Document:

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                                                                   Exhibit 10(a)

                      AMENDED AND RESTATED CREDIT AGREEMENT
                      -------------------------------------

         THIS AMENDED AND RESTATED CREDIT AGREEMENT is executed as of the _____
day of October, 2001 ("CLOSING DATE"), between DMI FURNITURE, INC., a Delaware
corporation (the "COMPANY"), and BANK ONE, INDIANA, NATIONAL ASSOCIATION, a
national banking association with its principal office in Indianapolis, Indiana
(the "BANK").

                                    RECITALS

         1. The Company and the Bank are parties to a certain Amended and
Restated Credit Agreement, dated October 3, 1997, as amended by a First
Amendment to Amended and Restated Credit Agreement, dated as of July 2, 1998, a
Second Amendment to Amended and Restated Credit Agreement, dated as of August
27, 1998, a Third Amendment to Amended and Restated Credit Agreement, dated as
of July 23, 1999, a Fourth Amendment to Amended and Restated Credit Agreement,
dated as of October 15, 1999, a Fifth Amendment to Amended and Restated Credit
Agreement, dated as of January 3, 2000, a Sixth Amendment to Amended and
Restated Credit Agreement, dated as of March 31, 2000, a Seventh Amendment to
Amended and Restated Credit Agreement, dated as of July 12, 2000, an Eighth
Amendment to Amended and Restated Credit Agreement, dated as of December 1,
2000, and by a Ninth Amendment to Amended and Restated Credit Agreement, dated
as of May 1, 2001 (as so amended, and as the same may have been further amended,
modified and supplemented prior to the Closing Date and as in effect immediately
prior to the execution of this Agreement, the "ORIGINAL AGREEMENT").

         2. The Company has request the Bank to amend, and as so amended,
restate, the Original Agreement, subject to and in accordance with the terms of
this Agreement.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein, and each act performed and to be performed hereunder, the
Bank and the Company agree to amend, and as so amended, restate, the Original
Agreement as follows:

                                   ARTICLE I
                                   ---------
                               DEFINITION OF TERMS

         SECTION 1.01. ACCOUNTING TERMS -- DEFINITIONS. All accounting and
financial terms used in this Agreement are used with the meanings such terms
would be given in accordance with GAAP except as may be otherwise specifically
provided in this Agreement. The following terms have the meanings indicated when
used in this Agreement with the initial letter capitalized:

         "ADVANCE" means a disbursement of proceeds of the Revolving Loan or the
Term Loan.

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         "AFFILIATE" means, with respect to any Person, any officer, shareholder
         or director of such Person and any Person or group acting in concert in
         respect of the Person in question that, directly or indirectly,
         controls or is controlled by or is under common control with such
         Person.

         "AGREEMENT" means this Amended and Restated Credit Agreement, as
         amended, modified, supplemented and/or restated from time to time and
         at any time.

         "APPLICABLE CREDIT ENHANCEMENT LETTER OF CREDIT COMMISSION RATE" means
         the rate per annum at which the commission due on each Commission Due
         Date for each Credit Enhancement Letter of Credit will be calculated,
         which rate shall be determined by reference to the Ratio of Total
         Funded Debt to EBITDA in accordance with the following table:

                           Ratio of Total            Applicable Credit
                           Funded Debt               Enhancement Letter of
                           to EBITDA                 Credit Commission Rate
                           ---------                 ----------------------

                           5.01 and above                     3%
                           4.51 to 5.00                       23/4%
                           4.01 to 4.50                       21/2%
                           3.50 to 4.00                       21/4%
                           3.00 to 3.49                       2 %
                           2.50 to 2.99                       13/4 %
                           2.49 and less                      11/2%

         The Applicable Credit Enhancement Letter of Credit Commission Rate
         shall be determined on the Closing Date on the basis of the Ratio of
         Total Funded Debt to EBITDA in effect on the Closing Date (which the
         Company and the Bank agree for purposes of the Applicable Credit
         Enhancement Letter of Credit Commission Rate was between 4.51 and 5.00
         as of the Closing Date) and shall be redetermined and adjusted as of
         the close of each fiscal quarter of the Company thereafter,
         concurrently with any adjustment to the Ratio of Total Funded Debt to
         EBITDA (as provided in the definition of Ratio of Total Funded Debt to
         EBITDA in this Agreement), with such redetermined Applicable Credit
         Enhancement Letter of Credit Commission Rate to be effective for the
         entire fiscal quarter of the Company which immediately follows each
         such fiscal quarter.

         "APPLICABLE DOCUMENTARY LETTER OF CREDIT COMMISSION RATE" means one
         percent (1%) per annum.

         "APPLICABLE SPREAD" means the percentage per annum to be taken into
         account in determining the rate per annum at which interest will accrue
         on the Revolving Loan, any Documentary Letter of Credit Loan, and the
         Term Loan, which shall be determined by reference to the Ratio of Total
         Funded Debt to EBITDA in accordance with the following table:

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<TABLE>
<CAPTION>
                Ratio of Total
                Funded Debt         If determining        If determining
                to EBITDA          a LIBOR-based Rate    a Prime-based Rate
                ---------          ------------------    ------------------
<S>                                 <C>                <C>
                5.01 and above             3%                 1/2%
                4.51 to 5.00               23/4%              1/4%
                4.01 to 4.50               21/2%                0%
                3.50 to 4.00               21/4%                0%
                3.00 to 3.49               2 %                  0%
                2.50 to 2.99               13/4 %               0%
                2.49 and less              11/2%                0%
</TABLE>

         Applicable Spread shall be determined on the Closing Date on the basis
         of the Ratio of Total Funded Debt to EBITDA in effect on the Closing
         Date (which the Company and the Bank agree for purposes of Applicable
         Spread was between 4.51 and 5.00 as of the Closing Date) and shall be
         redetermined and adjusted as of the close of each fiscal quarter of the
         Company thereafter, concurrently with any adjustment to the Ratio of
         Total Funded Debt to EBITDA (as provided in the definition of Ratio of
         Total Funded Debt to EBITDA in this Agreement), with such redetermined
         Applicable Spread to be effective for the entire fiscal quarter of the
         Company which immediately follows each such fiscal quarter.

         "APPLICABLE UNUSED COMMITMENT FEE PERCENTAGE" means the percentage per
         annum determined by reference to the Ratio of Total Funded Debt to
         EBITDA in accordance with the following table:

                           Ratio of Total                     Applicable
                           Funded Debt                        Unused Commitment
                           to EBITDA                          Percentage Fee
                           ---------                          --------------

                           4.51 and above                           1/2%
                           3.00 to 4.50                             3/8%
                           less than 3.00                           1/4%

         The Applicable Unused Commitment Fee Percentage shall be determined on
         the Closing Date on the basis of the Ratio of Total Funded Debt to
         EBITDA in effect on the Closing Date (which the Company and the Bank
         agree for purposes of determining the Applicable Unused Commitment Fee
         Percentage was above 4.51 as of the Closing Date) and shall be
         redetermined and adjusted as of the close of each fiscal quarter of the
         Company thereafter, concurrently with any adjustment to the Ratio of
         Total Funded Debt to EBITDA (as provided in the definition of Ratio of
         Total Funded Debt to EBITDA in this Agreement), with such redetermined
         Applicable Unused Commitment Fee Percentage to be effective for the
         entire fiscal quarter of the Company which immediately follows each
         such fiscal quarter.
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         "APPLICATION FOR ADVANCE" means a written application of the Company
         for an Advance substantially in the form of EXHIBIT "A" attached
         hereto.

         "APPRAISAL SHORTFALL" means the amount, if any, by which $4,640,000
         exceeds 75% of the sum of (a) the value of the Real Estate, as
         determined by the real estate evaluations delivered to the Bank
         pursuant to Section 7.01(e)(2) of this Agreement, and (b) 50% of the
         book value of the Equipment (as defined in the Security Agreement) net
         of depreciation as at September 1, 2001.

         "AUTHORIZED OFFICER" means the President or the Chief Financial Officer
         of the Company or such other officer whose authority to perform acts to
         be performed only by an Authorized Officer under the terms of this
         Agreement is evidenced to the Bank by a certified copy of an
         appropriate resolution of the Board of Directors of the Company.

         "AVAILABLE CASH FOR RECAPTURE" means, for any fiscal year of the
         Company, the amount by which EBITDA for that fiscal year exceeds Fixed
         Charges for that fiscal year.

         "BANK" has the meaning ascribed to such term in the preamble to this
         Agreement.

         "BANKING DAY" means (i) with respect to any borrowing, payment or rate
         selection of LIBOR Advances, a day (other than a Saturday or Sunday) on
         which banks generally are open in New York and (specifically including
         Bank) in Indianapolis for the conduct of substantially all of their
         commercial lending activities, interbank wire transfers can be made on
         the Fedwire system and dealings in United States dollars are carried on
         in the London interbank market and (ii) for all other purposes, a day
         (other than a Saturday or Sunday) on which banks generally (and
         specifically including Bank) are open in Indianapolis for the conduct
         of substantially all of their commercial lending activities and
         interbank wire transfers can be made on the Fedwire system.

         "BOND DOCUMENT" means any of the 1993 Bond Documents or any of the 1994
         Refunding Bond Documents as the context requires, and when used in the
         plural form, refers to all or any combination of the Bond Documents as
         the context requires.

         "BONDS" means any of the 1993 Bonds or any of the 1994 Refunding Bonds
         or, if the context requires, all or any combination of them.

         "BORROWING BASE" means, at any date a determination thereof is to be
         made, an amount equal to the sum of: (a) Eighty Percent (80%) of the
         net book value (as determined in accordance with GAAP) of Eligible
         Accounts; (b) Fifty Percent (50%) of the Eligible Finished Goods
         Inventory Value and the Eligible Wood Stock Inventory Value; and (c)
         Twenty-Five Percent (25%) of the Eligible Miscellaneous Inventory Value
         (all of the foregoing as determined on the basis of the information
         contained in the most recent Borrowing Base Certificate provided to the
         Bank or as determined by the Bank upon an inspection of the Company's
         books and records and inventory by the Bank or any other representative
         of the Bank) MINUS the Appraisal Shortfall; provided, however, the

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         Borrowing Base shall be $0 commencing five (5) calendar days after the
         Company's failure to furnish to the Bank a monthly Borrowing Base
         Certificate within the period of time required under SUBSECTION
         6.01(b)(9) of this Agreement, and continuing until the Bank shall have
         received a properly completed and certified Borrowing Base Certificate.

         "BORROWING BASE CERTIFICATE" means a certificate signed by an
         Authorized Officer of the Company certifying the amount of the
         Borrowing Base and the Maximum Availability as of a stated date and in
         such form and showing such detail as the Bank reasonably may require
         from time to time.

         "BUSINESS DAY" is used as defined in each of the Credit Enhancement
         Letters of Credit, as the context requires.

         "CAPITAL EXPENDITURES" means, for any fiscal period of the Company, the
         aggregate amount of all expenditures (whether paid in cash or accrued
         as a liability and including without limitation freight, installation
         costs, taxes and other related costs) of the Company and its
         Subsidiaries during such period that, to the extent required by GAAP,
         are required by GAAP to be included in or reflected as property, plant
         or equipment or similar fixed asset account in any consolidated
         financial statements of the Company and its Subsidiaries, including any
         acquisition, construction or installation of properties or for any
         additions, improvements or major repair thereto or any replacement
         thereof, and the amount capitalized under any Capital Lease.

         "CAPITAL LEASE" means any lease of property (whether real, personal or
         mixed) which, to the extent required by GAAP, is to be capitalized on
         the balance sheet of the Company or any Subsidiary.

         "CASH CAPITAL EXPENDITURES" means those Capital Expenditures that are
         not financed with new Debt (including Debt incurred under this
         Agreement) or through Capital Leases.

         "CASH FLOW RECAPTURE PAYMENT" is used as defined in Section 2.04(d)

         "CHANGE IN CONTROL" means the occurrence of any of the following:

                  (a)      Any "person", as such term is used in Sections 13(d)
                           and 14(d)(2) of the Securities Exchange Act of 1934,
                           as amended (the "Exchange Act") (other than the
                           Company, any trustee or other fiduciary holding
                           securities under an employee benefit plan of the
                           Company, or any corporation owned, directly or
                           indirectly, by the shareholders of the Company in
                           substantially the same proportions as their ownership
                           of stock of the Company, or any of the existing
                           Series C Preferred shareholders), is or becomes the
                           "beneficial owner" (as defined in Rule 13d-3 under
                           the Exchange Act), directly or indirectly, of
                           securities of the Company representing 40% or

<PAGE>

                           more of the combined voting power of the Company's
                           then outstanding securities.

                  (b)      During any period of one year, individuals who at the
                           beginning of such period constitute the Board of
                           Directors of the Company cease to constitute at least
                           a majority thereof. If the election or nomination for
                           election by the Company's shareholders of a new
                           director (other than a director designated by a
                           person who has entered into an agreement with the
                           Company to effect a transaction described in clause
                           (a), (c) or (d) of this definition) was approved by a
                           vote of at least two-thirds of the directors then
                           still in office who either were directors at the
                           beginning of the period or whose election or
                           nomination for election was previously so approved,
                           that director shall not be counted for purposes of
                           the preceding sentence.

                  (c)      The shareholders of the Company approve a merger or
                           consolidation of the Company with any other
                           corporation, other than (A) a merger or consolidation
                           which would result in the voting securities of the
                           Company outstanding immediately prior thereto
                           continuing to represent (either by remaining
                           outstanding or by being converted into voting
                           securities of the surviving entity) more than 80% of
                           the combined voting power of the voting securities of
                           the Company or such surviving entity outstanding
                           immediately after such merger or consolidation, or
                           (B) a merger or consolidation effected to implement a
                           recapitalization of the Company (or similar
                           transaction) in which no "person" (as hereinabove
                           defined) acquires more than 50% of the combined
                           voting power of the Company's then outstanding
                           securities.

                  (d)      The shareholders of the Company approve a plan of
                           complete liquidation of the Company or an agreement
                           for the sale of disposition by the Company of all or
                           substantially all of the Company's asset.

                  (e)      Any other transaction which is of a nature that would
                           be require to be reported in response to Item 6(e) of
                           Schedule 14A of Regulation 14A promulgated under the
                           Exchange Act occurs.

         "CHANGE IN MANAGEMENT" means either (i) Donald D. Dreher or (ii) Joseph
         G. Hill is no longer a senior executive of the Company.

         "CITY" means the City of Huntingburg, Indiana.

         "CLOSING DATE" has the meaning ascribed to such term in the preamble to
         this Agreement.

<PAGE>

         "CODE" means the Internal Revenue Code of 1986, as amended.

         "COMMERCIAL LC MASTER REIMBURSEMENT AGREEMENT" means the undated
         Commercial Letter of Credit Master Agreement, between the Company and
         Banc One International Corporation, as the same has been and hereafter
         may be amended, modified, extended, renewed, supplemented, replaced
         and/or restated from time to time and at any time.

         "COMMISSION DUE DATE" is used as defined in Section 3.01(a)(2) or in
         Section 3.01(b)(2) of this Agreement, as the context requires."

         "COMMITMENTS" means, collectively, the Revolving Loan Commitment and
         the commitment of the Bank to make Term Loan Advances as provided in
         this Agreement.

         "COMPANY" has the meaning ascribed to such term in the preamble to this
         Agreement.

         "COMPANY'S AUDITORS" means one of the five (5) largest independent
         certified public accounting firms in the U.S.

         "CREDIT ENHANCEMENT LETTER OF CREDIT" means the 1993 Direct-Pay Letter
         of Credit or the 1994 Refunding Direct-Pay Letter of Credit as the
         context requires, and when used in the plural form, refers to both of
         them.

         "DLC FACILITY" has the meaning ascribed to such term in Section 2.03(a)
         of this Agreement.

         "DLC FACILITY MATURITY DATE" means the earlier of (i) the Scheduled DLC
         Facility Maturity Date, and (ii) that date upon which the Bank
         terminates the DLC Facility in accordance with Section 8.02 of this
         Agreement.

         "DLC NOTE" has the meaning ascribed to such term in Section 2.03(a) of
         this Agreement.

         "DEBT" means, as of any date a determination thereof is made, all of
         the following described indebtedness, liabilities and obligations of
         the Company and its Subsidiaries, as determined in accordance with
         GAAP, without duplication: (a) all indebtedness, liabilities and
         obligations for borrowed money; (b) all obligations as lessee under any
         Capital Lease; (c) all obligations, indebtedness and liabilities which
         are secured by any Lien on any asset, whether or not the obligation,
         indebtedness or liability secured thereby shall have been assumed by
         the Company or any Subsidiary; and (d) all obligations, indebtedness
         and liabilities of others similar in character to those described in
         clauses (a) through (c) of this definition for which the Company or any
         Subsidiary is liable, contingently or otherwise, as obligor, guarantor
         or in any other capacity, or in respect of which obligations,
         indebtedness or liabilities the Company or any Subsidiary assures a
         creditor against loss or agrees to take any action to prevent any such
         loss (other than endorsements of negotiable instruments for collection
         in the ordinary course of business),

<PAGE>

         including without limitation all reimbursement obligations of the
         Company and its Subsidiaries in respect of letters of credit, surety
         bonds or similar obligations and all obligations of the Company and its
         Subsidiaries to advance funds to, or to purchase assets, property or
         services from, any other Person in order to maintain the financial
         condition of such other Person, excluding documentary letters of credit
         issued by the Bank for the Company in connection with importing
         property in the ordinary course of business.

         "DESIGNATED ACCOUNT" is used as defined in Section 3.01(a) of this
         Agreement.

         "DOCUMENTARY LETTER OF CREDIT" is used as defined in Section 2.03(a) of
         this Agreement, and when used in the plural form, means all of the
         Documentary Letters of Credit or any combination of them as the context
         requires.

         "DOCUMENTARY LETTER OF CREDIT EXPOSURE" means, as of the date such
         amount is to be determined, the sum of:

                  (a)      the aggregate face amounts of all Documentary Letters
                           of Credit that have not expired by their terms or
                           have not been surrendered by the beneficiary prior to
                           the expiration thereof (including the face amounts of
                           any Documentary Letters of Credit that have expired
                           by their terms but have not been surrendered by the
                           beneficiary and as to which the beneficiary asserts a
                           right to present and/or have honored Drafts); LESS
                           any portion of such face amounts that has been
                           exhausted by the payment or acceptance of Drafts
                           thereunder or otherwise; PLUS

                  (b)      the total dollar amount of (1) the amount of all
                           Drafts under Documentary Letters of Credit which have
                           been honored by the Bank or which the Bank has
                           otherwise been required to pay but with respect to
                           which the Bank has not yet received reimbursement
                           from the Company, including without limitation, the
                           principal amounts of all outstanding Documentary
                           Letter of Credit Loans, and (2) the amount of all
                           Drafts under Documentary Letters of Credit which have
                           been presented to the Bank but not honored by the
                           Bank, which the Bank (in its sole discretion)
                           determines it may yet honor or be required to honor
                           or the amount of which it may otherwise be required
                           to pay.

         "DOCUMENTARY LETTER OF CREDIT LOAN" has the meaning ascribed to such
         term in Section 2.03(d) of this Agreement.

         "DRAFT" shall mean a drawing or other demand (or presentment of
         documents) for payment under a Documentary Letter of Credit.

<PAGE>

         "DRAWING" means an Interest Drawing, a Principal Drawing or a
         Remarketing Drawing as the context requires, and when used in the
         plural form, means all or any combination of them as the context
         requires.

         "EBITDA" means for any fiscal period of the Company, Net Income for
         such period (minus or plus, to the extent included in the determination
         of such Net Income, any gain or loss (i) which must be treated as an
         extraordinary item under GAAP or (ii) realized upon the sale or other
         disposition of any real property or equipment that is not sold in the
         ordinary course of business), PLUS (without duplication and only to the
         extent deducted in determining such Net Income and all as determined in
         accordance with GAAP), the sum of (a) Interest of the Company and its
         Subsidiaries, (b) federal, state, and local income tax expense, (c)
         depreciation and amortization expense, and (d) the restructuring charge
         in the amount of $775,000.00 taken by the Company with respect to the
         shutdown of the Company's Dolly Madison product line; and MINUS
         (without duplication and only to the extent included in determining
         such Net Income and all as determined in accordance with GAAP) the
         amount of any reversal of or addback to income of the Company of any
         part of the restructuring charge taken by the Company with respect to
         the shutdown of the Company's Dolly Madison product line.

         "ELIGIBLE ACCOUNTS" means, at any date a determination thereof is to be
         made, all outstanding accounts receivable of the Company for which the
         Company shall have furnished to the Bank information adequate for
         purposes of identification at times and in form and substance as may be
         reasonably requested by the Bank; provided, however, that an account
         receivable shall not constitute an Eligible Account if it: (a) remains
         unpaid sixty (60) days after the original due date for its payment
         stated on the applicable invoice; (b) is an account receivable with
         respect to which the account receivable debtor is the subject of a
         bankruptcy or similar insolvency proceeding or has made an assignment
         for the benefit of creditors or whose assets have been conveyed to a
         receiver or trustee or who is no longer conducting its customary
         business, except and to the extent the Bank otherwise agrees in
         writing; (c) is an account receivable which is not invoiced (and dated
         as of the date of such invoice) and sent to the account receivable
         debtor within the ordinary course of the business of the Company and in
         accordance with customary billing practices after delivery of the
         underlying goods to, or performance of the underlying services for, the
         accounts receivable debtor; (d) is an account receivable arising with
         respect to goods which have not been shipped or arising with respect to
         services which have not been fully performed; (e) is an account
         receivable with respect to which the account receivable debtor's
         obligation to pay the account receivable is conditional upon the
         account receivable debtor's approval or is otherwise subject to any
         repurchase obligation or return right, as with sales made on a
         bill-and-hold, guaranteed sale, sale-and-return, sale on approval or
         consignment basis; (f) is an account receivable in which the Bank does
         not have a first priority, perfected security interest; (g) is an
         account receivable due from any Subsidiary or Affiliate of the Company
         or which is due solely from an accounts receivable debtor which is a
         United States federal governmental entity or agency, except and to the
         extent the Bank otherwise agrees in writing; or (h) is an account
         receivable evidenced by an instrument (as defined in Article 9 of the
         Indiana

<PAGE>

         Uniform Commercial Code) not in the possession of the Bank. Accounts
         receivable which are otherwise Eligible Accounts and which are owed for
         goods used in showrooms or displays and for which extended payment
         terms (i.e., payment terms which are longer than customarily extended
         for the purchase in the ordinary course of business of inventory from
         the Company on account) were given to the account receivable debtors by
         the Company may be included as Eligible Accounts only to the extent
         that the aggregate sum of all such accounts receivable do not exceed
         $750,000. At any time more than Twenty-Five Percent (25%) of the
         aggregate amount of accounts receivable due from an accounts receivable
         debtor remain unpaid more than sixty (60) days after the date(s) due as
         stated on the original invoice(s) evidencing such accounts receivable,
         then no accounts receivable due the Company from that accounts
         receivable debtor shall constitute an Eligible Account. Further, to the
         extent that an Eligible Account is subject to any set-off, offset,
         credit or other reduction right held by the account receivable debtor,
         then for purposes of determining the Borrowing Base the amount of such
         Eligible Account shall be reduced by the sum of all such offsets,
         credits and reductions.

         "ELIGIBLE FINISHED GOODS INVENTORY VALUE" means, at any date a
         determination thereof is to be made, an amount equal to the aggregate
         book value of the Company's finished goods inventory (all as determined
         and classified in accordance with GAAP), but excluding all such
         inventory: (a) held by a third party on consignment or subject to any
         repurchase option or arrangement or return right, as with sales made on
         a bill-and-hold, guaranteed sale, sale-and-return, sale on approval or
         consignment basis; or (b) which do not comply with any of the following
         requirements:

                  (i)      It is in good and merchantable condition for sale to
                           an end user and is readily marketable by the Company
                           in the ordinary course of the Company's business;

                  (ii)     It conforms in all material respects to all
                           applicable specifications, standards and
                           requirements; and

                  (iii)    It complies with or exceeds all standards, mandates
                           and requirements of Governmental Authority with which
                           it must be in compliance for it to be lawfully sold
                           to an end user in the United States of America.

         "ELIGIBLE FUNDS" is used as defined in the 1993 Trust Indenture or the
         1994 Refunding Trust Indenture, as the context requires.

         "ELIGIBLE MISCELLANEOUS INVENTORY VALUE" means, at any date a
         determination thereof is to be made, an amount equal to the book value
         (as determined and classified in accordance with GAAP) of the Company's
         raw material inventory, including furniture hardware which is not yet
         part of work in process or finished goods, but excluding all lumber
         (cut or uncut), board stock, timber, logs and other wood.

<PAGE>

         "ELIGIBLE WOOD STOCK INVENTORY VALUE" means, at any date a
         determination thereof is to be made, an amount equal to the aggregate
         book value of the Company's inventory of timber, logs, rough cut lumber
         and full-board stock (all as determined and classified in accordance
         with GAAP) and that is readily marketable in established wood markets
         in its existing condition, but excluding all such lumber and board
         stock which is not in standard market dimensions.

         "ENVIRONMENTAL LAWS" means all federal, state and local laws and
         implementing regulations, now or hereafter effective during the term of
         this Agreement, relating to pollution or protection of the environment,
         including laws or regulations relating to or permitting emissions,
         discharges, releases or threatened releases of pollutants,
         contaminants, chemicals, or industrial, toxic or hazardous substances
         or wastes into the environment (including without limitation ambient
         air, surface water, ground water, or land), or to the manufacture,
         processing, distribution, use, treatment, storage, disposal, transport,
         or handling of pollutants, contaminants, chemicals, industrial wastes,
         or hazardous substances. Such laws shall include, but not be limited
         to: (a) the Comprehensive Environmental Response, Compensation and
         Liability Act, as amended, 42 U.S.C. Section 9601 ET SEQ.; (b) the
         Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
         6901 ET SEQ., including the statutes regulating underground storage
         tanks, 42 U.S.C. 6991-6991h; (c) the Clean Air Act, as amended, 42
         U.S.C. 7401 ET seq.; (d) the Federal Water Pollution Control Act, as
         amended, 33 U.S.C. Section 1251 ET SEQ., including the statute
         regulating the National Pollutant Discharge Elimination System, 33
         U.S.C. Section 1342; and (e) Indiana Code, Title 13 Environment, as
         amended.

         "ENVIRONMENTAL REPORTS" means each of the environmental reports
         previously furnished to the Bank pursuant to Section 6.b(iii), Section
         6.d(iii) or Section 6.e(iii) of the Original Agreement, or pursuant to
         Section 7.01(e)(2) and SCHEDULE 2 of this Agreement, as the context
         requires, and when used in the plural form refers to all of the
         Environmental Reports or any combination of them as the context
         requires.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
         amended.

         "EVENT OF DEFAULT" means any of the events described in Section 8.01 of
         this Agreement.

         "FINANCIAL STATEMENTS" includes, but is not limited to, balance sheets,
         profit and loss statements, and cash flow statements, prepared in
         accordance with GAAP.

         "FIXED CHARGE COVERAGE RATIO" means, with respect to the Company and
         its Subsidiaries on a consolidated basis for any fiscal period, the
         ratio of EBITDA for such period to Fixed Charges for such period.

         "FIXED CHARGES" means, with respect to the Company for any fiscal
         period, the sum of interest which was due and payable by the Company
         and its Subsidiaries in cash during such period, plus Cash Capital
         Expenditures made by the Company and its Subsidiaries during such
         period, plus scheduled principal payments of Debt of the Company and
         each

<PAGE>

         of its Subsidiaries which were due and payable in cash during such
         period (excluding any Cash Flow Recapture Payments), plus taxes of the
         Company and its Subsidiaries which were due during such period
         (excepting $350,000 of taxes paid during the Company's fiscal quarter
         ended May 30, 2001), plus dividends that were paid to the shareholders
         of the Company in cash during such period, plus, to the extent paid in
         cash during such period, expenses related to the shutdown of the
         Company's Dolly Madison product line and included in the aggregate
         $775,000.00 restructuring charge taken by the Company in fiscal year
         2001 with respect to such product line shutdown.

         "GAAP" means generally accepted accounting principles in the United
         States of America as in effect from time to time, which shall include
         the official interpretations thereof by the Financial Accounting
         Standards Board, consistently applied (from and after the Closing Date)
         and for the period as to which such accounting principles are to apply.
         Except as otherwise provided in this Agreement, to the extent
         applicable, all computations and determinations as to accounting or
         financial matters and all Financial Statements to be delivered pursuant
         to this Agreement shall be made and prepared in accordance with GAAP
         (including principles of consolidation where appropriate), and, to the
         extent applicable, all accounting or financial terms shall have the
         meanings ascribed to such terms by GAAP.

         "GOVERNMENT ACTS" has the meaning ascribed to such term in Section
         2.03(e) of this Agreement.

         "GOVERNMENTAL AUTHORITY" means, collectively, the federal government of
         the United States, the government of any foreign country that is
         recognized by the United States or is a member of the United Nations;
         any state of the United States; any local government or municipality
         within the territory or under the jurisdiction of any of the foregoing;
         any department, agency, division, or instrumentality of any of the
         foregoing; and any court, arbitrator, or board of arbitrators whose
         orders or judgments are enforceable by or within the territory of any
         of the foregoing.

         "GUARANTOR" means DMI Management, Inc., a Kentucky  corporation.

         "GUARANTY" means the Amended and Restated Guaranty Agreement, dated as
         of the Closing Date, executed by Guarantor in favor of the Bank, in
         form and substance the same as Exhibit H of this Agreement as the same
         hereafter may be amended, modified, supplemented, affirmed, reaffirmed
         and/or restated from time to time and at any time.

         "HAZARDOUS SUBSTANCE" means any hazardous or toxic substance regulated
         by any Environmental Laws, including but not limited to the
         Comprehensive Environmental Response, Compensation and Liability Act,
         the Resource Conservation and Recovery Act and the Toxic Substance
         Control Act, or by any federal, state or local governmental agencies
         having jurisdiction over the control of any such substance including
         but not limited to the United States Environmental Protection Agency.

<PAGE>

         "INTEREST" means for any period and for any Person, the interest
         expense of such Person for that period, determined in accordance with
         GAAP.

         "INTEREST DRAWING" is used as defined in each of the Credit Enhancement
         Letters of Credit, as the context requires.

         "INTEREST PAYMENT DATE" is used as defined in the 1993 Trust Indenture
         or the 1994 Refunding Trust Indenture, as the context requires.

         "INTEREST PERIOD" means, with respect to any LIBOR Advance, the one (1)
         month, two (2) month, three (3) month or six (6) month period selected
         by the Company as provided in this Agreement and commencing on that day
         designated by the Company in its written notice to the Bank making such
         selection (so long as such day is not less than three Banking Days
         after the date of such notice). Each Interest Period for a LIBOR
         Advance that begins on the last day of a calendar month (or on a day
         for which there is no numerically corresponding day in the appropriate
         subsequent calendar month) shall end on the last Banking Day of the
         appropriate subsequent calendar month. Each Interest Period for a LIBOR
         Advance which would otherwise end on a day which is not a Banking Day
         shall end on the immediately succeeding Banking Day (unless such
         immediately succeeding Banking Day is in another calendar month, in
         which case such Interest Period shall end on the immediately preceding
         Banking Day).

         "INTERIM FINANCIAL STATEMENTS" means the interim financial statements
         furnished to the Bank pursuant to Section 6.01(b) of this Agreement for
         each successive 4-week or 5-week period comprising a fiscal month of
         the Company, and, when used in reference to a fiscal quarter or a
         period of fiscal quarters of the Company, means all of the Interim
         Financial Statements for each of the 4-week and 5-week periods
         comprising such fiscal quarter or period of fiscal quarters.

         "LETTER OF CREDIT" means any of the Credit Enhancement Letters of
         Credit or any of the Documentary Letters of Credit as the context
         requires, and when used in the plural form, means all of the Letters of
         Credit or any combination of them as the context requires.

         "LIBOR ADVANCE" means the principal amount of any Loan or Advance as to
         which a LIBOR-based Rate is elected by the Company pursuant to this
         Agreement.

         "LIBOR RATE" means, with respect to a LIBOR Advance for the relevant
         Interest Period, the applicable British Bankers' Association Interest
         Settlement Rate for deposits in U.S. dollars appearing on Reuters
         Screen FRBD as of 11:00 a.m. (London time) two Banking Days prior to
         the first day of such Interest Period, and having a maturity equal to
         such Interest Period, provided that, (i) if Reuters Screen FRBD is not
         available to Bank for any reason, the applicable LIBOR Rate for the
         relevant Interest Period shall instead be the applicable British
         Bankers' Association Interest Settlement Rate for deposits in U.S.
         dollars as reported by any other generally recognized financial
         information service as of 11:00 a.m. (London time) two Banking Days
         prior to the first day of such Interest Period,

<PAGE>

         and having a maturity equal to such Interest Period, and (ii) if no
         such British Bankers' Association Interest Settlement Rate is available
         to Bank, the applicable LIBOR Rate for the relevant Interest Period
         shall instead be the rate determined by Bank to be the rate at which
         Bank or one of its Affiliate banks offers to place deposits in U.S.
         dollars with first-class banks in the London interbank market at
         approximately 11:00 a.m. (London time) two Banking Days prior to the
         first day of such Interest Period, in the approximate amount of Bank's
         relevant LIBOR Advance and having a maturity equal to such Interest
         Period.

         "LIBOR-BASED RATE" means a variable rate at which interest may accrue
         on all or a portion of any of the Loans under the terms of this
         Agreement, which rate is determined by reference to the LIBOR Rate.

