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ARTICLE 1 

| 1.1  | Revolving Credit Loans                                         | 1 |
|------|----------------------------------------------------------------|---|
| 1.2  | Commitment Fee                                                 | 1 |
| 1.3  | Interest                                                       | 1 |
| 1.4  | Interest Options                                               | 2 |
| 1.5  | Notice of Borrowing; Conversion                                | 2 |
| 1.6  | Warranty                                                       | 2 |
| 1.7  | Payments                                                       | 2 |
| 1.8  | Use of Proceeds                                                | 3 |
| 1.9  | Optional Prepayments; Reduction of Revolving Credit Commitment | 4 |
| 1.10 | Recordkeeping                                                  | 4 |
| 1.11 | Increased Costs                                                | 4 |
| 1.12 | Deposits Unavailable or Interest Rate Unascertainable          | 5 |
| 1.13 | Change in Law Rendering LIBOR Loans Unlawful                   | 5 |
| 1.14 | Discretion of M&I as to Manner of Funding                  | 6 |
| 1.15 | Letters of Credit                                              | 6 |

| 2.1 | General Conditions    | 6 |
|-----|-----------------------|---|
| 2.2 | Deliveries at Closing | 7 |

| 3.1  | Organization and Qualification; Subsidiaries | 8  |
|------|----------------------------------------------|----|
| 3.2  | Financial Statements                         | 8  |
| 3.3  | Authorization; Enforceability                | 8  |
| 3.4  | Absence of Conflicting Obligations; Defaults | 8  |
| 3.5  | Taxes                                        | 9  |
| 3.6  | Absence of Litigation                        | 9  |
| 3.7  | Indebtedness                                 | 9  |
| 3.8  | Title to Property                            | 9  |
| 3.9  | ERISA                                        | 9  |
| 3.10 | Fiscal Year                                  | 10 |
| 3.11 | Compliance With Laws                         | 10 |
| 3.12 | Dump Sites                                   | 10 |
| 3.13 | Tanks                                        | 10 |
| 3.14 | Other Environmental Conditions               | 10 |
| 3.15 | Environmental Judgments, Decrees and Orders  | 11 |
| 3.16 | Environmental Permits and Licenses           | 11 |
| 3.17 | Use of Proceeds; Margin Stock                | 11 |
| 3.18 | Investment Company                           | 11 |
| 3.19 | Accuracy of Information                      | 11 |

| 4.1  | Revolving Credit Loans       | 11 |
|------|------------------------------|----|
| 4.2  | Liens                        | 11 |
| 4.3  | Indebtedness                 | 11 |
| 4.4  | Consolidation or Merger      | 12 |
| 4.5  | Disposition of Assets        | 12 |
| 4.6  | Investments                  | 12 |
| 4.7  | Restricted Payments          | 12 |
| 4.8  | Transactions with Affiliates | 12 |
| 4.9  | Guarantees                   | 12 |
| 4.10 | Change in Control            | 12 |
| 4.11 | Capital Expenditures         | 13 |

| 5.1  | Payment                                    | 13 |
|------|--------------------------------------------|----|
| 5.2  | Corporate Existence; Properties; Ownership | 13 |
| 5.3  | Licenses                                   | 13 |
| 5.4  | Reporting Requirements                     | 13 |
| 5.5  | Taxes                                      | 14 |
| 5.6  | Inspection of Properties and Records       | 14 |
| 5.7  | Reference in Financial Statements          | 15 |
| 5.8  | Compliance with Laws                       | 15 |
| 5.9  | Compliance with Agreements                 | 15 |
| 5.10 | Notices                                    | 15 |
| 5.11 | Insurance                                  | 16 |
| 5.12 | New Subsidiaries; Acquisitions             | 17 |
| 5.13 | Financial Covenants                        | 17 |

| 6.1 | Acceleration                          | 18 |
|-----|---------------------------------------|----|
| 6.2 | M&I’s Right to Cure Default | 18 |
| 6.3 | Remedies Not Exclusive                | 18 |
| 6.4 | Setoff                                | 18 |
| 6.5 | Cash Collateral                       | 19 |

