise  of this  Option  unless the shares of Stock or other  securities  with
respect to which this  Option is being  exercised  are at that time  effectively
registered  or exempt from  registration  under the  Securities  Act of 1933, as
amended,  and  applicable  state  securities  laws. In the event shares or other
securities shall be issued which shall not be so registered, the Optionee hereby
represents, warrants and agrees that he or she will receive such shares or other
securities for  investment and not with a view to their resale or  distribution,
and will execute an appropriate  investment  letter  satisfactory to the Company
and its counsel as a condition precedent to any exercise of this Option in whole
or in part.

         8. Legends. The Optionee hereby acknowledges that the stock certificate
or  certificates  evidencing  shares  of the  Stock or other  securities  issued
pursuant to any  exercise of this  Option will bear a legend  setting  forth the
restrictions on their transferability  described in Section 6 hereof, in Section
14 of the Plan, and under any applicable agreements between the Optionee and the
Company or any of its stockholders.

         9.  Rights  as  Stockholder.  The  Optionee  shall  have no rights as a
stockholder with respect to any shares of the Stock or other securities  covered
by this Option  until the date of issuance  of a  certificate  to him or her for
such shares or other  securities.  No adjustment  shall be made for dividends or
other  rights  for  which  the  record  date is  prior to the  date  such  stock
certificate is issued.

                                       -4-
<PAGE>

         10. Stockholders Agreement.  The Optionee hereby agrees to and joins in
as a "Management Holder", and agrees to be bound as a "Management Holder" by the
terms and conditions of, the  Stockholders  Agreement,  dated as of November 26,
1997, among the Company and the other persons named therein. The Optionee hereby
further  acknowledges  and  agrees  that the  Option and the shares of the Stock
issuable  upon  exercise of the Option are and shall be subject to the terms and
provisions  of said  Stockholders  Agreement,  as the  same  may be  amended  or
modified from time to time in accordance with its terms.

         11.  Withholding  Taxes. The Optionee hereby agrees,  as a condition to
any exercise of this Option,  to provide to the Company an amount  sufficient to
satisfy  its  obligation  to  withhold  certain  federal,  state and local taxes
arising by reason of such exercise (the "Withholding Amount") by (a) authorizing
the  Company  to  withhold  the   Withholding   Amount  from  his  or  her  cash
compensation,  or (b) remitting the  Withholding  Amount to the Company in cash;
provided,  however,  that to the  extent  that  the  Withholding  Amount  is not
provided by one or a combination  of such  methods,  the Company in its sole and
absolute  discretion  may refuse to issue such  shares of Stock or may  withhold
from the shares of Stock otherwise deliverable upon exercise of this Option that
number of shares having a fair market value, on the date of exercise, sufficient
to eliminate any deficiency in the Withholding Amount.

         12.  Termination  or Amendment  of Plan.  The Board of Directors of the
Company may in its sole and absolute  discretion  at any time  terminate or from
time to time modify or amend the Plan as provided in Section 18 of the Plan, but
no such  termination or amendment will adversely  affect rights and  obligations
under this Option without the consent of the Optionee.

         13. Effect Upon Employment. Nothing in this Option or the Plan shall be
construed to impose any  obligation  upon the Company to employ or retain in its
employ, or continue its involvement with, the Optionee.

         14. Time for Acceptance.  Unless the Optionee shall evidence his or her
acceptance of this Option by execution of this Option 

                                      -5-
<PAGE>

Agreement  within ten (10) days after its delivery to him or her, the Option and
this Option Agreement shall at the option of the Company be null and void.

         15.      General Provisions.

                  (a) Amendment;  Waivers. This Option Agreement,  including the
Plan, contains the full and complete  understanding and agreement of the parties
hereto as to the subject  matter hereof and may not be modified or amended,  nor
may any provision hereof be waived,  except by a further written  agreement duly
signed by each of the parties. The waiver by either of the parties hereto of any
provision  hereof in any  instance  shall not  operate  as a waiver of any other
provision hereof or in any other instance.

                  (b) Binding Effect.  This Option  Agreement shall inure to the
benefit of and be binding  upon the parties  hereto and, to the extent  provided
herein  and in the Plan,  their  respective  heirs,  executors,  administrators,
representatives, successors and assigns.

                  (c) Construction.  This Option Agreement is to be construed in
accordance with the terms of the Plan. In case of any conflict  between the Plan
and this Option Agreement, the Plan shall control. The titles of the sections of
this Option  Agreement  and of the Plan are  included for  convenience  only and
shall not be construed as modifying or affecting their provisions. The masculine
gender shall include both sexes;  the singular  shall include the plural and the
plural the singular unless the context otherwise requires.