         "LIEN" and "LIEN" each means any mortgage, pledge, security interest,
         encumbrance, lien, charge or deposit arrangement of any kind
         (including, without limitation, any conditional sale or other title
         retention agreement or lease in the nature thereof, any sale of
         accounts with recourse against the seller, any filing or agreement to
         file a financing statement as debtor under the Uniform Commercial Code
         or any similar statute other than to reflect ownership by third party
         of property leased to the Person under a lease which is not in the
         nature of a conditional sale or title retention agreement, and any
         subordination arrangement in favor of another Person).

         "LOAN" means the Revolving Loan, the DLC Facility, the Term Loan, any
         Remarketing Reimbursement Loan-1993 Bonds, any Remarketing
         Reimbursement Loan-1994 Refunding Bonds, or any of the Documentary
         Letter of Credit Loans, as the context requires, and when used in the
         plural form refers to all of the Loans or any combination of them, as
         the context requires.

         "LOAN DOCUMENTS" means, collectively, this Agreement, the Revolving
         Note, the DLC Note, the Term Note, the Security Agreement, the
         Mortgages, the Mortgage Amendments, the Guaranty, the Reimbursement
         Agreements, all other instruments, agreements and documents executed
         and delivered or to be delivered by the Company pursuant to or by
         virtue of this Agreement and any and all interest hedging agreements
         which at any time from and after the Closing Date may be made between
         the Company and the Bank, as each may be amended, modified, extended,
         renewed, supplemented and/or restated from time to time and at any
         time, and when used in the singular form, means any of the Loan
         Documents, as the context requires.

         "MAXIMUM AVAILABILITY" means, as of any date of determination, the
         lesser of: (a) one of the following amounts, as applicable: (i) from
         and after the Closing Date to and including January 30, 2002,
         $23,000,000; (ii) from and after January 31, 2002 to and including July
         30, 2002, $19,000,000; and (iii) from and after July 31, 2002 until the
         Scheduled Revolving Loan Maturity Date, $23,000,000; and (b) the
         Borrowing Base, minus the Documentary Letter of Credit Exposure.
<PAGE>

         "MAXIMUM AVAILABLE CREDIT" means the sum of (i) the 1993 Maximum
         Available Credit, plus (ii) the 1994 Maximum Available Credit.

         "MAXIMUM DLC AVAILABILITY" means, as of any date of determination, the
         lesser of (a) $2,500,000, or (b) the Borrowing Base, minus the
         outstanding principal balance of the Revolving Loan.

         "MORTGAGE" means the 1992 Huntingburg Mortgage, the 1993 Huntingburg
         Mortgage-Warehouse, the 1993 Huntingburg Mortgage-Mfg., and the 1997
         Project Mortgage, as the context requires, and when used in the plural
         form, means all of the Mortgages or any combination of them as the
         context requires.

         "MORTGAGE AMENDMENTS" has the meaning ascribed to such term in Section
         5.01(b) of this Agreement.

         "NET INCOME" means, for any fiscal period, the net income of the
         Company and its Subsidiaries determined on a consolidated basis for
         such period in accordance with GAAP.

         "NOTE" means the Revolving Note, the DLC Note, the Term Note, any
         Remarketing Reimbursement Note-1993 Bonds, or any Remarketing
         Reimbursement Note-1994 Refunding Bonds, as the context requires, and
         when used in the plural form refers to all of the Notes or any
         combination of them, as the context requires.

         "OBLIGATIONS" means all present and future indebtedness, obligations
         and liabilities, and all renewals and extensions thereof, now or
         hereafter owed of the Company to the Bank or to BANC ONE CORPORATION,
         or to any of their respective subsidiaries, affiliates or successors
         (collectively, the "Bank One Obligees") arising under, by virtue of or
         pursuant to any of this Agreement, the Notes, the Reimbursement
         Agreements, any of the other Loan Documents, or otherwise, or in
         connection with any one or more Rate Management Transactions, together
         with all costs, expenses and reasonable attorneys' fees (including the
         reasonable allocated costs of staff counsel) incurred by each of the
         Bank One Obligees (including specifically the Bank) in the enforcement
         or collection thereof, whether such indebtedness, obligations and
         liabilities are direct, indirect, fixed, contingent, liquidated,
         unliquidated, joint, several, joint and several, now exist or hereafter
         arise, or were prior to acquisition thereof by any of the Bank One
         Obligees owed to some other Person.

         "OFFICER'S CERTIFICATE" means a certificate in the form included as a
         part of EXHIBIT "B " attached hereto signed by the President or Chief
         Financial Officer of the Company, confirming that all of the
         representations and warranties contained in Section 4.01 of this
         Agreement are true and correct as of the date of such certificate
         except as specified therein and with the further exceptions that: (i)
         the representation contained in Section 4.01(d) of this Agreement shall
         be construed so as to refer to the latest Financial Statements which
         have been furnished to the Bank as of the date of any such certificate,

<PAGE>

         (ii) the representations contained in Section 4.01(k) (with respect to
         Hazardous Substances) will be construed so as to apply not only to the
         Company, but also to any Subsidiaries, whether now owned or hereafter
         acquired, (iii) the representation contained in Section 4.01(l) of this
         Agreement shall be deemed to be amended to reflect the existence of any
         Subsidiary hereafter formed or acquired by the Company with the consent
         of the Bank, and (iv) all other representations will be construed to
         have been amended to conform with any changes of which the Company
         shall have previously given the Bank notice in writing. The Officer's
         Certificate shall further confirm that no Event of Default or Unmatured
         Event of Default shall have occurred and be continuing as of the date
         of the Officer's Certificate or shall describe any such event which
         shall have occurred and be then continuing and the steps being taken by
         the Company to correct it.

         "ORIGINAL AGREEMENT" has the meaning ascribed to such term in the
         Recitals to this Agreement.

         "PERMITTED LIENS" means those liens, encumbrances and security
         interests described in Sections 6.02(b)(1) through (8) of this
         Agreement.

         "PERSON" shall mean an individual, a corporation, a limited or general
         partnership, a limited liability company, a joint venture, a trust or
         unincorporated organization, a joint stock company or other similar
         organization, a government or any political subdivision thereof, a
         court, or any other legal entity, whether acting in an individual,
         fiduciary or other capacity.

         "PLAN" means an employee pension benefit plan as defined in ERISA.

         "PLEDGED BONDS" is used as defined in Section 5.01(h).

         "PREPAYMENT PREMIUM" means the excess, if any, as determined by the
         Bank of: (i) the present value at the time of prepayment of the
         interest payments which would have been payable on account of an amount
         prepaid from the date of prepayment until the end of the period during
         which interest would have accrued at a LIBOR-based Rate but for
         prepayment over (ii) the present value at the time of prepayment of
         interest payments calculated at the rate (the "REINVESTMENT RATE")
         which the Bank then estimates it would receive upon reinvesting the
         principal amount of the prepayment in an obligation which presents a
         credit risk substantially similar (as determined in accordance with the
         commercial credit rating system then used by the Bank) to that which is
         then presented by the Loan for a period approximately equal to the
         balance of the period during which interest would accrue on the portion
         of the Loan prepaid at a LIBOR-based Rate, but for prepayment. The
         discount rate used by the Bank in determining such present values shall
         be the Reinvestment Rate.

         "PRIME-BASED RATE" means any variable rate at which interest may accrue
         on all or a portion of any of the Loans under the terms of this
         Agreement, which rate is determined by reference to the Prime Rate.

<PAGE>

         "PRIME RATE" means a rate per annum equal to the prime rate of interest
         announced from time to time by the Bank or its parent (which is not
         necessarily the lowest rate charged to any customer), changing when and
         as said prime rate changes.

         "PRINCIPAL DRAWING" is used as defined in each of the Credit
         Enhancement Letters of Credit, as the context requires.

         "RATE MANAGEMENT TRANSACTION" means any transaction (including an
         agreement with respect thereto) now existing or hereafter entered into
         between Company and Bank or BANC ONE CORPORATION, or any of its
         subsidiaries or affiliates or their respective successors, which is a
         rate swap, basis swap, forward rate transaction, commodity swap,
         commodity option, equity or equity index swap, equity or equity index
         option, bond option, interest rate option, foreign exchange
         transaction, cap transaction, floor transaction, collar transaction,
         forward transaction, currency swap transaction, cross-currency rate
         swap transaction, currency option or any other similar transaction
         (including any option with respect to any of these transactions) or any
         combination thereof, whether linked to one or more interest rates,
         foreign currencies, commodity prices, equity prices or other financial
         measures.

         "RATIO OF TOTAL FUNDED DEBT TO EBITDA" means, with respect to any
         period, the ratio of Total Funded Debt at the close of that period to
         EBITDA for that period. For purposes of determining the Applicable
         Unused Commitment Fee Percentage, the Applicable Credit Enhancement
         Letter of Credit Commission Rate, the Applicable Documentary Letter of
         Credit Commission Rate, the Applicable Spread, the Ratio of Total
         Funded Debt to EBITDA shall be determined, on a rolling four quarter
         basis, as of the close of each fiscal quarter of the Company ending
         after the Closing Date on the basis of the Interim Financial Statements
         for such fiscal quarter and the most recent three preceding fiscal
         quarters of the Company (a "Quarterly Adjustment"). No Quarterly
         Adjustment shall be effective as to any LIBOR-based Rate until the
         expiration of the period of time for which such LIBOR-based Rate shall
         have been selected by the Company. The Ratio of Total Funded Debt to
         EBITDA shall be adjusted on the last Banking Day of the calendar month
         in which the Bank receives the most recent Interim Financial Statements
         upon which such adjustment is based. Notwithstanding the foregoing, in
         the event that the Company fails to deliver any Interim Financial
         Statements when due as required by this Agreement and fails to cure
         such default within ten (10) days after notice of such default to the
         Company by the Bank, then the Applicable Unused Commitment Fee
         Percentage, the Applicable Credit Enhancement Letter of Credit
         Commission Rate, the Applicable Documentary Letter of Credit Commission
         Rate, and Applicable Spread shall be adjusted (without further notice
         by the Bank) to the largest number shown in the table applicable to
         such definition from such due date until the first interest payment
         date which follows such delivery to the Bank of such Interim Financial
         Statements. It is noted that the tables shown in the definitions of the
         terms Applicable Credit Enhancement Letter of Commission Rate,
         Applicable Documentary Letter of Credit Commission Rate, Applicable
         Unused Commitment Fee Percentage, Applicable Spread may provide for a

<PAGE>

         Ratio of Total Funded Debt to EBITDA greater than that which will be
         permissible under the terms of Section 6.01(g)(3) . For the avoidance
         of doubt, it is agreed that it is the intent of the parties that the
         Bank shall be free to exercise all remedies otherwise provided for in
         this Agreement in the event of the violation by the Company of the
         covenant stated in Section 6.01(g)(3), notwithstanding those tables.

         "REAL ESTATE" means the 1992 Huntingburg Real Estate, the 1993
         Huntingburg Real Estate-Warehouse, the 1993 Huntingburg Real
         Estate-Mfg., and the 1997 Project Real Estate, or all or any
         combination of them, as the context requires.

         "REIMBURSEMENT AGREEMENTS" means, collectively, the Commercial LC
         Master Reimbursement Agreements and the Standby LC Reimbursement
         Agreements, and the term "REIMBURSEMENT AGREEMENT" means any of the
         Reimbursement Agreements.

         "REINVESTMENT RATE" has the meaning ascribed to such term in the text
         of the definition of "Prepayment Premium" in this Section.

         "REMAINING AVAILABILITY" means, at any time a determination thereof is
         to be made, that amount which results by subtracting from the Maximum
         Availability the principal balance of the Revolving Loan outstanding at
         such time.

         "REMARKETING AGENT" is used (i) in reference to the 1993 Bonds, as such
         term is defined in the 1993 Trust Indenture, and (ii) in reference to
         the 1994 Refunding Bonds, as such term is defined in the 1994 Refunding
         Trust Indenture.

         "REMARKETING DRAWING" is used as defined in each of the Credit
         Enhancement Letters of Credit, as the context requires.

         "REMARKETING REIMBURSEMENT LOAN-1993 BONDS" is used as defined in
         Section 3.01(a)(3) of this Agreement.

         "REMARKETING REIMBURSEMENT LOAN-1994 REFUNDING BONDS" is used as
         defined in Section 3.01(b)(3) of this Agreement.

         "REMARKETING REIMBURSEMENT NOTE-1993 BONDS" is used as defined in
         Section 3.01(a)(3) of this Agreement.

         "REMARKETING REIMBURSEMENT NOTE-1994 REFUNDING BONDS" is used as
         defined in Section 3.01(b)(3) of this Agreement.

         "REVOLVING LOAN" has the meaning ascribed to such term in Section
         2.02(a) of this Agreement.

         "REVOLVING LOAN COMMITMENT" means the agreement of the Bank pursuant to
         this Agreement to extend the Revolving Loan to the Company.

<PAGE>

         "REVOLVING LOAN MATURITY DATE" means the earlier of (i) the Scheduled
         Revolving Loan Maturity Date, and (ii) that date upon which the Bank
         accelerates payment of the Revolving Loan in accordance with Section
         8.02 of this Agreement.

         "REVOLVING NOTE" has the meaning ascribed to such term in Section
         2.02(b) of this Agreement.

         "SCHEDULE OF EXCEPTIONS" means the schedule of exceptions attached
         hereto and made a part hereof for all purposes as EXHIBIT "C".

         "SCHEDULED DLC FACILITY MATURITY DATE" means December 31, 2002, or such
         subsequent date to which the Scheduled DLC Facility Maturity Date may
         be extended by the Bank pursuant to the terms of Section 2.03(g) of
         this Agreement.

         "SCHEDULED REVOLVING LOAN MATURITY DATE" means December 31, 2002, or
         such subsequent date to which the Revolving Loan Commitment may be
         extended by the Bank pursuant to the terms of Section 2.02(d) of this
         Agreement.

         "SCHEDULED TERM LOAN MATURITY DATE" means September 30, 2006.

         "SECURITY AGREEMENT" means the Amended and Restated Security Agreement,
         dated as of the Closing Date, executed by the Company and delivered to
         the Bank, as the same may be amended, modified, supplemented and/or
         restated from time to time and at any time.

         "STANDBY LC REIMBURSEMENT AGREEMENT" has the meaning ascribed to such
         term in Section 2.03(a) of this Agreement, and when used in the plural
         form refers to all of the Standby LC Reimbursement Agreements, or any
         combination of them, as the context requires.

         "SUBSIDIARY" means any corporation, partnership, joint venture or other
         business entity over which the Company exercises control, provided that
         it shall be conclusively presumed that the Company exercises control
         over any such entity 51% or more of the equity interest in which is
         owned by the Company, directly or indirectly.

         "TANGIBLE NET WORTH" means the shareholders' equity of the Company,
         less any allowance for goodwill, patents, trademarks, trade secrets,
         and any other assets which would be classified as intangible assets
         under GAAP, and less the Company's deferred tax asset arising from the
         recognition of its net operating loss carry forward, and less the
         portion of "other comprehensive income" (determined in accordance with
         GAAP and being either a positive or negative amount) which relates to
         interest rate swaps and minimum pension liabilities and which directly
         affects the equity section of the balance sheet without being reflected
         in the income statement.

         "TERM LOAN" has the meaning ascribed to such term in Section 2.04(a) of
         this Agreement.
<PAGE>

         "TERM LOAN ADVANCE" has the meaning ascribed to such term in Section
         2.04(a).

         "TERM LOAN MATURITY DATE" means the earlier of (i) the Scheduled Term
         Loan Maturity Date, and (ii) that date upon which the Bank accelerates
         payment of the Term Loan in accordance with Section 8.02 of this
         Agreement.

         "TERM NOTE" has the meaning ascribed to such term in Section 2.04(b) of
         this Agreement.

         "TOTAL FUNDED DEBT" means, as of any date a determination thereof is
         made, all interest-bearing Debt.

         "TOTAL LIABILITIES" means with respect to a Person, as of any date of
         determination thereof, all items (except items of capital stock,
         additional paid-in capital or retained earnings, or of general
         contingency or deferred tax reserves) which, in accordance with GAAP,
         would be included in determining total indebtedness as shown on the
         balance sheet of such Person.

         "TOWN" means the Town of Ferdinand (Dubois County), Indiana.

         "TRUST INDENTURE" means the 1993 Trust Indenture or the 1994 Refunding
         Trust Indenture and, when used in the plural form, refers to both of
         the Trust Indentures.

         "TRUSTEE" means the 1993 Trustee or the 1994 Refunding Trustee and,
         when used in the plural form, refers to both of the Trustees.

         "UNMATURED EVENT OF DEFAULT" means any event specified in Section 8.01
         of this Agreement, which is not initially an Event of Default, but
         which would, if uncured, become an Event of Default with the giving of
         notice or the passage of time or both.

         "1992 HUNTINGBURG MORTGAGE" means a Mortgage, Security Agreement,
         Assignment of Rents and Fixture Filing dated December 4, 1992, and
         recorded on December 7, 1992, as Document No. 168207 in Mortgage Book
         281, Page 97, as amended by a First Amendment to Mortgage, Security
         Agreement, Assignment of Rents and Fixture Filing effective as of
         November 12, 1993, and recorded on November 12, 1993, as Document No.
         174844, in Mortgage Book 304, Page 390, and by a Second Amendment to
         Mortgage, Security Agreement, Assignment of Rents and Fixture Filling
         dated June 9, 1994, and recorded on June 13, 1994, as Document No.
         178773 in Mortgage book 318, Page 25, and by a Third Amendment to
         Mortgage, Security Agreement, Assignment of Rents and Fixture Filing,
         dated as of October 11, 1994, recorded on October 28, 1994, as Document
         No. 181216, in Mortgage Book 325, Page 158, with all recording
         occurring in the Office of the Recorder of Dubois County, Indiana, as
         the same has been or hereafter may be amended, modified, supplemented
         and/or restated from time to time and at any time.

<PAGE>

         "1992 HUNTINGBURG REAL ESTATE" means the real estate in Dubois County,
         Indiana, owned by the Company, which is the subject of the 1992
         Huntingburg Mortgage.

         "1993 BOND DOCUMENTS" means the 1993 Bonds, the 1993 Trust Indenture,
         the 1993 Loan Agreement and any other documents or agreement executed
         by the Company as an incident to the issuance of the 1993 Bonds other
         than the Loan Documents, as the same have been and hereafter may be
         amended, modified, supplemented and/or restated from time to time and
         at any time.

         "1993 BONDS" means the $3,420,000 in original principal amount of City
         of Huntingburg, Indiana, Adjustable Rate Economic Development Revenue
         Bonds, (DMI Furniture, Inc. Project) Series 1993 issued by the City
         pursuant to the 1993 Trust Indenture, as the same have been and
         hereafter may be amended, modified, supplemented and/or restated from
         time to time and at any time.

         "1993 DIRECT-PAY LETTER OF CREDIT" is used as defined in Section
         3.01(a) of this Agreement.

         "1993 LOAN AGREEMENT" means the Loan Agreement dated as of October 1,
         1993, between the Company and the City as an incident to the issuance
         of the 1993 Bonds, as the same has been and hereafter may be amended,
         modified, supplemented and/or restated from time to time and at any
         time.

         "1993 MATURITY DATE" means October 1, 2003.

         "1993 MAXIMUM AVAILABLE CREDIT" meant initially the sum of
         $3,462,750.00, and thereafter shall mean the maximum amount available
         to be drawn by the 1993 Trustee under the 1993 Direct-Pay Letter of
         Credit for payment of principal and interest due on the 1993 Bonds,
         whether such payments become due as scheduled, upon mandatory or
         optional redemption of the 1993 Bonds, or on account of acceleration of
         the 1993 Bonds following the occurrence of an "Event of Default" as
         defined in the 1993 Trust Indenture.

         "1993 TRUST INDENTURE" means the Trust Indenture entered into by the
         City and the 1993 Trustee dated as of October 1, 1993 pursuant to which
         the City issued the 1993 Bonds, as the same has been and hereafter may
         be amended, modified, supplemented and/or restated from time to time
         and at any time.

         "1993 TRUSTEE" means PNC Bank, Indiana, Inc., in its capacity as
         Trustee under the 1993 Trust Indenture, or any successor Trustee under
         the 1993 Trust Indenture.

         "1993 HUNTINGBURG MORTGAGE-WAREHOUSE" means a Mortgage, Security
         Agreement, Assignment of Rents and Fixture Filing dated November 10,
         1993, and recorded on November 12, 1993, as Document No. 17845, in
         Mortgage book 304, Page 393, as amended by a First Amendment to
         Mortgage, Security Agreement, Assignment of Rents and Fixture Filing
         dated June 9, 1994, and recorded on June 14, 1994, as Document No.

<PAGE>

         178806, in Mortgage Book 318, Page 108, and by a Second Amendment to
         Mortgage, Security Agreement, Assignment of Rents and Fixture Filing,
         dated as of October 10, 1994, recorded on October 28, 1994, as Document
         No. 181214 in Mortgage Book 325, Page 152, with all recording occurring
         in the Office of the Recorder of Dubois County, Indiana, as the same
         has been and hereafter may be amended, modified, supplemented and/or
         restated from time to time and at any time.

         "1993 HUNTINGBURG MORTGAGE-MFG." means a Mortgage, Security Agreement,
         Assignment of Rents and Fixture Filing dated December 15, 1993, and
         recorded on December 16, 1993, as Document No. 175583 in Mortgage Book
         307, Page 154, as amended by a First Amendment to Mortgage, Security
         Agreement, Assignment of Rents and Fixture Filing dated June 9, 1994,
         and recorded on June 14, 1994, as Document No. 178807, in Mortgage book
         318, Page 111, and by a Second Amendment to Mortgage, Security
         Agreement, Assignment of Rents and Fixture Filing, dated as of October
         11, 1994, recorded on October 28, 1994, as Document No. 181215, in
         Mortgage Book 325, Page 155, with all recording occurring in the Office
         of the Recorder of Dubois County, Indiana, as the same has been and
         hereafter may be amended, modified, supplemented and/or restated from
         time to time and at any time.

         "1993 HUNTINGBURG REAL ESTATE-WAREHOUSE" means the real estate in
         Dubois County, Indiana, owned by the Company, on which the Company
         constructed warehouse facilities with proceeds of the 1993 Bonds, which
         is the subject of the 1993 Huntingburg Mortgage-Warehouse.

         "1993 HUNTINGBURG REAL ESTATE-MFG." means the real estate in Dubois
         County, Indiana, owned by the Company, on which manufacturing
         operations of the Company are conducted, which is the subject of the
         1993 Huntingburg Mortgage-Mfg.

         "1994 MATURITY DATE" means June 1, 2004.

         "1994 REFUNDING BOND DOCUMENTS" means the 1994 Refunding Bonds, the
         1994 Refunding Trust Indenture, the 1994 Refunding Loan Agreement and
         any other document or agreement executed by the Company as an incident
         to the issuance of the 1994 Refunding Bonds other than the Loan
         Documents, as the same have been and hereafter may be amended,
         modified, supplemented and/or restated from time to time and at any
         time.

         "1994 REFUNDING BONDS" means the $2,940,000 in original principal
         amount of City of Huntingburg, Indiana, Adjustable Rate Economic
         Development Revenue Refunding Bonds, (DMI Furniture, Inc. Project)
         Series 1994, issued by the City pursuant to the 1994 Refunding Trust
         Indenture, as the same have been and hereafter may be amended,
         modified, supplemented and/or restated from time to time and at any
         time.

         "1994 REFUNDING LOAN AGREEMENT" means the Loan Agreement dated as of
         June 1, 1994, between the Company and the City as an incident to the
         issuance of the 1994 Refunding

<PAGE>

         Bonds, as the same has been and hereafter may be amended, modified,
         supplemented and/or restated from time to time and at any time.

         "1994 REFUNDING DIRECT-PAY LETTER OF CREDIT" is used as defined in
         Section 3.04(b) of this Agreement.

         "1994 REFUNDING MAXIMUM AVAILABLE CREDIT" means initially the sum of
         $2,976,750, and thereafter shall mean the maximum amount available to
         be drawn by the 1994 Refunding Trustee under the 1994 Refunding
         Direct-Pay Letter of Credit for principal and interest due on account
         of the 1994 Refunding Bonds upon (i) mandatory or optional redemption
         of the 1994 Refunding Bonds, or (ii) on account of acceleration of the
         1994 Refunding Bonds following the occurrence of an "Event of Default"
         as defined in the 1994 Refunding Trust Indenture.

         "1994 REFUNDING TRUST INDENTURE" means the Trust Indenture entered into
         between the City and the 1994 Refunding Trustee dated as of June 1,
         1994, pursuant to which the City is issuing the 1994 Refunding Bonds,
         as the same has been and hereafter may be amended, modified,
         supplemented and/or restated from time to time and at any time.

         "1994 REFUNDING TRUSTEE" means PNC Bank, Indiana, Inc., in its capacity
         as Trustee under the 1994 Refunding Trust Indenture, or any successor
         Trustee under the 1994 Refunding Trust Indenture.

         "1997 PROJECT MORTGAGE" means the Mortgage, Security Agreement and
         Assignment of Leases and Rents dated as of the Closing Date, executed
         by the Company and delivered to the Bank, as the same may be amended,
         modified, supplemented and/or restated from time to time and at any
         time.

         "1997 PROJECT REAL ESTATE" means the real estate in Dubois County,
         Indiana, owned by the Company, and which is more particularly described
         on EXHIBIT "I" to this Agreement

                                   ARTICLE II
                                   ----------
                                    THE LOANS

         SECTION 2.01. GENERAL STATEMENT. Subject to and in accordance with the
terms of this Agreement, and in reliance upon the representations, warranties,
covenants and agreements of the Company made in this Agreement and the other
Loan Documents, the Bank will make the Loans and issue the Documentary Letters
of Credit described in this Article II.

         SECTION 2.02.  THE REVOLVING LOAN.

         (a) THE REVOLVING LOAN COMMITMENT -- USE OF PROCEEDS. The Bank agrees
to make Advances to the Company on a revolving basis (collectively, the
"REVOLVING LOAN") from time to
<PAGE>

time from and after the Closing Date until the Revolving Loan Maturity Date, in
an amount not exceeding in the aggregate at any time outstanding the Maximum
Availability, provided that all of the conditions of lending stated in Section
7.01 of this Agreement as being applicable to the Revolving Loan have been
fulfilled at the time of each such Advance.

         Proceeds of the Revolving Loan from and after the Closing Date may be
used by the Company only to fund working capital requirements.

         The Revolving Loan under this Agreement is a continuation, on amended
terms, of the "Revolving Loan" extended to the Company by the Bank under the
Original Agreement (the "PRIOR REVOLVING LOAN") and the Company affirms,
acknowledges and agrees that the principal balance of the Prior Revolving Loan
as of the Closing Date is $17,200,337.71, and that, accordingly, the initial
unpaid principal balance of the Revolving Loan on the Closing Date is also such
amount. All outstanding advances of the Prior Revolving Loan shall constitute
Advances of the Revolving Loan under this Agreement. All interest which is
accrued and unpaid on the Prior Revolving Loan shall be due and payable on the
Closing Date.

         (b) METHOD OF BORROWING. The obligation of the Company to repay the
Revolving Loan shall be evidenced by a promissory note executed by the Company
to the Bank in substantially the form and substance of EXHIBIT "D" attached
hereto (as the same may be amended, modified, supplemented, and/or restated from
time to time and at any time, the "Revolving Note"). The Revolving Note amends,
and as so amended, restates and replaces the promissory note executed and
delivered by the Company to the Bank pursuant to the Original Credit Agreement
to evidence the Prior Revolving Loan. So long as no Event of Default or
Unmatured Event of Default shall have occurred and be continuing and until the
Revolving Loan Maturity Date, the Company may borrow, repay (subject to the
requirements of Section 2.06 of this Agreement) under the Revolving Note on any
Banking Day, provided that the Company shall not be entitled to receive and the
Bank shall not be obligated to make any Advance under the Revolving Loan: (i) if
the making of such Advance would cause or result in an Event of Default or an
Unmatured Event of Default; or (ii) if after making such Advance the principal
balance of the Revolving Loan would exceed the Maximum Availability.

         Whenever the Company desires the Bank to make an Advance, the Company
shall give the Bank telecopy or telephonic notice not later than 2:00 P.M.,
Indianapolis time, prior to each Advance, which notice shall specify the amount,
the date of the Advance, and whether the Advance is to bear interest at the
Prime-based Rate or a LIBOR-based Rate, and if it is to bear interest at a
LIBOR-based Rate, the Interest Period. Each Advance Request shall be
irrevocable. The Company shall be entitled to request no more than one Advance
to be made on any Banking Day. Each Advance under the Revolving Loan shall be
conditioned upon receipt by the Bank from the Company of an Application for an
Advance and an Officer's Certificate, provided that the Bank may, at its
discretion, make a disbursement upon the oral request of the Company made by an
Authorized Officer, or upon a request transmitted to the Bank by telecopy or by
any other form of written electronic communication (all such requests for
Advances being hereafter referred to as "INFORMAL REQUESTS"). In so doing, the
Bank may rely on any informal request which shall have been received by it in
good faith from a Person reasonably believed to be an

<PAGE>

Authorized Officer. Each informal request shall be promptly confirmed by a duly
executed Application for an Advance and Officer's Certificate if the Bank so
requires and shall in and of itself constitute the representation of the Company
that no Event of Default or Unmatured Event of Default has occurred and is
continuing or would result from the making of the requested Advance, that the
requested Advance would not exceed the Remaining Availability, and that the
making of the requested Advance would not cause the principal balance of the
Revolving Loan to exceed the Maximum Availability. All borrowings and
reborrowings and all repayments shall be in amounts of not less than Fifty
Thousand Dollars ($50,000), except for repayment of the entire principal balance
of the Revolving Loan and except for special prepayments of principal required
under the terms of Section 2.06 of this Agreement. Upon receipt of an
Application for an Advance, or at the Bank's discretion upon receipt of an
informal request for an Advance and upon compliance with any other conditions of
lending stated in Section 7.01 of this Agreement applicable to the Revolving
Loan, the Bank shall disburse the amount of the requested Advance to the
Company. All Advances by the Bank and payments by the Company shall be recorded
by the Bank on its books and records, and the principal amount outstanding from
time to time, plus interest payable thereon, shall be determined by reference to
the books and records of the Bank. The Bank's books and records shall be
presumed PRIMA FACIE to be correct as to such matters.

         (c) INTEREST ON THE REVOLVING LOAN. The principal amount of the
Revolving Loan outstanding from time to time shall bear interest until the
Revolving Loan Maturity Date at a rate per annum equal to the Prime Rate, plus
the Applicable Spread, except that at the option of the Company, exercised from
time to time as provided in this Agreement, interest may accrue prior to
maturity on any Advance or on the entire outstanding balance of the Revolving
Loan as to which no LIBOR-based Rate previously elected remains in effect, at
the LIBOR Rate (for an Interest Period selected by the Company as provided in
this Agreement), plus the Applicable Spread, provided that an election of a
LIBOR-based Rate for an Interest Period extending beyond the Scheduled Revolving
Loan Maturity Date shall be permitted only at the discretion of the Bank. From
and after the Revolving Loan Maturity Date, and until paid in full, the
Revolving Loan shall bear interest at a per annum rate equal to the Prime Rate,
plus the Applicable Spread, plus Two Percent (2%) per annum, except that as to
any portion of the Revolving Loan for which the Company may have elected a
LIBOR-based Rate for an Interest Period that has not expired at the Revolving
Loan Maturity Date, such portion shall, during the remainder of such period,
bear interest at the greater of the Prime Rate, plus the Applicable Spread, plus
Two Percent (2%) per annum or the LIBOR-based Rate then in effect, plus the
Applicable Spread, plus Two Percent (2%) per annum. Each change in the rate of
interest to be charged with reference to a Prime-based Rate shall become
effective on the date of each change in the Prime Rate. Each change in the rate
of interest to be charged with reference to a LIBOR-based Rate shall become
effective without notice on the commencement of each Interest Period based on
the LIBOR Rate for that Interest Period then in effect. With respect to that
portion of the Revolving Loan, if any, which bears interest at the Prime-based
Rate, accrued interest shall be due and payable monthly on the last Banking Day
of each month until the Revolving Loan Maturity Date. With respect to those
portions of the Revolving Loan that bear interest at a LIBOR-based Rate, accrued
interest shall be due and payable on the last day of each Interest Period
(except that if the Interest Period is six months, the accrued interest shall be
due on the 90th day of such Interest Period and then on the last day of such
Interest Period) until the Maturity Date. On the Revolving Loan Maturity Date,

<PAGE>

the entire unpaid principal balance of the Revolving Loan and Revolving Note and
all unpaid, accrued interest thereon, shall be due and payable in full without
demand. After the Revolving Loan Maturity Date, interest which accrues on the
Revolving Loan shall be payable as accrued and without demand.

         (d) EXTENSIONS OF SCHEDULED REVOLVING LOAN MATURITY DATE. The Bank may,
upon the request of the Company, but at the Bank's sole discretion, extend the
Scheduled Revolving Loan Maturity Date from time to time to such date or dates
as the Bank may elect by notice in writing to the Company, and upon any such
extension, the date to which the Scheduled Revolving Loan Maturity Date is then
extended will become the "Scheduled Revolving Loan Maturity Date" for purposes
of this Agreement.

