EXHIBIT 10.37
                                CREDIT AGREEMENT

                            Dated as of May 26, 1999


                  DESA   INTERNATIONAL,   INC.,  a  Delaware   corporation  (the
"Borrower"),  and NATIONSBANK,  N.A.  (together with its successors and assigns,
the "Lender"), agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

                  SECTION 1.01.  Certain  Defined Terms.  Capitalized  terms not
otherwise  defined in this  Agreement  shall have the same meanings as specified
therefor in the Credit  Agreement  dated as of November 26, 1997 (as amended and
otherwise  modified by Amendment  and Waiver No. 1 dated as of January 23, 1998,
Letter  Waiver  No. 2 dated as of April  9,  1998,  Amendment  No. 3 to the Loan
Documents  dated as of May 26, 1998 and  Amendment  and Waiver No. 4 to the Loan
Documents dated as of May 21, 1999, the "Existing Credit  Agreement")  among the
Borrower, Desa Holdings Corporation,  as parent guarantor thereunder, the lender
parties party thereto,  UBS Securities LLC, as a co-arranger  and  documentation
agent  thereunder,   Banc  of  America  Securities  LLC  (formerly   NationsBanc
Montgomery  Securities LLC), as a co-arranger and syndication  agent thereunder,
and  NationsBank,   N.A.,  as  administrative   agent  for  the  lender  parties
thereunder.  As used in this  Agreement,  the  following  terms  shall  have the
following  meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):

                  "Applicable   Lending  Office"  means  the  Lender's  Domestic
         Lending  Office  in the  case of a Base  Rate  Loan  and  the  Lender's
         Eurodollar Lending Office in the case of a Eurodollar Rate Loan.

                  "Available  Assets" has the meaning  specified in Section 8 of
         the Guaranty.

                  "Base Rate"  means a  fluctuating  interest  rate per annum in
         effect  from time to time,  which rate per annum  shall at all times be
         equal to the higher of:

                           (a)  the  rate  of  interest  announced  publicly  by
                  NationsBank,  N.A., in New York, New York,  from time to time,
                  as the NationsBank prime rate; and

                           (b) 0.50% per annum above the Federal Funds Rate.

                  "Base Rate Loan" means a Loan that bears  interest as provided
         in Section 2.06(a)(i).

                  "Business  Day" means a day of the year on which banks are not
         required  or  authorized  by law to close in New York City and,  if the
         applicable  Business Day relates to any Eurodollar Rate Loans, on which
         dealings are carried on in the London interbank market.

                  "Commitment" has the meaning specified in Section 2.01.

                  "Convert",  "Conversion"  and  "Converted"  each  refers  to a
         conversion  of Loans of one Type into Loans of the other Type  pursuant
         to Section 2.07 or 2.08.

                  "Default"  means any Event of  Default or any event that would
         constitute an Event of Default but for the  requirement  that notice be
         given or time elapse or both.



<PAGE>

                  "Domestic  Lending  Office"  means the  office  of the  Lender
         specified  as its  "Domestic  Lending  Office"  opposite  its  name  on
         Schedule I hereto, or such other office of the Lender as the Lender may
         from time to time specify to the Borrower.

                  "Effective Date" has the meaning specified in Section 3.01.

                  "Eurocurrency  Liabilities"  has the meaning  assigned to that
         term in  Regulation D of the Board of Governors of the Federal  Reserve
         System, as in effect from time to time.

                  "Eurodollar  Lending  Office"  means the  office of the Lender
         specified  as its  "Eurodollar  Lending  Office"  opposite  its name on
         Schedule I hereto, or such other office of the Lender as the Lender may
         from time to time specify to the Borrower.

                  "Eurodollar  Rate"  means,  for  any  Interest  Period  for  a
         Eurodollar  Rate Loan, an interest rate per annum equal to the rate per
         annum  obtained by dividing  (a) the rate per annum  appearing  on page
         3750 (or any successor  page) of the Dow Jones Markets  Telerate Screen
         as the London  interbank  offered rate for deposits in U.S.  dollars at
         11:00 A.M. (London time) two Business Days before the first day of such
         Interest  Period and for a term  comparable  to such  Interest  Period;
         provided that, if for any reason such rate is not  available,  the term
         "Eurodollar  Rate" shall mean, for any Interest Period for a Eurodollar
         Rate Loan, the rate per annum  appearing on Reuters Screen LIBO Page as
         the London  interbank  offered  rate for  deposits  in U.S.  dollars at
         approximately  11:00 A.M.  (London  time) two Business  Days before the
         first  day of  such  Interest  Period  for a term  comparable  to  such
         Interest  Period  (and,  if more than one rate is  specified on Reuters
         Screen  LIBO  Page at such  time,  the  applicable  rate  shall  be the
         arithmetic mean of all such rates),  by (b) a percentage  equal to 100%
         minus the Eurodollar Rate Reserve Percentage for such Interest Period.

                  "Eurodollar  Rate Loan"  means a Loan that bears  interest  as
         provided in Section 2.06(a)(ii).

                  "Eurodollar Rate Reserve  Percentage"  means, for any Interest
         Period for a Eurodollar  Rate Loan, the reserve  percentage  applicable
         two Business  Days before the first day of such  Interest  Period under
         regulations  issued from time to time by the Board of  Governors of the
         Federal  Reserve System (or any successor) for  determining the maximum
         reserve  requirement  (including,  without  limitation,  any emergency,
         supplemental or other marginal  reserve  requirement) for a member bank
         of the  Federal  Reserve  System  in New  York  City  with  respect  to
         liabilities   or  assets   consisting  of  or  including   Eurocurrency
         Liabilities (or with respect to any other category of liabilities  that
         includes deposits by reference to which the interest rate on Eurodollar
         Rate Loans is determined) having a term equal to such Interest Period.

                  "Events of Default" has the meaning specified in Section 5.01.

                  "Federal  Funds Rate"  means,  for any period,  a  fluctuating
         interest  rate per annum  equal for each day during  such period to the
         weighted average of the rates on overnight  Federal funds  transactions
         with members of the Federal  Reserve  System  arranged by Federal funds
         brokers,  as published  for such day (or, if such day is not a Business
         Day, for the next preceding  Business Day) by the Federal  Reserve Bank
         of New York, or, if such rate is not so published for any day that is a
         Business  Day,  the  average  of the  quotations  for  such day on such
         transactions received by the Lender from three Federal funds brokers of
         recognized standing selected by it.

                  "Guarantor"  means  J.W.  Childs  Equity  Partners,   L.P.,  a
         Delaware limited partnership.


                                        2
<PAGE>

                  "Guaranty" has the meaning specified in Section 3.01(e)(ii).

                  "Indemnified  Party"  has the  meaning  specified  in  Section
         6.04(b).

                  "Interest  Period" means,  for each  Eurodollar Rate Loan, the
         period  commencing on the date of such Eurodollar Rate Loan or the date
         of the Conversion of any Base Rate Loan into such  Eurodollar Rate Loan
         and  ending  on the last day of the  period  selected  by the  Borrower
         pursuant  to the  provisions  below and,  thereafter,  each  subsequent
         period commencing on the last day of the immediately preceding Interest
         Period  and  ending  on the  last  day of the  period  selected  by the
         Borrower  pursuant to the provisions  below.  The duration of each such
         Interest Period shall be one week or one, two, three or six months,  as
         the  Borrower  may,  upon notice  received by the Lender not later than
         12:00 Noon  (Charlotte,  North Carolina time) on the third Business Day
         prior to the  first  day of such  Interest  Period,  select;  provided,
         however, that:

                           (a) the Borrower  may not select any Interest  Period
                  that ends after the Termination Date;

                           (b)  whenever  the  last day of any  Interest  Period
                  would  otherwise occur on a day other than a Business Day, the
                  last day of such Interest Period shall be extended to occur on
                  the next succeeding Business Day, provided,  however, that, if
                  such  extension  would  cause  the last  day of such  Interest
                  Period to occur in the next following calendar month, the last
                  day of such Interest  Period shall occur on the next preceding
                  Business Day; and

                           (c)  whenever  the first day of any  Interest  Period
                  occurs on a day of an initial  calendar  month for which there
                  is no numerically corresponding day in the calendar month that
                  succeeds such initial  calendar  month by the number of months
                  equal to the number of months in such  Interest  Period,  such
                  Interest  Period  shall end on the last  Business  Day of such
                  succeeding calendar month.

                  "Internal  Revenue  Code" means the  Internal  Revenue Code of
         1986, as amended from time to time, and the regulations promulgated and
         rulings issued thereunder.

                  "Loan" means a Loan by the Lender to the Borrower  pursuant to
         Article  II, and refers to a Base Rate Loan or a  Eurodollar  Rate Loan
         (each of which shall be a "Type" of Loan).