                  (d) Governing Law. This Option  Agreement shall be governed by
and construed and enforced in accordance  with the applicable laws of the United
State of  America  and the law (other  than the law  governing  conflict  of law
questions)  of the State of Delaware  except to the extent the laws of any other
jurisdiction are mandatorily applicable.

                  (e)  Notices.  Any  notice  in  connection  with  this  Option
Agreement  shall be deemed to have been  properly  delivered if it is in writing
and is delivered in hand or sent by registered or certified mail, return receipt
requested,  to the party  addressed as follows,  unless another address has been
substituted by notice so given:

                                      -6-
<PAGE>

         To the Optionee:                   To his or her address as
                                            listed on the books of the Company.

         To the Company:                    DESA Holdings Corporation
                                            2701 Industrial Drive
                                            Bowling Green, KY 42102,
                                            Attention: Chairman of the Board

                                            Copy to:

                                            J.W. Childs Associates, L.P.
                                            One Federal Street
                                            Boston, MA  02110
                                            Attention: Mr. Adam L. Suttin

                                            Copy to:

                                            Sullivan & Worcester LLP
                                            One Post Office Square
                                            Boston, MA  02109
                                            Attention: Christopher Cabot, Esq.

         16.  Notice of ISO Stock  Disposition.  The  Optionee  shall notify the
Company  promptly  in the event that he or she sells,  transfers,  exchanges  or
otherwise disposes of any shares of Common Stock issued upon exercise of an ISO,
before the later of (i) the second  anniversary  of the date of grant of the ISO
and (ii) the first  anniversary of the date the shares were issued upon exercise
of the ISO.


                                       -7-

<PAGE>
                                             Exhibit A to Stock Option Agreement


                       [FORM FOR EXERCISE OF STOCK OPTION]


DESA Holdings Corporation
[Address as specified in Section 15(e)
of the Option Agreement]


         Re:      Exercise of Option under DESA Holdings Corporation
                  1998 Stock Option Plan (the "Plan")

Gentlemen:

         Please take notice that the undersigned hereby elects to
exercise the stock option granted to                        on
               , 19___ by and to the  extent  of  purchasing  shares  of  Common
Stock,  par value $.01 per share, of DESA Holdings  Corporation  (the "Company")
for the  option  price of  $__________  per  share,  subject  to the  terms  and
conditions of the Stock Option Agreement between and the Company dated as of
   , 199  (the "Option Agreement") and the Plan.

         The undersigned  encloses  herewith  payment,  in cash or in such other
property as is permitted under the Plan, of the option price for said shares. If
the undersigned is making payment of any part of the option price by delivery of
shares of Common Stock of the Company,  he or she hereby confirms that he or she
has  investigated  and considered the possible income tax consequences to him or
her of making  such  payments in that form.  The  undersigned  hereby  agrees to
provide  the  Company an amount  sufficient  to satisfy  the  obligation  of the
Company to  withhold  certain  taxes,  as  provided  in Section 11 of the Option
Agreement.

         The undersigned hereby specifically  confirms to the Company that he or
she shall hold said shares  subject to all of the terms and  conditions  of said
Stock Option Agreement and the Plan.

                                              Very truly yours,


Date                                          (Signed by                   or
                                              other party duly exercising
                                              option)


<PAGE>

                            DESA HOLDINGS CORPORATION

                             1998 STOCK OPTION PLAN

                                   SCHEDULE I
                              to Option Agreements



                             Option Vesting Schedule

         Subject to the provisions of Section 3 of the Option Agreement to which
this Option Vesting Schedule is attached:

         A. For purposes  hereof,  "EBITDA" means  consolidated  earnings of the
Company  and  its  subsidiaries   before  interest,   taxes,   depreciation  and
amortization  and  after  deduction  of  all  operating  expenses,   subject  to
adjustment by the Board of Directors for extraordinary and non-recurring  items,
all as calculated in accordance with generally  accepted  accounting  principles
consistently  applied, and as reflected in the Company's most recently available
audited consolidated  financial statements for the immediately  preceding fiscal
year and certified by an officer of the Company.

         "Shares"  means the number of shares of Stock set forth in  paragraph C
of the Option Agreement to which this Option Vesting Schedule is attached.

         "Target  Period" means one of the fiscal years of the Company set forth
in Table A hereinbelow.

         B. If the  Company's  EBITDA in any Target  Period is equal to the Base
Target  EBITDA for such  period,  the Option will vest and be  exercisable  with
respect to 6% of the Shares.  If the  Company's  EBITDA in any Target  Period is
equal to or greater  than the  Optimistic  Target  EBITDA for such  period,  the
Option will vest and be  exercisable  with respect to 20% of the Shares.  If the
Company's  EBITDA  for any  Target  Period is  between  the Base  Target and the
Optimistic  Target  EBITDA,  then the  percentage  of the Shares with respect to
which  the  Option  shall  vest  shall  be  determined  according  to  a  linear
extrapolation such that at the Base Target EBITDA the Option will vest for 6% of
the Shares and at the  Optimistic  Target EBITDA the Option will vest for 20% of
the Shares.