         (e) UNUSED COMMITMENT FEE. In addition to interest on the Revolving
Loan, the Company shall pay to the Bank an unused commitment fee for each
partial or full fiscal quarter during which the Revolving Loan Commitment is
outstanding (beginning with its fiscal quarter beginning September 1, 2001)
equal to the Applicable Unused Commitment Fee Percentage in effect at the close
of such partial or full fiscal quarter TIMES the daily average "Unused Revolving
Loan Commitment" (as defined in the following sentence) for such partial or full
fiscal quarter multiplied by a fraction, the numerator of which shall be the
number of calendar days in such partial or full fiscal quarter and the
denominator of which is 360. As used herein, the term "UNUSED REVOLVING LOAN
COMMITMENT" means, as of the close of each calendar day for which a
determination thereof is to be made, the positive difference, if any, which
results from subtracting from the Maximum Availability the outstanding principal
balance of the Revolving Loan at the close of such calendar day. Unused
commitment fees for each fiscal quarter shall be due and payable within ten (10)
days following the Bank's submission, following the close of such quarter, of a
statement of the amount due. Such fees may be debited by the Bank when due to
any demand deposit account of the Company carried with the Bank without further
authority, notice or demand.

         SECTION 2.03.     DOCUMENTARY LETTER OF CREDIT FACILITY.

         (a) DOCUMENTARY LETTERS OF CREDIT -- GENERAL. The Bank agrees, subject
to the terms and conditions of this Agreement, to make available a letter of
credit facility (the "DLC FACILITY") under which the Bank will issue upon the
application of the Company and for the account of the Company documentary
commercial and standby letters of credit for general business purposes (each,
for purposes of this Agreement, referred to herein as a "DOCUMENTARY LETTER OF
CREDIT"), from time to time after the Closing Date until the DLC Facility
Maturity Date in an amount not exceeding in the aggregate at any time
outstanding the Maximum DLC Availability, PROVIDED THAT:

                  (1) The Company shall not request and the Bank shall have no
         obligation to issue any Documentary Letter of Credit: (i) at any time
         any Event of Default or Unmatured Event Default shall have occurred and
         be continuing; (ii) at any time after the DLC Facility Maturity Date;
         (iii) if, after giving effect to such issuance, the aggregate
         Documentary Letter of Credit Exposure would exceed the Maximum DLC
         Availability;

<PAGE>

         or (iv) if, after giving effect to such issuance, the sum of the
         aggregate Documentary Letter of Credit Exposure and the outstanding
         principal balance of all Advances of the Revolving Loan would exceed
         the Borrowing Base.

                  (2) The Bank in no event shall be obligated to issue any
         Documentary Letter of Credit: (i) having an expiration date beyond the
         Scheduled DLC Facility Maturity Date; or (ii) if the issuance of such
         Documentary Letter of Credit on the terms requested would be contrary
         to, or in violation of the policies of the Bank or any requirement of
         applicable law;

                  (3) The form of the requested Documentary Letter of Credit
         shall be satisfactory to the Bank in the reasonable exercise of the
         Bank's discretion; and

                  (4) (i) With respect to a commercial Documentary Letter of
         Credit, the Bank shall have received from the Company a written or
         electronically transmitted application for the Documentary Letter of
         Credit in form and substance satisfactory to the Bank in all respects,
         duly executed or authorized by an Authorized Officer, pursuant to and
         in accordance with the terms of the Commercial LC Master Reimbursement
         Agreement; and (ii) With respect to a standby Documentary Letter of
         Credit, the Bank shall have received from the Company an application
         and reimbursement agreement for the Documentary Letter of Credit in
         form and substance satisfactory to the Bank in all respects, duly
         executed by an Authorized Officer (as the same may be amended,
         modified, extended, renewed, supplemented, replaced and/or restated
         from time to time and at any time, "STANDBY LC REIMBURSEMENT
         AGREEMENT").

         The obligation of the Company to repay the DLC Facility shall be
evidenced by a promissory note executed by the Company to the Bank in
substantially the form and substance of EXHIBIT "E" attached hereto (as the same
may be amended, modified, supplemented and/or restated from time to time and at
any time, the "DLC NOTE").

         The DLC Facility under this Agreement is a continuation, on amended
terms, of the commitment under Section 2.03 of the Original Loan Agreement under
which the Bank agreed to issue Documentary Letters of Credit, and the Company
affirms, acknowledges, and agrees that the Documentary Letter of Credit Exposure
as of the Closing Date is $0, which amount was formerly an obligation of the
Company under the Revolving Loan and shall be, from and after the Closing Date,
an obligation of the Company under the DLC Facility. Attached to this Agreement
as SCHEDULE 1 is a list of Documentary Letters of Credit outstanding as of the
Closing Date, each of which constitutes a Documentary Letter of Credit issued by
the Bank pursuant to Section 2.03(a) of this Agreement. All applications and
reimbursement agreements executed with respect to such existing Documentary
Letters of Credit for all purposes shall constitute applications and
Reimbursement Agreements executed in accordance with Section 2.03(a)(4) of this
Agreement.

         (b) DOCUMENTARY LETTER OF CREDIT PROCEDURES. Whenever the Company
desires the issuance of a Documentary Letter of Credit, it shall deliver to the
Bank not later than 11:30 a.m.

<PAGE>

(Dallas, Texas time) at least three Banking Days (or such shorter period as may
be agreed to by the Bank in any particular instance) in advance of the proposed
date of issuance an application duly executed or authorized by an Authorized
Officer for such Documentary Letter of Credit, which application shall include a
precise description of the documents and the verbatim text of any certificate to
be presented by the proposed beneficiary with, or as a part of any Draft (and in
all events shall be in accordance with the requirements of the Commercial LC
Master Reimbursement Agreement if a commercial Documentary Letter of Credit is
to be issued) and; provided that the Bank, in its sole judgment, may require
changes in the description of any such documents and the text of such
certificates; and provided further that, at the discretion of the Bank, each
Documentary Letter of Credit shall provide that payment against a conforming
Draft is not required to be made thereunder prior to the close of business on
the third Banking Day following presentment of such Draft.

         (c) DRAWS UNDER DOCUMENTARY LETTERS OF CREDIT. Upon presentation of a
Draft under any Documentary Letter of Credit by the beneficiary thereof, the
Bank shall notify the Company of the receipt thereof ("DRAFT NOTICE") not later
than one Banking Day prior to the date on which the Bank intends to honor such
Draft. The Draft Notice may be given by telephone or telecopy. Failure to give
the Draft Notice or to give the Draft Notice in a timely manner shall not in any
way affect or limit the payment obligation of the Company hereunder. Upon
receipt of the Draft Notice, the Company shall make or cause to be made an
irrevocable deposit with the Bank, or provide to the Bank a direction that an
Advance be made under the Revolving Loan, not later than 1:00 p.m., Dallas,
Texas, time, one (1) Banking Day prior to the day on which the Draft is to be
honored, in an amount equal to the full amount which is to be paid under such
Draft, in good and collected funds (the "REIMBURSEMENT AMOUNT"), specifying that
it is depositing such money for the sole purpose of funding the payment of such
Draft.

         In determining whether to honor any Draft, the Bank shall be
responsible only to determine that the documents and certificates required to be
delivered with such Draft under the appropriate Documentary Letter of Credit
have been delivered and that on their faces they are in substantial compliance
with the requirements of that Documentary Letter of Credit. In the event of any
conflict between the terms of any Reimbursement Agreement and the terms of this
Agreement, the terms of this Agreement shall control; and the terms of the
Reimbursement Agreement shall not be deemed to be in conflict with the terms of
this Agreement solely by reason of the fact that it addresses one or more
subject matters that are addressed by this Agreement and contains provisions
that are different from those set forth in this Agreement.

         (d) REIMBURSEMENT OBLIGATIONS OF THE COMPANY. The Company hereby agrees
to reimburse the Bank, on demand, the amount paid by the Bank to settle its
obligations in respect of each Draft under each Documentary Letter of Credit
(whether such amount is paid by virtue of the Bank's honor of any Draft or
otherwise) to the extent that a Reimbursement Amount is not available to the
Bank for that purpose, which reimbursement obligation shall be immediate and
automatic, without the necessity of any further act or the execution of any
additional document, instrument, or agreement. Any Reimbursement Amount that is
not paid in full when due shall be deemed to be and shall constitute a demand
loan made to the Company by the Bank on such due date in the principal amount of
the unpaid Reimbursement Amount (each such loan being

<PAGE>

referred to herein as a "DOCUMENTARY LETTER OF CREDIT LOAN", and collectively as
"DOCUMENTARY LETTER OF CREDIT LOANS"), which Documentary Letter of Credit Loans
shall be evidenced by the DLC Note and shall bear interest, until paid in full,
at a per annum rate equal to the Prime Rate, plus the Applicable Spread, plus
Two Percent (2%). A demand for payment of each Reimbursement Amount and
Documentary Letter of Credit Loan shall be deemed to have been made by the Bank
on the date of the corresponding payment by the Bank to settle its obligations
under a Draft. Nothing herein is intended to preclude the Company from
requesting an Advance under the Revolving Loan to the extent available to pay
any Reimbursement Amount.

         The obligation of the Company to reimburse the Bank in respect of
drawings made under the Documentary Letters of Credit shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement and the applicable Reimbursement Agreement (if and to extent the terms
of the Reimbursement Agreement do not conflict with this Agreement) under all
circumstances, and notwithstanding any of the following circumstances:

                  (1) any lack of validity or enforceability of any Documentary
         Letter of Credit;

                  (2) the existence of any claim, set-off, defense or other
         right which the Company may have at any time against a beneficiary or
         any transferee of any Documentary Letter of Credit or (or any Persons
         for whom any such transferee may be acting), or any other Person,
         whether in connection with this Agreement, the transactions
         contemplated herein or any unrelated transaction (including any
         underlying transaction between the Company and the beneficiary of any
         Documentary Letter of Credit;

                  (3) any draft, demand, certificate or any other document
         presented under any Documentary Letter of Credit proving to be forged,
         fraudulent, invalid or insufficient in any respect or any statement
         therein being untrue or inaccurate in any respect;

                  (4) payment by the Bank under any Documentary Letter of Credit
         against presentation of a demand, draft or certificate or other
         document which does not comply with the terms of such Documentary
         Letter of Credit;

                  (5) any other circumstance or happening whatsoever which is
         similar to any of the foregoing; or

                  (6) the fact that an Event of Default or Unmatured Event of
         Default shall have occurred and be continuing;

PROVIDED HOWEVER, that the Company shall not be obligated to reimburse the Bank
for any wrongful payment or disbursement made or to be made by the Bank under
any Documentary Letter of Credit as a result of acts or omissions constituting
gross negligence or willful misconduct on the part of the Bank. Payment of a
Draft that does not comply with the terms of the Documentary Letter of Credit
against which it is presented shall not in any event be deemed to be wrongful or
an act or omission constituting gross negligence or willful misconduct on the

<PAGE>

part of the Bank if such payment is made at the specific written request of the
Company in which the Company waives the non-compliance of the Draft.

         Upon a written request by the Company made in accordance with the terms
of Section 9.02 of this Agreement, the Bank will undertake to provide to the
Company copies of all instruments and documents constituting a Draft with the
Draft Notice, and in the event the Company has any knowledge (however obtained)
of any claim of non-compliance with the Company's instructions or with the terms
of the Documentary Letter of Credit, or of discrepancies or other
irregularities, the Company shall immediately notify the Bank thereof in
writing, and the Company shall be deemed to have waived any such claim or
defense against the Bank related thereto or arising therefrom unless such notice
is given. The Company shall be deemed to have knowledge of any such claim that
is apparent on the face of copies of instruments and documents constituting a
Draft that are provided to the Company pursuant to the preceding sentence.

         Unless specified to the contrary in the applicable Reimbursement
Agreement for a Documentary Letter of Credit, or any amendment to a Documentary
Letter of Credit, the Company agrees that the Bank and its correspondents may
receive and accept any Draft drawn or presented under such Documentary Letter of
Credit or other document otherwise in order, issued or purportedly issued by an
agent, executor, trustee in bankruptcy, receiver or other representative of the
party who is authorized under such Documentary Letter of Credit to issue such
Draft or other document, as complying with the terms of such Documentary Letter
of Credit.

         (e) INDEMNITY. The Company agrees to protect, indemnify and save the
Bank harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable attorneys'
fees and allocated costs of internal counsel) which the Bank may incur or be
subject to as a consequence, direct or indirect, of (a) the issuance of the
Documentary Letters of Credit, other than as a result of the negligence or
willful misconduct of the Bank, as determined by a court of competent
jurisdiction, or (b) the failure of the Bank to honor a drawing under any
Documentary Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future DE JURE or DE FACTO government or
governmental authority (all such acts or omissions herein called "GOVERNMENT
ACTS").

         As between the Company, on the one hand, and the Bank, on the other,
the Company assume all risks of the acts and omissions of, or misuse of the
Documentary Letters of Credit by the respective beneficiaries of such
Documentary Letters of Credit. In furtherance and not in limitation of the
foregoing, the Bank shall not be responsible and shall have no liability (a) for
the form, validity, sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the application for and
issuance of such Documentary Letters of Credit, even if it should in fact prove
to be in any or all respects invalid, insufficient, inaccurate, fraudulent or
forged; (b) for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any such Documentary Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (c) for
failure of the beneficiary of any such Documentary Letter of Credit to

<PAGE>

comply fully with the terms and conditions of the agreement pursuant to which
the Documentary Letter of Credit was procured and pursuant to which the
beneficiary is entitled to draw upon such Documentary Letter of Credit; (d) for
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they be
in cipher; (e) for errors in interpretation of technical terms; (f) for any loss
or delay in the transmission or otherwise of any document required in order to
make a Draft under any such Documentary Letter of Credit or of the proceeds
thereof; (g) for the misapplication by the beneficiary of any such Documentary
Letter of Credit of the proceeds of any Draft under such Documentary Letter of
Credit; (h) for any consequences arising from causes beyond the control of the
Bank, including, without limitation, any Government Acts; and (i) for any action
taken or omitted by the Bank under or in connection with the Documentary Letters
of Credit, if taken or omitted in good faith. None of the above shall affect,
impair, or prevent the vesting of any of the Bank's rights or powers hereunder.

         Following the occurrence of an Event of Default or an Unmatured Event
of Default which is continuing, the Company agrees that any action taken by the
Bank, if taken in good faith, under or in connection with any of the Documentary
Letters of Credit, the Reimbursement Agreements and Drafts, shall be binding on
the Company and shall not subject the Bank to any resulting liability to the
Company. In furtherance thereof, the Bank shall have the full right and
authority, following an Event of Default or Unmatured Event of Default which is
continuing, to (i) clear and resolve any questions of non-compliance of
documents, (ii) to give any instructions as to acceptance or rejection of any
documents or goods, and (iii) to grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances, or
documents.

         (f) DOCUMENTARY LETTER OF CREDIT FEES. The Company covenants and agrees
to pay to the Bank, concurrently with the issuance of each Documentary Letter of
Credit, a commission equal to the Applicable Documentary Letter of Credit
Commission Rate times the maximum amount available to be drawn under the
Documentary Letter of Credit as of the date such commission is due. The
commission shall be deemed fully earned and nonrefundable when due. The Company
shall pay the Bank's standard transaction fees with respect to any transactions
occurring on account of any Documentary Letter of Credit. Transaction fees shall
be payable upon completion of the transaction as to which they are charged. All
such commissions and fees may be debited by the Bank to any deposit account of
the Company carried with the Bank without further authority, and in any event,
shall be paid by the Company within ten (10) days following billing.

         (g) EXTENSIONS OF SCHEDULED DLC FACILITY MATURITY DATE. The Bank may,
upon the request of the Company, but at the Bank's sole discretion, extend the
Scheduled DLC Facility Maturity Date from time to time to such date or dates as
the Bank may elect by notice in writing to the Company, and upon any such
extension, the date to which the Scheduled DLC Facility Maturity Date is then
extended will become the "Scheduled DLC Facility Maturity Date" for purposes of
this Agreement.

         SECTION 2.04      THE TERM LOAN.
<PAGE>

         (a) THE TERM LOAN -- GENERAL. The Bank agrees, subject to the terms and
conditions of this Agreement, to make a term loan to the Company to be advanced
and re-advanced as hereinafter provided, in a principal amount not exceeding at
any time the sum of Four Million Six Hundred Forty Thousand Dollars
($4,640,000.00) for the term period beginning on the Closing Date and ending on
the Term Loan Maturity Date (the "TERM LOAN"). As of the Closing Date, an
initial Advance of the Term Loan (the "INITIAL TERM LOAN ADVANCE") will be made
for the purpose of paying off the unpaid balances of "Term Loan A" and "Term
Loan B" extended to the Company by the Bank under the Original Agreement
(collectively, the "PRIOR TERM LOAN") and the Company affirms, acknowledges and
agrees that the unpaid principal balance of the Prior Term Loan, as of the
Closing Date, is $2,247,333.40, which shall be the amount of the Initial Term
Loan Advance.

         In addition to the Initial Term Loan Advance, the Bank agrees, subject
to the terms and conditions of this Agreement, to make not more than two (2)
Advances to the Company under the Term Loan (the "SUBSEQUENT TERM LOAN
ADVANCES"), in a principal amount not to exceed the aggregate of $4,250,000.00
(the "TERM LOAN AVAILABILITY") to be used in their entirety by the Company as
follows: (A) to pay an amount not to exceed $2,230,000.00 to fund the portion of
the Company's deposit to the Designated Account required under Section
3.01(a)(2) of this Agreement which is equal to the outstanding principal amount
of the 1993 Bonds due on the 1993 Maturity Date; and (B) to pay an amount not to
exceed $2,020,000.00 to fund the portion of the Company's deposit to the
Designated Account required under Section 3.01(b)(1) of this Agreement which is
equal to the outstanding principal amount of the 1994 Refunding Bonds due on the
1994 Maturity Date. (The Initial Term Loan Advance and the Subsequent Term Loan
Advances are collectively referred to herein as "Term Loan Advances" and each, a
"Term Loan Advance.")

         (b) METHOD OF BORROWING TERM LOAN ADVANCES. So long as no Event of
Default or Unmatured Event of Default shall have occurred and be continuing, the
Company may request not more than two (2) Subsequent Term Loan Advances in
accordance with the terms of Section 2.04(a) above (subject to the requirements
of Section 2.06 of this Agreement) on any Banking Day, provided that the Company
shall not be entitled to receive and the Bank shall not be obligated to make any
Subsequent Term Loan Advance: (i) if the making of such Subsequent Term Loan
Advance would cause or result in an Event of Default or an Unmatured Event of
Default; or (ii) if after making such Subsequent Term Loan Advance the principal
balance of the Term Loan would exceed $4,640,000.

         Each Subsequent Term Loan Advance shall be conditioned upon receipt by
the Bank from the Company of an Application for Advance and an Officer's
Certificate, and satisfaction of each of the conditions described in Section
7.01(d) of this Agreement. Upon receipt of an Application for Advance, or at the
Bank's discretion upon receipt of an informal request for a Subsequent Term Loan
Advance, and upon compliance with any other conditions of lending stated in
Section 7.01(d) of this Agreement applicable to Subsequent Term Loan Advances,
the Bank shall disburse the amount of the requested Subsequent Term Loan
Advances by crediting such amount to the Designated Account. All Subsequent Term
Loan Advances by the Bank and

<PAGE>

payments by the Company shall be recorded by the Bank on its books and records,
and the principal amount outstanding from time to time, plus interest payable
thereon, shall be determined by reference to the books and records of the Bank.
The Bank's books and records shall be presumed PRIMA FACIE to be correct as to
such matters.

         (c) THE TERM NOTE/SCHEDULED PRINCIPAL PAYMENTS. The obligation of the
Company to repay the Term Loan shall be evidenced by a promissory note executed
by the Company to the Bank in the form of EXHIBIT "F" attached hereto (as the
same may be amended, modified, extended, renewed, supplemented, replaced and/or
restated from time to time and at any time, the "TERM NOTE"). The principal of
the Term Loan shall be repayable in equal monthly installments, each in the
amount of $77,500, due and payable on the last Banking Day of October 2001, and
on the last Banking Day of each successive calendar month thereafter until
(unless the Term Loan shall have been earlier paid in full) the Term Loan
Maturity Date, at which time the entire principal balance of the Term Loan and
all unpaid, accrued interest thereon, shall be due and payable in full without
demand. Subject to the contemporaneous payment of any Prepayment Premium which
would become due on account of any proposed prepayment, the principal of the
Term Loan may be prepaid at any time in whole or in part, provided that any
partial prepayment shall be in an amount which is an integral multiple of Fifty
Thousand Dollars ($50,000) and provided further that all partial prepayments
shall be applied to the latest maturing installments of principal payable under
the Term Loan in inverse order of maturity.

         (d) ADDITIONAL PRINCIPAL PAYMENTS FROM CASH FLOW. In addition to the
Scheduled Principal Payments provided in Section 2.04(c), above, the Company
shall make an annual payment of principal on the Term Loan (the "CASH FLOW
RECAPTURE PAYMENT") in an amount equal to Fifty Percent (50%) of the Available
Cash for Recapture for the preceding fiscal year of the Company, beginning with
the fiscal year ending September 1, 2002, which Cash Flow Recapture Payment
shall be due and payable each year on the earlier of (i) the date which is one
hundred thirty (130) days after the end of the preceding fiscal year of the
Company (or the next Banking Day thereafter if such date is not a Banking Day),
or (ii) the last Banking Day of the calendar year in which such fiscal year
ends, until the Term Loan Maturity Date or (if earlier) the payment of the Term
Loan in full.

         (e) INTEREST ON THE TERM LOAN. The principal amount of the Term Loan
outstanding from time to time shall bear interest until the Term Loan Maturity
Date at a rate per annum equal to the Prime Rate, plus the Applicable Spread,
except that at the option of the Company, exercised from time to time as
provided in Section 2.05 of this Agreement, interest may accrue prior to
maturity on any portion of the Term Loan or on the entire outstanding balance of
the Term Loan as to which no LIBOR-based Rate previously elected remains in
effect, at the LIBOR Rate (for an Interest Period selected by the Company as
provided in this Agreement) plus the Applicable Spread, provided that an
election of a LIBOR-based Rate for an Interest Period extending beyond the
Scheduled Term Loan Maturity Date shall be permitted only at the discretion of
the Bank. From and after the Term Loan Maturity Date, and until paid in full,
the Term Loan shall bear interest at a per annum rate equal to the Prime Rate,
plus the Applicable Spread, plus Two Percent (2%) per annum, except that as to
any portion of the Term Loan for which the Company may have elected a
LIBOR-based Rate for an Interest Period that has not

<PAGE>

expired at the Term Loan Maturity Date, such portion shall, during the remainder
of such Interest Period, bear interest at the greater of the Prime Rate, plus
the Applicable Spread, plus Two Percent (2%) per annum, or the LIBOR Rate then
in effect, plus the Applicable Spread, plus Two Percent (2%) per annum. Accrued
interest shall be due and payable monthly on the last Banking Day of each month
prior to the Term Loan Maturity Date. From and after the Term Loan Maturity
Date, interest on the Term Loan shall be payable as accrued and without demand.

         SECTION 2.05. PROVISIONS APPLICABLE TO THE LOANS. The provisions of
subsections (a) and (b) of this Section 2.05 are applicable to all of the Loans,
and the provisions of subsection (c) are applicable to the Revolving Loan and
the Term Loan.

         (a) CALCULATION OF INTEREST AND FEES. Interest on each of the Loans
shall be calculated on the basis that an entire year's interest is earned in 360
days.

         (b) MANNER OF PAYMENT -- APPLICATION. All payments of principal,
interest and fees on the Loans shall be payable at the principal office of the
Bank in Indianapolis, Indiana, in funds available for the Bank's immediate use
in that city and no payment will be considered to have been made until received
in such funds. All amounts payable on account of any of the Loans may be debited
by the Bank when due to any demand deposit account of the Company carried with
the Bank without further authority. Unless otherwise agreed to, in writing, or
otherwise required by applicable law, payments will be applied first to accrued,
unpaid interest, then to principal, and any remaining amount to any unpaid
collection costs, late charges and other charges, provided, however, upon
delinquency or other default, the Bank reserves the right to apply payments
among principal, interest, late charges, collection costs and other charges at
its discretion. All prepayments shall be applied to the Obligations in such
order and manner as the Bank may from time to time determine in its sole
discretion.

         (c) PROCEDURES FOR ELECTING LIBOR-BASED RATES -- CERTAIN EFFECTS OF
ELECTION. With respect to the Revolving Loan and the Term Loan, LIBOR-based
Rates may be elected only in accordance with the following procedures, shall be
subject to the following conditions and the election of a LIBOR-based Rate shall
have the following consequences in addition to other consequences stated in this
Agreement:

                  (1) No LIBOR-based Rate may be elected at any time that an
         Event of Default or Unmatured Event of Default has occurred and is
         continuing. A LIBOR-based Rate may be elected only for Loans or
         portions of Loans in a minimum amount of $1,000,000.00.

                  (2) The Company may pay all or any portion of the outstanding
         principal balance of any Loan, provided that if the Company makes any
         such payment (whether voluntary, mandatory, or as a result of
         acceleration after default) of a Loan or portion thereof which bears
         interest at a LIBOR-based Rate other than on the last day of the
         relevant Interest Period, the Company shall pay all accrued interest on
         the principal amount paid with such principal payment and, on demand,
         shall reimburse the Bank and hold the Bank harmless from all losses and
         expenses incurred by the Bank as a result of such principal payment
         having been made on other than the last day of the Interest Period

<PAGE>

         then in effect, including without limitation, any losses and expenses
         incurred by reason of the liquidation or re-employment of deposits or
         other funds acquired to fund or maintain the principal amount paid.
         Such reimbursement shall be calculated as though the Bank funded its
         portion of the principal amount paid through the purchase of U.S.
         Dollar deposits in the London, England interbank market having a
         maturity corresponding to such Interest Period and bearing an interest
         rate equal to the LIBOR Rate for such Interest Period, whether in fact
         that is the case or not. The Bank's determination of the amount of such
         reimbursement shall be conclusive in the absence of manifest error. If
         at the time of any payment of any portion of the principal of a Loan,
         interest accrues at both a LIBOR-based Rate or Rates and at the
         Prime-based Rate on portions of such Loan, then any payment of
         principal will be applied first to the portion of the Loan on which
         interest accrues at the Prime-based Rate and next to the portion or
         portions at which interest accrues at a LIBOR-based Rate or Rates, and
         if interest accrues on the Loan at more than one LIBOR-based Rate,
         first to that portion or those portions on which interest accrues at a
         rate or rates which results in least reimbursement amount.

                  (3) The Company has notified the Bank of its election to use
         the LIBOR-based Rate with respect to a specified LIBOR Advance and of
         the Interest Period selected and such notice is given no later than the
         third (3rd) Banking Day preceding the first day of such Interest
         Period. Such election and the LIBOR-based Rate shall be effective,
         provided there is then no Event of Default and the notification
         required under the preceding sentence has been given, on the first day
         of such Interest Period. No more than six (6) Interest Periods may be
         in effect at any one time.

                  (4) An election of a LIBOR-based Rate may be communicated to
         the Bank on behalf of the Company only by an Authorized Officer. Such
         election may be communicated by telephone or by telephone facsimile
         (fax) machine or any other form of written electronic communication, or
         by a writing delivered to the Bank. At the request of the Bank, the
         Company shall confirm any election in writing and such written
         confirmation shall be signed by an Authorized Officer. The Bank shall
         be entitled to rely on any oral or employee from anyone reasonably
         believed in good faith by LIBOR-based Rate which is received by an
         appropriate Bank such employee to be an Authorized Officer.

                  (5) If, on or prior to the determination of the interest rate
         for any LIBOR Advance, the Bank reasonably and in good faith determines
         that deposits in U.S. Dollars comparable to the amount and for the
         Interest Period of that LIBOR Advance are not available in the London
         interbank eurodollar market, or that, by reason of circumstances
         affecting the London interbank eurodollar market, adequate and
         reasonable means do not exist for ascertaining the interest rate
         applicable to that Interest Period, or that the making or funding of
         loans at LIBOR-based Rates has become impracticable, the Bank shall
         give the Company prompt notice thereof, and so long as that condition
         remains in effect, the Bank shall be under no obligation to make, or to
         convert other Advances into, LIBOR Advances of the type affected, and
         the Company shall, on the later of (a) the last day of the then current
         Interest Period for the affected LIBOR Advance (b) seven (7) Banking

<PAGE>

         Days after receipt of the Bank's notice, either notify the Bank and
         thereafter prepay the LIBOR Advance in accordance with this Agreement,
         or notify the Bank and thereafter convert the LIBOR Advance into an
         Advance on which interest accrues at the Prime-based Rate. In the event
         that it becomes unlawful for the Bank to (a) honor its obligations to
         make any Advance at a LIBOR-based Rate, or (b) maintain any Advance at
         a LIBOR-based Rate, the Bank shall promptly notify the Company thereof
         and the Bank's obligation to make the affected type of Advance and to
         convert other types of Advances into that type of Advance shall be
         suspended until such time as the Bank may again legally make and
         maintain the affected type of Advance, and the Company shall, on the
         last day of the then current Interest Period for that Advance (or on
         such earlier date as the Bank may specify to the Company), either
         notify the Bank and thereafter prepay the Advance in accordance with
         this Agreement or notify the Bank and thereafter convert the Advance
         into an Advance on which interest accrues at the Prime-based Rate.

                  (6) If, as a result of any regulatory change, the basis of
         taxation of payments to the Bank of the principal of or any interest on
         any Loan bearing interest at a LIBOR-based Rate or any other amounts
         payable hereunder in respect thereof, other than taxes imposed on the
         overall net income of the Bank, is changed, or any reserve, special
         deposit, or similar requirement relating to any extensions of credit or
         other assets of or any deposits with or other liabilities of the Bank
         are imposed, modified, or deemed applicable, and the Bank reasonably
         determines that, by reason thereof, the cost to it of making, issuing,
         or maintaining any Loan at a LIBOR-based Rate is increased by an amount
         deemed by it to be material, then the Company shall pay promptly upon
         demand to the Bank such additional amounts as the Bank reasonably
         determines will compensate for such increased costs.

         SECTION 2.06. MANDATORY PREPAYMENT. If at any time a determination
thereof is to be made, the principal balance of the Revolving Loan outstanding
at such time exceeds the Maximum Availability, the Company shall immediately
repay the Revolving Note in an aggregate principal amount equal to such excess.
If at any time a determination thereof is to be made, the principal balance of
the Term Loan outstanding at such time exceeds $4,640,000, the Company shall
immediately repay the Term Note in an aggregate principal amount equal to such
excess. If an Event of Default or an Unmatured Event of Default has occurred and
is continuing and the Bank shall have notified the Company of its election to
take any action specified in Section 8.02 of this Agreement, the Maximum
Availability, the Maximum DLC Availability, and the Term Loan Availability shall
be automatically reduced to $0 without any action on the part of or the giving
of notice to the Company by the Bank.

                                   ARTICLE III
                                   -----------
                      CREDIT ENHANCEMENT LETTERS OF CREDIT

         SECTION 3.01. THE CREDIT ENHANCEMENT LETTERS OF CREDIT. Subject to all
of the terms and conditions of this Agreement, the Bank will maintain the Credit
Enhancement

<PAGE>

Letters of Credit described in this Section previously issued by the Bank for
the account of the Company.

         (a) THE 1993 DIRECT-PAY LETTER OF CREDIT. The Bank previously opened
and delivered its Letter of Credit No. ST04689 (as the same has been or
hereafter may be amended, modified, extended, supplemented and/or restated from
time to time and at any time, the "1993 DIRECT-PAY LETTER OF CREDIT") in the
original principal amount of $3,462,750.00 in favor of the 1993 Trustee. The
1993 Direct-Pay Letter of Credit secures payment of the 1993 Bonds and is
subject to the terms stated therein. The 1993 Direct-Pay Letter of Credit is
subject to the following terms and conditions and all other terms and conditions
of this Agreement concerning the Company's obligations with respect to the 1993
Direct-Pay Letter of Credit:

                  (1) REIMBURSEMENT. So long as the 1993 Direct-Pay Letter of
         Credit is outstanding, the Company will maintain a demand deposit
         account with the Bank (the "DESIGNATED ACCOUNT") which the Company
         shall designate as the account through which the transactions described
         in this Section 3.01 will regularly be accomplished. On the Business
         Day of each calendar month which is two (2) Business Days prior to an
         Interest Payment Date for the 1993 Bonds, the Company will deposit into
         the Designated Account such amount as may be necessary to cause the
         balance of the Designated Account to be not less than the sum of (i)
         the anticipated amount of interest that will be due on account of the
         1993 Bonds at the next Interest Payment Date for the 1993 Bonds, plus
         (ii) the amount of the transaction fee provided for in Section
         3.01(a)(2) which will be due upon the Bank's payment of the related
         Drawing or Drawings under the 1993 Direct-Pay Letter of Credit, plus
         (iii) any balance required under other provisions of this Agreement. On
         the Business Day which is two (2) Business Days prior to the 1993
         Maturity Date, the Company will deposit into the Designated Account
         such amount as may be necessary to cause the balance of the Designated
         Account to be not less than the sum of : (i) any amount required by
         this Section 3.01(a)(1) to be deposited in connection with the payment
         of interest on the 1993 Bonds, plus (ii) the amount of outstanding
         principal of the 1993 Bonds that will be due on the 1993 Maturity Date,
         plus (iii) the amount of the transaction fee provided for in Section
         3.01(a)(2) which will be due upon the Bank's payment of the related
         Drawing or Drawings under the 1993 Direct-Pay Letter of Credit, plus
         (iv) any balance required under other provisions of this Agreement.
         Only after honoring a Drawing, the Bank shall be entitled, without
         further authorization from the Company, to charge the amount of such
         Drawing and the related transaction fee to the Designated Account or,
         to the extent that the balance of the Designated Account is
         insufficient to cover such Drawing and the related transaction fee, to
         any other deposit account maintained by the Company with the Bank.
         Should the Company's deposit balances with the Bank be insufficient to
         reimburse the Bank for any Drawing under the 1993 Direct-Pay Letter of
         Credit, together with the related transaction fee, then the Company
         shall pay to the Bank immediately and unconditionally upon demand, an
         amount equal to the unreimbursed portion of such Drawing and the
         related transaction fee, together with interest on such amount at the
         Prime Rate, plus the Applicable Spread, plus Two Percent (2%) per annum
         from the date of payment of such Drawing until the amount thereof is
         reimbursed to the Bank. In the case of any Remarketing Drawing, the
<PAGE>

         Company shall unconditionally pay to the Bank on the ninetieth (90th)
         day following payment by the Bank of such Drawing, or if such ninetieth
         day is not a Banking Day, then on the next following Banking Day, any
         balance of the amount of such Drawing which shall not then have been
         reimbursed to the Bank by the payment of remarketing proceeds to the
         Bank or otherwise, together with interest on such portions of such
         Remarketing Drawing as shall not, from time to time, have been
         reimbursed to the Bank, accrued at the Prime Rate, plus the Applicable
         Spread, plus One Percent (1%) per annum, and with interest thereafter
         accrued at the Prime Rate, plus the Applicable Spread, plus Three
         Percent (3%) per annum. Upon being reimbursed in full with interest as
         provided in this Agreement for any Remarketing Drawing, the Bank shall
         deliver any Pledged Bonds that were purchased by the 1993 Trustee with
         the proceeds of such Remarketing Drawing, and which shall not have
         previously been delivered by the Bank upon sale by the Remarketing
         Agent, to the 1993 Trustee for cancellation pursuant to the terms of
         the 1993 Trust Indenture. As used in this paragraph, the term
         "REMARKETING PROCEEDS" means proceeds from the resale of Pledged Bonds
         by the Remarketing Agent, which Pledged Bonds shall have been tendered
         or deemed tendered to the 1993 Trustee for repurchase pursuant to the
         terms of the 1993 Trust Indenture.