                  "LOC Documents" means, collectively,  this Agreement, the Note
         and the Guaranty.

                  "LOC Material  Adverse  Effect"  means (a) a Material  Adverse
         Effect or (b) a material  adverse  effect on (i) the assets,  business,
         condition (financial or otherwise), operations, performance, properties
         or  prospects  of the  Borrower or the  Guarantor,  (ii) the rights and
         remedies of the Lender  under any LOC  Document or (iii) the ability of
         any LOC Party to perform  its  Obligations  under any LOC  Document  to
         which it is or is to be a party.

                  "LOC Parties" means the Borrower and the Guarantor.

                  "Note" means a promissory note of the Borrower  payable to the
         order of the  Lender,  in  substantially  the form of Exhibit A hereto,
         evidencing  the  aggregate  indebtedness  of the Borrower to the Lender
         resulting from the Loans made by the Lender hereunder.

                  "Notice of Loan" has the meaning specified in Section 2.02.

                                        3
<PAGE>

                  "Other Taxes" has the meaning specified in Section 2.12(b).

                  "Taxes" has the meaning specified in Section 2.12(a).

                  "Termination  Date"  means the earlier of (a) May 31, 2001 and
         (b) the date of  termination  in whole of the  Commitment  pursuant  to
         Section 2.04 or 5.01.

                  SECTION 1.02.  Computation of Time Periods. In this Agreement,
in the computation of periods of time from a specified date to a later specified
date,  the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".

                                   ARTICLE II

                         AMOUNTS AND TERMS OF THE LOANS

                  SECTION 2.01. The Loans.  The Lender agrees,  on the terms and
conditions  hereinafter  set forth,  to make Loans to the Borrower  from time to
time on any  Business  Day during the period from the  Effective  Date until the
Termination  Date  in  an  aggregate  amount  not  to  exceed  $15,000,000  (the
"Commitment"). Each Loan shall be in a minimum amount of $250,000 or an integral
multiple of $100,000 in excess thereof. Within the limits of the Commitment, the
Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.09 and
reborrow under this Section 2.01.

                  SECTION 2.02. Making the Loans. (a) Each Loan shall be made on
notice, given not later than 12:00 Noon (Charlotte,  North Carolina time) on the
third  Business  Day  prior  to the date of the  proposed  Loan in the case of a
Eurodollar  Rate  Loan,  or the  first  Business  Day  prior  to the date of the
proposed  Loan in the case of a Base Rate Loan,  by the  Borrower to the Lender.
Each such notice of a Loan (a "Notice of Loan") shall be by telephone, confirmed
immediately in writing, or telecopier or telex, specifying therein the requested
(i) date of such Loan, (ii) Type of such Loan,  (iii)  aggregate  amount of such
Loan, and (iv) in the case of a Eurodollar  Rate Loan,  initial  Interest Period
for such  Loan.  Upon  fulfillment  of the  applicable  conditions  set forth in
Article  III,  the Lender will make such funds  available to the Borrower at its
Applicable Lending Office.

                  (b)  Anything  in   subsection   (a)  above  to  the  contrary
notwithstanding,  (i) the Borrower may not select  Eurodollar Rate Loans for any
Loan if the amount of such Loan is less than  $250,000 or if the  obligation  of
the Lender to make  Eurodollar  Rate Loans shall then be  suspended  pursuant to
Section  2.07 or 2.10(c)  and (ii) no more than five  separate  Eurodollar  Rate
Loans may be outstanding at any time.

                  (c) Each  Notice of Loan shall be  irrevocable  and binding on
the Borrower.  In the case of any Loan that the related Notice of Loan specifies
it to be a Eurodollar Rate Loan, the Borrower shall indemnify the Lender against
any loss,  cost or expense  incurred by the Lender as a result of any failure to
fulfill on or before the date  specified in the Notice of Loan for such Loan the
applicable  conditions  set  forth in  Article  III and if,  as a result of such
failure, the related Loan is not made on such date, the Borrower will pay to the
Lender an amount equal to the present value  (calculated in accordance with this
Section 2.02(c)) of interest for the Interest Period specified in such Notice of
Loan on the amount of such Loan,  at a rate per annum equal to the excess of (a)
the Eurodollar Rate that would have been in effect for such Interest Period over
(b) the  Eurodollar  Rate  applicable on the date of  determination  to a deemed
Interest  Period  ending on the last day of such  Interest  Period.  The present
value of such additional  interest shall be calculated by discounting the amount
of such interest for each day in the Interest Period specified in such Notice of
Loan from such day to the date of such  repayment or  termination at an interest
rate per annum equal to the interest rate determined pursuant to the immediately
preceding sentence, and by adding all such amounts for all such days during such

                                        4

<PAGE>

period.  The  determination  by the Lender of such amount of  interest  shall be
conclusive and binding, absent manifest error.

                  SECTION 2.03.  Commitment  Fee. The Borrower  agrees to pay to
the  Lender  a  commitment  fee on  the  average  daily  unused  portion  of the
Commitment at a rate per annum equal to 0.375%,  payable in arrears quarterly on
the last Business Day of each February, May, August and November, commencing May
31, 1999, and on the Termination Date.

                  SECTION 2.04. Termination or Reduction of the Commitments. The
Borrower  shall have the right,  upon at least five Business Days' notice to the
Lender,  to  terminate  in whole or reduce  in part the  unused  portion  of the
Commitment,  provided that each partial reduction shall be in the minimum amount
of $250,000 or an integral multiple of a $100,000 in excess thereof.

                  SECTION  2.05.  Repayment.  The  Borrower  shall  repay to the
Lender on the Termination Date the aggregate  principal amount of the Loans then
outstanding.

                  SECTION 2.06. Interest.  (a) Scheduled Interest.  The Borrower
shall pay interest on the unpaid  principal amount of each Loan from the date of
such Loan until such  principal  amount shall be paid in full,  at the following
rates per annum:

                  (i) Base Rate  Loans.  During  such  periods as such Loan is a
         Base Rate Loan,  a rate per annum  equal at all times to the sum of (x)
         the Base  Rate in effect  from  time to time plus (y) 0.25% per  annum,
         payable in arrears quarterly on the last Business Day of each February,
         May,  August and November during such periods and on the date such Base
         Rate Loan shall be Converted or paid in full.

                  (ii) Eurodollar  Rate Loans.  During such periods as such Loan
         is a  Eurodollar  Rate Loan, a rate per annum equal at all times during
         each  Interest  Period  for such Loan to the sum of (x) the  Eurodollar
         Rate for such  Interest  Period for such Loan plus (y) 1.75% per annum,
         payable in arrears on the last day of such Interest Period and, if such
         Interest  Period has a duration of more than three months,  on each day
         that occurs  during such  Interest  Period  every three months from the
         first day of such Interest  Period and on the date such Eurodollar Rate
         Loan shall be Converted or paid in full.

                  (b)  Default  Interest.  Upon the  occurrence  and  during the
continuance  of a Default under Section  5.01(a) or 5.01(f),  the Borrower shall
pay interest on (i) the unpaid principal amount of each Loan, payable in arrears
on the dates referred to in clause (a)(i) or (a)(ii) above,  at a rate per annum
equal at all times to 2% per annum above the rate per annum  required to be paid
on such Loan  pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest
extent permitted by law, the amount of any interest, fee or other amount payable
hereunder  that is not paid when due,  from the date  such  amount  shall be due
until  such  amount  shall be paid in full,  payable in arrears on the date such
amount  shall be paid in full and on  demand,  at a rate per annum  equal at all
times to 2% per annum above the rate per annum  required to be paid, in the case
of interest,  on the Type of Loan on which such interest has accrued pursuant to
clause  (a)(i) or (a)(ii)  above,  and, in all other  cases,  on Base Rate Loans
pursuant to clause (a)(i) above.

                  SECTION  2.07.  Interest  Rate  Determination.  (a) The Lender
shall  give  prompt  notice to the  Borrower  of the  applicable  interest  rate
determined by the Lender for purposes of Section 2.06(a)(i) or (ii).

                  (b) If, with respect to any Eurodollar Rate Loans,  the Lender
determines  that the Eurodollar Rate for any Interest Period for such Loans will
not adequately reflect the cost to the Lender of making,  funding or maintaining
the Eurodollar Rate Loans for such Interest  Period,  the Lender shall forthwith
so  notify  the  Borrower,  whereupon  (i) each such  Eurodollar  Rate Loan will
automatically, on the last day of

                                        5
<PAGE>

the then existing  Interest Period therefor,  Convert into a Base Rate Loan, and
(ii) the obligation of the Lender to make, or to Convert Loans into,  Eurodollar
Rate Loans shall be suspended  until the Lender  shall notify the Borrower  that
the circumstances causing such suspension no longer exist.