                                       -2-

<PAGE>

         C.  Notwithstanding the foregoing,  (a) if (i) the Company's EBITDA for
the 2003 Target  Period is equal to or greater  than the Base Target  EBITDA for
such  period,  and (ii) the  Company's  cumulative  EBITDA  for all five  Target
Periods is equal to the cumulative Base Target EBITDA for such five-year period,
then the Option shall vest and be exercisable with respect 30% of the Shares (to
the extent not theretofore  vested in accordance with this with Schedule I); (b)
if (i) the  Company's  EBITDA for the 2003 Target  Period is equal to or greater
than the Base Target EBITDA for such period,  and (ii) the Company's  cumulative
EBITDA for all five Target  Periods is equal to or greater  than the  cumulative
Optimistic  Target EBITDA,  then the Option shall vest and be  exercisable  with
respect  to  100% of the  Shares  (to  the  extent  not  theretofore  vested  in
accordance  with this with Schedule I); and (c) if (i) the Company's  EBITDA for
the 2003 Target  Period is equal to or greater  than the Base Target  EBITDA for
such  period,  and (ii) the  Company's  cumulative  EBITDA  for all five  Target
Periods  is  between  the  cumulative  Base  Target  EBITDA  and the  cumulative
Optimistic  Target,  then the percentage of the Shares with respect to which the
Option shall vest shall be determined  according to a linear  extrapolation such
that at the  cumulative  Base Target  EBITDA the Option will vest for 30% of the
Shares and at the cumulative  Optimistic  Target EBITDA the Option will vest for
100% of the Shares (to the extent not theretofore vested in accordance with this
with Schedule I).

         D.  Notwithstanding  the  foregoing,  if there  shall occur a Change of
Control  (as  defined  in the Plan)  prior to the end of Fiscal  Yr. 5, then the
Option shall vest and be exercisable, effective immediately prior to such Change
in Control,  with respect to a percentage  of the Shares  reserved (but for this
paragraph)  for vesting in any Target Period ending after the occurrence of such
Change in Control equal to the quotient  (expressed as a percentage)  of (i) the
number of Shares with respect to which the Option shall have theretofore vested,
divided by (ii) the maximum  number of Shares  with  respect to which the Option
would have  theretofore  vested had the Company's  EBITDA for each Target Period
ending  prior to the  occurrence  of such  Change in  Control  been  equal to or
greater  than the  Optimistic  Target  EBITDA for the each such  Target  Period;
provided,  however,  that such percentage  determined pursuant to this paragraph
shall be rounded down to the nearest tenth of a percent.


                                       -3-
<PAGE>

                                     Table A

                                                            Optimistic Target
                               Base Target EBITDA                EBITDA
Fiscal Year                        (millions)                  (Millions)

    1999                     [To be determined by        [To be determined by
                                     the Board of                the Board of
                                 Directors of the            Directors of the
                                         Company]                    Company]

    2000                     [To be determined by        [To be determined by
                                     the Board of                the Board of
                                 Directors of the            Directors of the
                                         Company]                    Company]

    2001                     [To be determined by        [To be determined by
                                     the Board of                the Board of
                                 Directors of the            Directors of the
                                         Company]                    Company]

    2002                     [To be determined by        [To be determined by
                                     the Board of                the Board of
                                 Directors of the            Directors of the
                                         Company]                    Company]

    2003                     [To be determined by        [To be determined by
                                     the Board of                the Board of
                                 Directors of the            Directors of the
                                         Company]                    Company]

 Cumulative                  [To be determined by        [To be determined by
                                     the Board of                the Board of
                                 Directors of the            Directors of the
                                         Company]                    Company]

         E.  Notwithstanding  the  foregoing,  provided that (i) Optionee  shall
continue  to  be an  employee,  director  or  consultant  of  the  Company  or a
subsidiary,  and (ii) the Company shall not have (a) merged or consolidated with
another corporation or other entity, whether or not the Company is the surviving
entity, or (b) liquidated or sold or otherwise  disposed of all or substantially
all of its assets to another entity,  or (c) been subject to a Change in Control
(as defined in the Plan),  the Option shall vest and be  exercisable,  effective
immediately,  nine (9) years and six (6)  months  from the date as of which such
Option was granted.