| 7.1 | Definitions    | 19 |
|-----|----------------|----|
| 7.2 | Interpretation | 30 |

| 8.1  | Expenses and Attorneys’ Fees             | 30 |
|------|------------------------------------------------|----|
| 8.2  | Assignability; Successors                      | 30 |
| 8.3  | Survival                                       | 30 |
| 8.4  | Governing Law                                  | 30 |
| 8.5  | Counterparts; Headings                         | 30 |
| 8.6  | Entire Agreement                               | 31 |
| 8.7  | Notices                                        | 31 |
| 8.8  | Amendment                                      | 31 |
| 8.9  | Taxes                                          | 31 |
| 8.10 | Severability                                   | 32 |
| 8.11 | Indemnification                                | 32 |
| 8.12 | Participation                                  | 32 |
| 8.13 | Inconsistent Provisions                        | 32 |
| 8.14 | WAIVER OF RIGHT TO JURY TRIAL                  | 32 |
| 8.15 | TIME OF ESSENCE                                | 32 |
| 8.16 | SUBMISSION TO JURISDICTION; SERVICE OF PROCESS | 32 |
| 8.17 | Termination of Certain Agreements              | 33 |

| QBMKE\5327135.7 |   |   |
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| Schedule 3.1  | Borrower’s Subsidiaries and the Borrower’s Percentage Ownership of Each |
|---------------|-------------------------------------------------------------------------------------|
| Schedule 3.6  | Litigation                                                                          |
| Schedule 3.12 | Dump Sites                                                                          |
| Schedule 3.13 | Tanks                                                                               |
| Schedule 3.14 | Other Environmental Conditions                                                      |
| Schedule 3.15 | Environmental Judgments, Decrees and Orders                                         |
| Schedule 7.1  | Existing Indebtedness and Liens                                                     |

| Exhibit A | Certificate of the Secretary of Borrower |
|-----------|------------------------------------------|
| Exhibit B | Officer’s Certificate              |
| Exhibit C | Revolving Credit Note                    |

| QBMKE\5327135.7 |   |   |
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| then so long as such circumstances shall continue, M&I shall not be under any obligation to make or continue LIBOR Loans and on the last day of the then-current Interest Period, such LIBOR Loans shall, unless then repaid in full, be converted to Prime Rate Loans. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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M&I shall have received such other agreements, instruments, documents, certificates and opinions as M&I or its counsel may reasonably request. 

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| Date of Determination                                                      | Minimum EBITDA |
|----------------------------------------------------------------------------|----------------|
| March 31, 2003                                                             | $6,000,000     |
| June 30, 2003                                                              | 6,000,000      |
| September 30, 2003                                                         | 7,000,000      |
| December 31, 2003                                                          | 10,000,000     |
| March 31, 2004 and at the end of each fiscal  quarter thereafter | 11,000,000     |
|                                                                       |           |

| Date of Determination                                                     | Maximum Ratio |
|---------------------------------------------------------------------------|---------------|
| March 31, 2003                                                            | 3.75:1        |
| June 30, 2003                                                             | 3.75:1        |
| September 30, 2003                                                        | 3.50:1        |
| December 31, 2003                                                         | 2.75:1        |
| March 31, 2004                                                            | 2.75:1        |
| June 30, 2004 and at the end of each fiscal  quarter thereafter | 2.50:1        |
|                                                                      |          |

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| Level: | Total Funded Debt to EBITDA Ratio:                    | Add-On for LIBOR Loans: | Commitment Fee: |
|--------|-------------------------------------------------------|-------------------------|-----------------|
| I      | greater than or equal to 2.5:1                        | 2.50%                   | .375%           |
| II     | less than 2.5.0:1, but greater than or equal to 2.0:1 | 2.00%                   | .25%            |
| III    | less than 2.0:1, but greater than or equal to 1.5:1   | 1.50%                   | .25%            |
| IV     | less than 1.5:1 but greater than or equal to 1.0:1    | 1.25%                   | .25%            |
| V      | less than 1.0:1                                       | 1.00%                   | .25%            |
| OPEN   | N/A                                                   | 2.75%                   | .375%           |