                  (c) If the  Borrower  shall fail to select the duration of any
Interest  Period for any Eurodollar Rate Loans in accordance with the provisions
contained in the  definition of "Interest  Period" in Section  1.01,  the Lender
will forthwith so notify the Borrower and such Loans will automatically,  on the
last day of the then existing  Interest Period therefor,  Convert into Base Rate
Loans.

                  (d) On the date on which the  unpaid  principal  amount of any
Eurodollar Rate Loan shall be reduced, by payment or prepayment or otherwise, to
less than $250,000, such Loans shall automatically Convert into Base Rate Loans.

                  (e) Upon the  occurrence  and  during the  continuance  of any
Default  under  Section  5.01(a) or 5.01(f)  or any Event of  Default,  (i) each
Eurodollar  Rate Loan will  automatically,  on the last day of the then existing
Interest Period therefor,  Convert into a Base Rate Loan and (ii) the obligation
of the Lender to make, or to Convert Loans into,  Eurodollar Rate Loans shall be
suspended.

                  SECTION 2.08.  Optional  Conversion of Loans. The Borrower may
on any Business  Day,  upon notice given to the Lender not later than 12:00 Noon
(Charlotte,  North Carolina time) on the third Business Day prior to the date of
the  proposed  Conversion  and subject to the  provisions  of Sections  2.07 and
2.10(c),  Convert any Loan of one Type into a Loan of the other Type;  provided,
however,  that any  Conversion  of a Eurodollar  Rate Loan into a Base Rate Loan
shall be made only on the last day of the  Interest  Period for such  Eurodollar
Rate Loan then in effect,  any  Conversion of a Base Rate Loan into a Eurodollar
Rate Loan shall be in an amount not less than the minimum  amount  specified  in
Section  2.02(b) and no  Conversion  of any Loan shall  result in more  separate
Loans than  permitted  under Section  2.02(b).  Each such notice of a Conversion
shall,  within the restrictions  specified  above,  specify (i) the date of such
Conversion,  (ii) the Loan to be Converted, and (iii) if such Conversion is into
a Eurodollar  Rate Loan,  the duration of the initial  Interest  Period for such
Loan.  Each  notice  of  Conversion  shall be  irrevocable  and  binding  on the
Borrower.

                  SECTION 2.09. Optional Prepayments.  The Borrower may, upon at
least  one  Business  Day's  notice  in the case of Base  Rate  Loans  and three
Business Days' notice in the case of Eurodollar  Rate Loans, in each case to the
Lender  received  not later than 12:00 Noon  (Charlotte,  North  Carolina  time)
stating the proposed date and aggregate principal amount of the prepayment,  and
if such notice is given the Borrower  shall,  prepay the  outstanding  principal
amount of the Loans in whole or in part,  together with accrued  interest to the
date of such prepayment on the aggregate principal amount so prepaid;  provided,
however,  that (x) each  partial  prepayment  shall  be in a  minimum  aggregate
principal  amount of  $250,000  or an  integral  multiple  of $100,000 in excess
thereof and (y) if any prepayment of a Eurodollar  Rate Loan shall be made other
than on the last day of an Interest Period therefor, the Borrower shall also pay
any amounts owing pursuant to Section 6.04(c).

                  SECTION 2.10.  Increased Costs, Etc. (a) If, due to either (i)
the  introduction  of or any  change in or in the  interpretation  of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other  governmental  authority (whether or not having the force of law),
there shall be any  increase in the cost to the Lender of agreeing to make or of
making,  funding or maintaining Eurodollar Rate Loans (excluding for purposes of
this Section 2.10 any such  increased  costs  resulting  from (i) Taxes or Other
Taxes (as to which  Section 2.12 shall  govern) and (ii) changes in the basis of
taxation of overall net income or overall  gross income by the United  States or
by the  foreign  jurisdiction  or state  under the laws of which  the  Lender is
organized or has its  Applicable  Lending  Office or any  political  subdivision
thereof),  then the Borrower shall from time to time, upon demand by the Lender,
pay to the Lender additional amounts

                                        6
<PAGE>

sufficient to compensate the Lender for such increased cost; provided,  however,
that the Borrower shall not be responsible  for costs under this Section 2.10(a)
arising  more than 90 days prior to receipt by the  Borrower of the  certificate
from the Lender pursuant to this Section 2.10(a) with respect to such costs; and
provided further that the Lender claiming  additional amounts under this Section
2.10(a) agrees to use reasonable  efforts  (consistent  with its internal policy
and legal and  regulatory  restrictions)  to  designate a  different  Applicable
Lending Office if the making of such a designation  would avoid the need for, or
reduce the amount of, such increased  cost that may thereafter  accrue and would
not, in the reasonable  judgment of the Lender, be otherwise  disadvantageous to
the Lender. A certificate as to the amount of such increased cost (together with
a schedule setting forth in reasonable detail the calculation thereof) submitted
to the Borrower by the Lender, shall be conclusive and binding for all purposes,
absent  manifest  error.  In  determining  such  amount,  the Lender may use any
reasonable averaging and attribution methods.

                  (b) If the Lender  determines  that compliance with any law or
regulation  or  any  guideline  or  request  from  any  central  bank  or  other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by the Lender
or any corporation controlling the Lender and that the amount of such capital is
increased  by or based upon the  existence of the  Lender's  commitment  to lend
hereunder and other  commitments of this type,  then, upon demand by the Lender,
the  Borrower  shall pay to the Lender,  from time to time as  specified  by the
Lender,   additional  amounts  sufficient  to  compensate  the  Lender  or  such
corporation  in the light of such  circumstances,  to the extent that the Lender
reasonably  determines such increase in capital to be allocable to the existence
of the  Lender's  commitment  to lend  hereunder;  provided,  however,  that the
Borrower shall not be responsible  for costs under this Section  2.10(b) arising
more than 90 days prior to receipt by the Borrower of the  certificate  from the
Lender  pursuant  to  this  Section  2.10(b)  with  respect  to  such  costs.  A
certificate  as to such  amounts  (together  with a  schedule  setting  forth in
reasonable  detail the  calculation  thereof)  submitted  to the Borrower by the
Lender shall be conclusive and binding for all purposes,  absent manifest error.
In  determining  such amount,  the Lender may use any  reasonable  averaging and
attribution methods.

                  (c) Notwithstanding any other provision of this Agreement,  if
the  introduction  of or any  change in or in the  interpretation  of any law or
regulation  shall make it unlawful,  or any central  bank or other  governmental
authority  shall  assert that it is unlawful,  for the Lender or its  Eurodollar
Lending  Office to perform its  obligations  hereunder to make  Eurodollar  Rate
Loans or to continue to fund or maintain Eurodollar Rate Loans hereunder,  then,
on notice  thereof and demand  therefor by the Lender to the Borrower,  (i) each
Eurodollar Rate Loan will automatically,  upon such demand,  Convert into a Base
Rate Loan and (ii) the  obligation  of the Lender to make,  or to Convert  Loans
into, Eurodollar Rate Loans shall be suspended until the Lender shall notify the
Borrower  that the Lender has  determined  that the  circumstances  causing such
suspension  no longer exist;  provided,  however,  that,  before making any such
demand,  the  Lender  agrees  to use  reasonable  efforts  (consistent  with its
internal policy and legal and regulatory  restrictions) to designate a different
Eurodollar  Lending  Office if the making of such a designation  would allow the
Lender or its Eurodollar  Lending Office to continue to perform its  obligations
to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate
Loans and would not, in the judgment of the Lender, be otherwise disadvantageous
to the Lender.

                  SECTION  2.11.  Payments  and  Computations.  (a) The Borrower
shall make each payment hereunder and under the Note,  irrespective of any right
of counterclaim or set-off, not later than 12:00 Noon (Charlotte, North Carolina
time) on the day when due in U.S.  dollars to the Lender for the  account of its
Applicable Lending Office, in same day funds.

                  (b) The Borrower hereby  authorizes the Lender,  if and to the
extent  payment  owed to the Lender is not made when due  hereunder or under the
Note, to charge from time to time against any or all of the Borrower's  accounts
with the  Lender  any  amount so due.  The  Lender  hereby  agrees to notify the
Borrower

                                        7
<PAGE>

promptly  after any such  setoff and  application  shall be made by the  Lender;
provided,  however,  that the failure to give such  notice  shall not affect the
validity of such charge.

                  (c) All computations of interest and fees shall be made by the
Lender on the basis of a year of 360 days, in each case for the actual number of
days  (including  the first day but  excluding  the last day)  occurring  in the
period for which such interest or fees are payable.  Each  determination  by the
Lender of an interest rate or fee hereunder  shall be conclusive and binding for
all purposes, absent manifest error.