                                       -4-

<PAGE>

         F. Notwithstanding the foregoing,  in the event that the Realized Value
(defined below) of the Initial Shares (defined below) should equal or exceed the
amounts set forth in the following table in the time periods indicated, then the
unvested portion of the Option shall vest and be immediately exercisable:


Period                                         Realized Value
11/26/97-2/29/00                               
3/1/00-2/28/01                                 
3/1/01-2/28/02                                 
3/1/02-2/28/03                                 


         G.  "Initial  Shares"  means the shares of Common  Stock of the Company
issued and  outstanding  at  November  26, 1997 and  beneficially  owned by J.W.
Childs Equity  Partners and  affiliates  (excluding JWC Equity  Funding,  Inc.).
"Realized   Value"  means  the  aggregate  cash  proceeds,   net  of  reasonable
out-of-pocket fees and expenses  (including but not limited to broker's fees and
underwriters discounts and commissions) actually received, from time to time, by
holders of the Initial Shares from (i) sale(s) or other disposition(s) of all or
a portion of the Initial Shares,  or (ii) sales(s) or other  dispositions(s)  of
securities or other property  received by such holders as proceeds of sale(s) or
other disposition(s) by holders of the Initial Shares of all or a portion of the
Initial Shares, or (iii) any combination of the foregoing clauses (i) and (ii).

         H. Upon the  Company's  making an  acquisition  or  disposition  of any
material  business or line of business,  the EBITDA  Targets set forth above for
Target Periods ending after the date of such transaction will be adjusted by the
Board of  Directors  of the  Company to take into  account the changes in EBITDA
expected as a result of such transaction.

                                       -5-
<PAGE>

                           DESA HOLDINGS CORPORATION



                                   SCHEDULE II


                            Definitions Applicable to
                      Non-Qualified Stock Option Agreement



         1.  "Cause"  The Company  shall have  "Cause"  for  termination  of the
Optionee if any of the following has occurred:

                  (i) Optionee's  conviction or admission of a felony or a crime
         involving  moral  turpitude  under the laws of any state in the  United
         States  or  the  federal   laws  of  the  United   States,   or  fraud,
         misappropriation  or  embezzlement  of the assets of the Company or any
         subsidiary thereof;

                  (ii) If  Optionee is party to a written  employment  agreement
         with the  Company  or a  subsidiary,  the  breach  by  Optionee  of any
         provision or covenant  contained  therein which breach, by the terms of
         such  agreement,  constitutes  "cause" for  termination  of  Optionee's
         employment thereunder;

                  (iii)  If  Optionee  is not a party  to a  written  employment
         agreement with the Company or a subsidiary,  (a)  Optionee's  continued
         failure,  whether  willful,  intentional  or  negligent,  after written
         notice,  to perform  his or her duties as an  employee  of the  Company
         (other than as a result of a Disability),  or (b) Optionee's  breach of
         any duty or obligation of noncompetition or confidentiality owed by the
         Optionee to the Company or any of its subsidiaries.

         2.  "Disability"  If during  the term of his or her  Employment  by the
Company, the Optionee shall become physically or mentally disabled to the extent
that he or she is, in the  reasonable  opinion of a  recognized  medical  expert
selected by the Company, unable to continue the proper performance of his or her
duties for a continuous period of one hundred eighty (180) days,  Optionee shall
be considered disabled.


                                       -6-

<PAGE>

         3.  "Resignation for Good Reason" The Optionee shall have "Good Reason"
for terminating his or her employment with the Company if, other than for Cause,
any of the following has occurred:

                  (i) If Optionee is a party to a written  employment  agreement
         with the Company or any subsidiary,  (a) the Company (or subsidiary, as
         applicable)  causes a material change in Optionee's duties as set forth
         therein or  assigns  the  Employee  to duties  materially  inconsistent
         therewith;  (b) the Optionee is removed  from,  or not re-elect to, any
         position(s) of employment set forth in such  agreement;  (c) there is a
         reduction in the Optionee's  salary or fringe  benefits  established in
         such  employment  agreement;  (d) an  adverse  change  in the  terms of
         participation or benefits under a bonus plan established in conjunction
         with such  agreement  (unless the Company  provides  benefits  that are
         substantially  equivalent);  or (d) there is any breach by the  Company
         (or a subsidiary,  if applicable) of any term of such agreement,  which
         is not cured by within thirty (30) days after receipt of written notice
         of such breach.

                  (ii)  If  Optionee  is  not  party  to  a  written  employment
         agreement  with the  Company or any  subsidiary,  the  Optionee's  base
         salary   has  been   reduced   other   than  in   connection   with  an
         across-the-board  reduction  of  employee  compensation  imposed by the
         Board of Directors in response to negative  financial  results or other
         adverse circumstances affecting the Company.