                  (2) COMMISSION AND TRANSACTION FEES. On the first Banking Day
         of each November, February, May and August of each year (each of which
         days is hereafter referred to in this Section 3.01(a)(2) as a
         "COMMISSION DUE DATE"), the Company shall pay to the Bank a commission
         for maintaining the 1993 Direct-Pay Letter of Credit, computed on the
         adjusted 1993 Refunding Maximum Available Credit at a rate per annum
         equal to the Applicable Credit Enhancement Letter of Credit Commission
         Rate in effect for each Commission Due Date, for the period beginning
         on the Commission Due Date and ending on the next following Commission
         Due Date. As used in the preceding sentence, the term "ADJUSTED 1993
         MAXIMUM AVAILABLE Credit" means the 1993 Maximum Available Credit as it
         is scheduled to increase and decrease during the period beginning on a
         Commission Due Date and ending on the following Commission Due Date by
         reason of anticipated draws for scheduled payments of principal and
         interest on the 1993 Bonds, and assuming the reinstatement of the
         availability of all Interest Drawings to the extent provided for in the
         1993 Direct-Pay Letter of Credit, provided that for purposes of
         computing each annual commission, the amount of an Interest Drawing
         which is subject to automatic reinstatement will be considered to be
         reinstated as of the date of such Drawing. There shall be no reduction
         in the amount of commission due and payable on any Commission Due Date,
         nor shall any refund of commission be due the Company on account of
         full or partial prepayment of the 1993 Bonds or because of the
         cancellation of the Pledged Bonds purchased with the proceeds of a
         Remarketing Drawing during the year following the Commission Due Date
         as of which the amount of such commission is established or on account
         of the election of the Bank not to restore the availability of any
         Interest Drawing. The amount of commission due and payable as of any
         Commission Due Date shall not be reduced, nor shall any refund of the
         commission be due because of cancellation or termination of the 1993
         Direct-Pay Letter of Credit for whatever reason, except that, so long
         as the Company's fiscal year ends in August, upon delivery to the Bank
         by the Company of the Company's annual audited

<PAGE>

         Financial Statements for the Company's fiscal year ended prior to any
         Commission Due Date in any calendar year, the commission due on that
         Commission Due Date shall be recalculated on the basis of the Ratio of
         Total Funded Debt to EBITDA as indicated by such audited Financial
         Statements. If the amount of the commission as so recalculated is
         greater or less than the amount of commission paid on such Commission
         Due Date, then the Bank will refund to the Company the excess of the
         amount of the commission paid on such Commission Due Date over the
         commission determined in accordance with such recalculation, or the
         Company will pay to the Bank the excess of the commission determined in
         accordance with such recalculation over the commission paid on such
         Commission Due Date, such refund or such payment of additional
         commission to be due within ten (10) days following delivery of such
         annual audited Financial Statements. A transaction fee shall be payable
         by the Company to the Bank for each Drawing under the 1993 Direct-Pay
         Letter of Credit in the amount of One-Eighth of One Percent (1/8%) of
         the amount of the Drawing or Sixty-Five Dollars ($65.00), whichever is
         greater. Transaction fees on account of Drawings shall be due on the
         day when the Drawing is paid by the Bank. On the Banking Day preceding
         each Commission Due Date, the Company shall deposit into the Designated
         Account such amount as may be necessary to cause the balance of the
         Designated Account to be not less than the amount of commission due on
         such Commission Due Date, plus any other amounts required to be on
         deposit in the Designated Account on such date pursuant to other
         provisions of this Agreement. The Bank shall be entitled, without
         further authorization from the Company, to charge the amount of the
         commission due on each Commission Due Date to the Designated Account,
         and if the balance of the Designated Account is insufficient to satisfy
         the entire amount then due to the Bank on account of the commission,
         the Bank may, without further authorization of the Company, charge such
         deficiency to any other deposit account of the Company maintained with
         the Bank. All commissions and fees payable under the terms of this
         Section 3.01(a)(2) shall be payable with interest at the Prime Rate,
         plus the Applicable Spread, plus Two Percent (2%) per annum from the
         date due until paid. If the 1993 Direct-Pay Letter of Credit is
         transferred to a new beneficiary pursuant to the terms thereof, then
         the Company covenants and agrees to pay to the Bank promptly upon its
         demand a transfer fee in the amount then customarily assessed by the
         Bank for transfers of letters of credit of the same type and amount as
         the 1993 Direct-Pay Letter of Credit.

                  (3) REMARKETING REIMBURSEMENT LOAN-1993 BONDS. At the option
         of the Company exercised by a written notice to the Bank given not less
         than ten (10) days prior to the expiration of a period of ninety (90)
         days following a Remarketing Drawing on the 1993 Direct-Pay Letter of
         Credit (which expiration date is hereafter referred to in this
         subsection as the "REIMBURSEMENT DUE DATE"), the Bank will make a loan
         (a "REMARKETING REIMBURSEMENT LOAN-1993 BONDS") to the Company on the
         reimbursement due date, provided that the 1993 Direct-Pay Letter of
         Credit as it may have been extended from time to time shall not then
         have expired or been terminated, and provided further that no Event of
         Default or Unmatured Event of Default shall have occurred and is then
         continuing. Each Remarketing Reimbursement Loan-1993 Bonds shall be in
         an amount not in excess of the amount due to the Bank from the Company
         on the related

<PAGE>

         reimbursement due date on account of the portion of the Remarketing
         Drawing representing the Principal Amount. The term "PRINCIPAL AMOUNT"
         is used in the preceding sentence as that term is defined in the 1993
         Direct-Pay Letter of Credit. Proceeds of the Remarketing Reimbursement
         Loan-1993 Bonds shall be used solely to reimburse the Bank for all or a
         portion of the Principal Amount of the related Remarketing Drawing for
         the 1993 Bonds which have not been sold by the Remarketing Agent
         subsequent to the Remarketing Drawing. Each Remarketing Reimbursement
         Loan-1993 Bonds shall be represented by the promissory note of the
         Company (a "REMARKETING REIMBURSEMENT NOTE-1993 BONDS"), delivered to
         the Bank contemporaneously with the making of the Loan, with each such
         Note substantially in the form of the Term Note, with the following
         exceptions:

                           (i)      No Remarketing Reimbursement Loan-1993 Bonds
                                    will be made after the earlier of the
                                    expiration or termination of the 1993
                                    Direct-Pay Letter of Credit;

                           (ii)     The final maturity of such Remarketing
                                    Reimbursement Note-1993 Bonds shall be a
                                    date which is the earlier of (1) 288 days
                                    after the date the Loan evidence by such
                                    Note was made, or (2) the date that the 1993
                                    Direct-Pay Letter of Credit (as it may have
                                    been extended from time to time in the
                                    Bank's sole discretion) expires or is
                                    terminated;

                           (iii)    Each Remarketing Reimbursement Note-1993
                                    Bonds shall bear interest prior to maturity
                                    at a per annum rate equal to the Prime Rate
                                    plus One Percent (1%) and after maturity at
                                    a per annum rate equal to the Prime Rate
                                    plus Three Percent (3%) per annum;

                           (iv)     All accrued interest on the outstanding
                                    principal balance of the Remarketing
                                    Reimbursement Loan-1993 Bonds is due and
                                    payable prior to maturity on the last
                                    Banking Day of each calendar month, and
                                    after maturity, all interest is due and
                                    payable as accrued and without demand; and

                           (v)      The principal of each Remarketing
                                    Reimbursement Note-1993 Bonds shall be
                                    payable prior to maturity on the same dates
                                    as the scheduled principal payments under
                                    the 1993 Bonds purchased with the related
                                    Remarketing Drawing would have become due
                                    and payable, and the principal amount
                                    payable on each such date shall be equal to
                                    the principal payments scheduled to have
                                    been paid on the same date on the 1993 Bonds
                                    redeemed with the related Remarketing
                                    Drawing.

         (b) THE 1994 REFUNDING DIRECT-PAY LETTER OF CREDIT. The Bank previously
opened and delivered its Letter of Credit No. ST04846 (as the same has been or
hereafter may be

<PAGE>

amended, modified, extended, supplemented and/or restated from time to time and
at any time, the "1994 REFUNDING DIRECT-PAY LETTER OF CREDIT") in the original
principal amount of $2,976,750 in favor of the 1994 Refunding Trustee for the
account of the Company. The 1994 Refunding Direct-Pay Letter of Credit secures
payment of the 1994 Refunding Bonds and is subject to the terms stated therein.
The 1994 Refunding Direct-Pay Letter of Credit is subject to the following terms
and conditions, and all other terms and conditions of this Agreement concerning
the Company's obligations with respect to the 1994 Refunding Direct-Pay Letter
of Credit:

                  (1) REIMBURSEMENT. So long as the 1994 Refunding Direct-Pay
         Letter of Credit is outstanding, the Company will maintain the
         Designated Account through which the transactions described in this
         Section 3.01(b) will regularly be accomplished. On the Business Day of
         each calendar month which is two (2) Business Days prior to an Interest
         Payment Date for the 1994 Refunding Bonds, the Company will deposit
         into the Designated Account such amount as may be necessary to cause
         the balance of the Designated Account to be not less than the sum of
         (i) the anticipated amount of interest that will be due on account of
         the 1994 Refunding Bonds at the next Interest Payment Date for the 1994
         Refunding Bonds, plus (ii) the amount of the transaction fee provided
         for in Section 3.01(b)(2) which will be due upon the Bank's payment of
         the related Drawing or Drawings under the 1994 Refunding Direct-Pay
         Letter of Credit, plus (iv) any balance required under other provisions
         of this Agreement. On the Business Day which is two (2) Business Days
         prior to the 1994 Maturity Date, the Company will deposit into the
         Designated Account such amount as may be necessary to cause the balance
         of the Designated Account to be not less than the sum of: (i) any
         amount required by this Section 3.01(b)(1) to be deposited in
         connection with the payment of interest on the 1994 Refunding Bonds,
         plus (ii) the amount of outstanding principal of the 1994 Refunding
         Bonds that will be due on the 1994 Maturity Date, plus (iii) the amount
         of the transaction fee provided for in Section 3.01(b)(2) which will be
         due upon the Bank's payment of the related Drawing or Drawings under
         the 1994 Refunding Direct-Pay Letter of Credit, plus (iv) any balance
         required under other provisions of this Agreement. After and only after
         honoring a Drawing, the Bank shall be entitled, without further
         authorization from the Company, to charge the amount of such Drawing
         and the related transaction fee to the Designated Account or, to the
         extent that the balance of the Designated Account is insufficient to
         cover such Drawing and the related transaction fee, to any other
         deposit account maintained by the Company with the Bank. Should the
         Company's deposit balances with the Bank be insufficient to reimburse
         the Bank for any Drawing under the 1994 Refunding Direct-Pay Letter of
         Credit, together with the related transaction fee, then the Company
         shall pay to the Bank immediately and unconditionally upon demand, an
         amount equal to the unreimbursed portion of such Drawing and the
         related transaction fee, together with interest on such amount at the
         Prime Rate, plus the Applicable Spread, plus Two Percent (2%) per annum
         from the date of payment of such Drawing until the amount thereof is
         reimbursed to the Bank. In the case of any Remarketing Drawing, the
         Company shall unconditionally pay to the Bank on the ninetieth (90th)
         day following payment by the Bank of such Drawing, or if such ninetieth
         day is not a Banking Day, then on the next following Banking Day, any
         balance of the amount of such Drawing which shall not then have been
         reimbursed to the Bank by the payment of remarketing proceeds

<PAGE>
         to the Bank or otherwise, together with interest on such portions of
         such Remarketing Drawing as shall not, From time to time, have been
         reimbursed to the Bank, accrued at the Prime Rate, plus the Applicable
         Spread, plus One Percent (1%) per annum, and with interest thereafter
         accrued at the Prime Rate, plus the Applicable Spread, plus Three
         Percent (3%) per annum. Upon being reimbursed in full with interest as
         provided in this Agreement for any Remarketing Drawing, the Bank shall
         deliver appropriate instructions, with respect to any Pledged Bonds
         that were purchased by the 1994 Refunding Trustee with the proceeds of
         such Remarketing Drawing, and which shall not have previously been
         delivered by the Bank upon sale by the Remarketing Agent, to the 1994
         Refunding Trustee for cancellation pursuant to the terms of the 1994
         Refunding Trust Indenture. As used in this paragraph, the term
         "REMARKETING PROCEEDS" means proceeds from the resale of Pledged Bonds
         by the Remarketing Agent, which Pledged Bonds shall have been tendered
         or deemed tendered to the 1994 Refunding Trustee for repurchase
         pursuant to the terms of the 1994 Refunding Trust Indenture.

                  (2) COMMISSION AND TRANSACTION FEES. On the first Banking Day
         of each November, February, May and August of each year (each of which
         days is hereafter referred to in this Section 3.01(b)(2) as a
         "COMMISSION DUE DATE"), the Company shall pay to the Bank a commission
         for maintaining the 1994 Direct-Pay Letter of Credit, computed on the
         adjusted 1994 Maximum Available Credit at a rate per annum equal to the
         Applicable Credit Enhancement Letter of Credit Commission Due Date, for
         the period beginning on the Commission Due Date and ending on the next
         following Commission Due Date. As used in the preceding sentence, the
         term "ADJUSTED 1994 REFUNDING MAXIMUM AVAILABLE CREDIT" means the 1994
         Refunding Maximum Available Credit as it is scheduled to increase and
         decrease during the period beginning on a Commission Due Date and
         ending on the following Commission Due Date by reason of anticipated
         draws for scheduled payments of principal and interest on the 1994
         Refunding Bonds, and assuming the reinstatement of the availability of
         all Interest Drawings to the extent provided for in the 1994 Refunding
         Direct-Pay Letter of Credit, provided that for purposes of computing
         each annual commission, the amount of an Interest Drawing which is
         subject to automatic reinstatement will be considered to be reinstated
         as of the date of such drawing. There shall be no reduction in the
         amount of commission due and payable on any Commission Due Date, nor
         shall any refund of commission be due the Company on account of full or
         partial prepayment of the 1994 Refunding Bonds or because of the
         cancellation of the Pledged Bonds purchased with the proceeds of a
         Remarketing Drawing during the year following the Commission Due Date
         as of which the amount of such commission is established or on account
         of the election of the Bank not to restore the availability of any
         Interest Drawing. The amount of the commission due and payable as of
         any Commission Due Date shall not be reduced, nor shall any refund of
         the commission be due because of cancellation or termination of the
         1994 Refunding Direct-Pay Letter of Credit for whatever reason nor
         shall the amount of the commission due and payable as of any Commission
         Due Date be reduced or refunded for any other reason, except that, so
         long as the Company's fiscal year ends in August, upon delivery to the
         Bank by the Company of the Company's annual audited Financial
         Statements for the Company's fiscal year ended prior to any Commission
         Due Date in any

<PAGE>

         calendar year, the commission due on that Commission Due Date shall be
         recalculated on the basis of the ratio of the Ratio of Total Funded
         Debt to EBITDA as indicated by such audited Financial Statements. If
         the amount of commission as so recalculated is greater or less than the
         amount of commission paid on such Commission Due Date, then the Bank
         will refund to the Company the excess of the amount of the commission
         paid on such Commission Due Date over the commission determined in
         accordance with such recalculation, or the Company will pay to the Bank
         the excess of the commission determined in accordance with such
         recalculation over the commission paid on such Commission Due Date,
         such refund or such payment of additional commission to be due within
         ten (10) days following delivery of such annual audited financial
         statements. A transaction fee shall be payable by the Company to the
         Bank for each Drawing under the 1994 Refunding Direct-Pay Letter of
         Credit in the amount of One-Eighth of One Percent (1/8%) of the amount
         of the Drawing or Sixty-Five Dollars ($65.00), whichever is greater.
         Transaction fees on account of Drawings shall be due on the day when
         the Drawing is paid by the Bank. On the Banking Day preceding each
         Commission Due Date, the Company shall deposit into the Designated
         Account, such amount as may be necessary to cause the balance of the
         Designated Account to be not less than the amount of commission due on
         such Commission Due Date, plus any other amounts required to be on
         deposit in the Designated Account on such date pursuant to other
         provisions of this Agreement. The Bank shall be entitled, without
         further authorization from the Company, to charge the amount of the
         commission due on each Commission Due Date to the Designated Account,
         and if the balance of the Designated Account is insufficient to satisfy
         the entire amount then due to the Bank on account of the commission,
         the Bank may, without further authorization of the Company, charge such
         deficiency to any other deposit account of the Company maintained with
         the Bank. All commissions and fees payable under the terms of this
         Section 3.01(b)(2) shall be payable with interest at the Prime Rate,
         plus the Applicable Spread, plus Two Percent (2%) per annum from the
         date due until paid. If the 1994 Refunding Direct-Pay Letter of Credit
         is transferred to a new beneficiary pursuant to the terms thereof, then
         the Company covenants and agrees to pay to the Bank promptly upon its
         demand a transfer fee in the amount then customarily assessed by the
         Bank for transfers of letters of credit of the same type and amount as
         the 1994 Refunding Direct-Pay Letter of Credit.

                  (3) REMARKETING REIMBURSEMENT LOAN-1994 REFUNDING BONDS. At
         the option of the Company exercised by a written notice to the Bank
         given not less than ten (10) days prior to the expiration of a period
         of ninety (90) days following a Remarketing Drawing on the 1994
         Direct-Pay Letter of Credit (which expiration date is hereafter
         referred to in this subsection as the "REIMBURSEMENT DUE DATE"), the
         Bank will make a loan (a "REMARKETING REIMBURSEMENT LOAN-1994 REFUNDING
         BONDS") to the Company on the reimbursement due date, provided that the
         1994 Refunding Direct-Pay Letter of Credit as it may have been extended
         from time to time shall not then have expired or been terminated, and
         provided further that no Event of Default or Unmatured Event of Default
         shall have occurred and is then continuing. Each Remarketing
         Reimbursement Loan-1994 Refunding Bonds shall be in an amount not in
         excess of the amount due to the Bank from the Company on the related
         reimbursement due date on account of the portion of the

<PAGE>

         Remarketing Drawing representing the Principal Amount. The term
         "PRINCIPAL AMOUNT" is used in the preceding sentence as that term is
         defined in the 1994 Direct-Pay Letter of Credit. Proceeds of the
         Remarketing Reimbursement Loan-1994 Refunding Bonds shall be used
         solely to reimburse the Bank for all or a portion of the Principal
         Amount of the related Remarketing Drawing for the 1994 Refunding Bonds
         which have not been sold by the Remarketing Agent subsequent to the
         Remarketing Drawing. Each Remarketing Reimbursement Loan-1994 Refunding
         Bonds shall be represented by the promissory note of the Company (a
         "REMARKETING REIMBURSEMENT NOTE-1994 REFUNDING BONDS"), delivered to
         the Bank contemporaneously with the making of the Loan, with each such
         Note substantially in the form of the Term Note, with the following
         exceptions:

                           (i)      No Remarketing Reimbursement Loan-1994
                                    Refunding Bonds will be made after the
                                    earlier of the expiration or termination of
                                    the 1994 Refunding Direct-Pay Letter of
                                    Credit;

                           (ii)     The final maturity of such Remarketing
                                    Reimbursement Note-1994 Refunding Bonds
                                    shall be a date which is the earlier of (1)
                                    288 days after the date the Loan evidence by
                                    such Note was made, or (2) the date that the
                                    1994 Refunding Direct-Pay Letter of Credit
                                    (as it may have been extended from time to
                                    time in the Bank's sole discretion) expires
                                    or is terminated;

                           (iii)    Each Remarketing Reimbursement Note-1994
                                    Refunding Bonds shall bear interest prior to
                                    maturity at a per annum rate equal to the
                                    Prime Rate plus One Percent (1%) and after
                                    maturity at a per annum rate equal to the
                                    Prime Rate plus Three Percent (3%) per
                                    annum;

                           (iv)     All accrued interest on the outstanding
                                    principal balance of the Remarketing
                                    Reimbursement Loan-1994 Refunding Bonds is
                                    due and payable prior to maturity on the
                                    last Banking Day of each calendar month, and
                                    after maturity, all interest is due and
                                    payable as accrued and without demand; and

                           (v)      The principal of each Remarketing
                                    Reimbursement Note-1994 refunding Bonds
                                    shall be payable prior to maturity on the
                                    same dates as the scheduled principal
                                    payments under the 1994 Refunding Bonds
                                    purchased with the related Remarketing
                                    Drawing would have become due and payable,
                                    and the principal amount payable on each
                                    such date shall be equal to the principal
                                    payments scheduled to have been paid on the
                                    same date on the 1994 Refunding Bonds
                                    redeemed with the related Remarketing
                                    Drawing.

         (c) PROVISIONS APPLICABLE TO ALL OF THE CREDIT ENHANCEMENT LETTERS OF
CREDIT. The following provisions are applicable to all of the Credit Enhancement
Letters of Credit:

<PAGE>

                  (1) ADDITIONAL AMOUNTS PAYABLE. If any change in or the
         enactment, adoption or judicial or administrative interpretation of any
         law, regulation, treaty, guideline or directive (including, without
         limitation, Regulation D of the Board of Governors of the Federal
         Reserve System) either (A) subjects the Bank to any additional tax,
         duty, charge, deduction or withholding with respect to any of the
         Credit Enhancement Letters of Credit or any amount paid by the Bank
         thereunder or received by the Bank under this Agreement (other than a
         tax measured by the net or gross income of the Bank), or (B) imposes or
         increases any reserve, special deposit, or similar requirement on
         account of any of the Credit Enhancement Letters of Credit, or (C)
         imposes increased minimum capital requirements on the Bank on account
         of its issuing any of the Credit Enhancement Letters of Credit, and if
         any of the foregoing (i) results in an increase to the Bank in the cost
         of maintaining any of the Credit Enhancement Letters of Credit or
         making any payment on account of any of the Credit Enhancement Letters
         of Credit, (ii) reduces the amount of any payment receivable by the
         Bank under this Agreement, (iii) requires the Bank to make any payment
         calculated by reference to the gross amount of any sum received or paid
         by the Bank pursuant to any of the Credit Enhancement Letters of Credit
         or this Agreement (other than a tax measured by the Bank's gross or net
         income) or (iv) reduces the rate of return on the Bank's capital, the
         Company shall pay to the Bank, as additional commission for the Credit
         Enhancement Letters of Credit, such amount as will compensate the Bank
         for such increased cost, payment or reduction. Any such payment shall
         be made to the Bank within ten (10) days of demand and presentation of
         a certificate to the Company containing a statement of the cause of
         such increased cost, payment or reduction and a calculation of the
         amount thereof, which statement and calculation shall be deemed facie
         to be correct.

                  (2) PLACE AND APPLICATION OF PAYMENTS -- CALCULATION OF
         INTEREST AND FEES. All payments required to be made under this Section
         3.01 shall be made to the Bank at its principal office in Indianapolis,
         Indiana, in funds available for the Bank's immediate use at that city
         and no such payment will be considered to have been made until received
         in such funds. All interest and fees due under any provision of this
         Section 3.01 shall be calculated on the basis of a year of 360 days,
         and on the actual number of days elapsed.

                  (3) PRESENTMENT AND COLLECTION. The beneficiaries of the
         Credit Enhancement Letters of Credit shall be deemed for purposes of
         this Agreement to be the agents of the Company and the Company assumes
         all risks of their acts, omissions or misrepresentations. Neither the
         Bank nor any of its affiliates or correspondents shall be responsible
         for the validity, sufficiency, truthfulness or genuineness of any
         document required to draw under any of the Credit Enhancement Letters
         of Credit even if such document should in fact prove to be in any or
         all respects invalid, insufficient, fraudulent or forged, provided only
         that the document appears on its face to be in accordance with the
         terms of the related Credit Enhancement Letter of Credit, or for
         failure of any draft to bear reference or adequate reference to any of
         the related Credit Enhancement Letters of Credit or failure of any
         person to note the amount of any draft on any of the Credit Enhancement
         Letters of Credit or to surrender or take up any of the

<PAGE>

         Credit Enhancement Letters of Credit, each of which provisions may be
         waived by the Bank, or for errors, omissions, interruptions, or delays
         in transmission or delivery of any messages or documents. Without
         limiting the generality of the foregoing, any action taken by the Bank
         or any of its correspondents under or in connection with any of the
         Credit Enhancement Letters of Credit, if taken in good faith, shall be
         binding upon the Company and shall not put the Bank or any such
         correspondent under any resulting liability to the Company and the
         Company makes like agreement as to any omission unless in breach of
         good faith. The Bank is expressly authorized to honor any request for
         payment which is made under and in compliance with the terms of any of
         the Credit Enhancement Letters of Credit without regard to and without
         any duty on its part to inquire into the existence of any disputes or
         controversies between the Company and the beneficiaries of any of the
         Credit Enhancement Letters of Credit or any other person, firm or
         corporation or into the respective rights, duties or liabilities of any
         of them or whether any facts or occurrences represented in any of the
         documents presented under any of the Credit Enhancement Letters of
         Credit are true and correct.

                  (4) CHANGE IN INTEREST RATE MODES. The Company shall not
         change the Interest Rate Mode to a Six Month Interest Rate Mode, a One
         Year Interest Rate Mode, a Five Year Interest Rate Mode or a Fixed
         Interest Rate Mode without the prior written consent of the Bank. As
         used in this subsection, the terms "INTEREST RATE MODE", "SIX MONTH
         INTEREST RATE Mode", "ONE YEAR INTEREST RATE MODE", "FIVE YEAR INTEREST
         RATE MODE" and "FIXED INTEREST RATE MODE" are used as defined in the
         corresponding Trust Indenture, as the context requires.

                  (5) MONIES IN THE DESIGNATED ACCOUNT. All amounts deposited
         into the Designated Account shall be held by the Bank as cash
         collateral for all of the Obligations. The Designated Account shall be
         used by the Company only for the purposes provided for in this
         Agreement, and the terms of the Designated Account shall be such that
         it shall be a "blocked" account, so that transfers of funds from the
         Designated Account may be made only by the Bank or by the Company with
         the concurrence of the Bank.

                  (6) ANNUAL ADMINISTRATIVE FEES. From and after the Closing
         Date, on each anniversary date of the issuance of any Credit
         Enhancement Letter of Credit, the Company shall pay the Bank a
         processing and administration fee of $125 for such Credit Enhancement
         Letter of Credit.

                                   ARTICLE IV
                                   ----------
                         REPRESENTATIONS AND WARRANTIES

         SECTION 4.01. REPRESENTATIONS AND WARRANTIES. To induce the Bank to
make the Loans and to issue the Letters of Credit, the Company represents and
warrants to the Bank that:

<PAGE>

         (a) ORGANIZATION OF THE COMPANY. The Company is a corporation
organized, existing and in good standing under the laws of the State of
Delaware, and the Guarantor is a corporation organized, existing and in good
standing under the laws of the Commonwealth of Kentucky. The Company and the
Guarantor each are qualified to do business in every jurisdiction in which: (i)
the nature of the business conducted or the character or location of properties
owned or leased, or the residences or activities of employees make such
qualification necessary; and (ii) failure so to qualify might impair the title
of the Company or the Guarantor to its material properties or its right to
enforce material contracts or result in exposure of the Company or the Guarantor
to liability for material penalties in such jurisdiction. No jurisdiction in
which the Company or the Guarantor is not qualified to do business has asserted
that the Company or the Guarantor is required to be qualified therein. The
principal office and chief executive office of the Company is located at One
Oxmoor Place, 101 Bullitt Lane, Louisville, Kentucky 40222. The Company does not
conduct any material operations or keep any material amounts of property at any
location other than the locations specified in the Security Agreement. The
Company has not done business under any name other than its present corporate
name at any time during the six years preceding the Closing Date except as
disclosed in the Security Agreement.

         (b) AUTHORIZATION; NO CONFLICT. The execution and delivery of this
Agreement, the borrowings hereunder, the execution and delivery of all of the
other Loan Documents and the Bond Documents and the performance by the Company
and the Guarantor of their respective obligations under this Agreement and all
of the other Loan Documents to which each of them is a party, and the Bond
Documents, are within the Company's and the Guarantor's corporate powers, have
been duly authorized by all necessary corporate action, have received any
required governmental or regulatory agency approvals and do not and will not
contravene or conflict with any provision of law or of the articles of
incorporation or bylaws of the Company or the Guarantor or of any agreement
binding upon the Company or the Guarantor or their respective properties.

         (c) VALIDITY AND BINDING NATURE. This Agreement and all of the other
Loan Documents and the Bond Documents to which the Company or the Guarantor is a
party are the legal, valid and binding obligations of the Company or the
Guarantor, as applicable, enforceable against the Company or the Guarantor in
accordance with their respective terms, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and
other laws enacted for the relief of debtors generally and other similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles which may affect the availability of specific performance and other
equitable remedies.

         (d) FINANCIAL STATEMENTS. The Company has delivered to the Bank its
audited consolidated Financial Statements as of September 1, 2001, and for the
fiscal year of the Company then ended and its unaudited interim consolidated
Financial Statements as of September 29, 2001, and for the fiscal quarter and
partial fiscal year then ended, which Financial Statements have been prepared in
accordance with GAAP except, as to the interim statements, for the absence of a
statement of cash flows, footnotes and adjustments normally made at year end
which are not material in amount. Such Financial Statements present fairly the
financial position of the Company and its Subsidiaries as of the dates thereof
and the results of their

<PAGE>

operations for the periods covered and since the date of the most current
Financial Statements provided by the Company to the Bank there has been no
material adverse change in the financial position of the Company and its
Subsidiaries or in the results of their operations.

         (e) LITIGATION AND CONTINGENT LIABILITIES. No litigation, arbitration
proceedings or governmental proceedings are pending or to the best of the
Company's knowledge threatened against the Company or any of its Subsidiaries
which would, if adversely determined, materially and adversely affect its
financial position or continued operations. Neither the Company nor its
Subsidiaries has any material contingent liabilities not provided for or
disclosed in the Financial Statements referred to in Section 4.01(d) of this
Agreement or on the Schedule of Exceptions.

         (f) LIENS. None of the assets of the Company or any of its Subsidiaries
are subject to any mortgage, pledge, title retention lien, or other lien,
encumbrance or security interest except for liens and security interests
described in Section 6.02(b)(1) through (8) of this Agreement.

         (g) EMPLOYEE BENEFIT PLANS. Each Plan maintained by the Company or any
of its Subsidiaries is in material compliance with ERISA, the Code, and all
applicable rules and regulations adopted by regulatory authorities pursuant
thereto, and they have filed all reports and returns required to be filed by
ERISA, the Code and such rules and regulations. No Plan maintained by the
Company or any of its Subsidiaries and no trust created under any such Plan has
incurred any "accumulated funding deficiency" within the meaning of Section
412(c)(1) of the Code, and the present value of all benefits vested under each
Plan did not exceed, as of the last annual valuation date, the value of the
assets of the respective Plans allocable to such vested benefits. The Company
and its Subsidiaries have no knowledge that any "reportable event" as defined in
ERISA has occurred with respect to any Plan.

         (h) PAYMENT OF TAXES. The Company and its Subsidiaries have filed all
federal, state and local tax returns and tax related reports which the Company
and its Subsidiaries is required to file by any statute or regulation and all
taxes and any tax related interest payments and penalties that are due and
payable have been paid, except for such as are being contested in good faith and
by appropriate proceedings and as to which appropriate reserves have been
established. Adequate provision has been made for the payment when due of all
tax liabilities which have been incurred, but are not as yet due and payable.

         (i) INVESTMENT COMPANY ACT. The Company is not an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.

         (j) REGULATION U. The Company is not engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System. Not more than Twenty-Five
Percent (25%) of the assets of the Company consists of margin stock, within the
contemplation of Regulation U, as amended.