                  (d) Whenever any payment  hereunder or under the Note shall be
stated to be due on a day other than a Business  Day, such payment shall be made
on the next  succeeding  Business Day, and such  extension of time shall in such
case be included in the  computation of payment of interest or commitment  fees,
as the case may be;  provided,  however,  that,  if such  extension  would cause
payment of interest on or principal of  Eurodollar  Rate Loans to be made in the
next following  calendar month, such payment shall be made on the next preceding
Business Day.

                  SECTION 2.12.  Taxes. (a) Any and all payments by the Borrower
hereunder or under the Note shall be made, in accordance with Section 2.11, free
and clear of and  without  deduction  for any and all  present or future  taxes,
levies, imposts, deductions,  charges or withholdings,  and all liabilities with
respect thereto, excluding, in the case of the Lender, taxes that are imposed on
its  overall  net income by the United  States and taxes that are imposed on its
overall net income (and franchise taxes imposed in lieu thereof) by the state or
foreign  jurisdiction  under the laws of which the  Lender is  organized  or any
political  subdivision  thereof  and taxes that are  imposed on its  overall net
income (and  franchise  taxes  imposed in lieu  thereof) by the state or foreign
jurisdiction  of  the  Lender's  Applicable  Lending  Office  or  any  political
subdivision thereof (all such nonexcluded taxes,  levies,  imposts,  deductions,
charges, withholdings and liabilities in respect of payments hereunder and under
the Note being  hereinafter  referred to as "Taxes").  If the Borrower  shall be
required  by law to  deduct  any Taxes  from or in  respect  of any sum  payable
hereunder  or  under  the  Note to the  Lender,  (i) the sum  payable  shall  be
increased  as may be  necessary  so that after  making all  required  deductions
(including  deductions  applicable to additional sums payable under this Section
2.12) the Lender  receives an amount equal to the sum it would have received had
no such  deductions  been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount  deducted to the relevant  taxation
authority or other governmental authority in accordance with applicable law.

                  (b) In addition, the Borrower hereby agrees to pay any present
or future stamp,  documentary,  excise,  property or similar  taxes,  charges or
levies that arise from any payment made  hereunder or under the Note or from the
execution,  delivery or  registration  of,  performing  under, or otherwise with
respect  to,  this  Agreement  or the Note  (hereinafter  referred  to as "Other
Taxes").

                  (c) The Borrower  shall  indemnify  the Lender for and hold it
harmless  against the full amount of Taxes and Other Taxes,  and the full amount
of taxes of any kind imposed by any  jurisdiction  on amounts payable under this
Section  2.12,  imposed on or paid by the Lender  and any  liability  (including
penalties,  additions to tax,  interest and expenses)  arising therefrom or with
respect thereto. This indemnification shall be made within 30 days from the date
on which the Lender makes written demand therefor.

                  (d) Within 30 days after the date of any payment of Taxes, the
Borrower  shall  furnish to the Lender,  at its  address  referred to in Section
6.02, the original or a certified copy of a receipt evidencing such payment,  to
the extent such a receipt is issued therefor,  or other written proof of payment
thereof  that is  reasonably  satisfactory  to the  Lender.  In the  case of any
payment  hereunder or under the Note by or on behalf of the Borrower  through an
account or branch  outside the United  States or by or on behalf of the Borrower
by a payor that is not a United States person,  if the Borrower  determines that
no Taxes are payable in respect

                                        8
<PAGE>

thereof,  the Borrower shall furnish,  or shall cause such payor to furnish,  to
the Lender,  at its address  referred to in Section  6.02, an opinion of counsel
acceptable  to the Lender  stating that such  payment is exempt from Taxes.  For
purposes of this  subsection  (d) and  subsection  (e) of this Section 2.14, the
terms  "United  States"  and  "United  States  person"  shall have the  meanings
specified in Section 7701 of the Internal Revenue Code.

                  SECTION 2.15. Use of Proceeds. The proceeds of the Loans shall
be available (and the Borrower  agrees that it shall use such  proceeds)  solely
(i) to  provide  working  capital  from  time to time  to the  Borrower  and its
Subsidiaries  and (ii) if and to the extent  necessary  to maintain  the minimum
Fixed  Charge  Coverage  Ratio for any  Measurement  Period set forth in Section
5.04(b) of the Existing Credit  Agreement and  incorporated by reference  herein
under Section 4.01, to pay or prepay Term Advances,  Acquisition Advances and/or
Acquisition B Advances  outstanding  from time to time under the Existing Credit
Agreement.

                                   ARTICLE III

                     CONDITIONS TO EFFECTIVENESS AND LENDING

                  SECTION 3.01. Conditions Precedent to Effectiveness of Section
2.01.  Section 2.01 of this  Agreement  shall become  effective on and as of the
first date (the "Effective  Date") on which the following  conditions  precedent
have been satisfied:

                  (a) The Lender shall have received a true and complete copy of
         Amendment and Waiver No. 4 to the Existing Credit Agreement dated as of
         May 25, 1999. All of the conditions  precedent to the  effectiveness of
         such  Amendment and Waiver No. 4 shall have been  satisfied or shall be
         satisfied concurrently with the effectiveness of this Agreement.

                  (b) All  governmental  and third party  consents and approvals
         necessary  in   connection   with  any  LOC  Document  or  any  of  the
         transactions contemplated thereby shall have been obtained (without the
         imposition of any conditions that are not acceptable to the Lender) and
         shall remain in effect, and no law or regulation shall be applicable in
         the  reasonable  judgment  of the Lender  that  restrains,  prevents or
         imposes  materially  adverse conditions upon any LOC Document or any of
         the transactions contemplated thereby.

                  (c) The Borrower shall have paid all accrued fees and expenses
         of the Lender  (including  the accrued  fees and expenses of counsel to
         the Lender).

                  (d) On the Effective Date, the following  statements  shall be
         true and the Lender shall have received a certificate  signed by a duly
         authorized  officer of the Borrower,  dated the Effective Date, stating
         that:

                           (i) The representations and warranties  contained in,
                  and   incorporated  by  reference  from  the  Existing  Credit
                  Agreement into, this Agreement and the other LOC Documents are
                  correct in all  material  respects on and as of the  Effective
                  Date  (except  (i) for any such  representation  and  warranty
                  that,  by its terms,  refers to a specific date other than the
                  Effective  Date, in which case as of such specific date,  (ii)
                  that  the  Consolidated  financial  statements  of the  Parent
                  Guarantor and its Subsidiaries  referred to in Section 4.01(f)
                  of the Existing  Credit  Agreement shall be deemed to refer to
                  the Consolidated  financial statements of the Parent Guarantor
                  and its Subsidiaries most recently  delivered to the Lender on
                  or prior to the  Effective  Date and (iii) that the  projected
                  Consolidated  financial statements of the Parent Guarantor and
                  its  Subsidiaries  referred  to  in  Section  4.01(h)  of  the
                  Existing  Credit  Agreement  shall be  deemed  to refer to the
                  projected Consolidated financial statements of the

                                        9
<PAGE>

                  Parent Guarantor and its Subsidiaries most recently  delivered
                  to the Lender on or prior to the Effective Date), and

                           (ii) No event has  occurred  and is  continuing  that
                  constitutes a Default.

                  (e) The Lender shall have  received on or before the Effective
         Date the  following,  each  dated  such  day and in form and  substance
         satisfactory to the Lender:

                           (i) The Note to the order of the Lender.

                           (ii) A guaranty  in favor of the Lender (as  amended,
                  supplemented  or  other  wise  modified  from  time to time in
                  accordance with its terms, the  "Guaranty"),  duly executed by
                  the Guarantor.

                           (iii)  Certified  copies  of the  resolutions  of the
                  Board  of  Directors  of the  Borrower  and  of the  Guarantor
                  approving this  Agreement,  the Note and the Guaranty,  and of
                  all documents  evidencing other necessary corporate action and
                  governmental   approvals,   if  any,   with  respect  to  this
                  Agreement, the Note and the Guaranty.

                           (iv) A  certificate  of the Secretary or an Assistant
                  Secretary of each of the Borrower and the Guarantor certifying
                  the names and true  signatures of the officers of the Borrower
                  or the Guarantor,  as the case may be,  authorized to sign the
                  LOC Documents to which it is or is to be a party and the other
                  documents to be delivered in connection herewith.

                           (v) A  favorable  opinion of  Sullivan  &  Worcester,
                  counsel for the  Guarantor  and the Parent  Guarantor  and its
                  Subsidiaries.