                                       -7-

<PAGE>



                                    EXHIBIT 2
                            to 1998 Stock Option Plan
                         Form of Stock Option Agreement

                            DESA Holdings Corporation

                             Stock Option Agreement


Specific Terms of the Option

         Subject to the terms and conditions hereinafter set forth and the terms
and  conditions  of the DESA  Holdings  Corporation  1998 Stock Option Plan (the
"Plan"), DESA Holdings Corporation, a Delaware corporation (the "Company", which
term  shall  include,   unless  the  context  otherwise  clearly  requires,  all
Subsidiaries  [as  defined  in the  Plan]  of the  Company)  hereby  grants  the
following option (the "Option") to purchase Common Stock,  par value,  $0.01 per
share (the "Stock"), of the Company:

         A.       Name of person to whom the Option is granted (the
                  "Optionee"):      __________________________.

         B.       Date of grant of Option:   _______________.

         C.       An Option for _______ shares of Stock.

         D.       Option price (per share) payable upon exercise: $ _______.

         E.       Term of  Option:  Subject  to  Section  3 below,  this  Option
                  expires  at 5:00  p.m.  Eastern  Time  (Standard  or  Daylight
                  Savings, as applicable) _______________.

         F.       Exercise  Schedule:  Subject  to the  provisions  of Section 3
                  below,  this  Option  shall vest and become  exercisable  with
                  respect  to the  number  of  shares of the Stock at the end of
                  certain  periods,  as shown on Schedule I attached  hereto and
                  incorporated herein.

DESA HOLDINGS CORPORATION                   The undersigned hereby accepts the
                                            grant of the Option on all the terms
                                            set forth herein and in the Plan

By:_______________________                  __________________________________
Title:____________________                  (Signature of Optionee)

                                            Date:___________________

                                            Optionee's Address:

                                            _________________________________
                                            _________________________________
                                            _________________________________



<PAGE>

OTHER TERMS OF THE OPTION

         WHEREAS,  the Compensation  Committee (the "Committee") of the Board of
Directors of the Company has authorized the grant of this stock option  pursuant
and subject to the terms of the Plan, a copy of which the Optionee  acknowledges
has been delivered to the Optionee and is hereby incorporated herein;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  and  agreements  herein  contained,  the  Company  and the  Optionee,
intending to be legally bound, covenant and agree as set forth on the first page
hereof and as follows:

         1. Grant.  Pursuant  and subject to the Plan,  the Company  does hereby
grant to the Optionee a stock option (the "Option") to purchase from the Company
the number of shares of Stock set forth in  Section C on the first  page  hereof
upon the terms  and  conditions  set  forth in the Plan and upon the  additional
terms and conditions contained in this agreement (this "Option Agreement"). This
Option is a [incentive]  [nonqualified]  stock option and [is] [is not] intended
to qualify for special  federal  income tax  treatment  as an  "incentive  stock
option" pursuant to Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").

         2. Option  Price.  This Option may be exercised at the option price per
share of Stock set  forth in  Section D on the first  page  hereof,  subject  to
adjustment as provided herein and in the Plan.

         3. Term and  Exercisability of Option.  This Option shall expire on the
earlier  of (a) the date  determined  pursuant  to  Section E on the first  page
hereof and (b) the date determined  pursuant to Section 8 of the Plan, and shall
be exercisable  prior to such  expiration in accordance  with and subject to the
terms  and  conditions  set  forth in the Plan  (including  but not  limited  to
Sections 9 and 10 of the Plan) and those terms and conditions, if any, set forth
in  Section  F on the  first  page  hereof.  If  the  Optionee's  employment  or
involvement  with the Company is terminated for Cause (as defined in Schedule II
hereto)  or  the  Optionee  voluntarily  terminates  his or  her  employment  or
involvement with the Company,  at any time, for any reason or for no reason,  in
either  such  case,  (excluding  a  Resignation  for Good  Reason as 


                                       -2-

<PAGE>

defined in Schedule II to this Option  Agreement)  the Option hereby  granted to
the Optionee  shall  terminate on the date of such  termination of employment or
involvement.  If the Optionee is terminated by the Company  without Cause or the
Optionee  resigns for Good Reason at any time, the Option shall terminate on the
date of such  termination  of  employment  or  involvement  with  respect to the
unvested portion thereof,  and with respect to the vested portion of the Option,
on the day  which is three  months  after  such  termination  of  employment  or
involvement.  If the Optionee is  terminated  by the Company due to the death or
Disability  (as  defined in  Schedule  II) of the  Optionee,  the  Option  shall
terminate  with  respect  to any  unvested  portion  thereof on the date of such
termination of employment or involvement, and with respect to the vested portion
of the Option, on the 181st day after the date of such termination of employment
or  involvement.  If the Optionee dies before this Option has been  exercised in
full,  the personal  representative  of the Optionee may exercise this Option as
set forth in the preceding sentence.