<PAGE>

         (k) HAZARDOUS SUBSTANCES. Except as disclosed in the Environmental
Reports furnished to the Bank, to the best knowledge of the Company after due
inquiry and investigation, there are no underground storage tanks of any kind on
any premises owned or occupied by or under lease to the Company or any of its
Subsidiaries and there are no tanks, drums, or other containers of any kind on
premises owned or occupied by or under lease to the Company or any of its
Subsidiaries, the contents of which are unknown to the Company. Except as
disclosed in the Environmental Reports furnished to the Bank, to the best
knowledge of the Company after due inquiry and investigation, no premises owned
or occupied by or under lease to the Company or any of its Subsidiaries have
ever been used, and as of the Closing Date, no such premises are being used for
any activities involving the use, treatment, transportation, generation, storage
or disposal of any Hazardous Substances in reportable quantities and no
Hazardous Substances in reportable quantities have been released on any such
premises nor is there any threat of release of any Hazardous Substances in
reportable quantities on any such premises.

         (l) SUBSIDIARIES. The Company has no Subsidiaries as of the Closing
Date other than Guarantor.

                                    ARTICLE V
                                    ---------
                            SECURITY FOR OBLIGATIONS

         SECTION 5.01. COLLATERAL FOR THE OBLIGATIONS. Until paid in full, all
of the Obligations will be secured by the following:

         (a) SECURITY AGREEMENT. The Obligations will be secured by a first
priority security interest and lien in favor of the Bank in and to all of the
assets of the Company created by the Security Agreement, subject only to
Permitted Liens. The Company hereby affirms and acknowledges that the Security
Agreement secures all of the Obligations and constitutes an amendment and
restatement of that certain Security Agreement, dated June 9, 1994, executed by
the Company in favor of the Bank.

         (b) MORTGAGES. The Obligations will further be secured by a first
priority mortgage lien and security interest in favor of the Bank on the Real
Estate and related property created by the Mortgages, subject only to Permitted
Liens, including the 1997 Project Mortgage. Pursuant to Section 7.01 of this
Agreement, each of the 1992 Huntingburg Mortgage, the 1993 Huntingburg
Mortgage-Warehouse and the 1993 Huntingburg Mortgage-Mfg., shall be amended
concurrently with the execution of this Agreement to provide that each such
Mortgage secures all of the Obligations, which amendments shall be in form and
substance the same as attached hereto as EXHIBITS "G-1," "G-2," AND "G-3,"
(collectively, the "MORTGAGE AMENDMENTS").

         (c) GUARANTY. The Obligations will further be secured by the
unconditional, continuing guaranty of Guarantor in favor of the Bank pursuant to
the Guaranty.

<PAGE>

         (d) PLEDGED BONDS. In addition to all other collateral for the
Obligations, the Obligations will further be secured by a first priority pledge
of and a security interest in favor of the Bank in any 1993 Bonds, any 1994
Refunding Bonds and in any 1994 Equipment Bonds and in any Beneficial ownership
Interests (as that term is defined in the Trust Indenture) for any Bonds which,
in any case, are purchased with the proceeds of any Remarketing Drawing (the
"PLEDGED BONDS"), which pledge and security interest the Company hereby grants
to the Bank, subject only to Permitted Liens. As soon as possible following any
Remarketing Drawing, and in any event within ten (10) days of the date of such
Drawing, the Company shall take such acts and execute such documents as the Bank
may require to perfect and maintain the perfection of the Bank's pledge of and
security interest in and to the Pledged Bonds under applicable law, including to
the extent applicable, Articles 8.1 and 9.1 of the Indiana Uniform Commercial
Code, and the Company hereby authorizes the Bank to file on behalf of the
Company without the Company's signatures such financing statements, amendments
and continuations in such filing offices as the Bank deems necessary to effect
same.

                                   ARTICLE VI
                                   ----------
                                 AFFIRMATIVE AND
                          NEGATIVE COVENANTS OF COMPANY

         SECTION 6.01. AFFIRMATIVE COVENANTS OF THE COMPANY. Until all
Obligations of the Company terminate or are paid and satisfied in full, and for
so long as the Company is entitled to receive any Advance or any Letters of
Credit are outstanding, the Company shall strictly observe and shall cause each
of its Subsidiaries strictly to observe, the following covenants:

         (a) CORPORATE EXISTENCE. The Company and each Subsidiary shall preserve
its corporate existence.

         (b) REPORTS, CERTIFICATES AND OTHER INFORMATION. The Company shall
furnish to the Bank copies of the following Financial Statements, certificates
and other information:

                  (1) ANNUAL STATEMENTS. As soon as available and in any event
         within one hundred and twenty (120) days after the close of each fiscal
         year of the Company, annual audited consolidated and consolidating
         Financial Statements for the Company and its Subsidiaries, audited by
         the Company's Auditors, showing their financial condition and results
         of operations as at the close of such fiscal year and for such fiscal
         year, all prepared in accordance with GAAP, accompanied by an opinion
         of the Company's Auditors, which opinion shall be without qualification
         (and the "management letter" if issued) and shall state that such
         audited Financial Statements present fairly the financial position of
         the Company and its Subsidiaries on a consolidated basis as of the date
         of such Financial Statements and the results of their operations and
         changes in their financial position for the period covered thereby, and
         that their examination in connection with such Financial Statements has
         been made in accordance with GAAP.

<PAGE>

                  (2) INTERIM STATEMENTS. As soon as available and in any event
         within thirty (30) days after the end of each successive 4-week or
         5-week period comprising a fiscal month of the Company, a copy of the
         interim unaudited consolidated and consolidating financial statements
         of the Company and its Subsidiaries, consisting at a minimum of:

                           (i)      the consolidated balance sheet of the
                                    Company and its Subsidiaries as of the end
                                    of such period, and

                           (ii)     the consolidated statement of income for
                                    such period and for the partial or full
                                    fiscal year ended as of the end of such
                                    period,

         all in reasonable detail and accompanied by the written representation
         of the chief financial officer of the Company that such financial
         statements have been prepared in accordance with GAAP (except that they
         need not include a statement of cash flows and footnotes and need not
         reflect adjustments normally made at year end, if such adjustments are
         not material in amount), consistently applied, (except for changes in
         which the independent accountants of the Company concur) and present
         fairly the financial position of the Company and its Subsidiaries and
         the results of their operations as of the dates of such statements and
         for the periods then ended.

                  (3) CERTIFICATES. Contemporaneously with the furnishing of
         each set of Financial Statements provided for in Sections 6.01(b)(1)
         and (2) of this Agreement, an Officer's Certificate.

                  (4) ORDERS. Prompt notice of any orders in any material
         proceedings to which the Company or any Subsidiary is a party, issued
         by any court or regulatory agency, federal or state, and if the Bank
         should so request, a copy of any such order.

                  (5) NOTICE OF DEFAULT OR LITIGATION. Immediately upon learning
         of the occurrence of an Event of Default or Unmatured Event of Default,
         or the institution of or any adverse determination in any litigation,
         arbitration proceeding or governmental proceeding which is material to
         the Company or any of its Subsidiaries, or the occurrence of any event
         which could have a material adverse effect upon the Company or any of
         its Subsidiaries, written notice thereof describing the same and the
         steps being taken with respect thereto.

                  (6) COMPLIANCE CERTIFICATES. Within thirty (30) days after the
         end of each fiscal month ending after the Closing Date, a certificate
         of the Chief Financial Officer or other appropriate officer of the
         Company demonstrating compliance with the financial covenants stated in
         Section 6.01(g) of this Agreement and compliance with the covenant
         limiting capital expenditures of the Company stated in Section 6.02(k)
         of this Agreement. Such certificate shall relate the covenants to the
         month-end figures and shall otherwise be in such form and provide such
         detail as may be reasonably satisfactory to the Bank.

<PAGE>

                  (7) REGISTRATION STATEMENTS AND REPORTS. Promptly upon filing
         with the Securities and Exchange Commission or any other Federal agency
         from time to time administering the Securities Act of 1933, as amended,
         or any state securities regulatory authority, copies of all
         registration statements and all periodic and special reports required
         or permitted to be filed under federal or state securities laws and
         regulations.

                  (8) OTHER INFORMATION. From time to time such other
         information concerning the Company or any of its Subsidiaries as the
         Bank may reasonably request.

                  (9) BORROWING BASE CERTIFICATES. Within twenty (20) days after
         the last Banking Day of each fiscal month, if any unpaid balance of the
         Obligations is outstanding as of such last Banking Day, and at the time
         of each Advance request made pursuant to Section 2.02(b) if at such
         time more than seven (7) days has elapsed since the Company submitted a
         Borrowing Base Certificate, a completed Borrowing Base Certificate,
         certified to the Bank by an Authorized Officer, setting forth a
         computation of the Borrowing Base as of the last day of the period
         covered thereby.

                  (10) MONTHLY ACCOUNT RECEIVABLE AGINGS. As soon as available
         and in any event within twenty (20) days after the end of each fiscal
         month, a detailed report of the Company's accounts receivable, with
         agings and in such detail as the Bank may reasonably request from time
         to time.

         (c) BOOKS, RECORDS AND INSPECTIONS. The Company and its Subsidiaries
shall maintain complete and accurate books and records, and permit access
thereto by the Bank for purposes of inspection, copying and audit, and the
Company and each Subsidiary shall permit the Bank to inspect its properties and
operations at all reasonable times.

         (d) INSURANCE. In addition to any insurance required by any other Loan
Documents and any Bond Documents, the Company and each Subsidiary shall maintain
such insurance as may be required by law and such other insurance, to such
extent and against such hazards and liabilities, as is customarily maintained by
companies similarly situated. The Bank shall be named as additional insured and
lender's loss payee on any such insurance policy under a standard lender's loss
payable clause and to provide a copy of any such policy to the Bank.

         (e) TAXES AND LIABILITIES. The Company and each Subsidiary shall pay
when due all taxes, license fees, assessments and other liabilities except such
as are being contested in good faith and by appropriate proceedings and for
which appropriate reserves have been established.

         (f) COMPLIANCE WITH LEGAL AND REGULATORY REQUIREMENTS. The Company and
each Subsidiary shall maintain material compliance with the applicable
provisions of all federal, state and local statutes, ordinances and regulations
and any court orders or orders of regulatory authorities issued thereunder.

         (g) FINANCIAL COVENANTS. The Company and its Subsidiaries shall observe
each of the following financial covenants:

<PAGE>

                  (1) TANGIBLE NET WORTH. From and after the Closing Date,
         Tangible Net Worth at all times shall be at a level not less than (i)
         $15,000,000, PLUS (ii) Seventy-Five Percent (75%) of positive Net
         Income (if any) for each fiscal year of the Company ending after the
         Closing Date.

                  (2) FIXED CHARGE COVERAGE RATIO. As of the close of each
         fiscal quarter of the Company ending after the Closing Date, for the
         period of the four consecutive fiscal quarters which end on each such
         close, the Fixed Charge Coverage Ratio shall be not less than (i)
         1.15:1 for each fiscal quarter ending on or before September 1, 2001,
         (ii) 1.05:1 for each fiscal quarter ending after September 1, 2001 and
         on or before December 1, 2001, (iii) 1.10:1 for each fiscal quarter
         ending after December 1, 2001 and on or before March 3, 2002, and (iv)
         1.20:1 for each fiscal quarter ending after March 3, 2002.

                  (3) RATIO OF TOTAL FUNDED DEBT TO EBITDA. As of the close of
         each fiscal quarter of the Company ending after the Closing Date, for
         the period of the four consecutive fiscal quarters which end on each
         such close, the Ratio of Total Funded Debt to EBITDA shall be not
         greater than (i) 4.75:1 for the fiscal quarter ending on September 1,
         2001, (ii) 5.25:1 for the fiscal quarter ending on December 1, 2001,
         (iii) 4.25:1 for the fiscal quarter ending on March 3, 2002, (iv)
         3.50:1 for the fiscal quarter ending on June 1, 2002, (v) 3.75:1 for
         each fiscal quarter ending after June 1, 2002 and on or before November
         30, 2002, (vi) 3.00:1 for each of the three (3) fiscal quarters ending,
         respectively, on March 1, May 31, and August 30, 2003, and for the
         three (3) corresponding fiscal quarters of each fiscal year thereafter,
         and (vii) 3.50:1 for the fiscal quarter ending on November 30, 2003,
         and for the corresponding fiscal quarter of each fiscal year
         thereafter.

                  (4) TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. As of the
         close of each fiscal quarter of the Company ending after the Closing
         Date, the ratio of Total Liabilities of the Company and its
         Subsidiaries to Tangible Net Worth shall be not greater than 3.00 to
         1.00.

         (h) PRIMARY BANKING RELATIONSHIP. The Company shall maintain its
primary concentration and deposit accounts with the Bank, provided, that, the
Company shall use its best effort to effect same prior to such date.

         (i) EMPLOYEE BENEFIT PLANS. The Company shall maintain and shall cause
any Subsidiary to maintain any Plan in material compliance with ERISA, the Code,
and all rules and regulations of regulatory authorities pursuant thereto and
shall file and shall cause any Subsidiary to file all reports required to be
filed pursuant to ERISA, the Code, and such rules and regulations.

         (j) HAZARDOUS SUBSTANCES. If the Company or any Subsidiary should
commence the use, treatment, transportation, generation, storage or disposal of
any Hazardous Substance in reportable quantities in its operations in addition
to those noted in the Environmental Reports or

<PAGE>

in the Schedule of Exceptions, the Company shall immediately notify the Bank of
the commencement of such activity with respect to each such Hazardous Substance.
The Company shall cause any Hazardous Substances which are now or may hereafter
be used or generated in the operations of the Company or any Subsidiary in
reportable quantities to be accounted for and disposed of in compliance with all
Environmental Laws and other applicable federal, state and local laws and
regulations. The Company shall notify the Bank immediately upon obtaining
knowledge that:

                  (1) any premises which have at any time been owned or occupied
         by or have been under lease to the Company or any Subsidiary are the
         subject of an environmental investigation by any federal, state or
         local governmental agency having jurisdiction over the regulation of
         any Hazardous Substances, the purpose of which investigation is to
         quantify the levels of Hazardous Substances located on such premises,
         or

                  (2) the Company or any Subsidiary has been named or is
         threatened to be named as a party responsible for the possible
         contamination of any real property or ground water with Hazardous
         Substances, including, but not limited to the contamination of past and
         present waste disposal sites.

         If the Company or any Subsidiary is notified of any event described in
Sections 6.01(j)(1) or (2) above in addition to the events noted in any of the
Environmental Reports or in the Schedule of Exceptions, the Company shall
immediately engage or cause the Subsidiary to engage a firm or firms of
engineers or environmental consultants appropriately qualified to determine as
quickly as practical the extent of contamination and the potential financial
liability of the Company or the Subsidiary with respect thereto, and the Bank
shall be provided with a copy of any report prepared by such firm or by any
governmental agency as to such matters as soon as any such report becomes
available to the Company, and Company shall immediately establish reserves in
the amount of the potential financial liability of the Company or the Subsidiary
identified by such environmental consultants or engineers. The selection of any
engineers or environmental consultants engaged pursuant to the requirements of
this Section 6.01(j) shall be subject to the approval of the Bank, which
approval shall not be unreasonably withheld. The Company shall provide an
adequate reserve for the payment of all potential financial liability not
covered by insurance upon the occurrence of any event described in this Section
6.01(j).

         (k) CAPITAL EXPENDITURES LIMITATION. The Company and its Subsidiaries
shall not make Capital Expenditures in any fiscal year of the Company which in
the aggregate exceed the amount of the depreciation expense of the Company and
its Subsidiaries for the immediately preceding fiscal year of the Company.

         SECTION 6.02. NEGATIVE COVENANTS OF THE COMPANY. Until all Obligations
of the Company terminate or are paid and satisfied in full, and so long as the
Company is entitled to receive any Advance or any Letter of Credit exists, the
Company shall strictly observe and shall cause each of its Subsidiaries strictly
to observe the following covenants:

<PAGE>

         (a) RESTRICTED PAYMENTS. The Company shall not purchase or redeem any
shares of the capital stock of the Company or declare or pay any dividends
thereon except for dividends payable entirely in capital stock. The Company
shall not make any other distributions to shareholders as shareholders, or set
aside any funds for any such purpose, or prepay, purchase or redeem any
subordinated indebtedness of the Company. Notwithstanding any other provision of
this Section 6.02(a), the Company may pay dividends or make other distributions
from net income for the immediately preceding fiscal year to shareholders of the
Company's Series C preferred stock as required by the agreements between the
Company and such shareholders governing such stock, but only if no Event of
Default or Unmatured Event of Default has occurred and is continuing at the time
of such payment or would result from such payment.

         (b) LIENS. Neither the Company nor any of its Subsidiaries shall create
or permit to exist any mortgage, pledge, title retention lien, or other lien,
encumbrance or security interest with respect to any property or assets now
owned or hereafter acquired, including, without limitation any of the Company's
rights, title and interests in and to any Real Estate, whether leased or owned,
except:

                  (1) liens in favor of the Bank created pursuant to the
         requirements of this Agreement or otherwise;

                  (2) any lien or deposit with any governmental agency required
         or permitted to qualify the Company or a Subsidiary to conduct business
         or exercise any privilege, franchise or license, or to maintain
         self-insurance or to obtain the benefits of or secure obligations under
         any law pertaining to worker's compensation, unemployment insurance,
         old age pensions, social security or similar matters, or to obtain any
         stay or discharge in any legal or administrative proceedings, or any
         similar lien or deposit arising in the ordinary course of business;

                  (3) any mechanic's, worker's, repairmen's, carrier's,
         warehousemen's or other like liens arising in the ordinary course of
         business for amounts not yet due and for the payment of which adequate
         reserves have been established, or deposits made to obtain the release
         of such liens;

                  (4) easements, licenses, minor irregularities in title or
         minor encumbrances on or over any real property which do not, in the
         judgment of the Bank, materially detract from the value of such
         property or its marketability or its usefulness in the business of the
         Company;

                  (5) liens for taxes and governmental charges which are not yet
         due or which are being contested in good faith and by appropriate
         proceedings and for which appropriate reserves have been established;

                  (6) liens created by or resulting from any litigation or legal
         proceeding which is being contested in good faith and by appropriate
         proceedings and for which appropriate reserves have been established;

<PAGE>

                  (7) those specific liens now existing described on the
         Schedule of Exceptions.

                  (8) purchase money liens on inventory being imported by the
         Company, securing the Company's obligations under commercial letters of
         credit issued by National City Bank, Louisville, Kentucky, for the
         account of the Company in an aggregate amount not to exceed $2,500,000
         at any one time outstanding.

         (c) GUARANTIES. Neither the Company nor any Subsidiary shall be a
guarantor or surety of, or otherwise be responsible in any manner with respect
to any undertaking of any other person or entity, whether by guaranty agreement
or by agreement to purchase any obligations, stock, assets, goods or services,
or to supply or advance any funds, assets, goods or services, or otherwise,
except for:

                  (1) guaranties in favor of the Bank;

                  (2) guaranties by endorsement of instruments for deposit made
         in the ordinary course of business; and

                  (3) those specific existing guaranties listed on the Schedule
         of Exceptions.

         (d) LOANS OR ADVANCES. Neither the Company nor any Subsidiary shall
make or permit to exist any loans or advances to any other person or entity,
except for:

                  (1) extensions of credit or credit accommodations to customers
         or vendors made by the Company or such Subsidiary in the ordinary
         course of its business as now conducted;

                  (2) reasonable salary advances to non-executive employees, and
         other advances to agents and employees for anticipated expenses to be
         incurred on behalf of the Company or Subsidiary in the course of
         discharging their assigned duties;

                  (3) the specific items listed on the Schedule of Exceptions.

         (e) MERGERS, CONSOLIDATIONS, SALES, ACQUISITION OR FORMATION OF
SUBSIDIARIES. Neither the Company nor any Subsidiary shall be a party to any
consolidation or to any merger and shall not purchase the capital stock of or
otherwise acquire any equity interest in any other business entity. Neither the
Company nor any Subsidiary shall acquire any material part of the assets of any
other business entity, except in the ordinary course of business. Neither the
Company nor any Subsidiary shall sell, transfer, convey or lease all or any
material part of its assets, except in the ordinary course of business, or sell
or assign with or without recourse any receivables. Neither the Company nor any
Subsidiary shall cause to be created or otherwise acquire any Subsidiaries
without the prior written consent of the Bank.

<PAGE>

         (f) MARGIN STOCK. The Company shall not use or cause or permit the
proceeds of the Loans or any of the Bonds to be used, either directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System, as amended from time to
time.

         (g) OTHER AGREEMENTS. The Company shall not enter into any agreement
containing any provision which would be violated or breached in material respect
by the performance of its obligations under this Agreement or under any other
Loan Documents or any of the Bond Documents.

         (h) JUDGMENTS. Neither the Company nor any Subsidiary shall permit any
uninsured judgment or monetary penalty rendered against it in any judicial or
administrative proceeding to remain unsatisfied for a period in excess of
forty-five (45) days unless such judgment or penalty is being contested in good
faith by appropriate proceedings and execution upon such judgment has been
stayed, and unless an appropriate reserve has been established with respect
thereto.

         (i) PRINCIPAL OFFICE. The Company shall not change the location of its
principal office unless it gives not less than ten (10) days prior written
notice of such change to the Bank.

         (j) HAZARDOUS SUBSTANCES. Neither the Company nor any Subsidiary shall
allow or permit to continue the release or threatened release of any Hazardous
Substance on any premises owned or occupied by or under lease to the Company or
any Subsidiary.

         (k) LEASE OBLIGATIONS. Neither the Company nor any Subsidiary shall
incur obligations under any Capital Leases.

         (l) ADDITIONAL DEBT. Neither the Company nor any Subsidiary shall
create, incur, assume or suffer to exist any Debt or liability on account of
deposits or advances or for borrowed money or for the deferred purchase price of
any property or services or for Capital Lease obligations, except those
disclosed on the Schedule of Exceptions, and except for Company's obligations
under commercial letters of credit issued by National City Bank, Louisville,
Kentucky, for the account of the Company to support inventory being imported by
the Company in an aggregate amount not to exceed $2,500,000 at any one time
outstanding.

         (m) OBLIGATIONS UNDER THE BOND DOCUMENTS. The Company will fully and
timely pay and perform all of its obligations under those Bond Documents to
which it is a party.

                                   ARTICLE VII
                                   -----------
                               LENDING CONDITIONS

<PAGE>

         SECTION 7.01. CONDITIONS OF LENDING. The obligation of the Bank to make
any Advance, to make the Term Loan and to issue any Letters of Credit shall be
subject to fulfillment of each of the following conditions precedent:

         (a) NO DEFAULT. No Event of Default or Unmatured Event of Default shall
have occurred and be continuing, and the representations and warranties of the
Company contained in Section 4.01 of this Agreement shall be true and correct as
of the Closing Date and as of the date of each Advance, except that after the
Closing Date: (i) the representations contained in Section 4.01(d) of this
Agreement will be construed so as to refer to the latest Financial Statements
furnished to the Bank by the Company pursuant to the requirements of this
Agreement, (ii) the representations contained in Section 4.01(k) (with respect
to Hazardous Substances) will be construed so as to apply not only to the
Company, but also to any Subsidiaries, (iii) the representation contained in
Section 4.01(l) of this Agreement will be construed so as to except any
Subsidiary which may hereafter be formed or acquired by the Company with the
consent of the Bank, and (iv) all other representations will be construed to
have been amended to conform with any changes of which the Bank shall previously
have been given notice in writing by the Company.

         (b) DOCUMENTS AND OTHER ITEMS TO BE FURNISHED AT CLOSING. The Bank
shall have received contemporaneously with the execution of this Agreement, the
following, each duly executed, currently dated (as applicable) and in form and
substance satisfactory to the Bank:

                  (1) The Revolving Note, the DLC Note and the Term Note.

                  (2) The Security Agreement.

                  (3) The Guaranty.

                  (4) The Mortgage Amendments.

                  (5) Certified copies of the Resolutions of the respective
         Boards of Directors of the Company and the Guarantor authorizing the
         execution, delivery and performance, respectively, of this Agreement
         and the other Loan Documents provided for in this Agreement to which
         each of the Company and the Guarantor, respectively is a party.

                  (6) Certificates of the respective Secretaries of the Company
         and the Guarantor certifying the names of the officer or officers
         authorized to sign this Agreement and the other Loan Documents provided
         for in this Agreement to which each of the Company and the Guarantor,
         respectively, is a party, together with a sample of the true signature
         of each such officer.

                  (7) Certificates evidencing the existence of all insurance
         required under the terms of this Agreement or any other Loan Documents
         or the Bond Documents.

                  (8) Such other documents as the Bank may reasonably require.

<PAGE>

         (c) DOCUMENTS TO BE FURNISHED AT TIME OF EACH ADVANCE UNDER THE
REVOLVING LOAN. The Bank shall have received the following prior to making any
Advance under the Revolving Loan, each duly executed and currently dated, unless
waived at the Bank's discretion as provided in Section 2.02(b) of this
Agreement:

                  (1) An Application for an Advance.

                  (2) An Officer's Certificate.

                  (3) Such other information, reports and documents as the Bank
         may reasonably require, including, without limitation, the items set
         forth on SCHEDULE 2 attached hereto respecting the 1997 Project Real
         Estate.

         (d) DOCUMENTS TO BE FURNISHED AT TIME OF EACH TERM LOAN ADVANCE. The
Bank shall have received the following prior to making each Term Loan Advance,
each duly executed and currently dated, unless waived at the Bank's discretion
as provided in Section 2.04(b) of this Agreement:

                  (1) An Application for an Advance.

                  (2) An Officer's Certificate.

                  (3) Such other information, reports and documents as the Bank
         may reasonably require.

         (e) POST-CLOSING CONDITIONS. The Bank shall have received the following
as and when required below, as a condition of any further Advances under the
Loans:

                  (1) Within thirty (30) days after the Closing Date, at the
         Company's expense, endorsements to the title policies previously
         provided to the Bank with regard to the 1992 Huntingburg Real Estate,
         the 1993 Huntingburg Real Estate-Warehouse, and the 1993 Huntingburg
         Real Estate-Mfg., (i) advancing the effective dates of such policies to
         the date of recording of the Mortgage Amendments, (ii) providing that
         the insured mortgages are the 1992 Huntingburg Mortgage, the 1993
         Huntingburg Mortgage-Warehouse, and the 1993 Huntingburg Mortgage-Mfg.,
         respectively, as amended by the corresponding Mortgage Amendments, and
         (iii) insuring the contiguity of such adjacent parcels of Real Estate
         as the Bank may request.

                  (2) On or before January 15, 2002, at the Company's expense,
         (i) real estate evaluations (limited summary appraisals) of the Real
         Estate prepared by qualified appraisers satisfactory to the Bank, and
         (ii) each of the items set forth on SCHEDULE 2 attached hereto
         respecting the 1997 Project Real Estate.

<PAGE>

                  (3) Within thirty (30) days after the Closing Date, copies of
         the respective file-marked Articles of Incorporation of the Company and
         the Guarantor certified as complete and correct by the respective
         Secretaries of State of Delaware and Kentucky, and copies of the
         respective By-Laws of the Company and the Guarantor, certified as
         complete and correct by the respective Secretaries of the Company and
         the Guarantor.

                  (4) Within thirty (30) days after the Closing Date, currently
         dated certificates of existence of the Company issued by the Secretary
         of State of Delaware and of the Guarantor issued by the Secretary of
         State of Kentucky, and certificates of good standing for the Company
         and the Guarantor for each other state in which the Company and the
         Guarantor, respectively, engages in business.

                                  ARTICLE VIII
                                  ------------
                         EVENTS OF DEFAULT--ACCELERATION

         SECTION 8.01. EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default under this Agreement:

         (a) NONPAYMENT OF THE LOANS. Default in the payment when due of any
amount payable under the terms of any of the Notes, or otherwise payable to the
Bank or any other holder of the Notes under the terms of this Agreement.

         (b) NONPAYMENT OF OTHER DEBT. Default by the Company in the payment
when due, whether by acceleration or otherwise, of any other material Debt for
borrowed money, or default in the performance or observance of any obligation or
condition with respect to any such other Debt if the effect of such default is
to accelerate the maturity of such other Debt or to permit the holder or holders
thereof, or any trustee or agent for such holders, to cause such Debt to become
due and payable prior to its scheduled maturity, unless the Company is
contesting the existence of such default in good faith and by appropriate
proceedings.

         (c) OTHER MATERIAL OBLIGATIONS. Subject to the expiration of any
applicable grace period, default by the Company in the payment when due, or in
the performance or observance of any material obligation of, or condition agreed
to by the Company with respect to any material purchase or lease of goods,
securities or services except only to the extent that the existence of any such
default is being contested in good faith and by appropriate proceedings and that
appropriate reserves have been established with respect thereto.

         (d) BANKRUPTCY, INSOLVENCY, ETC. The Company admitting in writing its
inability to pay its debts as they mature or an administrative or judicial order
of dissolution or determination of insolvency being entered against the Company;
or the Company applying for, consenting to, or acquiescing in the appointment of
a trustee or receiver for the Company or any property thereof, or the Company
making a general assignment for the benefit of creditors; or, in the absence of
such application, consent or acquiescence, a trustee or receiver being appointed
for the Company

<PAGE>

or for a substantial part of its property and not being discharged within sixty
(60) days; or any bankruptcy, reorganization, debt arrangement, or other
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding being instituted by or against the Company, and, if
involuntary, being consented to or acquiesced in by the Company or remaining for
sixty (60) days undismissed.

         (e) WARRANTIES AND REPRESENTATIONS. Any warranty or representation made
by the Company in this Agreement proving to have been false or misleading in any
material respect when made, or any schedule, certificate, financial statement,
report, notice, or other writing furnished by the Company to the Bank proving to
have been false or misleading in any material respect when made or delivered.

         (f) VIOLATIONS OF CERTAIN COVENANTS. Failure by the Company to comply
with or perform any covenant stated in Section 6.02 or 6.01(g) of this
Agreement, or to perform its obligations under Section 7.01(e)(2) of this
Agreement.

         (g) CHANGE IN CONTROL PLUS CHANGE IN MANAGEMENT. If (i) a Change in
Control occurs, and (ii) a Change in Management occurs.

         (h) NONCOMPLIANCE WITH OTHER PROVISIONS OF THIS AGREEMENT. Failure of
the Company to comply with or perform any covenant or other provision of this
Agreement or to perform any other Obligation (which failure does not constitute
an Event of Default under any of the preceding provisions of this Section 8.01)
and continuance of such failure for thirty (30) days after notice thereof to the
Company from the Bank.

         SECTION 8.02. EFFECT OF EVENT OF DEFAULT. When any Event of Default has
occurred and is continuing, the Bank may take any or all of the following
actions:

         (a) ACCELERATION OF LOANS. If any Event of Default described in Section
8.01(d) shall occur, maturity of the Loans shall immediately be accelerated and
the Notes and the Loans evidenced thereby, and all other indebtedness and any
other payment Obligations of the Company to the Bank shall become immediately
due and payable, and the Commitments shall immediately terminate, all without
notice of any kind. When any other Event of Default has occurred and is
continuing, the Bank or any other holder of the Notes may accelerate payment of
the Loans and declare the Notes and all other payment Obligations due and
payable, whereupon maturity of the Loans shall be accelerated and the Notes and
the Loans evidenced thereby, and all other payment Obligations shall become
immediately due and payable and the Commitments shall immediately terminate, all
without notice of any kind. The Bank or such other holder shall promptly advise
the Company of any such declaration, but failure to do so shall not impair the
effect of such declaration.

         (b) REFUSAL TO REINSTATE AN INTEREST DRAWING. The Bank may refuse to
reinstate any Interest Drawing under any of the Credit Enhancement Letters of
Credit by giving notice to the appropriate Trustee of such refusal in the manner
and within the time provided under the terms of the appropriate Credit
Enhancement Letter of Credit and the Bank may direct such Trustee to

<PAGE>

accelerate the maturity of the Bonds secured by such Credit Enhancement Letter
of Credit as provided under the terms of the appropriate Trust Indenture.

         (c) BOND DOCUMENT REMEDIES. The Bank may notify each of the Trustees of
the Event of Default with the result that the Trustees will, as required by the
appropriate Trust Indenture, declare the principal of all the Bonds and the
interest accrued thereon to be immediately due and payable and the Bank may
exercise any other remedy available to the Bank under any of the Bond Documents.

         (d) DEPOSIT TO SECURE PAYMENT OF THE REIMBURSEMENT OBLIGATIONS. The
Bank may demand that the Company immediately pay to the Bank an amount equal to
the Maximum Available Credit. Such amount shall be due and payable to the Bank
immediately upon demand. The Company grants to the Bank a pledge of and security
interest in any and all funds (hereafter referred to in this Section 8.02(d) as
a "SPECIAL COLLATERAL ACCOUNT") paid by the Company to the Bank, pursuant to the
demand of the Bank made pursuant to this Section 8.02(d). Such pledge and
security interest shall secure to the Bank all of the Obligations. The Company
acknowledges that the Bank would not have adequate remedies at law for failure
of the Company to honor any demand made pursuant to this Section 8.02(d) and,
therefore, the Bank shall have the right to require the Company specifically to
perform such undertaking whether or not any amounts are then due and payable by
the Company to the Bank on account of its reimbursement obligation with respect
to Drawings made under any of the Credit Enhancement Letters of Credit. In the
event the Bank makes a demand pursuant to this Section 8.02(d) and the Company
pays the funds demanded, the Bank will hold any Special Collateral Account
without liability for interest thereon, provided that the Bank will, at the
direction of the Company and for the account and risk of the Company, invest the
funds of a Special Collateral Account in U.S. Treasury Bills with 30 days or
less remaining until maturity. Any earnings from such investment may, at the
discretion of the Bank, be released to the Company. After the Credit Enhancement
Letters of Credit have expired and all of the Obligations have been satisfied,
the Bank shall return to the Company any balance remaining in any Special
Collateral Account established pursuant to the requirements of this Section
8.02(d).