                  SECTION  3.02.   Conditions   Precedent  to  Each  Loan.   The
obligation  of the  Lender to make a Loan  shall be  subject  to the  conditions
precedent  that the  Effective  Date shall have occurred and on the date of such
Loan (a) the following  statements  shall be true (and each of the giving of the
applicable  Notice of Loan and the acceptance by the Borrower of the proceeds of
such Loan shall  constitute a  representation  and warranty by the Borrower that
both on the date of such notice and on the date of such Loan such statements are
true):

                  (i) the  representations  and  warranties  contained  in,  and
         incorporated by reference from the Existing Credit Agreement into, this
         Agreement  and the other LOC  Documents  are  correct  in all  material
         respects  on and as of the date of such Loan,  before and after  giving
         effect to such Loan and to the  application of the proceeds  therefrom,
         as  though  made  on and as of such  date  (except  (i)  for  any  such
         representation  and warranty  that, by its terms,  refers to a specific
         date other than date of such  Loan,  in which case as of such  specific
         date,  (ii) that the  Consolidated  financial  statements of the Parent
         Guarantor and its  Subsidiaries  referred to in Section  4.01(f) of the
         Existing Credit  Agreement shall be deemed to refer to the Consolidated
         financial  statements of the Parent Guarantor and its Subsidiaries most
         recently  delivered  to the Lender on or prior to the date of such Loan
         and (iii) that the projected  Consolidated  financial statements of the
         Parent Guarantor and its Subsidiaries referred to in Section 4.01(h) of
         the Existing Credit Agreement shall be deemed to refer to the projected
         Consolidated  financial  statements  of the  Parent  Guarantor  and its
         Subsidiaries  most recently  delivered to the Lender on or prior to the
         date of such Loan), and

                  (ii) no event has occurred and is continuing,  or would result
         from such Loan or from the application of the proceeds therefrom,  that
         constitutes a Default;

                                       10
<PAGE>

and (b) the Lender  shall have  received  (i) a  certificate  of the  Guarantor,
signed by a duly authorized  officer thereof,  certifying that the Guarantor has
Available  Assets  on such date in  excess  of 105% of the  aggregate  principal
amount of all Loans  outstanding on such date,  after giving effect to such Loan
and to the  application of proceeds  therefrom,  and (ii) such other  approvals,
opinions or documents as the it shall have reasonably requested.

                                   ARTICLE IV

                           INCORPORATION BY REFERENCE

                  SECTION  4.  01  Incorporation  by  Reference.  (a) All of the
representations  and warranties and covenants of the Existing  Credit  Agreement
(including,  without limitation, all defined terms used therein and exhibits and
schedules to the Existing Credit Agreement referred to therein) are specifically
incorporated  herein by reference  with the same force and effect as if the same
were set out in this Agreement in full. Except as otherwise provided herein:

                  (i) all  references  in such  incorporated  provisions  to the
         "Administrative  Agent" (other than in Sections  5.01(m),  (n) and (o),
         5.02(b)(iii)  and 5.02(d)(v)),  a "Lender Party",  the "Lender Parties"
         (other  than  in  Sections  5.01(o),  5.02(b)(ii)  and  5.02(e)(v)),  a
         "Lender"  or the  "Lenders"  or  words  of  similar  import  , to "this
         Agreement",  "hereof",  "hereto"  or  "hereunder"  or words of  similar
         import  or  to  a  "Note"  or  the  "Notes",  "thereof",  "thereto"  or
         "thereunder"  or  words  of  similar  import  shall,   without  further
         reference,  mean and refer to the Lender under this Agreement,  to this
         Agreement and to the Note, respectively;

                  (ii) all  references  in such  incorporated  provisions to the
         "Borrower"  or to "Material  Adverse  Effect"  shall,  without  further
         reference, mean and refer to the Borrower hereunder and to LOC Material
         Adverse Effect, respectively;

                  (iii) for purposes of the  representations  and  warranties in
         Sections  4.01(a),  (b),  (c), (d), (e), (i), (j), (k), (l) and (ee) of
         the Existing  Credit  Agreement,  all  references in such  incorporated
         provisions  to a "Loan  Party" or words of similar  import,  to a "Loan
         Document", the "Loan Documents",  "thereof",  "thereto" or "thereunder"
         or words of  similar  import  or to an  "Advance",  the  "Advances",  a
         "Borrowing"  or the  "Borrowing"  or words  of  similar  import  shall,
         without  further  reference,  mean and refer to a LOC  Party,  to a LOC
         Document or the LOC  Documents,  as  appropriate,  and to a Loan or the
         Loans, as appropriate, respectively;

                  (iv) for  purposes  of the first  sentence of each of Sections
         5.01,  5.02,  5.03  and  5.04,  all  references  in  such  incorporated
         provisions  to an  "Advance",  a "Letter of Credit" or words of similar
         import or to a "Commitment"  or words of similar import shall,  without
         further  reference,  mean  and  refer  to  a  Loan  or  the  Commitment
         hereunder, respectively; and

                  (v) except as  otherwise  provided in  subclauses  (i),  (ii),
         (iii)  and (iv)  above,  the  defined  terms  used in the  incorporated
         provisions  shall have the  meanings  ascribed  thereto in the Existing
         Credit Agreement.

Similarly,  to the extent any word or phrase is defined in this  Agreement,  any
such  word or phrase  appearing  in any of the  provisions  so  incorporated  by
reference from the Existing Credit  Agreement shall have the meaning given to it
in this Agreement. The incorporation by reference into this Agreement of certain
of the terms and provisions of the Existing Credit  Agreement is for convenience
only, and this Agreement and the Existing  Credit  Agreement  shall at all times
be, and be deemed to be and be treated as, separate and distinct

                                       11
<PAGE>

loan obligations.  The incorporation by reference into this Agreement of certain
of the  terms and  provisions  of the  Existing  Credit  Agreement  shall not be
affected or impaired by any subsequent expiration or termination of the Existing
Credit Agreement.

                  (b) The Borrower,  by its execution of this Agreement,  hereby
agrees to amend and restate  this  Agreement at the request of the Lender to set
forth in full the provisions  incorporated by reference herein from the Existing
Credit  Agreement and to modify the terms and provisions of this  Agreement,  as
appropriate,  to  provide  for the  inclusion  of  additional  lenders  upon any
assignment or proposed  assignment  by the Lender of its rights and  obligations
hereunder  effected in accordance  with Section 6.07. In addition,  the Borrower
hereby  agrees to notify  the  Lender  promptly  and in any event  within  three
Business Days of any amendment, supplement or other modification to the Existing
Credit Agreement and, at the request of the Lender,  to enter into any amendment
or supplement to this Agreement proposed by the Lender to incorporate comparable
amendments, supplements or other modifications to this Agreement.


                                    ARTICLE V

                                EVENTS OF DEFAULT

                  SECTION  5.01.  Events  of  Default.  If any of the  following
events ("Events of Default") shall occur and be continuing:

                  (a) (i) the  Borrower  shall fail to pay any  principal of any
         Loan when the same shall  become due and  payable or (ii) the  Borrower
         shall fail to pay any interest on any Loan, or any LOC Party shall fail
         to make any other payment  under any LOC  Document,  in each case under
         this clause (ii) within three  Business Days after the same becomes due
         and payable; or

                  (b) any  representation  or warranty  made by any LOC Party or
         any  Loan  Party  (or  any of  their  respective  officers)  under  (or
         incorporated  by reference into) or in connection with any LOC Document
         shall prove to have been  incorrect in any material  respect when made;
         or

                  (c) (i) the Borrower or the Parent Guarantor,  as the case may
         be,  shall fail to perform or observe any term,  covenant or  agreement
         contained in Section 2.14 herein or Section 5.01(e),  5.01(f), 5.01(g),
         5.01(l),  5.01(m),  5.01(n)  or  5.01(o),  5.02,  5.03  or  5.04 of the
         Existing Credit Agreement, as incorporated by reference herein pursuant
         to Section 4.01, or (ii) the Guarantor shall fail to perform or observe
         any term, covenant or agreement contained in the Guaranty; or

                  (d) the Borrower or the Parent Guarantor shall fail to perform
         any other term,  covenant or agreement contained in any LOC Document on
         its part to be  performed  or observed  if such  failure  shall  remain
         unremedied for 30 days; or

                  (e) (i) any LOC Party or the  Parent  Guarantor  or any of its
         Subsidiaries shall fail to pay any principal of, premium or interest on
         or any other amount  payable in respect of one or more items of Debt of
         the  LOC  Parties  and  the  Parent   Guarantor  and  its  Subsidiaries
         (excluding  Debt  outstanding  hereunder)  that  is  outstanding  in an
         aggregate  principal or notional amount of at least $3,500,000 when the
         same becomes due and payable (whether by scheduled  maturity,  required
         prepayment,  acceleration, demand or otherwise), and such failure shall
         continue after the applicable  grace period,  if any,  specified in the
         agreements or instruments  relating to all such Debt; or (ii) any other
         event shall occur or  condition  shall  exist under the  agreements  or
         instruments  relating  to one or more items of Debt of the LOC  Parties
         and  the  Parent  Guarantor  and  its   Subsidiaries   (excluding  Debt
         outstanding