|   | Requirement |
|--------|-------------|

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| SUBSIDIARY                                                                              | BORROWER’S OWNERSHIP |
|-----------------------------------------------------------------------------------------|----------------------------|
| 1. Twin Disc International, S.A. (a Belgian corporation)                      | 100%                       |
| 2. Twin Disc Italia S.R.L. (an Italian corporation)                           | 100%                       |
| 3. Twin Disc (Pacific) Pty. Ltd. (an Australian corporation)                  | 100%                       |
| 4. Twin Disc (Far East) Ltd. (a Delaware corporation operating in Singapore)  | 100%                       |
| 5. Mill-Log Equipment Co., Inc. (an Oregon corporation)                       | 100%                       |
| 6. Twin Disc Southeast Inc. (a Florida corporation)                           | 100%                       |
| 7. Technodrive S.p.A. (an Italian corporation)                                | 100%                       |
| 8. Nico Transmission Co., Ltd (a Japanese corporation)                        | 66%                        |

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|                  |                                    | Available   | Outstanding       |
|-----------------------|-----------------------------------------|-------------|-------------------|
|                  | Name of Lender                          | Funds       | December 16, 2002 |
|                  |                                    |        |              |
| Twin Disc,            | U.S. Bank (agent)                       | $35,000,000 | $10,550,000       |
| Incorporated          | and M&I Marshall & Ilsley Bank* |        |              |
|                  |                                    |        |              |
|                  | Massachusetts Mutual                    | $11,429,000 | $11,429,000       |
|                  | Life Insurance Co. and                  |        |              |
|                  | American Family Life                    |        |              |
|                  | Insurance Co.                           |        |              |
|                  |                                    |        |              |
| Twin Disc             | Banque Brussels Lambert                 | $2,628,000  | none              |
| International S.A.    | (BBL)                                   |        |              |
|                  |                                    |        |              |
|                  |                                    |        |              |
| Technodrive           | Cari Cento Bank                         | $150,000    | $953,498          |
| S.p.A.                |                                    |        |              |
|                  | Various other banks                     | $820,000    |              |
|                  |                                    |        |              |
|                  |                                    |        |              |
| Twin Disc             | Standard Chartered Bank                 | $1,500,000  | none              |
|  (Far East) Ltd. |                                    |        |              |
|                  |                                    |        |              |
| Twin Disc Italia SrL  | Cassa di Risparmio                      | $606,760    | $399,880          |
|                  | di Firenze                              |        |              |

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| Name             |   | Title                         |   | Sample Signature |
|------------------|--------|-------------------------------|--------|------------------|
|             |   | Vice President-Finance and    |   |             |
| James O. Parrish |   | Treasurer                     |   |             |
|             |   |                          |   |             |
|             |   | Vice President-Administration |   |             |
| Fred H. Timm     |   | & Secretary               |   |             |

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 1           If a Default or an Event of Default exists, specify (a) the facts and circumstances of such Default or Event of Default, and (b) the actions that the Borrower has taken, is taking or proposesto take to remedy such Default or Event of Default.

 2           For the certificate delivered with the annual financial statements, delete the phrase “subject to audit and normal year-end adjustments.”

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| Date of Determination                                                     | Maximum Ratio |
|---------------------------------------------------------------------------|---------------|
| March 31, 2003                                                            | 3.75:1        |
| June 30, 2003                                                             | 3.75:1        |
| September 30, 2003                                                        | 3.50:1        |
| December 31, 2003                                                         | 2.75:1        |
| March 31, 2004                                                            | 2.75:1        |
| June 30, 2004 and at the end of each fiscal  quarter thereafter | 2.50:1        |

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| Date of Determination                                                      | Minimum EBITDA |
|----------------------------------------------------------------------------|----------------|
| March 31, 2003                                                             | $6,000,000     |
| June 30, 2003                                                              | 6,000,000      |
| September 30, 2003                                                         | 7,000,000      |
| December 31, 2003                                                          | 10,000,000     |
| March 31, 2004 and at the end of each fiscal  quarter thereafter | 11,000,000     |

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