         4. Method of Exercise.  To the extent that the right to purchase shares
of Stock has accrued  hereunder,  this Option may be exercised from time to time
by written notice to the Company  substantially  in the form attached  hereto as
Exhibit A,  stating  the number of shares  with  respect to which this Option is
being exercised,  and accompanied by payment in full of the option price for the
number of shares to be delivered,  by means of payment acceptable to the Company
in accordance with Section 10 of the Plan.  Subject to the Plan and to Section 7
hereof,  as soon as  practicable  after its receipt of such notice,  the Company
shall,  without  transfer or issue tax to the Optionee (or other person entitled
to exercise this Option),  deliver to the Optionee (or other person  entitled to
exercise this Option), at the principal executive offices of the Company or such
other place as shall be mutually  acceptable,  a certificate or certificates for
such shares out of theretofore authorized but unissued shares or treasury shares
of the Stock as the Company may elect; provided,  however, that the time of such
delivery  may be postponed by the Company for such period as may be required for
it with reasonable diligence to comply with any applicable  requirements of law.
Payment of the option price may be made in cash or cash equivalents or otherwise
in  accordance  with  Section 10 of the Plan.  If the  Optionee (or other person
entitled to exercise this Option) fails to pay for and accept delivery of all of
the shares specified in such notice upon 


                                       -3-

<PAGE>
tender of  delivery  thereof,  his or her right to  exercise  this  Option  with
respect to such shares not paid for may be terminated by the Company.

         5. Forfeiture;  Restrictions on Exercise. This Option may be subject to
forfeiture upon the occurrence of the events specified in Section 12 of the Plan
or Section 3 of this Option  Agreement  or  restrictions  on  exercise  upon the
occurrence of events specified in Section 9 of the Plan.

         6.  Nonassignability  of  Option  Rights.  This  Option  shall  not  be
assignable or  transferable  by the Optionee except as provided in Section 11 of
the Plan.

         7.  Compliance  with Securities Act. The Company shall not be obligated
to sell or  issue  any  shares  of Stock or  other  securities  pursuant  to the
exercise  of this  Option  unless the shares of Stock or other  securities  with
respect to which this  Option is being  exercised  are at that time  effectively
registered  or exempt from  registration  under the  Securities  Act of 1933, as
amended,  and  applicable  state  securities  laws. In the event shares or other
securities shall be issued which shall not be so registered, the Optionee hereby
represents, warrants and agrees that he or she will receive such shares or other
securities for  investment and not with a view to their resale or  distribution,
and will execute an appropriate  investment  letter  satisfactory to the Company
and its counsel as a condition precedent to any exercise of this Option in whole
or in part.

         8. Legends. The Optionee hereby acknowledges that the stock certificate
or  certificates  evidencing  shares  of the  Stock or other  securities  issued
pursuant to any  exercise of this  Option will bear a legend  setting  forth the
restrictions on their transferability  described in Section 6 hereof, in Section
14 of the Plan, and under any applicable agreements between the Optionee and the
Company or any of its stockholders.

         9.  Rights  as  Stockholder.  The  Optionee  shall  have no rights as a
stockholder with respect to any shares of the Stock or other securities  covered
by this Option  until the date of issuance  of a  certificate  to him or her for
such shares or other  securities.  No adjustment  shall be made for dividends or
other  rights  for  which  the  record  date is  prior to the  date  such  stock
certificate is issued.

                                       -4-
<PAGE>

         10. Stockholders Agreement.  The Optionee hereby agrees to and joins in
as a "Management Holder", and agrees to be bound as a "Management Holder" by the
terms and conditions of, the  Stockholders  Agreement,  dated as of November 26,
1997, among the Company and the other persons named therein. The Optionee hereby
further  acknowledges  and  agrees  that the  Option and the shares of the Stock
issuable  upon  exercise of the Option are and shall be subject to the terms and
provisions  of said  Stockholders  Agreement,  as the  same  may be  amended  or
modified from time to time in accordance with its terms.

         11.  Withholding  Taxes. The Optionee hereby agrees,  as a condition to
any exercise of this Option,  to provide to the Company an amount  sufficient to
satisfy  its  obligation  to  withhold  certain  federal,  state and local taxes
arising by reason of such exercise (the "Withholding Amount") by (a) authorizing
the  Company  to  withhold  the   Withholding   Amount  from  his  or  her  cash
compensation,  or (b) remitting the  Withholding  Amount to the Company in cash;
provided,  however,  that to the  extent  that  the  Withholding  Amount  is not
provided by one or a combination  of such  methods,  the Company in its sole and
absolute  discretion  may refuse to issue such  shares of Stock or may  withhold
from the shares of Stock otherwise deliverable upon exercise of this Option that
number of shares having a fair market value, on the date of exercise, sufficient
to eliminate any deficiency in the Withholding Amount.

         12.  Termination  or Amendment  of Plan.  The Board of Directors of the
Company may in its sole and absolute  discretion  at any time  terminate or from
time to time modify or amend the Plan as provided in Section 18 of the Plan, but
no such  termination or amendment will adversely  affect rights and  obligations
under this Option without the consent of the Optionee.