         (e) OTHER REMEDIES. The Bank may pursue any other remedies available to
it under any Credit Document or any Bond Document. The Bank may bring any other
action available at law or in equity to enforce payment and performance or
otherwise to collection the Obligations.

         (f) DEMAND OF FUNDS DEPOSITED PURSUANT TO ESCROW AGREEMENTS. The Bank
may notify the Agent of the Event of Default (other than an Event of Default
under Section 8.01(g) of this Agreement) with the result that the Agent will, as
required by the Escrow Agreements, distribute to the Bank all "Escrowed Funds"
(as that term is defined in each of the Escrow Agreements). The Bank shall be
entitled, in its sole discretion, to use all or any portion of the Escrowed
Funds to repay Obligations then outstanding in any order as the Bank in its sole
discretion determines, or to deposit all or any portion of the Escrowed Funds in
the Special Collateral Account established pursuant to Section 8.02(d) of this
Agreement, with any funds that are deposited into the Special Collateral Account
under the authority of this Section 8.02(f) subject, after deposit, to the
pledge and other provisions of Section 8.02(d).

<PAGE>

         The remedies enumerated in this Section 8.02 are not intended to be
exclusive, but shall be in addition to any other statutory, equitable or
contractual remedies available to the Bank.

                                   ARTICLE IX
                                   ----------
                                  MISCELLANEOUS

         SECTION 9.01. LETTER OF CREDIT PAYMENTS FROM BANK FUNDS. The Bank
agrees for the benefit of each Trustee that all payments made in satisfaction of
the Drawings under any of the Credit Enhancement Letters of Credit will be made
from funds of the Bank and not from funds of the Company.

         SECTION 9.02. WAIVER -- AMENDMENTS. No delay on the part of the Bank,
or any holder of the Notes in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or partial exercise by any of
them of any right, power or remedy preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. No amendment,
modification or waiver of, or consent with respect to any of the provisions of
this Agreement or the other Loan Documents or otherwise of the Obligations shall
be effective unless such amendment, modification, waiver or consent is in
writing and signed by the Bank.

         SECTION 9.03. NOTICES. Any notice given under or with respect to this
Agreement to the Company or the Bank shall be in writing and, if delivered by
hand or sent by overnight courier service, shall be deemed to have been given
when delivered and, if mailed, shall be deemed to have been given five (5) days
after the date when sent by registered or certified mail, postage prepaid, and
addressed to the Company or the Bank (or other holder of the Notes) at its
address shown below, or at such other address as any such party may, by written
notice to the other party to this Agreement, have designated as its address for
such purpose. The addresses referred to are as follows:

          The Company:     DMI Furniture, Inc.
                           One Oxmoor Place
                           101 Bullitt Lane
                           Louisville, Kentucky 40222
                           Attention: Phillip J. Keller, Vice President -
                           Finance and Chief Financial Officer

<PAGE>

          The Bank:        Bank One, Indiana, National Association
                           Bank One Center/Tower - 4th Floor
                           111 Monument Circle
                           P.O. Box 7700
                           Indianapolis, Indiana  46277-0119
                           Attention:  Manager, Specialty Industries

         SECTION 9.04. COSTS, EXPENSES AND TAXES. The Company agrees to pay
(without duplication), all of the following fees, costs and expenses incurred by
the Bank: (i) all reasonable costs and expenses in connection with the
negotiation, preparation, printing, typing, reproduction, execution and delivery
of the Loan Documents and any and all other documents furnished pursuant hereto
or in connection herewith, and all investigation of and due diligence regarding
the Company and the security for the Obligations undertaken and performed with
respect thereto, including without limitation the reasonable fees and
out-of-pocket expenses of Messrs. Baker & Daniels, special counsel to the Bank
(or, but not as well as the reasonable allocated costs of staff counsel) as well
as the fees and out-of-pocket expenses of counsel, independent public
accountants and other outside experts retained by the Bank, and in connection
with the foregoing and the administration of this Agreement, (ii) all reasonable
costs and expenses in connection with the negotiation, preparation, printing,
typing, reproduction, execution and delivery of any amendments or modifications
of (or supplements to) any of the foregoing and any and all other documents
furnished pursuant thereto or in connection therewith, and all investigation of
and due diligence regarding the Company and the security for the Obligations
undertaken and performed with respect thereto, including without limitation the
reasonable fees and out-of-pocket expenses of counsel retained by the Bank
relative thereto (or, but not as well as the reasonable allocated costs of staff
counsel) as well as the fees and out-of-pocket expenses of counsel, independent
public accountants and other outside experts retained by the Bank, and in
connection with the foregoing and the administration of this Agreement, (iii)
all search fees, appraisal fees and expenses, title insurance policy fees, costs
and expenses and filing and recording fees and taxes and, (iv) all costs and
expenses (including, without limitation, reasonable attorneys' fees and expenses
of the Bank), if any, in connection with the enforcement of this Agreement, any
Note and/or any other Loan Documents or other agreement furnished pursuant
hereto or thereto or in connection herewith or therewith. In addition, the
Company shall pay any and all stamp, transfer and other similar taxes payable or
determined to be payable in connection with the execution and delivery of this
Agreement, or any of the other Loan Documents or the issuance of any Note or the
making of any of the Loans, and agrees to save and hold the Bank harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying, or omission to pay, such taxes. The Company shall reimburse the Bank
for the reasonable costs and expenses incurred by the Bank in having its
collateral audit department personnel conduct an annual on-site inspection and
audit of the Company's assets which serve as collateral for the Obligations. Any
portion of the foregoing fees, costs and expenses which remains unpaid following
the Bank's statement and request for payment thereof shall bear interest from
the date of such statement and request to the date of payment at a per annum
rate equal to the Prime Rate, plus the Applicable Spread, plus Two Percent (2%).

<PAGE>

         SECTION 9.05. SEVERABILITY. If any provision of this Agreement or any
other Loan Document is determined to be illegal or unenforceable, such provision
shall be deemed to be severable from the balance of the provisions of this
Agreement or such Document and the remaining provisions shall be enforceable in
accordance with their terms.

         SECTION 9.06. CAPTIONS. Section captions used in this Agreement are for
convenience only and shall not affect the construction of this Agreement.

         SECTION 9.07. GOVERNING LAW/VENUE. Except as may otherwise be expressly
provided in any other Loan Document, this Agreement and all other Loan Documents
are made under and will be governed in all cases by the substantive laws of the
State of Indiana, notwithstanding the fact that Indiana conflicts of law rules
might otherwise require the substantive rules of law of another jurisdiction to
apply. THE COMPANY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THE
COMPANY AND AGREES THAT ALL SERVICE OF PROCESS MAY BE MADE BY MESSENGER, BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY REGISTERED MAIL DIRECTED TO THE
COMPANY AT THE ADDRESS STATED IN SECTION 9.03 OF THIS AGREEMENT. NOTHING
CONTAINED IN THIS SECTION SHALL AFFECT THE RIGHT OF THE BANK TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE COMPANY AGREES THAT THE COURTS
OF THE STATE OF INDIANA LOCATED IN INDIANAPOLIS, INDIANA, AND THE FEDERAL COURTS
LOCATED IN THE SOUTHERN DISTRICT OF INDIANA, MARION COUNTY, HAVE JURISDICTION
OVER ANY AND ALL ACTIONS AND PROCEEDINGS INVOLVING THIS AGREEMENT AND ANY OTHER
LOAN DOCUMENT OR AGREEMENT MADE IN CONNECTION HEREWITH AND THE COMPANY HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF SUCH
COURTS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING. THE COMPANY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT THE COMPANY MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING, INCLUDING ANY
CLAIM THAT SUCH COURT IS AN INCONVENIENT FORUM, AND CONSENTS TO SERVICE OF
PROCESS PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT
IN ANY SUCH PROCEEDING AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT.

         SECTION 9.08. PRIOR AGREEMENTS, ETC. This Agreement supersedes all
previous agreements and commitments made by the Bank and the Company with
respect to the Loans and all other subjects of this Agreement, including,
without limitation, any oral or written proposals or commitments made or issued
by the Bank.

          SECTION 9.09. SUCCESSORS AND ASSIGNS. This Agreement and the other
Loan Documents shall be binding upon and shall inure to the benefit of the
Company and the Bank and

<PAGE>

their respective successors and assigns, provided that the Company's rights
under this Agreement shall not be assignable without the prior written consent
of the Bank.

         SECTION 9.10. THE COMPANY AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY,
ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY TRIAL
OR HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN THE COMPANY AND THE BANK ARISING OUT OF OR
IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY
RELATIONSHIP BETWEEN THE COMPANY AND THE BANK. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN AND IN THE
OTHER LOAN DOCUMENTS.

<PAGE>

         IN WITNESS WHEREOF, the Bank and the Company have by their duly
authorized officers executed this Agreement on the date first set forth above.

                               DMI FURNITURE, INC.,
                               a Delaware corporation

                               By:
                                  --------------------------------------------
                               Printed: Phillip J. Keller
                               Title:   Vice President - Finance and
                                        Chief Financial Officer

                                                          (the "COMPANY")

                               BANK ONE, INDIANA, NATIONAL
                               ASSOCIATION

                               By:
                                  --------------------------------------------
                               Printed: Steven P. Clemens
                               Title:   First Vice President

                                                          (the "BANK")

CONSENT AND ACKNOWLEDGMENT

         The undersigned consents to the execution and performance of the above
Amended and Restated Credit Agreement.

DMI MANAGEMENT, INC.

By:
   --------------------------------------------------
Printed:  Phillip J. Keller
Title:    Vice President - Finance and
          Chief Financial Officer
Date:
     ------------------------------------------------

                           (the "GUARANTOR")

<PAGE>

EXHIBITS:

  "A"                      Application for Advance
  "B"                      Officer's Certificate
  "C"                      Schedule of Exceptions
  "D"                      Revolving Note (Revolving Loan)
  "E"                      DLC Note (Documentary Letter of Credit Facility)
  "F"                      Term Note
  "G-1," "G-2," and "G-3"  Mortgage Amendments
  "H"                      Amended and Restated Guaranty
  "I"                      1997 Project Real Estate Description

SCHEDULES:

    1                      Documentary Letters of Credit

    2                      1997 Project Real Estate Requirements

<PAGE>

                                    EXHIBIT A
                     APPLICATION FOR REVOLVING LOAN ADVANCE
                     --------------------------------------

BANK ONE, INDIANA, NA                           Date:
111 Monument Circle, 4th Fl.                         -----------------------
Indianapolis, Indiana 46277

Ladies and Gentlemen:

                  We request an Advance in the amount of $_______________ FOR
VALUE on ___________________ ___, ____ ("REQUESTED ADVANCE"), which Requested
Advance shall be an Advance of the Revolving Loan extended to us by you under
and pursuant to the Amended and Restated Credit Agreement, effective as of
October 23, 2001, between DMI FURNITURE, INC. (the "COMPANY") and BANK ONE,
INDIANA, NATIONAL ASSOCIATION (the "BANK"), as amended and/or restated from time
to time (the "CREDIT AGREEMENT"). Terms which are defined in the Credit
Agreement and which are not otherwise defined in this Application shall when
used in this Application have the respective meanings ascribed to such terms in
the Credit Agreement. The Requested Advance is to be the type and, if a LIBOR
Advance, for the Interest Period shown below (check and complete as applicable):

        1.       TYPE OF REQUESTED ADVANCE:

                 _____    Advance with Prime-based Rate

                 _____    LIBOR Advance

        2.       INTEREST PERIOD FOR REQUESTED LIBOR ADVANCE (check one):

                 _____    One Month LIBOR Interest Period

                 _____    Two Month LIBOR Interest Period

                 _____    Three Month LIBOR Interest Period

                 _____    Six Month LIBOR Interest Period

         Please disburse the Requested Advance by crediting the amount thereof
to our Account No. _____________________ maintained with the Bank.

                                Very truly yours,

                                DMI FURNITURE, INC.

                                By:
                                   ------------------------------------------
                                   Printed: Phillip J. Keller
                                   Title:   Vice President - Finance and
                                            Chief Financial Officer
<PAGE>

                                    EXHIBIT B

                              OFFICER'S CERTIFICATE
                              ---------------------

I certify and represent to Bank One, Indiana, National Association ("Bank"),
that I am the President or Chief Financial Officer (circle appropriate title) of
DMI Furniture, Inc., a Delaware corporation (the "Company").

In accordance with the Amended and Restated Credit Agreement dated October 23,
2001, between the Company and the Bank (as the same has been amended, modified,
supplemented and/or restated from time to time and at any time, the "Credit
Agreement"), I certify to you that:

1.       Each of the representations contained in Section 4.01 of the Credit
         Agreement are true and correct as of this date, except that: (i) the
         representation contained in Section 4.01(d) of the Credit Agreement
         shall be construed so as to refer to the latest Financial Statements
         which have been furnished to the Bank as of the date of this
         certificate, as provided in Paragraph 2 below; (ii) the representations
         contained in Section 4.01(k) (with respect to Hazardous Substances)
         will be construed so as to apply not only to the Company, but also to
         any Subsidiaries; (iii) the representation contained in Section 4.01(l)
         of Credit Agreement shall be deemed to be amended to reflect the
         existence of any Subsidiary formed or acquired by the Company with the
         consent of the Bank; and (iv) all other representations will be
         construed to have been amended to conform with any changes of which the
         Company shall have previously given the Bank notice in writing.

2.       The financial statements of the Company as of __________________,
         20___, and for the fiscal year then ended, and the financial statements
         as of ________________, 20__, and for the partial year then ended,
         present fairly the financial condition of the Company and the results
         of its operations as of the dates of such statements and for the fiscal
         periods then ended, and since the date of the latest of such statements
         there has been no material adverse change in its financial position or
         its operations.

3.       No Event of Default or Unmatured Event of Default, as those terms are
         defined in the Credit Agreement, has occurred and is continuing.

4.       All capitalized terms which are defined in the Credit Agreement shall
         have when used herein the same meanings as are ascribed to them in the
         Credit Agreement.

                                  Signed:
                                           ------------------------------
                                  Printed Name and Title:  Phillip J. Keller,
                                  the Vice President - Finance and Chief
                                  Financial Officer of DMI Furniture, Inc.
<PAGE>

                                    EXHIBIT C

                             SCHEDULE OF EXCEPTIONS
                             ----------------------

4.01(e)           LITIGATION AND CONTINGENT LIABILITIES. There are no exceptions
                  to the representations contained in SECTION 4.01(e) of the
                  Agreement with respect to litigation and contingent
                  liabilities except for the following [if none, so state]:
                  NONE.

4.01(k)           HAZARDOUS SUBSTANCES. There are no exceptions to the
                  representation contained in SECTION 4.01(k) of the Agreement
                  except for the following [if none, so state]: NONE.

6.02(b)(7)        LIENS. There are no Liens on any property of the Company
                  except for liens of the types described in items (1) through
                  (6) of the enumeration contained in SECTION 6.02(b)(7) of the
                  Agreement and except for the following [if __________________
                  none, so state]: NONE.

6.02(c)(3)        GUARANTIES. The Company is not a guarantor or surety of, or
                  otherwise responsible in any manner with respect to any
                  undertaking of any other person or entity, except for the
                  items of the type described in items (1) and (2) of the
                  enumeration contained in SECTION 6.02(c)(3) of the Agreement
                  and except for the following [if none, so state]: NONE.

6.02(d)(3)        LOANS AND ADVANCES. The Company does not have outstanding any
                  loans or advances to any person or entity except for items of
                  a type described in items (1) and (2) of the enumeration
                  contained in SECTION 6.02(d)(3) of the Agreement and except
                  for the following [if none, so state]: NONE.

6.02(m)           INDEBTEDNESS. The Company presently has no indebtedness except
                  for items of a type described in items enumerated in SECTION
                  6.02(m) of the Agreement and except for the following [if
                  none, so state]: NONE.

<PAGE>

                                    EXHIBIT D

                                 REVOLVING NOTE
                                 --------------
                                (Revolving Loan)

U.S. $23,000,000.00                                            October 23, 2001

         FOR VALUE RECEIVED, on or before the Scheduled Revolving Loan Maturity
Date, DMI FURNITURE, INC., a Delaware corporation ("Maker"), unconditionally
promises to pay to the order of BANK ONE, INDIANA, NATIONAL ASSOCIATION, a
national banking association (the "Bank"), at Bank One Center/Tower, 111
Monument Circle, Fourth Floor, P.O. Box 7700, Indianapolis, Indiana 46277-0119,
the principal sum of Twenty-Three Million Dollars ($23,000,000.00), or, if less,
the aggregate unpaid principal amount of all Advances by the Bank under the
Revolving Loan under the terms of the Amended and Restated Credit Agreement,
dated October 23, 2001, by and between Maker and the Bank (referred to herein,
as the same may hereafter be modified, amended, restated, and/or extended from
time to time and at any time, as the "Credit Agreement"), together with interest
thereon at the rates as provided in the Credit Agreement. Capitalized terms used
herein but not defined herein shall have the meaning ascribed thereto in the
Credit Agreement.

         Interest accruing on the principal balance of this Revolving Note
outstanding from time to time shall be due and payable by Maker on such dates
and in accordance with the terms of the Credit Agreement. All amounts received
on this Revolving Note shall be applied in accordance with the terms of the
Credit Agreement.

         This Revolving Note is the "Revolving Note" referred to in the Credit
Agreement, to which reference is made for the conditions and procedures under
which advances, payments, readvances and repayments may be made prior to the
maturity of this Revolving Note, for the terms upon which Maker may make
prepayments from time to time and at any time prior to the maturity of this
Revolving Note and the terms of any prepayment premiums or penalties which may
be due and payable in connection therewith, and for the terms and conditions
upon which the maturity of this Revolving Note may be accelerated and the unpaid
balance of principal and accrued interest thereon declared immediately due and
payable.

         If at any time the outstanding principal balance of this Revolving Note
exceeds the Maximum Availability, Maker shall immediately make a principal
payment on this Revolving Note in an aggregate principal amount equal to such
excess.

         If any installment of interest due under the terms of this Revolving
Note falls due on a day which is not a Banking Day, the due date shall be
extended to the next succeeding Banking Day and interest will be payable at the
applicable rate for the period of such extension.

         All amounts payable under this Revolving Note shall be payable without
relief from valuation and appraisement laws, and with all collection costs and
attorneys' fees.

<PAGE>

         The holder of this Revolving Note, at its option, may make extensions
of time for payment of the indebtedness evidenced by this Revolving Note, or
reduced the payments thereon, release any collateral securing payment of such
indebtedness or accept a renewal Revolving Note or Revolving Notes therefor, all
without notice to Maker or any endorser(s) and Maker and all endorsers hereby
severally consent to any such extensions, reductions, releases and renewals, all
without notice, and agree that any such action shall not release or discharge
any of them from any liability hereunder. Maker and endorser(s), jointly and
severally, waive demand, presentment for payment, protest, notice of protest and
notice of nonpayment or dishonor of this Revolving Note and each of them
consents to all extensions of the time of payment thereof.

         MAKER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN OR AMONG MAKER AND THE BANK ARISING OUT OF OR IN ANY WAY
RELATED TO THIS REVOLVING NOTE OR ANY OTHER RELATED DOCUMENT. THIS PROVISION IS
A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR
IN THE RELATED DOCUMENTS. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
REVOLVING NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF INDIANA
WITHOUT REGARD TO ITS CHOICE OR CONFLICTS OF LAWS PROVISIONS. MAKER AGREES THAT
THE COURTS OF THE STATE OF INDIANA LOCATED IN INDIANAPOLIS, INDIANA, AND THE
FEDERAL COURTS LOCATED IN THE SOUTHERN DISTRICT OF INDIANA, MARION COUNTY, HAVE
EXCLUSIVE JURISDICTION OVER ANY AND ALL ACTIONS AND PROCEEDINGS INVOLVING THIS
REVOLVING NOTE OR ANY OTHER AGREEMENT MADE IN CONNECTION HEREWITH AND MAKER
HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF
SUCH COURTS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING. MAKER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING, INCLUDING ANY
CLAIM THAT SUCH COURT IS AN INCONVENIENT FORUM, AND CONSENTS TO SERVICE OF
PROCESS PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT
IN ANY SUCH PROCEEDING AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT.

         Executed and delivered this 23rd day of October, 2001.

<PAGE>

                              DMI FURNITURE, INC.,
                              a Delaware corporation

                              By:
                                 ------------------------------------
                              Printed: Phillip J. Keller
                              Title:   Vice President - Finance and
                                       Chief Financial Officer

                                                             ("Maker")

<PAGE>
                                    EXHIBIT E

                                    DLC NOTE
                                    --------
                     (Documentary Letter of Credit Facility)

U.S. $2,500,000.00                                             October 23, 2001

         FOR VALUE RECEIVED, on Demand, DMI FURNITURE, INC., a Delaware
corporation ("Maker"), unconditionally promises to pay to the order of BANK ONE,
INDIANA, NATIONAL ASSOCIATION, a national banking association (the "Bank"), at
Bank One Center/Tower, 111 Monument Circle, 4th Floor, P.O. Box 7700,
Indianapolis, Indiana 46277-0119, the principal sum of Two Million Five Hundred
Thousand Dollars ($2,500,000.00), or so much of such amount as may be due from
Maker to Bank as Documentary Letter of Credit Loans arising under, pursuant to
or in connection with the DLC Facility extended to Maker by the Bank under the
Amended and Restated Credit Agreement, dated October 23, 2001, by and between
Maker and the Bank (referred to herein, as the same may hereafter be modified,
amended, restated, and/or extended from time to time and at any time, as the
"Credit Agreement"), or under any Reimbursement Agreements, together with
interest thereon at the rates as provided in Section 2.03(d) of the Credit
Agreement. Capitalized terms used herein but not defined herein shall have the
meaning ascribed thereto in the Credit Agreement.

         Interest accruing on the principal balance of this DLC Note ("Note")
outstanding from time to time shall be due and payable by Maker as it accrues.
All amounts received on this Note shall be applied in accordance with the terms
of the Credit Agreement.

         This Note is the "DLC Note" referred to in the Credit Agreement. All
amounts payable under this Note shall be payable without relief from valuation
and appraisement laws, and with all collection costs and attorneys' fees.

         The holder of this Note, at its option, may make extensions of time for
payment of the indebtedness evidenced by this Note, or reduced the payments
thereon, release any collateral securing payment of such indebtedness or accept
a renewal Note or Notes therefor, all without notice to Maker or any endorser(s)
and Maker and all endorsers hereby severally consent to any such extensions,
reductions, releases and renewals, all without notice, and agree that any such
action shall not release or discharge any of them from any liability hereunder.
Maker and endorser(s), jointly and severally, waive demand, presentment for
payment, protest, notice of protest and notice of nonpayment or dishonor of this
Note and each of them consents to all extensions of the time of payment thereof.

         MAKER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN OR AMONG MAKER AND THE BANK ARISING OUT OF OR IN ANY WAY
RELATED TO THIS NOTE OR ANY OTHER RELATED DOCUMENT. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE
RELATED DOCUMENTS. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS NOTE
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF INDIANA WITHOUT REGARD TO
ITS CHOICE OR CONFLICTS OF LAWS PROVISIONS. MAKER AGREES THAT THE COURTS OF THE
STATE OF INDIANA LOCATED IN INDIANAPOLIS, INDIANA, AND THE FEDERAL COURTS
LOCATED IN THE SOUTHERN DISTRICT OF

<PAGE>

INDIANA, MARION COUNTY, HAVE EXCLUSIVE JURISDICTION OVER ANY AND ALL ACTIONS AND
PROCEEDINGS INVOLVING THIS NOTE OR ANY OTHER AGREEMENT MADE IN CONNECTION
HEREWITH AND MAKER HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO SUBMIT TO
THE JURISDICTION OF SUCH COURTS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING.
MAKER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING, INCLUDING
ANY CLAIM THAT SUCH COURT IS AN INCONVENIENT FORUM, AND CONSENTS TO SERVICE OF
PROCESS PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT
IN ANY SUCH PROCEEDING AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT.

         Executed and delivered this 23rd day of October, 2001.

                              DMI FURNITURE, INC.,
                              a Delaware corporation

                              By:
                                 -------------------------
                              Printed: Phillip J. Keller
                              Title:   Vice President - Finance and
                                       Chief Financial Officer

                                                              ("Maker")

<PAGE>

                                    EXHIBIT F

                                    TERM NOTE
                                    ---------

U.S. $4,640,000.00                                             October 23, 2001

                  FOR VALUE RECEIVED, on or before the Scheduled Term Loan
Maturity Date, DMI FURNITURE, INC., a Delaware corporation ("Maker"),
unconditionally promises to pay to the order of BANK ONE, INDIANA, NATIONAL
ASSOCIATION, a national banking association (the "Bank"), at Bank One
Center/Tower, 111 Monument Circle, Fourth Floor, P.O. Box 7700, Indianapolis,
Indiana 46277-0119, the principal sum of Four Million Six Hundred Forty Thousand
Dollars ($4,640,000.00 ), or, if less, the aggregate unpaid principal amount of
all Advances by the Bank under the Term Loan under the terms of the Amended and
Restated Credit Agreement, dated October 23, 2001, by and between Maker and the
Bank (referred to herein, as the same may hereafter be modified, amended,
restated, and/or extended from time to time and at any time, as the "Credit
Agreement"), together with interest thereon at the rates provided in the Credit
Agreement. Capitalized terms used herein but not defined herein shall have the
meaning ascribed thereto in the Credit Agreement.

                  The principal of this Term Note and all interest accruing
thereon shall be due and payable by Maker on such dates and in accordance with
the terms of the Credit Agreement. All amounts received on this Term Note shall
be applied in accordance with the terms of the Credit Agreement.

                  This Term Note is the "Term Note" referred to in the Credit
Agreement, to which reference is made for the terms upon which Maker may make
prepayments from time to time and at any time prior to the maturity of this Term
Note and the terms of any prepayment premiums or penalties which may be due and
payable in connection therewith, and for the terms and conditions upon which the
maturity of this Term Note may be accelerated and the unpaid balance of
principal and accrued interest thereon declared immediately due and payable.
This Term Note evidences, in part, Advances made by the Bank to pay the unpaid
principal balance of Maker's indebtedness to the Bank under Term Note A (as
defined in the Original Agreement) and Term Note B (as defined in the Original
Agreement), and this Term Note is secured by all collateral and guarantees
securing such prior notes and as may be provided pursuant to the terms of the
Credit Agreement. Reference is further made to the Credit Agreement for the
terms and conditions under which not more than two (2) subsequent Advances of
the Term Loan will be made following principal reduction payments required to be
made on this Term Note.

                  If any installment of principal or interest due under the
terms of this Term Note falls due on a day which is not a Banking Day, the due
date shall be extended to the next succeeding Banking Day and interest will be
payable at the applicable rate for the period of such extension.

<PAGE>

                  All amounts payable under this Term Note shall be payable
without relief from valuation and appraisement laws, and with all collection
costs and attorneys' fees.

                  The holder of this Term Note, at its option, may make
extensions of time for payment of the indebtedness evidenced by this Term Note,
or reduced the payments thereon, release any collateral securing payment of such
indebtedness or accept a renewal note or notes therefor, all without notice to
Maker or any endorser(s) and Maker and all endorsers hereby severally consent to
any such extensions, reductions, releases and renewals, all without notice, and
agree that any such action shall not release or discharge any of them from any
liability hereunder. Maker and endorser(s), jointly and severally, waive demand,
presentment for payment, protest, notice of protest and notice of nonpayment or
dishonor of this Term Note and each of them consents to all extensions of the
time of payment thereof.

                  MAKER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN OR AMONG MAKER AND THE BANK ARISING OUT OF OR IN ANY WAY
RELATED TO THIS TERM NOTE OR ANY OTHER RELATED DOCUMENT. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN
THE RELATED DOCUMENTS. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS TERM
NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF INDIANA WITHOUT
REGARD TO ITS CHOICE OR CONFLICTS OF LAWS PROVISIONS. MAKER AGREES THAT THE
COURTS OF THE STATE OF INDIANA LOCATED IN INDIANAPOLIS, INDIANA, AND THE FEDERAL
COURTS LOCATED IN THE SOUTHERN DISTRICT OF INDIANA, MARION COUNTY, HAVE
EXCLUSIVE JURISDICTION OVER ANY AND ALL ACTIONS AND PROCEEDINGS INVOLVING THIS
TERM NOTE OR ANY OTHER AGREEMENT MADE IN CONNECTION HEREWITH AND MAKER HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREES TO SUBMIT TO THE JURISDICTION OF SUCH
COURTS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING. MAKER HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT
IS AN INCONVENIENT FORUM, AND CONSENTS TO SERVICE OF PROCESS PROVIDED THE SAME
IS IN ACCORDANCE WITH THE TERMS HEREOF. FINAL JUDGMENT IN ANY SUCH PROCEEDING
AFTER ALL APPEALS HAVE BEEN EXHAUSTED OR WAIVED SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT.

                  Executed and delivered this 23rd day of October, 2001.
<PAGE>

                              DMI FURNITURE, INC.,
                              a Delaware corporation

                              By:
                                 -------------------------------------
                              Printed: Phillip J. Keller
                              Title:   Vice President - Finance and
                                       Chief Financial Officer

                                                           ("Maker")

<PAGE>
                                   EXHIBIT G-1

                          SIXTH AMENDMENT TO MORTGAGE,
                          ----------------------------
                     SECURITY AGREEMENT, ASSIGNMENT OF RENTS
                     ---------------------------------------
                               AND FIXTURE FILING
                               ------------------
                           (1992 Huntingburg Mortgage)

         THIS SIXTH AMENDMENT TO MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
RENTS AND FIXTURE FILING ("Mortgage Amendment") is executed between DMI
FURNITURE, INC., a Delaware corporation ("Mortgagor") and BANK ONE, INDIANA,
NATIONAL ASSOCIATION, formerly known as Bank One, Indianapolis, National
Association (the "Bank").

         NOW THEREFORE, the Mortgage, Security Agreement, Assignment of Rents
and Fixture Filing, dated December 4, 1992, executed by Mortgagor in favor of
the Bank, recorded on December 7, 1992, in the Office of the Recorder of Dubois
County, Indiana, as Instrument #168207, in Mortgage Book 281, Page 97, as
amended by a First Amendment to Mortgage, Security Agreement, Assignment of
Rents and Fixture Filing, effective as of November 12, 1993, recorded on
November 12, 1993, in the Office of the Recorder of Dubois County, Indiana, as
Instrument #174844, in Mortgage Book 304, Page 390, and by a Second Amendment to
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing, dated as
of June 9, 1994, recorded on June 13, 1994, in the Office of the Recorder of
Dubois County, Indiana, as Instrument #178773, in Mortgage Book 318, Page 25,
and by a Third Amendment to Mortgage, Security Agreement, Assignment of Rents
and Fixture Filing, dated as of October 10, 1994, recorded on October 28, 1994,
in the Office of the Recorder of Dubois County, Indiana, as Instrument #181216,
in Mortgage Book 325, Page 158, and by a Fourth Amendment to Mortgage, Security
Agreement, Assignment of Rents and Fixture Filing, dated as of October 2, 1997
recorded on October 29, 1997, in the Office of the Recorder of Dubois County,
Indiana, as Instrument # 202983, in Mortgage Record 400, Page 150, and by a
Fifth Amendment to Mortgage, Security Agreement, Assignment of Rents and Fixture
Filing, dated as of August 27, 1998, recorded on April 19, 1999, in the Office
of the Recorder of Dubois County, Indiana, as Instrument #217033, in Mortgage
Record 459, Page 224 (as the same may have been further amended, modified,
supplemented and/or restated from time to time and at any time, the "Mortgage"),
is hereby amended as follows:

         1.       The first full paragraph on page 2 of the Mortgage is amended
in its entirety to read and provide as follows:

                  "This Mortgage secures all of the "Obligations" (as
                  hereinafter defined). As used in this Mortgage, the term: (i)
                  "Obligations" means all obligations of the Mortgagor in favor
                  of the Bank of every type and description, direct or indirect,
                  absolute or contingent, due or to become due, now existing or
                  hereafter arising, including but not limited to all
                  "Obligations" (as such term is defined in the Credit
                  Agreement) of the Mortgagor, and all of the

<PAGE>

                  obligations of the Mortgagor to the Bank evidenced by, arising
                  under, pursuant to or in connection with the Notes, the
                  Guaranty and the Reimbursement Agreements, and all now
                  existing and future obligations of the Mortgagor to the Bank,
                  however created, evidenced, or acquired, whether direct or
                  indirect, absolute or contingent, matured or unmatured,
                  including future obligations and advances to the same extent
                  as if such future obligations and advances were made on the
                  date of the execution of this Mortgage (it being understood
                  that the Bank is not under any obligation to make any future
                  advances except as specifically set forth in the Credit
                  Agreement); provided however, that any such future obligations
                  or advances shall be secured by this Mortgage up to the
                  maximum aggregate amount of $40,000,000.00 outstanding at any
                  time; (ii) "Credit Agreement" means the Amended and Restated
                  Credit Agreement, dated October ____, 2001, between Mortgagor
                  and the Bank, as the same may be amended, modified,
                  supplemented and/or restated from time to time and at any
                  time; and (iii) "Notes", "Guaranty" and "Reimbursement
                  Agreements" each have the respective meanings ascribed to such
                  terms in the Credit Agreement. The Obligations evidenced by
                  the "Revolving Note" and the "DLC Note" (as such terms are
                  defined in the Credit Agreement) have a final maturity date of
                  December 31, 2002. The Obligations evidenced by the "Term
                  Note" (as such term is defined in the Credit Agreement) have a
                  final maturity date of September 30, 2006. All of the
                  Obligations, including those arising under the Credit
                  Agreement, are secured as they now exist and as they may be
                  extended, renewed, increased or otherwise changed by any
                  amendment to any instrument or agreement which now or
                  hereafter evidences, secures or expresses terms applicable to
                  any of the Obligations, including amendments to the Credit
                  Agreement and any "Loan Document" (as such term is defined in
                  the Credit Agreement)."