                                       12
<PAGE>

         hereunder)  that is outstanding  in an aggregate  principal or notional
         amount of at least $3,500,000,  and such other event or condition shall
         continue after the applicable  grace period,  if any,  specified in all
         such  agreements  or  instruments,  if the  effect  of  such  event  or
         condition  is to  accelerate,  or to permit  the  acceleration  of, the
         maturity of such Debt or  otherwise  to cause,  or to permit the holder
         thereof to cause,  such Debt to  mature;  or (iii) one or more items of
         Debt of the LOC Parties and the Parent  Guarantor and its  Subsidiaries
         (excluding  Debt  outstanding  hereunder)  that  is  outstanding  in an
         aggregate  principal or notional amount of at least $3,500,000 shall be
         declared  to be due and  payable or  required to be prepaid or redeemed
         (other  than  by  a  regularly  scheduled  or  required  prepayment  or
         redemption),  purchased  or  defeased,  or an offer to prepay,  redeem,
         purchase or defease  such Debt shall be  required  to be made,  in each
         case prior to the stated maturity thereof; or

                  (f) any LOC Party, the Parent Guarantor or any of the Material
         Subsidiaries  shall  generally  not pay its debts as such debts  become
         due,  or  shall  admit  in  writing  its  inability  to pay  its  debts
         generally,  or shall  make a  general  assignment  for the  benefit  of
         creditors;  or any proceeding shall be instituted by or against any LOC
         Party, the Parent Guarantor or any of the Material Subsidiaries seeking
         to  adjudicate  it a bankrupt  or  insolvent,  or seeking  liquidation,
         winding up, reorganization, arrangement, adjustment, protection, relief
         or composition of it or its debts under any law relating to bankruptcy,
         insolvency or reorganization or relief of debtors, or seeking the entry
         of an order for relief or the  appointment  of a  receiver,  trustee or
         other  similar  official  for it or for  any  substantial  part  of its
         property and, in the case of any such proceeding  instituted against it
         (but not instituted by it) that is being diligently  contested by it in
         good faith, either such proceeding shall remain undismissed or unstayed
         for a period of 45 days or any of the actions sought in such proceeding
         (including,  without  limitation,  the  entry  of an order  for  relief
         against, or the appointment of a receiver,  trustee, custodian or other
         similar official for, it or any substantial part of its property) shall
         occur;  or any LOC Party,  the Parent  Guarantor or any of the Material
         Subsidiaries  shall take any  corporate  action to authorize any of the
         actions set forth above in this subsection (f); or

                  (g) one or more  judgments  or orders for the payment of money
         in excess of $3,500,000 shall be rendered  against,  any LOC Party, the
         Parent  Guarantor or any of its Subsidiaries and either (i) enforcement
         proceedings  shall  have  been  commenced  by any  creditor  upon  such
         judgment or order or (ii) there  shall be any period of 15  consecutive
         days during which a stay of  enforcement of any such judgment or order,
         by reason of a pending appeal or otherwise, shall not be in effect; or

                  (h) one or more  nonmonetary  judgments  or  orders  shall  be
         rendered  against  any LOC Party,  the Parent  Guarantor  or any of its
         Subsidiaries  that is reasonably  likely to have a LOC Material Adverse
         Effect,  and there  shall be any period of 10  consecutive  days during
         which a stay of enforcement  of such judgment or order,  by reason of a
         pending appeal or otherwise, shall not be in effect; or

                  (i)  (i) any  provision  of any LOC  Document  after  delivery
         thereof pursuant to Section 3.01 shall for any reason cease to be valid
         and binding on or  enforceable  against any LOC Party  intended to be a
         party to it, or any such LOC Party shall so state in  writing,  or (ii)
         any provision of any Loan Document after delivery  thereof  pursuant to
         Section 3.01 or 5.01(o) of the Existing Credit  Agreement shall for any
         reason cease to be valid and binding on or enforceable against any Loan
         Party  intended  to be a party to it, or any such Loan  Party  shall so
         state in writing; or

                  (j) (i) the Childs  Investors shall at any time for any reason
         cease to be the record and beneficial  owner of the number of shares of
         Voting Stock  representing at least 40% of the combined voting power of
         all of the Voting  Stock of the Parent  Guarantor  (on a fully  diluted
         basis);  (ii) any "person" or "group" (each as used in Section 13(d)(3)
         and 14(d)(2) of the Securities Exchange Act of

                                       13
<PAGE>

         1934, as amended)  becomes the  "beneficial  owner" (as defined in Rule
         13d-3 of the Securities Exchange Act of 1934, as amended) of (A) Voting
         Stock in the Parent Guarantor (including through securities convertible
         into or exchangeable  for such Voting Stock)  representing a percentage
         of the  combined  voting power of all of the Voting Stock in the Parent
         Guarantor (on a fully  diluted  basis) that is equal to or greater than
         the percentage of such combined  voting power legally and  beneficially
         owned by the Childs  Investors (on a fully diluted basis) or (B) shares
         of capital stock (or other ownership or profit interests) in the Parent
         Guarantor  representing  a  percentage  of the capital  stock (or other
         ownership  or profit  interests)  in the Parent  Guarantor  (on a fully
         diluted  basis)  outstanding  at such time that is equal to or  greater
         than the  aggregate  shares of  capital  stock (or other  ownership  or
         profit  interests)  in the Parent  Guarantor  legally and  beneficially
         owned by the Childs  Investors (on a fully diluted basis) at such time;
         (iii) any Person or two or more  Persons  acting in concert  other than
         the Childs  Investors shall have acquired by contract or otherwise,  or
         shall  have  entered  into  a  contract  or  arrangement   that,   upon
         consummation,  will result in its or their  acquisition of the power to
         exercise,  directly or  indirectly,  a controlling  influence  over the
         management or policies of the Parent  Guarantor;  (iv) (A) Childs shall
         cease to have the  ability to appoint at least  one-half of the members
         of the board of directors of the Parent  Guarantor or (ii) any "person"
         or "group"  (each as used in  Sections  13(d)(3)  and  14(d)(2)  of the
         Securities  Exchange Act of 1934,  as amended)  other than Childs shall
         otherwise  acquire  the  ability,  directly or  indirectly,  to elect a
         majority of the board of directors of the Parent Guarantor; or (v) with
         respect to any pledge or other security  agreement  covering all or any
         portion of the shares of capital stock of (or other ownership or profit
         interests in) the Parent  Guarantor that are owned  beneficially and of
         record by any of the Equity  Investors or their nominees (other than up
         to 40%  of the  issued  and  outstanding  capital  stock  of (or  other
         ownership  or profit  interests  in) the Parent  Guarantor  (on a fully
         diluted basis)),  any secured party or pledgee  thereunder shall become
         the  holder  of  record  of any such  shares  (except  in the case of a
         registration of the pledge of such shares (or other  interests) to such
         secured party or pledgee  solely in its capacity as a pledgee) or shall
         receive  dividends  or  other  cash  or cash  equivalent  distributions
         (including,  without limitation, stock repurchases) in respect thereof,
         or shall  proceed  to  exercise  voting or other  consensual  rights in
         respect thereof (whether by proxy,  voting or other similar arrangement
         or otherwise),  or shall otherwise commence to realize upon such shares
         (or other interests); or

                  (k) the Parent Guarantor shall fail to own 100% of the capital
         stock of the Borrower; or

                  (l) any ERISA Event shall have occurred with respect to a Plan
         and the sum  (determined  as of the date of  occurrence  of such  ERISA
         Event) of the  Insufficiency of such Plan and the  Insufficiency of any
         and all other  Plans with  respect to which an ERISA  Event  shall have
         occurred and then exist (or the  liability of the  Guarantor,  the Loan
         Parties and the ERISA  Affiliates  related to such ERISA Event) exceeds
         $3,500,000; or

                  (m) the Guarantor, any Loan Party or any ERISA Affiliate shall
         have been notified by the sponsor of a  Multiemployer  Plan that it has
         incurred  Withdrawal  Liability to such Multiemployer Plan in an amount
         that,  when  aggregated  with all other amounts  required to be paid to
         Multiemployer  Plans by the  Guarantor,  the Loan Parties and the ERISA
         Affiliates as Withdrawal  Liability  (determined as of the date of such
         notification),   exceeds  $3,500,000  or  requires  payments  exceeding
         $1,000,000 per annum; or

                  (n) the Guarantor, any Loan Party or any ERISA Affiliate shall
         have been  notified  by the sponsor of a  Multiemployer  Plan that such
         Multiemployer Plan is in reorganization or is being terminated,  within
         the   meaning  of  Title  IV  of  ERISA,   and  as  a  result  of  such
         reorganization or termination the aggregate annual contributions of the
         Guarantor,   the  Loan  Parties  and  the  ERISA   Affiliates   to  all
         Multiemployer Plans that are then in reorganization or being terminated
         have been or

                                       14
<PAGE>

         will be increased over the amounts  contributed  to such  Multiemployer
         Plans  for the  plan  years  of such  Multiemployer  Plans  immediately
         preceding  the plan year in which such  reorganization  or  termination
         occurs by an amount exceeding $1,000,000;

then,  and in any such  event,  the Lender (i) may,  by notice to the  Borrower,
declare  the  Commitment  and the  obligation  of the Lender to make Loans to be
terminated,  whereupon  the same shall  forthwith  terminate,  and (ii) may,  by
notice to the  Borrower,  declare the Note,  all interest  thereon and all other
amounts payable under this Agreement to be forthwith due and payable,  whereupon
the Note,  all such  interest and all such amounts shall become and be forthwith
due and payable,  without presentment,  demand, protest or further notice of any
kind,  all of which  are  hereby  expressly  waived by the  Borrower;  provided,
however,  that in the event of an actual or deemed  entry of an order for relief
with  respect  to the  Borrower  under  the  Federal  Bankruptcy  Code,  (A) the
Commitment and the obligation of the Lender to make Loans shall automatically be
terminated  and (B) the  Note,  all such  interest  and all such  amounts  shall
automatically  become  and be due  and  payable,  without  presentment,  demand,
protest or any notice of any kind, all of which are hereby  expressly  waived by
the Borrower.