         13. Effect Upon Employment. Nothing in this Option or the Plan shall be
construed to impose any  obligation  upon the Company to employ or retain in its
employ, or continue its involvement with, the Optionee.

         14. Time for Acceptance.  Unless the Optionee shall evidence his or her
acceptance of this Option by execution of this Option  


                                       -5-

<PAGE>
Agreement  within ten (10) days after its delivery to him or her, the Option and
this Option Agreement shall at the option of the Company be null and void.

         15.      General Provisions.

                  (a) Amendment;  Waivers. This Option Agreement,  including the
Plan, contains the full and complete  understanding and agreement of the parties
hereto as to the subject  matter hereof and may not be modified or amended,  nor
may any provision hereof be waived,  except by a further written  agreement duly
signed by each of the parties. The waiver by either of the parties hereto of any
provision  hereof in any  instance  shall not  operate  as a waiver of any other
provision hereof or in any other instance.

                  (b) Binding Effect.  This Option  Agreement shall inure to the
benefit of and be binding  upon the parties  hereto and, to the extent  provided
herein  and in the Plan,  their  respective  heirs,  executors,  administrators,
representatives, successors and assigns.

                  (c) Construction.  This Option Agreement is to be construed in
accordance with the terms of the Plan. In case of any conflict  between the Plan
and this Option Agreement, the Plan shall control. The titles of the sections of
this Option  Agreement  and of the Plan are  included for  convenience  only and
shall not be construed as modifying or affecting their provisions. The masculine
gender shall include both sexes;  the singular  shall include the plural and the
plural the singular unless the context otherwise requires.

                  (d) Governing Law. This Option  Agreement shall be governed by
and construed and enforced in accordance  with the applicable laws of the United
State of  America  and the law (other  than the law  governing  conflict  of law
questions)  of the State of Delaware  except to the extent the laws of any other
jurisdiction are mandatorily applicable.

                  (e)  Notices.  Any  notice  in  connection  with  this  Option
Agreement  shall be deemed to have been  properly  delivered if it is in writing
and is delivered in hand or sent by registered or certified mail, return receipt
requested,  to the party  addressed as follows,  unless another address has been
substituted by notice so given:
      

                                       -6-

<PAGE>
        To the Optionee:           To his or her address as
                                   listed on the books of the Company.

         To the Company:           DESA Holdings Corporation
                                   2701 Industrial Drive
                                   Bowling Green, KY 42102,
                                   Attention: Chairman of the Board

                                   Copy to:

                                   J.W. Childs Associates, L.P.
                                   One Federal Street
                                   Boston, MA  02110
                                   Attention: Mr. Adam L. Suttin

                                   Copy to:

                                   Sullivan & Worcester LLP
                                   One Post Office Square
                                   Boston, MA  02109
                                   Attention: Christopher Cabot, Esq.

         16.  Notice of ISO Stock  Disposition.  The  Optionee  shall notify the
Company  promptly  in the event that he or she sells,  transfers,  exchanges  or
otherwise disposes of any shares of Common Stock issued upon exercise of an ISO,
before the later of (i) the second  anniversary  of the date of grant of the ISO
and (ii) the first  anniversary of the date the shares were issued upon exercise
of the ISO.


                                      -7-
<PAGE>

                                            Exhibit A to Stock Option Agreement

                       [FORM FOR EXERCISE OF STOCK OPTION]


DESA Holdings Corporation
[Address as specified in Section 15(e)
of the Option Agreement]


         Re:      Exercise of Option under DESA Holdings Corporation
                  1998 Stock Option Plan (the "Plan")

Gentlemen:

         Please take notice that the undersigned hereby elects to
exercise the stock option granted to                        on
               , 19___ by and to the  extent  of  purchasing  shares  of  Common
Stock,  par value $.01 per share, of DESA Holdings  Corporation  (the "Company")
for the  option  price of  $__________  per  share,  subject  to the  terms  and
conditions of the Stock Option Agreement between and the Company dated as of
   , 199  (the "Option Agreement") and the Plan.

         The undersigned  encloses  herewith  payment,  in cash or in such other
property as is permitted under the Plan, of the option price for said shares. If
the undersigned is making payment of any part of the option price by delivery of
shares of Common Stock of the Company,  he or she hereby confirms that he or she
has  investigated  and considered the possible income tax consequences to him or
her of making  such  payments in that form.  The  undersigned  hereby  agrees to
provide  the  Company an amount  sufficient  to satisfy  the  obligation  of the
Company to  withhold  certain  taxes,  as  provided  in Section 11 of the Option
Agreement.

         The undersigned hereby specifically  confirms to the Company that he or
she shall hold said shares  subject to all of the terms and  conditions  of said
Stock Option Agreement and the Plan.