         Except as provided herein, nothing contained herein shall be deemed to
constitute a termination, release, or waiver of the Mortgage or otherwise
change, modify, alter, or amend, directly or indirectly, the Mortgage, and the
Mortgage shall remain in full force and effect until all indebtedness,
obligations and liabilities secured thereby are paid in full.

         IN WITNESS WHEREOF, the parties hereto have executed this Mortgage
Amendment as of the ______ day of October, 2001.

DMI FURNITURE, INC.                         BANK ONE, INDIANA,
                                            NATIONAL ASSOCIATION

By:                                         By:
   ------------------------------              ---------------------------------

<PAGE>

Printed:  Phillip J. Keller                 Printed:  Steven P. Clemens
Title:    Vice President - Finance and      Title:    First Vice President
          Chief Financial Officer

                      ("Mortgagor")                               ("Bank")

<PAGE>

                                 ACKNOWLEDGMENTS

STATE OF INDIANA  )
                  ) SS:
COUNTY OF MARION  )

                  Before me, a Notary Public in and for the State of Indiana,
personally appeared Phillip J. Keller, the Vice President - Finance and Chief
Financial Officer of DMI Furniture, Inc., who, having been first duly sworn,
acknowledged the execution of the foregoing instrument as its duly authorized
officer.

                  WITNESS my hand and Notarial Seal this ____ day of October,
2001.

                                     -----------------------------------
                                     Notary Public

                                     -----------------------------------
                                     Printed
I am a resident of
__________ County, ______________________.

My commission expires:

----------------------

STATE OF INDIANA  )
                  ) SS:
COUNTY OF MARION  )

                  Before me, a Notary Public in and for the State of Indiana,
personally appeared Steven P. Clemens, the First Vice President of BANK ONE,
INDIANA, NATIONAL ASSOCIATION, who, having been first duly sworn, acknowledged
the execution of the foregoing instrument as its duly authorized officer.

                  WITNESS my hand and Notarial Seal this ____ day of October,
2001.

                                        -----------------------------------
                                        Notary Public

                                        -----------------------------------
                                        Printed
I am a resident of
__________ County, Indiana.

My commission expires:

----------------------

This instrument was prepared by and when recorded return to Stephen A. Claffey,
Attorney at Law, Baker & Daniels, 300 North Meridian Street, Indianapolis,
Indiana 46204, (317) 237-0300.

<PAGE>

                                   EXHIBIT G-2

                          FIFTH AMENDMENT TO MORTGAGE,
                          ----------------------------
                     SECURITY AGREEMENT, ASSIGNMENT OF RENTS
                     ---------------------------------------
                               AND FIXTURE FILING
                               ------------------
                      (1993 Huntingburg Mortgage-Warehouse)

         THIS FIFTH AMENDMENT TO MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
RENTS AND FIXTURE FILING ("Mortgage Amendment") is executed between DMI
FURNITURE, INC., a Delaware corporation ("Mortgagor") and BANK ONE, INDIANA,
NATIONAL ASSOCIATION, formerly known as Bank One, Indianapolis, National
Association (the "Bank").

         NOW THEREFORE, the Mortgage, Security Agreement, Assignment of Rents
and Fixture Filing, dated November 10, 1993, executed by Mortgagor in favor of
the Bank, recorded on November 12, 1993, in the Office of the Recorder of Dubois
County, Indiana, as Instrument 174845, in Mortgage Book 304, Page 393, as
amended by a First Amendment to Mortgage, Security Agreement, Assignment of
Rents and Fixture Filing, dated as of June 9, 1994, recorded on June 13, 1994,
in the Office of the Recorder of Dubois County, Indiana, as Instrument #178806,
in Mortgage Book 318, Page 108, and by a Second Amendment to Mortgage, Security
Agreement, Assignment of Rents and Fixture Filing, dated as of October 10, 1994,
recorded on October 28, 1994, in the Office of the Recorder of Dubois County,
Indiana, as Instrument #181214, in Mortgage Book 325, Page 152, and by a Third
Amendment to Mortgage, Security Agreement, Assignment of Rents and Fixture
Filing, dated as of October 2, 1997, recorded on October 28, 1997, in the Office
of the Recorder of Dubois County, Indiana, as Instrument #202981, in Mortgage
Record 400, Page 142, and by a Fourth Amendment to Mortgage, Security Agreement,
Assignment of Rents and Fixture Filing, dated as of August 27, 1998, recorded on
April 19, 1999, in the Office of the Recorder of Dubois County, Indiana, as
Instrument #217035, in Mortgage Record 459, Page 232 (as the same may have been
further amended, modified, supplemented and/or restated from time to time and at
any time, the "Mortgage"), is hereby amended as follows:

         1.       The first full paragraph on page 2 of the Mortgage is amended
in its entirety to read and provide as follows:

                  "This Mortgage secures all of the "Obligations" (as
                  hereinafter defined). As used in this Mortgage, the term: (i)
                  "Obligations" means all obligations of the Mortgagor in favor
                  of the Bank of every type and description, direct or indirect,
                  absolute or contingent, due or to become due, now existing or
                  hereafter arising, including but not limited to all
                  "Obligations" (as such term is defined in the Credit
                  Agreement) of the Mortgagor, and all of the obligations of the
                  Mortgagor to the Bank, evidenced by, arising under, pursuant
                  to or in connection with the Notes, the Guaranty and the
                  Reimbursement Agreements, and all now existing and

<PAGE>

                  future obligations of the Mortgagor to the Bank, however
                  created, evidenced, or acquired, whether direct or indirect,
                  absolute or contingent, matured or unmatured, including future
                  obligations and advances to the same extent as if such future
                  obligations and advances were made on the date of the
                  execution of this Mortgage (it being understood that the Bank
                  is not under any obligation to make any future advances except
                  as specifically set forth in the Credit Agreement); provided
                  however, that any such future obligations or advances shall be
                  secured by this Mortgage up to the maximum aggregate amount of
                  $40,000,000.00 outstanding at any time; (ii) "Credit
                  Agreement" means the Amended and Restated Credit Agreement,
                  dated October ____, 2001, between Mortgagor and the Bank, as
                  the same may be amended, modified, supplemented and/or
                  restated from time to time and at any time; and (iii) "Notes",
                  "Guaranty" and "Reimbursement Agreements" each have the
                  respective meanings ascribed to such terms in the Credit
                  Agreement. The Obligations evidenced by the "Revolving Note"
                  and "DLC Note" (as such terms are defined in the Credit
                  Agreement) have a final maturity date of December 31, 2002.
                  The Obligations evidenced by the "Term Note" (as such term is
                  defined in the Credit Agreement) have a final maturity date of
                  September 30, 2006. All of the Obligations, including those
                  arising under the Credit Agreement, are secured as they now
                  exist and as they may be extended, renewed, increased or
                  otherwise changed by any amendment to any instrument or
                  agreement which now or hereafter evidences, secures or
                  expresses terms applicable to any of the Obligations,
                  including amendments to the Credit Agreement and any "Loan
                  Document" (as such term is defined in the Credit Agreement)."

                  Except as provided herein, nothing contained herein shall be
deemed to constitute a termination, release, or waiver of the Mortgage or
otherwise change, modify, alter, or amend, directly or indirectly, the Mortgage,
and the Mortgage shall remain in full force and effect until all indebtedness,
obligations and liabilities secured thereby are paid in full.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Mortgage Amendment as of the _____ day of October, 2001.

DMI FURNITURE, INC.                         BANK ONE, INDIANA,
                                            NATIONAL ASSOCIATION

By:                                         By:
   ------------------------------              ---------------------------------
Printed:  Phillip J. Keller                 Printed:  Steven P. Clemens
Title:    Vice President - Finance and      Title:    First Vice President
          Chief Financial Officer

<PAGE>

                     ("Mortgagor")                                ("Bank")

<PAGE>

                                 ACKNOWLEDGMENTS

STATE OF INDIANA  )
                  ) SS:
COUNTY OF MARION  )

                  Before me, a Notary Public in and for the State of Indiana,
personally appeared Phillip J. Keller, the Vice President - Finance and Chief
Financial Officer of DMI Furniture, Inc., who, having been first duly sworn,
acknowledged the execution of the foregoing instrument as its duly authorized
officer.

                  WITNESS my hand and Notarial Seal this ____ day of October,
2001.

                                 -----------------------------------
                                 Notary Public

                                 -----------------------------------
                                 Printed
I am a resident of
__________ County, ______________________.

My commission expires:

----------------------

STATE OF INDIANA  )
                  ) SS:
COUNTY OF MARION  )

                  Before me, a Notary Public in and for the State of Indiana,
personally appeared Steven P. Clemens, the First Vice President of BANK ONE,
INDIANA, NATIONAL ASSOCIATION, who, having been first duly sworn, acknowledged
the execution of the foregoing instrument as its duly authorized officer.

                  WITNESS my hand and Notarial Seal this ____ day of October,
2001.

                                      -----------------------------------
                                      Notary Public

                                      -----------------------------------
                                      Printed
I am a resident of
__________ County, Indiana.

My commission expires:

----------------------

This instrument was prepared by and when recorded return to Stephen A. Claffey,
Attorney at Law, Baker & Daniels, 300 North Meridian Street, Indianapolis,
Indiana 46204, (317) 237-0300.

<PAGE>

                                   EXHIBIT G-3

                          FIFTH AMENDMENT TO MORTGAGE,
                          ----------------------------
                     SECURITY AGREEMENT, ASSIGNMENT OF RENTS
                     ---------------------------------------
                               AND FIXTURE FILING
                               ------------------
                    (1993 Huntingburg Mortgage-Manufacturing)

         THIS FIFTH AMENDMENT TO MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
RENTS AND FIXTURE FILING ("Mortgage Amendment") is executed between DMI
FURNITURE, INC., a Delaware corporation ("Mortgagor") and BANK ONE, INDIANA,
NATIONAL ASSOCIATION, formerly known as Bank One, Indianapolis, National
Association (the "Bank").

         NOW THEREFORE, the Mortgage, Security Agreement, Assignment of Rents
and Fixture Filing, dated December 15, 1993, executed by Mortgagor in favor of
the Bank, recorded on December 16, 1993, in the Office of the Recorder of Dubois
County, Indiana, as Instrument #175583, in Mortgage Book 307, Page 154, as
amended by a First Amendment to Mortgage, Security Agreement, Assignment of
Rents and Fixture Filing, dated June 9, 1994, recorded on June 14, 1994, in the
Office of the Recorder of Dubois County, Indiana, as Instrument #178807, in
Mortgage Book 318, Page 111, and by a Second Amendment to Mortgage, Security
Agreement, Assignment of Rents and Fixture Filing, dated as of October 10, 1994,
recorded on October 28, 1994, in the Office of the Recorder of Dubois County,
Indiana, as Instrument #181215, in Mortgage Book 325, Page 155, and by a Third
Amendment to Mortgage, Security Agreement, Assignment of Rents and Fixture
Filing, dated as of October 3, 1997, recorded on October 28, 1997, in the Office
of the Recorder of Dubois County, Indiana, as Instrument #202982, in Mortgage
Record 400, Page 146, and by a Fourth Amendment to Mortgage, Security Agreement,
Assignment of Rents and Fixture Filing, dated as of August 27, 1998, recorded on
April 19, 1999, in the Office of the Recorder of Dubois County, Indiana, as
Instrument #217034, in Mortgage Record 459, Page 228 (as the same may have been
further amended, modified, supplemented and/or restated from time to time and at
any time, the "Mortgage"), is hereby amended as follows:

         1.       The first full paragraph on page 2 of the Mortgage is amended
in its entirety to read and provide as follows:

                  "This Mortgage secures all of the "Obligations" (as
                  hereinafter defined). As used in this Mortgage, the term: (i)
                  "Obligations" means all obligations of the Mortgagor in favor
                  of the Bank of every type and description, direct or indirect,
                  absolute or contingent, due or to become due, now existing or
                  hereafter arising, including but not limited to all
                  "Obligations" (as such term is defined in the Credit
                  Agreement) of the Mortgagor, and all of the obligations of the
                  Mortgagor to the Bank evidenced by, arising under, pursuant to
                  or in connection with the Notes, the Guaranty and the
                  Reimbursement Agreements, and all now existing and

<PAGE>

                  future obligations of the Mortgagor to the Bank, however
                  created, evidenced, or acquired, whether direct or indirect,
                  absolute or contingent, matured or unmatured, including future
                  obligations and advances to the same extent as if such future
                  obligations and advances were made on the date of the
                  execution of this Mortgage (it being understood that the Bank
                  is not under any obligation to make any future advances except
                  as specifically set forth in the Credit Agreement); provided
                  however, that any such future obligations or advances shall be
                  secured by this Mortgage up to the maximum aggregate amount of
                  $40,000,000.00 outstanding at any time; (ii) "Credit
                  Agreement" means the Amended and Restated Credit Agreement,
                  dated October ____, 2001, between Mortgagor and the Bank, as
                  the same may be amended, modified, supplemented and/or
                  restated from time to time and at any time; and (iii) "Notes",
                  "Guaranty" and "Reimbursement Agreements" each have the
                  respective meanings ascribed to such terms in the Credit
                  Agreement. The Obligations evidenced by the "Revolving Note"
                  and the "DLC Note" (as such terms are defined in the Credit
                  Agreement) have a final maturity date of December 31, 2002.
                  The Obligations evidenced by the "Term Note" (as such term is
                  defined in the Credit Agreement) have a final maturity date of
                  September 30, 2006. All of the Obligations, including those
                  arising under the Credit Agreement, are secured as they now
                  exist and as they may be extended, renewed, increased or
                  otherwise changed by any amendment to any instrument or
                  agreement which now or hereafter evidences, secures or
                  expresses terms applicable to any of the Obligations,
                  including amendments to the Credit Agreement and any "Loan
                  Document" (as such term is defined in the Credit Agreement)."

                  Except as provided herein, nothing contained herein shall be
deemed to constitute a termination, release, or waiver of the Mortgage or
otherwise change, modify, alter, or amend, directly or indirectly, the Mortgage,
and the Mortgage shall remain in full force and effect until all indebtedness,
obligations and liabilities secured thereby are paid in full.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Mortgage Amendment as of the _____ day of October, 2001.

DMI FURNITURE, INC.                         BANK ONE, INDIANA,
                                            NATIONAL ASSOCIATION

By:______________________________           By:_________________________________
Printed:  Phillip J. Keller                 Printed:  Steven P. Clemens
Title:    Vice President - Finance and      Title:    First Vice President
          Chief Financial Officer
<PAGE>

                     ("Mortgagor")                                 ("Bank")

<PAGE>

                                 ACKNOWLEDGMENTS

STATE OF INDIANA  )
                  ) SS:
COUNTY OF MARION  )

                  Before me, a Notary Public in and for the State of Indiana,
personally appeared Phillip J. Keller, the Vice President - Finance and Chief
Financial Officer of DMI Furniture, Inc., who, having been first duly sworn,
acknowledged the execution of the foregoing instrument as its duly authorized
officer.

                  WITNESS my hand and Notarial Seal this ____ day of October,
2001.

                                      -----------------------------------
                                      Notary Public

                                      -----------------------------------
                                      Printed
I am a resident of
__________ County, ______________________.

My commission expires:

----------------------

STATE OF INDIANA  )
                  ) SS:
COUNTY OF MARION  )

          Before me, a Notary Public in and for the State of Indiana,
personally appeared Steven P. Clemens, the First Vice President of BANK ONE,
INDIANA, NATIONAL ASSOCIATION, who, having been first duly sworn, acknowledged
the execution of the foregoing instrument as its duly authorized officer.

          WITNESS my hand and Notarial Seal this ____ day of October, 2001

                                   -----------------------------------
                                   Notary Public
                                   -----------------------------------
                                   Printed
I am a resident of
__________ County, Indiana.

My commission expires:

----------------------

This instrument was prepared by and when recorded return to Stephen A. Claffey,
Attorney at Law, Baker & Daniels, 300 North Meridian Street, Indianapolis,
Indiana 46204, (317) 237-0300.

<PAGE>

                                    EXHIBIT H

                          AMENDED AND RESTATED GUARANTY
                          -----------------------------

                  FOR VALUABLE CONSIDERATIONS, the receipt and sufficiency of
which are hereby acknowledged, and in consideration of credit given, being given
and to be given, and of other financial accommodations afforded or to be
afforded by BANK ONE, INDIANA, NATIONAL ASSOCIATION ("CREDITOR") to DMI
FURNITURE, INC., a Delaware corporation ("DEBTOR"), the undersigned, DMI
MANAGEMENT, INC., a Kentucky corporation ("GUARANTOR"), hereby unconditionally
guarantees the full and prompt payment when due of the Guaranty Obligations (as
defined herein), together with all costs, attorneys' fees and expenses paid or
incurred by Creditor in endeavoring to collect the Guaranty Obligations.

                  Debtor and Creditor are parties to an Amended and Restated
Credit Agreement, dated as of October 23, 2001 (referred to herein as the same
hereafter may be amended and/or restated from time to time and at any time as
the "CREDIT AGREEMENT"). This Guaranty amends, and as so amended, restates and
replaces that certain Guaranty Agreement dated as of June 9, 1994, executed by
Guarantor in favor of Creditor with respect to the indebtedness and obligations
of Debtor to Creditor.

                  This Guaranty is an absolute and unconditional guarantee of
the payment of the Guaranty Obligations, and shall continue and be in full force
and effect until all of the Guaranty Obligations shall be fully paid and no
further Guaranty Obligations may thereafter arise. Certain other Persons may
guarantee payment of all or part of the Guaranty Obligations (such Persons being
referred to herein collectively as the "OTHER GUARANTORS"). Guarantor
acknowledges and agrees that Guarantor's liability with respect to the Guaranty
Obligations shall not be diminished, discharged, released or otherwise affected
in any way in the event any of the Other Guarantors fails to execute a guaranty
of the Guaranty Obligations, fails to be bound thereby, fails to perform
thereunder or in the event that such guaranty shall be invalid or unenforceable
in whole or in part for any reason.

                  Guarantor expressly waives presentment for payment, demand,
notice of demand and of dishonor and nonpayment of the Guaranty Obligations,
protest and notice of protest, diligence in collecting and in the bringing of
suit against any other party, and Creditor shall be under no obligation to
notify Guarantor of its acceptance of this Guaranty or of any advances made or
credit extended on the faith hereof or the failure of Debtor to pay any of the
Guaranty Obligations as they mature, or to use diligence in preserving the
liability of any Person (including, without limitation, Debtor) on the Guaranty
Obligations or in bringing suit to enforce collection of the Guaranty
Obligations. To the full extent allowed by applicable law, Guarantor waives all
defenses given to sureties or guarantors at law or in equity other than the
actual payment of the Guaranty Obligations and waives, to the full extent
allowed by applicable law, all defenses based upon questions as to the validity,
legality or enforceability of the Guaranty Obligations.

<PAGE>
                  Creditor, without authorization from or notice to Guarantor
and without impairing or affecting the liability of Guarantor hereunder, may
from time to time at its discretion and with or without valuable consideration,
alter, compromise, accelerate, extend or change the time or manner for the
payment of any or all of the Guaranty Obligations owed to it, extend additional
loans, credit and financial accommodations and otherwise create additional
Guaranty Obligations, increase or reduce the rate of interest thereon, take and
surrender security, exchange collateral by way of substitution, or in any way it
deems necessary take, accept, withdraw, subordinate, alter, amend, modify or
eliminate collateral, add or release or discharge endorsers, guarantors or other
obligors (including, without limitation, Debtor) make changes of any sort
whatever in the terms of payment of the Guaranty Obligations owed to it or of
doing business with Debtor, settle or compromise with Debtor or any other Person
or Persons liable on the Guaranty Obligations owed to it (including, without
limitation, Debtor) and direct the order or manner of sale of any security or
collateral, all on such terms at it may see fit, and may apply all moneys
received from Debtor or others, or from any security or collateral held by it
(whether held under a security instrument or not) in such manner upon the
Guaranty Obligations owed to it (whether then due or not) as it may determine to
be in its best interest, without in any way being required to marshal securities
or assets or to apply all or any part of such moneys upon any particular part of
the Guaranty Obligations. It is specifically agreed that Creditor is not
required to retain, hold, protect, exercise due care with respect thereto or
perfect security interests in or otherwise assure or safeguard any collateral or
security for the Guaranty Obligations. No exercise or nonexercise by Creditor of
any right or remedy of Creditor shall in any way affect any of Guarantor's
obligations hereunder or any security furnished by Guarantor or give Guarantor
any recourse against Creditor.

                  The liability of Guarantor hereunder shall continue
notwithstanding the incapacity, death, disability, dissolution or termination of
any other or others (including, without limitation, Debtor). Neither (i) the
failure of Creditor to file or enforce a claim against the estate (either in
administration, bankruptcy or other proceeding) of Debtor or of any other or
others, (ii) the disallowance or avoidance under the Federal Bankruptcy Code (11
U.S.C. Section 101 ET SEQ., as amended) (the "BANKRUPTCY CODE") of all or any
portion of Creditor's claims for repayment of the Guaranty Obligations or any
security for the Guaranty Obligations, (iii) the use of cash or non-cash
collateral under Section 363 of the Bankruptcy Code or any financing, extension
of credit by Creditor or grant of security interest to Creditor under Section
364 of the Bankruptcy Code, nor (iv) any election of Creditor in a proceeding
instituted under the Bankruptcy Code, including without limitation any election
of the application of Section 1111(b)(2) of the Bankruptcy Code, shall affect
the liability of Guarantor hereunder; nor shall Guarantor be released from
liability if recovery from Debtor or any other Person becomes barred by any
statute of limitations or is otherwise restricted or prevented.

                  Creditor shall not be required to pursue any other remedies
before invoking the benefits of the guaranty of payment contained herein, and
specifically it shall not be required to exhaust its remedies against Debtor or
any surety or guarantor other than Guarantor or to proceed against any security
now or hereafter existing for the payment of any of the Guaranty

<PAGE>

Obligations. Creditor may maintain an action on this Guaranty whether or not
Debtor is joined therein or separate action is brought against Debtor.

                  Guarantor absolutely and unconditionally covenants and agrees
that in the event Debtor defaults in payment of the Guaranty Obligations, or any
part thereof, for any reason, when such becomes due, either by its terms or as
the result of the exercise of any power to accelerate, Guarantor on demand and
without further notice of dishonor and without any notice with respect to any
matter or occurrence having been given to Guarantor previous to such demand,
shall pay the Guaranty Obligations.

                  Guarantor further agrees that to the extent Debtor, Guarantor
or any other Person makes a payment or transfers an interest in any property to
Creditor or the Creditor enforces any security interest or lien or exercises any
rights of set-off, and such payment or transfer or proceeds of such enforcement
or set-off, or any portion thereof, are subsequently invalidated, declared to be
fraudulent or preferential, or otherwise is avoided, and/or required to be
repaid to Debtor, Debtor's estate, a trustee, receiver or any other Person under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such avoidance or repayment, the Guaranty Obligations or part
thereof intended to be satisfied shall be revived and this Guaranty shall
continue to be effective or shall be reinstated, as the case may be, and
continued in full force and effect as if said payment or transfer had not been
made or such enforcement or set-off had not occurred.

<PAGE>

                  The payment by Guarantor of any amount pursuant to this
Guaranty shall not in any way entitle Guarantor to any right, title or interest
(whether by way of subrogation or otherwise) in and to any of the Guaranty
Obligations or any proceeds thereof, or any security therefor. NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS GUARANTY OR THE CREDIT AGREEMENT, GUARANTOR
HEREBY UNCONDITIONALLY WAIVES: (1) ANY CLAIM OR OTHER RIGHT, NOW EXISTING OR
HEREAFTER ARISING, AGAINST DEBTOR OR ANY OTHER PERSON PRIMARILY OR CONTINGENTLY
LIABLE FOR ALL OR ANY PART OF THE GUARANTY OBLIGATIONS, WHICH ARISES FROM OR BY
VIRTUE OF THE EXISTENCE OR PERFORMANCE OF THIS GUARANTY, INCLUDING, WITHOUT
LIMITATION: (A) ANY RIGHT OF SUBROGATION, REIMBURSEMENT, EXONERATION,
CONTRIBUTION, INDEMNIFICATION, OR OTHER RIGHT TO PAYMENT, WHETHER OR NOT SUCH
RIGHT IS REDUCED TO JUDGMENT, LIQUIDATED, UNLIQUIDATED, FIXED, CONTINGENT,
MATURED, UNMATURED, DISPUTED, UNDISPUTED, LEGAL, EQUITABLE, SECURED OR
UNSECURED; OR (B) ANY RIGHT TO AN EQUITABLE REMEDY FOR BREACH OF PERFORMANCE IF
SUCH BREACH GIVES RISE TO A RIGHT TO PAYMENT, WHETHER OR NOT SUCH RIGHT TO AN
EQUITABLE REMEDY IS REDUCED TO A JUDGMENT, FIXED, CONTINGENT, MATURED,
UNMATURED, DISPUTED, UNDISPUTED, SECURED OR UNSECURED; AND (2) ANY RIGHT TO
PARTICIPATE OR SHARE IN ANY RIGHT, REMEDY OR CLAIM OF CREDITOR AGAINST ANY OF
DEBTOR'S INCOME OR ASSETS OR WITH RESPECT TO ANY COLLATERAL OR OTHER SECURITY
FOR ALL OR ANY PART OF THE GUARANTY OBLIGATIONS OR ANY OTHER RIGHT OR CLAIM OF
CREDITOR OF RECOURSE TO AND WITH RESPECT TO ANY ASSETS, INCOME OR PROPERTIES OF
DEBTOR.

                  Guarantor represents and warrants to Creditor that (i)
Guarantor is solvent; (ii) the execution and delivery of this Guaranty by
Guarantor was not undertaken by Guarantor with the "intent to hinder, delay, or
defraud" (within the meaning of Indiana Code Section 32-2-7-14 and Section
548(a)(1) of the United States Bankruptcy Code) creditors or any other Persons;
and (iii) that neither this Guaranty nor the payment or performance by Guarantor
of its obligations arising under or pursuant to this Guaranty do or are intended
to render Guarantor insolvent, undercapitalized or in a condition of financial
stringency; and (iv) the Guaranty is a legal, valid and binding obligation of
Guarantor, enforceable in accordance with its terms. If at any time any portion
of the obligations of Guarantor under this Guaranty shall be determined by a
court of competent jurisdiction to be invalid, unenforceable or avoidable, the
remaining portion of the Guaranty Obligations under this Guaranty shall not in
any way be affected, impaired, prejudiced or disturbed thereby and shall remain
valid and enforceable to the full extent permitted by applicable law.
Notwithstanding anything in this Guaranty to the contrary, the liability of
Guarantor hereunder shall be limited to the maximum amount which would not
result in any one of the following conditions:

         (1)      this Guaranty would constitute a fraudulent transfer within
                  the meaning of Section 548(a) of the Bankruptcy Code;

<PAGE>

         (2)      this Guaranty would constitute a fraudulent transfer within
                  the meaning of Ind. Code Section 32-2-1-14, ET SEQ.; or

         (3)      this Guaranty would constitute a fraudulent conveyance or
                  fraudulent transfer within the meaning of any other applicable
                  Federal or state bankruptcy, insolvency or other similar law
                  or judicial decision.

                  All principal of and interest on any and all indebtedness,
liabilities and obligations of Debtor to Guarantor (the "SUBORDINATED DEBT"),
whether direct, indirect, fixed, contingent, liquidated, unliquidated, joint,
several, or joint and several, now or hereafter existing, due or to become due
to Guarantor, or held or to be held by Guarantor, whether created directly or
acquired by assignment or otherwise, and whether evidenced by a written
instrument or not, shall be expressly subordinated to the Guaranty Obligations.
Guarantor agrees not to receive or accept any payment of the Subordinated Debt
at any time after and during the continuance of any Event of Default (as defined
in the Credit Agreement); and, in the event Guarantor receives any payment on
the Subordinated Debt in violation of the foregoing, Guarantor will hold any
such payment in trust for Creditor and forthwith turn it over to Creditor, in
the form received, to be applied to the Guaranty Obligations.

                  The rights of Creditor are cumulative and shall not be
exhausted by its exercise of any of its rights under this Guaranty or otherwise
against Guarantor or by any number of successive actions until and unless each
and all of the obligations of Guarantor under this Guaranty have been fully
performed, satisfied and discharged.

                  When used in this Guaranty, the term: (a) "GUARANTY" shall
mean this Guaranty, as the same may be amended and/or restated from time to time
and at any time; (b) "GUARANTY OBLIGATIONS" shall mean all of the following,
collectively:

                  (1)      all indebtedness, obligations and liabilities, and
                           all renewals and extensions thereof, now or hereafter
                           owed by Debtor to Creditor, now existing or hereafter
                           arising, including, without limiting the generality
                           of the foregoing all "Obligations" (as such term is
                           defined in the Credit Agreement); and

                  (2)      all extensions, renewals, amendments, restatements or
                           replacements of the foregoing, together with all
                           costs, expenses and reasonable attorneys' fees
                           incurred by Creditor in the enforcement or collection
                           of any of the foregoing, whether such indebtedness,
                           obligations and liabilities are direct, indirect,
                           fixed, contingent, liquidated, unliquidated, joint,
                           several, joint and several, now exist or hereafter
                           arise, or were prior to acquisition thereof by
                           Creditor owed to some other Person;

(c) "PERSON" shall mean an individual, a corporation, a limited or general
partnership, a limited liability company, a joint venture, a trust or
unincorporated organization, a joint stock company

<PAGE>

or other similar organization, or any other legal entity, whether acting in an
individual, fiduciary or other capacity.

                  This Guaranty shall be deemed to have been made under and
shall be governed by the laws of the State of Indiana in all respects and shall
not be waived, altered, modified or amended as to any of its terms or provisions
except in writing duly signed by Creditor and Guarantor. This Guaranty shall
bind Guarantor and Guarantor's successors, assigns and legal representatives,
and shall inure to the benefit of all transferees, credit participants,
assignees, successors and endorsees of Creditor. The failure of any Person to
execute or be bound by this Guaranty shall not release or affect the liability
of Guarantor, and the liability of Guarantor under this Guaranty is not
conditioned or contingent upon or subject in any way to obtaining or retaining
the primary or secondary liability of any party or parties with respect to all
or any part of the Guaranty Obligations (including, without limitation, Debtor
and the Other Guarantors).

                  Creditor is relying and is entitled to rely upon each and all
of the provisions of this Guaranty; and accordingly if any provision or
provisions of this Guaranty should be held to be invalid or ineffective, then
all other provisions shall continue in full force and effect.

                  As long as this Guaranty is in effect, Guarantor shall furnish
to Creditor, upon request, the following:

                  a.       CERTIFICATE REGARDING SOLVENCY. At such times as
                           Creditor may reasonably require, a "Certificate
                           Regarding Solvency" in the form of the attached
                           "Annex".

                  b.       OTHER INFORMATION. Such other information relating to
                           the financial condition of Guarantor as Creditor may
                           reasonably require.

                  GUARANTOR AND CREDITOR (BY ITS ACCEPTANCE OF THIS GUARANTY)
HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG GUARANTOR AND CREDITOR ARISING IN
ANY WAY OUT OF OR WHICH IN ANY WAY INVOLVES ANY OF THE RIGHTS, OBLIGATIONS OR
REMEDIES OF ANY PARTY TO THIS GUARANTY OR ANY DOCUMENT EXECUTED OR DELIVERED
PURSUANT TO OR OTHERWISE IN CONNECTION WITH THIS GUARANTY OR THE CREDIT
AGREEMENT, OR ANY RELATIONSHIP BETWEEN GUARANTOR AND CREDITOR. THIS PROVISION IS
A MATERIAL INDUCEMENT TO CREDITOR TO PROVIDE THE FINANCING DESCRIBED IN THE
CREDIT AGREEMENT.

                  THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS GUARANTY
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF

<PAGE>

INDIANA WITHOUT REGARD TO ITS CHOICE OR CONFLICTS OF LAWS PROVISIONS. GUARANTOR
AGREES THAT THE COURTS OF THE STATE OF INDIANA LOCATED IN INDIANAPOLIS, INDIANA,
AND THE FEDERAL COURTS LOCATED IN THE SOUTHERN DISTRICT OF INDIANA, MARION
COUNTY, HAVE EXCLUSIVE JURISDICTION OVER ANY AND ALL ACTIONS AND PROCEEDINGS
INVOLVING THIS GUARANTY OR ANY OTHER AGREEMENT MADE IN CONNECTION HEREWITH AND
GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING.
GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT
GUARANTOR MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT IS AN INCONVENIENT FORUM, AND
CONSENTS TO SERVICE OF PROCESS PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS
HEREOF. FINAL JUDGMENT IN ANY SUCH PROCEEDING AFTER ALL APPEALS HAVE BEEN
EXHAUSTED OR WAIVED SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT.

                  Executed and delivered to Creditor as of the 23rd day of
October, 2001.
                        DMI Management, Inc., a Kentucky corporation

                        By: ________________________________________
                        Printed: Phillip J. Keller
                        Its:     Vice President - Finance and
                                 Chief Financial Officer
                                                           ("GUARANTOR")

<PAGE>

                                      ANNEX
                                      -----

                         CERTIFICATE REGARDING SOLVENCY

         The undersigned, DMI Management, Inc., a Kentucky corporation (the
"Guarantor"), by its duly authorized officer, makes the following
representations to BANK ONE, INDIANA, NATIONAL ASSOCIATION (the "Bank") and
acknowledges that the Bank is entitled to rely and will rely upon these
representations, in providing certain financial accommodations to DMI Furniture,
Inc., a Delaware corporation ("Borrower"), pursuant to that certain Amended and
Restated Credit Agreement, dated as of October 23, 2001, between Bank and
Borrower, as the same has been or hereafter may be modified, amended, restated
and/or extended from time to time and at any time.