                                   ARTICLE VI

                                  MISCELLANEOUS

                  SECTION 6.01.  Amendments,  Etc. No amendment or waiver of any
provision  of this  Agreement or the Note,  nor consent to any  departure by the
Borrower therefrom,  shall in any event be effective unless the same shall be in
writing  and signed by the  Lender,  and then such  waiver or  consent  shall be
effective only in the specific  instance and for the specific  purpose for which
given.

                  SECTION   6.02.   Notices,   Etc.   All   notices   and  other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed
or  delivered,  if to the  Borrower,  at its address at 2701  Industrial  Drive,
Bowling Green, Kentucky 42101,  Attention:  President;  if to the Lender, at its
Domestic Lending Office specified  opposite its name on Schedule I hereto; or in
the case of each party,  at such other  address as shall be  designated  by such
party  in  a  written   notice  to  the  other  party.   All  such  notices  and
communications  shall, when mailed,  telecopied or telegraphed be effective when
deposited  in the mails,  telecopied  or  delivered  to the  telegraph  company,
respectively,  except that notices and  communications to the Lender pursuant to
Article II or III shall not be effective until received by the Lender.  Delivery
by  telecopier  of an executed  counterpart  of any  amendment  or waiver of any
provision  of this  Agreement  or any  other LOC  Document  to be  executed  and
delivered  hereunder  shall be effective as delivery of an  originally  executed
counterpart thereof.

                  SECTION 6.03. No Waiver;  Remedies.  No failure on the part of
the Lender to exercise, and no delay in exercising, any right hereunder or under
the Note  shall  operate  as a waiver  thereof;  nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

                  SECTION 6.04.  Costs and Expenses.  (a) The Borrower agrees to
pay on demand  all costs  and  expenses  of the  Lender in  connection  with the
preparation, execution, delivery, administration,  modification and amendment of
the  LOC  Documents  and the  other  documents  to be  delivered  hereunder  and
thereunder,    including,   without   limitation,   (A)   all   due   diligence,
transportation, computer, duplication, consultant and audit expenses and (B) the
reasonable  fees and expenses of counsel for the Lender with respect thereto and
with respect to advising the Lender as to its rights and responsibilities  under
the LOC  Documents.  The Borrower  further agrees to pay on demand all costs and
expenses  of the  Lender,  if any  (including,  without  limitation,  reasonable
counsel fees and expenses), in connection with the enforcement (whether through

                                       15
<PAGE>

negotiations,  legal proceedings or otherwise) of this the LOC Documents and the
other  documents to be delivered  hereunder and thereunder,  including,  without
limitation,  the  reasonable  fees and  expenses  of  counsel  for the Lender in
connection with the enforcement of rights under this Section 6.04(a).

                  (b) The  Borrower  agrees to indemnify  and hold  harmless the
Lender and each of its Affiliates and its officers, directors, employees, agents
and advisors (each, an "Indemnified Party") from and against any and all claims,
damages,  losses,  liabilities  and  expenses  (including,  without  limitation,
reasonable  fees and expenses of counsel) that may be incurred by or asserted or
awarded  against  any  Indemnified  Party,  in each  case  arising  out of or in
connection with or by reason of (including,  without  limitation,  in connection
with any investigation,  litigation or proceeding or preparation of a defense in
connection   therewith)  (i)  any  LOC  Documents,   any  of  the   transactions
contemplated  herein or therein or the actual or proposed use of the proceeds of
the Loans or (ii) the actual or alleged  presence of Hazardous  Materials on any
property of the Borrower or any of its Subsidiaries or any Environmental  Action
relating in any way to the  Borrower or any of its  Subsidiaries,  except to the
extent  such  claim,  damage,  loss,  liability  or expense is found in a final,
non-appealable  judgment by a court of competent  jurisdiction  to have resulted
from such  Indemnified  Party's gross negligence or willful  misconduct.  In the
case of an investigation,  litigation or other proceeding to which the indemnity
in this Section 6.04(b)  applies,  such indemnity shall be effective  whether or
not such  investigation,  litigation  or proceeding is brought by any LOC Party,
any Loan Party,  its  directors,  equityholders  or creditors or an  Indemnified
Party or any other Person,  whether or not any Indemnified  Party is otherwise a
party  thereto  and  whether  or not the  transactions  contemplated  hereby are
consummated.  The  Borrower  also  agrees  not to assert any claim  against  the
Lender,  any of its affiliates,  or any of its respective  directors,  officers,
employees,  attorneys  and  agents,  on any theory of  liability,  for  special,
indirect, consequential or punitive damages arising out of or otherwise relating
to LOC Documents, any of the transactions  contemplated herein or therein or the
actual or proposed use of the proceeds of the Loans.

                  (c) If any  payment of  principal  of, or  Conversion  of, any
Eurodollar Rate Loan is made by the Borrower to or for the account of the Lender
other than on the last day of the Interest  Period for such Loan, as a result of
a payment or  Conversion  pursuant to Section  2.07(d) or (e),  2.09 or 2.10(c),
acceleration  of the  maturity of the Note  pursuant to Section  5.01 or for any
other  reason,  the  Borrower  shall pay to the  Lender  an amount  equal to the
present value  (calculated in accordance with this Section  6.04(c)) of interest
for the remaining  portion of the relevant Interest Period on the amount of such
Loan,  at a rate per annum equal to the excess of (i) the  Eurodollar  Rate that
would have been in effect for such Interest Period over (ii) the Eurodollar Rate
applicable on the date of  determination  to a deemed  Interest Period ending on
the last day of such  Interest  Period.  The  present  value of such  additional
interest shall be calculated by discounting the amount of such interest for each
day in the relevant  Interest Period from such day to the date of such repayment
or  termination  at an  interest  rate  per  annum  equal to the  interest  rate
determined  pursuant to the immediately  preceding  sentence,  and by adding all
such  amounts for all such days during such  period.  The  determination  by the
Lender of such  amount of  interest  shall be  conclusive  and  binding,  absent
manifest error.

                  (d) Without  prejudice to the survival of any other  agreement
of the  Borrower  hereunder,  the  agreements  and  obligations  of the Borrower
contained in Sections  2.10,  2.12 and 6.04 shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the Note.

                  SECTION 6.05.  Right of Set-off.  Upon (i) the  occurrence and
during  the  continuance  of any  Event of  Default  and (ii) the  making of the
request by or the actions of the Lender specified by Section 5.01 to declare the
Note due and payable  pursuant to the provisions of Section 5.01, the Lender and
each of its  affiliates is hereby  authorized at any time and from time to time,
to the  fullest  extent  permitted  by law,  to set off  and  apply  any and all
deposits (general or special, time or demand,  provisional or final) at any time
held and other indebtedness at any time owing by the Lender or such affiliate to
or for the credit or the  account  of the  Borrower  against  any and all of the
obligations of the Borrower now or hereafter existing under this

                                       16
<PAGE>

Agreement and the Note held by the Lender,  whether or not the Lender shall have
made any demand under this  Agreement or the Note and although such  obligations
may be unmatured.  The Lender agrees  promptly to notify the Borrower  after any
such  set-off  and  application,  provided  that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Lender and its  affiliates  under this  Section  6.05 are in  addition  to other
rights and remedies  (including,  without  limitation,  other rights of set-off)
that the Lender and its affiliates may have.

                  SECTION 6.06.  Binding  Effect.  This  Agreement  shall become
effective  (other than  Section  2.01,  which shall only become  effective  upon
satisfaction  of the  conditions  precedent  set forth in Section  3.01) when it
shall have been executed by the Borrower and the Lender and,  thereafter,  shall
be  binding  upon and inure to the  benefit of the  Borrower  and the Lender and
their respective successors and assigns, except that the Borrower shall not have
the right to assign its rights  hereunder  or any  interest  herein  without the
prior written consent of the Lender.