                                           Very truly yours,


Date                                       (Signed by                   or
                                           other party duly exercising
                                           option)



<PAGE>



                            DESA HOLDINGS CORPORATION

                             1998 STOCK OPTION PLAN

                                   SCHEDULE I
                              to Option Agreements



                             Option Vesting Schedule


         For purposes  hereof,  "Shares" means the number of shares of Stock set
forth in  paragraph  C of the  Option  Agreement  to which this  Option  Vesting
Schedule is attached.

         Subject to the provisions of Section 3 of the Option Agreement to which
this Option Vesting Schedule is attached, the Option shall become exercisable as
follows:

         (1)      With respect to 5% of the Shares, as the date which is one (1)
                  year  after the date set forth in  paragraph  B of the  Option
                  Agreement to which this Option Vesting Schedule is attached;

         (2)      With respect to 5% of the Shares, as the date which is two (2)
                  years  after the date set forth in  paragraph  B of the Option
                  Agreement to which this Option Vesting Schedule is attached;

         (3)      With respect to 50% of the Shares,  as the date which is three
                  (3)  years  after  the date set  forth in  paragraph  B of the
                  Option  Agreement  to which this  Option  Vesting  Schedule is
                  attached;

         (4)      With  respect to 20% of the Shares,  as the date which is four
                  (4)  years  after  the date set  forth in  paragraph  B of the
                  Option  Agreement  to which this  Option  Vesting  Schedule is
                  attached; and

         (5)      With  respect to 20% of the Shares,  as the date which is five
                  (5)  years  after  the date set  forth in  paragraph  B of the
                  Option  Agreement  to which this  Option  Vesting  Schedule is
                  attached;


                                       -2-

<PAGE>

                            DESA HOLDINGS CORPORATION



                                   SCHEDULE II


                            Definitions Applicable to
                      Non-Qualified Stock Option Agreement



         1.  "Cause"  The Company  shall have  "Cause"  for  termination  of the
Optionee if any of the following has occurred:

                  (i) Optionee's  conviction or admission of a felony or a crime
         involving  moral  turpitude  under the laws of any state in the  United
         States  or  the  federal   laws  of  the  United   States,   or  fraud,
         misappropriation  or  embezzlement  of the assets of the Company or any
         subsidiary thereof;

                  (ii) If  Optionee is party to a written  employment  agreement
         with the  Company  or a  subsidiary,  the  breach  by  Optionee  of any
         provision or covenant  contained  therein which breach, by the terms of
         such  agreement,  constitutes  "cause" for  termination  of  Optionee's
         employment thereunder;

                  (iii)  If  Optionee  is not a party  to a  written  employment
         agreement with the Company or a subsidiary,  (a)  Optionee's  continued
         failure,  whether  willful,  intentional  or  negligent,  after written
         notice,  to perform  his or her duties as an  employee  of the  Company
         (other than as a result of a Disability),  or (b) Optionee's  breach of
         any duty or obligation of noncompetition or confidentiality owed by the
         Optionee to the Company or any of its subsidiaries.

         2.  "Disability"  If during  the term of his or her  Employment  by the
Company, the Optionee shall become physically or mentally disabled to the extent
that he or she is, in the  reasonable  opinion of a  recognized  medical  expert
selected by the Company, unable to continue the proper performance of his or her
duties for a continuous period of one hundred eighty (180) days,  Optionee shall
be considered disabled.

                                       -3-

<PAGE>

         3.  "Resignation for Good Reason" The Optionee shall have "Good Reason"
for terminating his or her employment with the Company if, other than for Cause,
any of the following has occurred:

                  (i) If Optionee is a party to a written  employment  agreement
         with the Company or any subsidiary,  (a) the Company (or subsidiary, as
         applicable)  causes a material change in Optionee's duties as set forth
         therein or  assigns  the  Employee  to duties  materially  inconsistent
         therewith;  (b) the Optionee is removed  from,  or not re-elect to, any
         position(s) of employment set forth in such  agreement;  (c) there is a
         reduction in the Optionee's  salary or fringe  benefits  established in
         such  employment  agreement;  (d) an  adverse  change  in the  terms of
         participation or benefits under a bonus plan established in conjunction
         with such  agreement  (unless the Company  provides  benefits  that are
         substantially  equivalent);  or (d) there is any breach by the  Company
         (or a subsidiary,  if applicable) of any term of such agreement,  which
         is not cured by within thirty (30) days after receipt of written notice
         of such breach.

                  (ii)  If  Optionee  is  not  party  to  a  written  employment
         agreement  with the  Company or any  subsidiary,  the  Optionee's  base
         salary   has  been   reduced   other   than  in   connection   with  an
         across-the-board  reduction  of  employee  compensation  imposed by the
         Board of Directors in response to negative  financial  results or other
         adverse circumstances affecting the Company.



                                       -4-