                  SECTION 6.07.  Assignments and Participations.  (a) The Lender
may assign to one or more Persons reasonably satisfactory to the Borrower all or
a portion of its rights and obligations under this Agreement (including, without
limitation,  all or a portion of its  Commitment,  the Loans owing to it and the
Note held by it). In connection with any such assignment, the Borrower agrees to
execute  and  deliver  such  documentation  as the Lender or any such  permitted
assignee may reasonably  request to evidence such  assignment and the rights and
obligations of such assignee hereunder.

                  (b) The Lender may sell participations to one or more banks or
other entities  (other than any LOC Party or any of its affiliates) in or to all
or a portion of its  rights and  obligations  under this  Agreement  (including,
without  limitation,  all or a portion of its Commitment,  the Loans owing to it
and the Note held by it); provided,  however,  that (i) the Lender's obligations
under this Agreement (including,  without limitation,  its Commitment hereunder)
shall remain unchanged,  (ii) the Lender shall remain solely  responsible to the
other parties hereto for the performance of such  obligations,  (iii) the Lender
shall remain the holder of the Note for all purposes of this Agreement, (iv) the
Borrower,  shall  continue  to deal  solely  and  directly  with the  Lender  in
connection with the Lender's rights and obligations under this Agreement and (v)
no participant under any such participation  shall have any right to approve any
amendment  or waiver of any  provision  of this  Agreement  or the Note,  or any
consent to any  departure by the Borrower  therefrom,  except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Note or any fees or other  amounts  payable  hereunder,  in each case to the
extent subject to such participation, or postpone any date fixed for any payment
of principal of, or interest on, the Note or any fees or other  amounts  payable
hereunder, in each case to the extent subject to such participation.

                  (c) The Lender  may,  in  connection  with any  assignment  or
participation or proposed  assignment or participation  pursuant to this Section
6.07,   disclose  to  the  assignee  or  participant  or  proposed  assignee  or
participant,  any  information  relating  to any LOC  Party  or any  Loan  Party
furnished to the Lender by or on behalf of the Borrower.

                  (d)  Notwithstanding  any  other  provision  set forth in this
Agreement,  the Lender may at any time create a security  interest in all or any
portion of its rights under this Agreement (including,  without limitation,  the
Loans owing to it and the Note held by it) in favor of any Federal  Reserve Bank
in accordance with Regulation A of the Board of Governors of the Federal Reserve
System.

                  SECTION 6.08. Governing Law. This Agreement and the Note shall
be governed by, and construed in accordance  with,  the laws of the State of New
York.


                                       17
<PAGE>

                  SECTION 6.09. Execution in Counterparts. This Agreement may be
executed  in any  number of  counterparts  and by  different  parties  hereto in
separate  counterparts,  each of which when so executed shall be deemed to be an
original  and all of which  taken  together  shall  constitute  one and the same
agreement.  Delivery of an  executed  counterpart  of a  signature  page to this
Agreement by  telecopier  shall be effective as delivery of a manually  executed
counterpart of this Agreement.

                  SECTION  6.10.  Jurisdiction,  Etc.  (a)  Each of the  parties
hereto  hereby  irrevocably  and  unconditionally  submits,  for  itself and its
property,  to the  nonexclusive  jurisdiction  of any New  York  State  court or
federal court of the United States of America  sitting in New York City, and any
appellate court from any thereof,  in any action or proceeding arising out of or
relating to this  Agreement,  the Note or the Guaranty,  or for  recognition  or
enforcement of any judgment,  and each of the parties hereto hereby  irrevocably
and  unconditionally  agrees  that all claims in  respect of any such  action or
proceeding  may be heard and  determined in any such New York State court or, to
the extent  permitted by law, in such federal court.  Each of the parties hereto
agrees  that a  final  judgment  in any  such  action  or  proceeding  shall  be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.  Nothing in this Agreement shall affect any
right  that any  party may  otherwise  have to bring  any  action or  proceeding
relating to this Agreement or the Note in the courts of any jurisdiction.

                  (b) Each of the parties hereto irrevocably and unconditionally
waives,  to the  fullest  extent  it may  legally  and  effectively  do so,  any
objection  that it may now or hereafter have to the laying of venue of any suit,
action or proceeding  arising out of or relating to this Agreement,  the Note or
the Guaranty in any New York State or federal court.  Each of the parties hereto
hereby  irrevocably  waives, to the fullest extent permitted by law, the defense
of an inconvenient  forum to the maintenance of such action or proceeding in any
such court.

                  SECTION 6.11.  Waiver of Jury Trial.  Each of the Borrower and
the Lender hereby  irrevocably  waives all right to trial by jury in any action,
proceeding  or  counterclaim  (whether  based on  contract,  tort or  otherwise)
arising out of or  relating to this  Agreement  or any other LOC  Document,  the
Loans  or  the  actions  of  the  Lender  in  the  negotiation,  administration,
performance or enforcement thereof.

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.

                                      DESA INTERNATIONAL, INC.


                                      By
                                           Name:
                                           Title:


                                      NATIONSBANK, N.A.


                                      By
                                           Name:
                                           Title:



                                       18

<PAGE>




                                                                     SCHEDULE I
                                                     APPLICABLE LENDING OFFICES

Name of Lender

NATIONSBANK, N.A.


Domestic Lending Office:

Credit:                                      Administrative:
Dave Strickert                               Kathy Mumpower
NationsBank, N.A.                            NationsBank, N.A.
100 North Tryon Street, 13th Floor           One Independence Center
Charlotte, N.C. 28255                        101 North Tryon Street, 15th Floor
Tel: (704) 386-8109                          Charlotte, N.C. 28255
Fax: (704) 386-9911                          Tel: (704) 386-6837
                                             Fax: (704) 388-9436

Eurodollar Lending Office:

Credit:                                      Administrative:
Dave Strickert                               Kathy Mumpower
NationsBank, N.A.                            NationsBank, N.A.
100 North Tryon Street, 13th Floor           One Independence Center
Charlotte, N.C. 28255                        101 North Tryon Street, 15th Floor
Tel: (704) 386-8109                          Charlotte, N.C. 28255
Fax: (704) 386-9911                          Tel: (704) 386-6837
                                             Fax: (704) 386-9436









<PAGE>



                                                           EXHIBIT A - FORM OF
                                                               PROMISSORY NOTE



U.S.$15,000,000                                  Dated:  _______________, 1999


                  FOR VALUE RECEIVED, the undersigned, DESA INTERNATIONAL, INC.,
a Delaware corporation (the "Borrower"),  HEREBY PROMISES TO PAY to the order of
NATIONSBANK,  N.A.  (the  "Lender")  for the account of its  Applicable  Lending
Office on the Termination Date (each as defined in the Credit Agreement referred
to below)  the  principal  sum of  U.S.$15,000,000  or, if less,  the  aggregate
principal amount of the Loans made by the Lender to the Borrower pursuant to the
Credit  Agreement  dated as of May 26, 1999  between the Borrower and the Lender
(as amended or modified  from time to time,  the "Credit  Agreement";  the terms
defined  therein  being  used  herein as  therein  defined)  outstanding  on the
Termination Date.

                  The Borrower  promises to pay interest on the unpaid principal
amount of each Loan from the date of such Loan  until such  principal  amount is
paid in  full,  at such  interest  rates,  and  payable  at such  times,  as are
specified in the Credit Agreement.

                  Both principal and interest are payable in lawful money of the
United States of America to the Lender in same day funds. Each Loan owing to the
Lender by the Borrower pursuant to the Credit  Agreement,  and all payments made
on account of principal  thereof,  shall be recorded by the Lender and, prior to
any transfer hereof,  endorsed on the grid attached hereto which is part of this
Promissory Note.

                  This  Promissory  Note  is the  Note  referred  to in,  and is
entitled to the benefits of, the Credit Agreement.  The Credit Agreement,  among
other things, (i) provides for the making of Loans by the Lender to the Borrower
from  time to  time  during  the  period  from  the  Effective  Date  until  the
Termination  Date in an aggregate  amount not to exceed at any time  outstanding
the U.S. dollar amount first above  mentioned,  the indebtedness of the Borrower
resulting from each such Loan being evidenced by this Promissory  Note, and (ii)
contains  provisions for  acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.


                                       DESA INTERNATIONAL, INC.



                                       By
                                         Name:
                                         Title:



<PAGE>


                         LOANS AND PAYMENTS OF PRINCIPAL

===============================================================================
                                   Amount of
               Amount of        Principal Paid    Unpaid Principal    Notation
Date             Loan             or Prepaid          Balance         Made By