         1.       The assets of the Guarantor at a "fair valuation" within the
                  meaning of the United States Bankruptcy Code, as amended, (the
                  "Code") are worth approximately $18,518,000 as of this date.
         2.       The liabilities of the Guarantor, including without limitation
                  contingent liabilities to the extent appropriate for
                  consideration in determining whether the Guarantor is
                  "insolvent," with the meaning of the Code, but excluding the
                  Guarantor's contingent liability under any and all written
                  guaranties executed by Guarantor in favor of Bank
                  ("Guaranty"), total approximately $25,000 as of September 29,
                  2001, the end of the last fiscal month of the Guarantor.
         3.       The Guarantor is not insolvent within the meaning of the Code,
                  after taking into account its contingent liability under the
                  Guaranty.
         4.       After taking into account its contingent liability under the
                  Guaranty, the Guarantor has sufficient capital for the
                  operation of its business as presently conducted and at the
                  level of operations contemplated for the foreseeable future.
                  The minimum amount of capital required to support the
                  Guarantor's operations at the level planned for the
                  foreseeable future is $18,493.000.
         5.       The Guarantor is currently paying its debts as they become due
                  in the ordinary course of its business. After taking into
                  account its contingent liability under the Guaranty, the
                  Guarantor believes that it will be able to continue to pay its
                  debts as they become due in the ordinary course of its
                  business.

Dated:  October 23, 2001.

                                DMI Management, Inc., a Kentucky corporation

                                By:
                                   ----------------------------------
                                Printed: Phillip J. Keller
                                Title:   Vice President - Finance and
                                         Chief Financial Officer

<PAGE>

                                   SCHEDULE 1

                          DOCUMENTARY LETTERS OF CREDIT
                          -----------------------------

                                      None

<PAGE>
                                   SCHEDULE 2

                      1997 PROJECT REAL ESTATE REQUIREMENTS
                      -------------------------------------

         (1) TITLE INSURANCE. The Company shall provide a mortgagee's title
insurance policy in the amount of $1,500,000 insuring the Bank's interest under
the 1997 Project Mortgage in and to the 1997 Project Real Estate on the American
Land Title Association form of mortgagee's title policy (1992 Revision), subject
to an ALTA form of comprehensive endorsement, an ALTA form 3.1 zoning
endorsement, a mechanics lien endorsement, an access endorsement and such other
endorsements as the Bank may reasonably request. The coverage provided by the
title insurance policy shall NOT be subject to the standard exceptions as to
rights of parties in possession and matters which would be disclosed by survey,
easements not shown by the public records and mechanic's liens not shown by the
public records, and otherwise the coverage shall be subject to no exceptions
other than (A) easements and use restrictions and encroachments disclosed by
survey which do not materially and adversely affect the value or marketability
of the 1997 Project Real Estate or the usefulness of the 1997 Project Real
Estate in the operations of the Company and (B) Permitted Liens.

         (2) ENVIRONMENTAL REPORT. The Company shall furnish the report or
reports of a registered engineer or environmental consultant acceptable to the
Bank, confirming that there are no material environmental problems associated
with the 1997 Project Real Estate. The report or reports shall be in a form
satisfactory to the Bank and shall include, at an minimum: A) a statement of the
results of an examination of all relevant documents and records concerning
ownership and use of the 1997 Project Real Estate; B) a statement of the results
of an inspection of the 1997 Project Real Estate, which inspection shall have
included the use of such equipment as is customarily used by engineers and
environmental consultants in connection with the preparation of "Phase I"
environmental reports to detect traces of buried Hazardous Substances and
underground storage tanks and drums and which inspection shall have been made
for the purpose of determining whether all or any part of the 1997 Project Real
Estate is being used or has been used to store or dispose of any Hazardous
Substances in quantities which are or could be detrimental to the 1997 Project
Real Estate, human health or the environment or in violation of any laws of
regulations, state or federal, whether the 1997 Project Real Estate is or has
been affected by any Hazardous Substances and whether the 1997 Project Real
Estate contains or has contained any underground storage tanks or asbestos of
any kind, and a statement of the recommendations of the reporting engineer or
consultant as to such further investigation or tests, if any, as may be
necessary to resolve such issues; C) confirmation that the 1997 Project Real
Estate is not listed as a known hazardous waste site on any environmental
reporting list maintained by any governmental agency having jurisdiction as to
environmental matters over the 1997 Project Real Estate; and D) a statement of
the professional qualifications of the engineer or consultant who prepared such
report. The Company shall also furnish to the Bank the supplemental report of
the reporting engineer or consultant as to the results of such further tests and
investigations as may have been recommended in the initial report.

<PAGE>

         (3) SURVEY. The Company shall furnish the Bank with an ALTA/ACSM
Minimum Standards Detail Land Title Survey covering the 1997 Project Real Estate
together with a minimum Standards Detail Certificate prepared by a registered
land surveyor or engineer dated no earlier than the Closing Date, which survey
shall locate all recorded easements with recording information and contain a
statement as to whether or not the 1997 Real Estate is in a flood plain.

         Failure of the Company to provide all of the above items (1), (2), and
(3) on or before January 15, 2002 shall constitute an "Event of Default" under
the Agreement of which this SCHEDULE 2 is a part.Exhibit 4.2

                                                                  CONFORMED COPY

                             SHAREHOLDERS AGREEMENT

                                  BY AND AMONG

                        THE SHAREHOLDERS SIGNATORY HERETO

                                       AND

                             ARCH CAPITAL GROUP LTD.

                          DATED AS OF NOVEMBER 20, 2001

                              CONFORMED TO REFLECT
                         AMENDMENT DATED JANUARY 3, 2001

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I

                               CERTAIN DEFINITIONS

Section 1.1.      Certain Definitions.........................................2

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

Section 2.1.      Representations and Warranties of the Company...............9
Section 2.2.      Representations and Warranties of Warburg...................9
Section 2.3.      Representations and Warranties of H&F......................10
Section 2.4.      Representations and Warranties of GE.......................10
Section 2.5.      Representations and Warranties of Trident..................10
Section 2.6.      Representations and Warranties of Farallon.................11

                                   ARTICLE III

                          VOTING; BOARD REPRESENTATION

Section 3.1.      Board of Directors.........................................11
Section 3.2.      Committees of the Board....................................13
Section 3.3.      Investor Protection Matters................................14
Section 3.4.      Voting.....................................................16
Section 3.5.      Chairman of the Company....................................17
Section 3.6.      Certain Transactions.......................................17

                                   ARTICLE IV

                               REGISTRATION RIGHTS

Section 4.1.      Demand Registrations.......................................17
Section 4.2.      Shelf Registration.........................................20
Section 4.3.      Piggy-Back Registration....................................20
Section 4.4.      Allocation of Shares to be Registered......................20
Section 4.5.      Registration Procedures....................................21
Section 4.6.      Registration Expenses......................................25
Section 4.7.      Indemnification; Contribution..............................25

<PAGE>

                                    ARTICLE V

                                     TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS;
                     RESTRICTIONS ON TRANSFER AND CONVERSION

Section 5.1.      Tag-Along Rights; Drag-Along Rights........................27
Section 5.2.      Restrictions on Transfer...................................29
Section 5.3.      Restrictions on Conversion.................................29

                                   ARTICLE VI

                 RESTRICTIONS ON DIVIDENDS AND SHARE REPURCHASES

                                   ARTICLE VII

                          EFFECTIVENESS AND TERMINATION

Section 7.1.      Effectiveness..............................................30
Section 7.2.      Termination................................................30

                                  ARTICLE VIII

                                  MISCELLANEOUS

Section 8.1.      Injunctive Relief..........................................31
Section 8.2.      Successors and Assigns.....................................31
Section 8.3.      Amendments; Waiver.........................................32
Section 8.4.      Notices....................................................32
Section 8.5.      Applicable Law.............................................33
Section 8.6.      Headings...................................................34
Section 8.7.      Integration................................................34
Section 8.8.      Severability...............................................34
Section 8.9.      Consent to Jurisdiction....................................34
Section 8.10.     Counterparts...............................................34

                                      -ii-
<PAGE>

                                      -34-

     SHAREHOLDERS AGREEMENT, dated as of November 20, 2001 (this "Agreement"),
by and among ARCH Capital Group Ltd., a company registered under the laws of
Bermuda (the "Company"), WARBURG PINCUS (BERMUDA) PRIVATE EQUITY VIII, L.P., a
limited partnership organized under the laws of Bermuda, WARBURG PINCUS
(BERMUDA) INTERNATIONAL PARTNERS, L.P., a limited partnership organized under
the laws of Bermuda, WARBURG PINCUS NETHERLANDS INTERNATIONAL PARTNERS I, C.V.,
an entity organized under the laws of the Netherlands, WARBURG PINCUS
NETHERLANDS INTERNATIONAL PARTNERS II, C.V., an entity organized under the laws
of the Netherlands (each, a "Warburg Purchaser," and collectively, "Warburg"),
HFCP IV (BERMUDA), L.P., a limited partnership organized under the laws of
Bermuda, H&F INTERNATIONAL PARTNERS IV-A (BERMUDA), L.P., a limited partnership
organized under the laws of Bermuda, H&F INTERNATIONAL PARTNERS IV-B (BERMUDA),
L.P., a limited partnership organized under the laws of Bermuda, and H&F
EXECUTIVE FUND IV (BERMUDA), L.P., a limited partnership organized under the
laws of Bermuda (each, a "H&F Purchaser," and collectively, "H&F," and together
with Warburg and such other Persons that are, or may hereafter become, parties
hereto (in either case for purposes of such provisions hereof as may be
indicated immediately above the signature of such other Persons) pursuant to the
terms of Section 8.2 hereof, the "Investors").

                              W I T N E S S E T H :

     WHEREAS, the Company and certain of the Investors have entered into a
Subscription Agreement, dated as of October 24, 2001, as amended November 20,
2001 (the "Subscription Agreement"), pursuant to the terms of which, among other
things, the Company shall issue and sell to the Investors, and Investors shall
acquire from the Company, (1) Series A Convertible Preference Shares, par value
U.S. $0.01 per share, of the Company (the "Preference Shares"), and (2) Class A
Warrants to purchase common shares, par value U.S. $0.01 per share, of the
Company (the "Common Shares") (the "Class A Warrants," and together with the
Preference Shares, the "Purchased Securities") (such sale and purchase and the
other transactions contemplated by the Subscription Agreement or described in
the following recitals, the "Transactions");

     WHEREAS, the Company and the purchasers named therein (the "Management
Purchasers") have entered into a Management Subscription Agreement, dated as of
October 24, 2001 (the "Management Subscription Agreement"), pursuant to the
terms of which, among other things, the Company shall issue and sell to the
Management Purchasers, and the Management Purchasers shall acquire from the
Company, Purchased Securities;

<PAGE>
                                      -2-

     WHEREAS, the Company, Warburg, H&F and Trident have entered into a letter
agreement, dated as of November 8, 2001, pursuant to the terms of which, among
other things, Warburg assigned to Trident its right, and Trident assumed from
Warburg its obligation, under the Subscription Agreement to purchase certain
Purchased Securities;

     WHEREAS, the Company, Warburg, H&F and GE have entered into a letter
agreement, dated as of November 20, 2001, pursuant to the terms of which, among
other things, Warburg assigned to GE its right, and GE assumed from Warburg its
obligation, under the Subscription Agreement to purchase certain Purchased
Securities;

     WHEREAS, the Company, Warburg, H&F and Farallon have entered into a letter
agreement, dated as of November 20, 2001, pursuant to the terms of which, among
other things, H&F assigned to Farallon its right, and Farallon assumed from H&F
its obligation, under the Subscription Agreement to purchase certain Purchased
Securities;

     WHEREAS, the execution of this Agreement is a condition to the obligation
of the parties to consummate the Transactions; and

     WHEREAS, the Company and Investors desire to establish in this Agreement
certain terms and conditions concerning the acquisition of Purchased Securities
and related provisions concerning the Investors' relationship with and
investment in the Company following the consummation of the Transactions;

     NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

                                    ARTICLE I

                               CERTAIN DEFINITIONS

     Section 1.1. Certain Definitions. In addition to other terms defined
elsewhere in this Agreement, as used in this Agreement, the following terms
shall have the meanings ascribed to them below:

     "Affiliate" shall mean, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person (including
with respect to individuals, any trusts, foundations, family limited
partnerships or similar entities); provided, however, that no portfolio
investment of either Warburg or H&F, or any of their respective Affiliates,
shall be

<PAGE>
                                      -3-

deemed to be an Affiliate of Warburg or H&F, as the case may be; provided,
further, that none of the Farallon Purchasers or Farallon, or any of their
respective Affiliates, shall be deemed to be an Affiliate of H&F. As used in
this definition, "control" (including, with correlative meanings, "controlled
by" and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise).

     "Agreement" shall have the meaning assigned to such term in the preamble
hereto.

     "Approval Date" shall mean the later of the dates on which the Requisite
Shareholder Approval and the Requisite Regulatory Approval occur.

     "Beneficially Own" shall mean, with respect to any securities, having
"beneficial ownership" of such securities for purposes of Rule 13d-3 or 13d-5
under the Exchange Act as in effect on the date hereof, and "Beneficial
Ownership" shall have the corresponding meaning.

     "Blackout Period" shall have the meaning assigned in Section 4.1(c).

     "Board" shall mean the duly elected Board of Directors of the Company in
office at the applicable time.

     "Business Day" shall mean any day that is not a Saturday, Sunday or other
day on which the commercial banks in New York City are authorized or required by
law to remain closed.

     "Bye-laws" shall mean the bye-laws of the Company.

     "Claims" shall have the meaning assigned in Section 4.7(a).

     "Class A Warrants" shall have the meaning assigned in the recitals hereto.

     "Closing" shall mean the consummation of the Transactions pursuant to the
terms of the Subscription Agreement.

     "Common Shares" shall have the meaning assigned in the recitals hereto.

     "Company" shall have the meaning assigned in the preamble hereto.

     "Demand Registration" shall mean any registration effected pursuant to a
Warburg Demand Request or a H&F Demand Request.

<PAGE>
                                      -4-

     "Director" shall mean any member of the Board.

     "Effective Period" shall have the meaning assigned in Section 4.5(a)(3).

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations that may from time to time be promulgated
thereunder.

     "Existing Registration Rights" shall have the meaning assigned in Section
4.1(a) hereof.

     "Farallon" shall mean Farallon Capital Partners, L.P., Farallon Capital
Institutional Partners II, L.P., Farallon Capital Institutional Partners III,
L.P. and RR Capital Partners, L.P., collectively, with each individually being a
"Farallon Purchaser".

     "Farallon Permitted Transferee" shall mean, with respect to any Farallon
Purchaser, any Person or entity that directly or indirectly through one or more
intermediaries controls, or is controlled by or is under common control with
such Farallon Purchaser or an entity over which such Farallon Purchaser has
management rights.

     "GE" shall mean Insurance Private Equity Investors, L.L.C. and Orbital
Holdings, Ltd., collectively, with each individually being a "GE Purchaser".

     "GE Permitted Transferee" shall mean, with respect to any GE Purchaser, any
Person or entity that directly or indirectly through one or more intermediaries
controls, or is controlled by or is under common control with such GE Purchaser
or an entity over which such GE Purchaser has management rights, or any
successor trustees or trust (if applicable).

     "H&F" shall have the meaning assigned in the preamble hereto.

     "H&F Demand Request" shall have the meaning assigned in Section 4.1(b)
hereof.

     "H&F Demand Shares" shall have the meaning assigned in Section 4.1(b)
hereof.

     "H&F Directors" shall have the meaning assigned in Section 3.1(c) hereof.

     "H&F Purchaser" shall have the meaning assigned the preamble hereto.

     "H&F Registrable Shares" shall have the meaning assigned in Section 4.1(b)
hereof.

<PAGE>
                                      -5-

     "Independent Director" means a Director who is not an Affiliate of either
Warburg or H&F.

     "Initial H&F Director" shall have the meaning assign in Section 3.1(b).

     "Initial Investment" shall mean, with respect to any Investor, the total
number of Common Shares issuable (a) upon conversion of the Preference Shares
acquired by such Investor at the Closing, (b) upon conversion of any additional
Preference Shares acquired by such Investor with respect to the Preference
Shares referred to in clause (a) pursuant to the terms of the Subscription
Agreement (or the Management Subscription Agreement), (c) upon exercise for cash
of the Class A Warrants acquired by such Investor at Closing, (d) upon exercise
for cash of any additional Class A Warrants acquired by such Investor pursuant
to the terms of the Subscription Agreement (or the Management Subscription
Agreement) and (e) any other securities issued in respect of the securities
described in clauses (a) though (d) of this definition or into which such
securities shall be converted in connection with stock splits, reverse stock
splits, stock dividends or distributions, or combinations or similar
recapitalizations.

     "Initial Shares" shall mean, with respect to any Investor, (a) the
Preference Shares acquired by such Investor at the Closing, (b) any additional
Preference Shares acquired by such Investor with respect to the Preference
Shares referred to in clause (a) pursuant to the terms of the Subscription
Agreement (or the Management Subscription Agreement), (c) the Class A Warrants
acquired by such Investor at Closing, (d) any additional Class A Warrants
acquired by such Investor pursuant to the terms of the Subscription Agreement
(or the Management Subscription Agreement) and (e) any other securities issued
in respect of the securities described in clauses (a) though (d) of this
definition or into which such securities shall be converted in connection with
stock splits, reverse stock splits, stock dividends or distributions, or
combinations or similar recapitalizations. References to the "the number of
Initial Shares" shall mean the number of Common Shares comprising the Initial
Shares (based, in the case of Preference Shares and Class A Warrants, upon the
number of Common Shares issuable upon conversion or exercise for cash thereof).

     "Initial Warburg Director" shall have the meaning assigned in Section
3.1(b) hereof.

     "Interested Party Transaction" shall mean any transaction between the
Company or any of its Subsidiaries and any officer or Director, or Affiliate of
any officer or Director, of the Company.

     "Investors" shall have the meaning assigned in the preamble hereto.

<PAGE>
                                      -6-

     "Investor Shares" shall mean, at any time, any Common Shares issuable in
respect of Initial Shares acquired by an Investor and any Common Shares acquired
by an Investor after the Closing (and any Common Shares or other securities
issued in respect thereof or into which such Common Shares shall be converted in
connection with stock splits, reverse stock splits, stock dividends or
distributions, or combinations or similar recapitalizations).

     "Management Purchasers" shall have the meaning set forth in the recitals
hereto.

     "Management Subscription Agreement" shall have the meaning set forth in the
recitals hereto.

     "Mandatory Conversion Date" shall have the meaning set forth in Section 3.3
hereof.

     "Market Value" shall mean, as of any date, the average of the daily high
and low sales prices per Common Share on the Nasdaq for each of the twenty full
trading days immediately preceding (but not including) such date.

     "Material Transaction" shall have the meaning assigned in Section 4.1(c).

     "Maximum Number" shall have the meaning assigned in Section 4.4.

     "Nasdaq" shall mean The Nasdaq Stock Market, Inc.

     "Nasdaq Independent Director" shall have the meaning specified in Rule
4200(a)(14) of the Rules of the National Association of Securities Dealers, Inc.

     "Participating Investor" shall have the meaning assigned in Section
4.5(a)(2) hereof.

     "Per Share Price" shall have the meaning assigned in the Subscription
Agreement.

     "Person" shall mean any individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.

     "Piggy-Back Registration" shall have the meaning assigned in Section 4.3.

     "Piggy-Back Request" shall have the meaning assigned in Section 4.3.

     "Preference Shares" shall have the meaning assigned in the recitals hereto.

<PAGE>
                                      -7-

     "Purchased Securities" shall have the meaning assigned in the recitals
hereto.

     "Registrable Shares" shall have the meaning assigned in Section 4.1(b)
hereof.

     "Requisite Nasdaq Approval" shall have the meaning assigned in the
Certificate of Designations for the Preference Shares.

     "Requisite Regulatory Approval" shall have the meaning assigned in the
Certificate of Designations for the Preference Shares.

     "Requisite Shareholder Approval" shall have the meaning assigned in the
Certificate of Designations for the Preference Shares.

     "Retained Investment" shall mean, with respect to any Investor, at any
time, the amount of the Initial Investment Beneficially Owned by such Investor
at such time.

     "Retained Percentage" shall mean, with respect to any Investor, at any
time, the quotient, expressed as a percentage, of (a) such Investor's Retained
Investment, over (b) such Investor's Initial Investment.

     "SEC" shall mean the United States Securities and Exchange Commission.

     "Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations that may from time to time be promulgated thereunder.

     "Selling Investor" shall have the meaning assigned in Section 5.1(a)
hereof.

     "Shelf Registration Statement" shall have the meaning assigned in Section
4.2 hereof.

     "Subscription Agreement" means the Subscription Agreement, dated as of
October 24, 2001, by and between the Company and each of the Purchasers named
therein, as amended from time to time in accordance with its terms.

     "Subsidiary" shall mean, with respect to any Person, any other entity of
which securities or other ownership interests having ordinary power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.

     "Tag-Along Investor" shall have the meaning assigned in Section 5.1(a)
hereof.

     "Third Party Sale" shall have the meaning assigned in Section 5.1(a)
hereof.

     "Third Party Sale Notice" shall have the meaning assigned in Section 5.1(a)
hereof.

<PAGE>
                                      -8-

     "Transactions" shall have the meaning assigned in the recitals hereto.

     "Trident" shall mean Trident II, L.P., Marsh & McLennan Capital
Professionals Fund, L.P. and Marsh & McLennan Employee's Securities Company,
L.P., collectively, with each individually a "Trident Purchaser."

     "Votes" shall mean votes entitled to be cast generally in the election of
Directors.

     "Voting Power" shall mean, calculated at a particular point in time, the
ratio, expressed as a percentage, of (a) the Votes represented by the Voting
Securities with respect to which the Voting Power is being determined, to (b)
the aggregate Votes represented by all then outstanding Voting Securities. For
this purpose, the votes attributable to the Preference Shares shall be on an
as-converted basis, without regard to the limitations imposed under the
Certificate of Designations.

     "Voting Securities" shall mean (a) the Common Shares, (b) the Preference
Shares and (c) shares of any other class of securities of the Company then
entitled to vote generally in the election of Directors.

     "Warburg" shall have the meaning assigned in the preamble hereto.

     "Warburg Demand Request" shall have the meaning assigned in Section 4.1(a)
hereof.

     "Warburg Demand Shares" shall have the meaning assigned in Section 4.1(a)
hereof.

     "Warburg Directors" shall have the meaning assigned in Section 3.1(c)
hereof.

     "Warburg Purchaser" shall have the meaning assigned in the preamble hereto.

     "Warburg Registrable Shares" shall have the meaning assigned in Section
4.1(a) hereof.

<PAGE>
                                      -9-

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

     Section 2.1. Representations and Warranties of the Company. The Company
represents and warrants to each Investor as follows:

          (a) The Company has been duly formed and is validly existing as a
     company in good standing under the laws of Bermuda and has all necessary
     corporate power and authority to enter into this Agreement and to carry out
     its obligations hereunder.

          (b) This Agreement has been duly and validly authorized by the Company
     and the Company has taken all necessary and appropriate action to execute
     and deliver this Agreement and to perform its obligations hereunder.

          (c) This Agreement has been duly executed and delivered by the Company
     and, assuming due authorization and valid execution and delivery by each
     other party hereto, is a valid and binding obligation of the Company,
     enforceable against it in accordance with its terms.

     Section 2.2. Representations and Warranties of Warburg. Each Warburg
Purchaser represents and warrants to each other party hereto as follows:

          (a) Such Warburg Purchaser has been duly formed and is validly
     existing and in good standing, to the extent applicable, under the laws of
     its respective jurisdiction of formation and has all necessary power and
     authority to enter into this Agreement and to carry out its obligations
     hereunder.

          (b) This Agreement has been duly and validly authorized by such
     Warburg Purchaser and such Warburg Purchaser has taken all necessary and
     appropriate action to execute and deliver this Agreement and to perform its
     obligations hereunder.

          (c) This Agreement has been duly executed and delivered by such
     Warburg Purchaser and, assuming due authorization and valid execution and
     delivery by the Company, is a valid and binding obligation of such Warburg
     Purchaser, enforceable against it in accordance with its terms.

     Section 2.3. Representations and Warranties of H&F. Each H&F Purchaser
represents and warrants to each other party hereto as follows:

<PAGE>
                                      -10-

          (a) Such H&F Purchaser has been duly formed and is validly existing
     under the laws of its respective jurisdiction of formation and has all
     necessary power and authority to enter into this Agreement and to carry out
     its obligations hereunder.

          (b) This Agreement has been duly and validly authorized by such H&F
     Purchaser and such H&F Purchaser has taken all necessary and appropriate
     action to execute and deliver this Agreement and to perform its obligations
     hereunder.

          (c) This Agreement has been duly executed and delivered by such H&F
     Purchaser and, assuming due authorization and valid execution and delivery
     by the Company, is a valid and binding obligation of such H&F Purchaser,
     enforceable against it in accordance with its terms.

     Section 2.4. Representations and Warranties of GE. Each GE Purchaser
represents and warrants to each other party hereto as follows:

          (a) Such GE Purchaser has been duly formed and is validly existing
     under the laws of its respective jurisdiction of formation and has all
     necessary power and authority to enter into this Agreement and to carry out
     its obligations hereunder.

          (b) This Agreement has been duly and validly authorized by such GE
     Purchaser and such GE Purchaser has taken all necessary and appropriate
     action to execute and deliver this Agreement and to perform its obligations
     hereunder.

          (c) This Agreement has been duly executed and delivered by such GE
     Purchaser and, assuming due authorization and valid execution and delivery
     by the Company, is a valid and binding obligation of such GE Purchaser,
     enforceable against it in accordance with its terms.

     Section 2.5. Representations and Warranties of Trident. Each Trident
Purchaser represents and warrants to each other party hereto as follows:

          (a) Such Trident Purchaser has been duly formed and is validly
     existing under the laws of its respective jurisdiction of formation and has
     all necessary power and authority to enter into this Agreement and to carry
     out its obligations hereunder.

          (b) This Agreement has been duly and validly authorized by such
     Trident Purchaser and such Trident Purchaser has taken all necessary and
     appropriate action to execute and deliver this Agreement and to perform its
     obligations hereunder.

          (c) This Agreement has been duly executed and delivered by such
     Trident Purchaser and, assuming due authorization and valid execution and
     delivery by the

<PAGE>
                                      -11-

     Company, is a valid and binding obligation of such Trident Purchaser,
     enforceable against it in accordance with its terms.

     Section 2.6. Representations and Warranties of Farallon. Each Farallon
Purchaser represents and warrants to each other party hereto as follows:

          (a) Such Farallon Purchaser has been duly formed and is validly
     existing under the laws of its respective jurisdiction of formation and has
     all necessary power and authority to enter into this Agreement and to carry
     out its obligations hereunder.

          (b) This Agreement has been duly and validly authorized by such
     Farallon Purchaser and such Farallon Purchaser has taken all necessary and
     appropriate action to execute and deliver this Agreement and to perform its
     obligations hereunder.

          (c) This Agreement has been duly executed and delivered by such
     Farallon Purchaser and, assuming due authorization and valid execution and
     delivery by the Company, is a valid and binding obligation of such Farallon
     Purchaser, enforceable against it in accordance with its terms.

                                   ARTICLE III

                          VOTING; BOARD REPRESENTATION

     Section 3.1. Board of Directors. (a) The Company shall be managed by its
duly elected officers subject to the overall direction and supervision of the
Board. Each of Warburg and H&F shall, and shall cause its controlled Affiliates
to, vote all Voting Securities that such Investor and its controlled Affiliates
Beneficially Own and take any and all actions as may be reasonably necessary to
cause the provisions of this Section 3.1, including the election of the Warburg
Directors and H&F Directors, to be effectuated.

     (b) Prior to the Closing, and as a condition to the Closing, the Company
shall use its best efforts to secure the resignation of a number of Directors
such that there remain seven Directors immediately following the Closing (the
"Pre-Closing Directors"), of whom at least two shall qualify as Nasdaq
Independent Directors. Immediately following the Closing, the size of the Board
shall be decreased such that the Board shall consist of nine Directors, and one
Director designated by Warburg, (the "Initial Warburg Director") and one
Director designated by H&F (the "Initial H&F Director") shall each be appointed
by the Board as a director to serve in such classes of Directors as may be
necessary to assure that each class in Directors is as near in equal in number
as possible and that the Initial Warburg Director and the Initial H&F Director
are distributed among different classes.

<PAGE>
                                      -12-

     (c) Effective as of 12:00 a.m. on the date immediately following the
Approval Date, the size of the Board shall be increased such that the Board
shall then and thereafter consist of 17 Directors (such number not to be
increased without the consent of Warburg and H&F) and (i) five individuals
designated by Warburg (together with the Initial Warburg Director, and any other
replacements or substitutions therefor, the "Warburg Directors"), and (ii) two
individual designated by H&F (together with the Initial H&F Director, and any
other replacements or substitutions therefor, the "H&F Directors") shall each be
appointed by the Board as a Director to serve in such classes of Directors as
may be necessary to assure that each class in Directors is as near in equal in
number as possible and that the Warburg Directors and the H&F Directors,
respectively, are distributed among different classes.

     (d) Following the Approval Date, for so long as Warburg's Retained
Percentage is "x" as set forth in the table below, the slate of nominees
recommended by the Board to shareholders for election as directors of the
Company at each annual meeting of shareholders shall include such number of
individuals designated by Warburg, which together with the number of Warburg
Directors whose term is not scheduled to expire, is equal to the number set
forth opposite such Warburg's Retained Percentage in the table below:

               Warburg's Retained               Number of Nominees
                   Percentage
                     x > 75%                            6
                       -
                  60% < x < 75%                         5
                      -
                  45% < x < 60%                         4
                      -
                  30% < x < 45%                         3
                      -
                  20% < x < 30%                         2
                      -
                  10% < x < 20%                         1;
                      -

provided that, if the Approval Date has not occurred, for so long as Warburg's
Retained Percentage is equal to or exceeds 10%, at least one Warburg Director
shall be included in the slate of nominees recommended by the Board to
shareholders for election as directors of the Company at each annual general
meeting of shareholders at which a Warburg Director's term is scheduled to
expire. For so long as Warburg has the power to have at least two Directors
included in the slate of nominees recommended by the Board, power with respect
to one such Director shall be exercised by Warburg Pincus (Bermuda) Private
Equity VIII, L.P and power with respect to one such Director shall be exercised
by Warburg Pincus (Bermuda) International Partners, L.P.

     (e) Following the Approval Date, for so long as H&F's Retained Percentage
is "x" as set forth in the table below, the slate of nominees recommended by the
Board to shareholders for election as directors of the Company at each annual
meeting of shareholders shall include such number of individuals designated by
H&F, which together with the number

<PAGE>
                                      -13-

of H&F Directors whose term is not scheduled to expire, is equal to the number
set forth opposite such H&F's Retained Percentage in the table below:

                H&F's Retained                 Number of Nominees
                  Percentage
                    x > 60%                            3
                      -
                 35% < x < 60%                         2
                     -
                 20% < x < 35%                         1;
                     -

provided that, if the Approval Date has not occurred, for so long as H&F's
Retained Percentage is equal to or exceeds 20%, at least one H&F Director shall
be included in the slate of nominees recommended by the Board to shareholders
for election as directors of the Company at each annual general meeting of
shareholders at which an H&F Director's term is scheduled to expire. For so long
as H&F has the power to have at least one Director included in the slate of
nominees recommended by the Board, such power shall be exercised by HFCP IV
(Bermuda), L.P.

     (f) Each of Warburg and H&F shall provide to the Company in a timely manner
all information required by Regulation 14A and Schedule 14A under the Exchange
Act with respect to each Warburg Director and each H&F Director, respectively.

     (g) The Company shall use its best efforts (i) to cause a special meeting
of the Board to be called upon the request of at least three Directors and (ii)
to cause to be submitted, at the 2002 annual general meeting of the Company's
shareholders, a proposal to amend Bye-Law 20 of the Company to replace "by a
majority of the total number of Directors" with "by three Directors or a
majority of the total number of Directors (whichever is fewer)".

     Section 3.2. Committees of the Board. The Company and the Investors agree
that (1) for so long as there is at least one Warburg Director on the Board,
each committee of the Board shall include at least one Warburg Director, and (2)
for so long as there is at least one H&F Director on the Board, each committee
of the Board shall include at least one H&F Director. The foregoing is subject
to any restrictions on service on the audit committee as may be applicable under
the rules of the National Association of Securities Dealers, Inc. or the SEC.

     Section 3.3. Investor Protection Matters. Except as specifically set forth
herein, in accordance with the Company's Bye-laws, the Board shall act by the
vote of a majority of the Directors present at a meeting, and the required
quorum for a meeting of the Board shall be a majority of the whole Board.
Notwithstanding the foregoing, and except as specifically set forth in the
Subscription Agreement, (a) prior to the Approval Date, unless

<PAGE>
                                      -14-

also approved by the Initial Warburg Director and the Initial H&F Director, and
(b) following the Approval Date, unless also approved by (i) at least one
Warburg Director, if at such time Warburg's Retained Percentage equals or
exceeds 25%, and (ii) at least one H&F Director, if at such time H&F's Retained
Percentage equals or exceeds 50%, the Company shall not (and shall not permit
any of its Subsidiaries to):

          (1) amend, or propose to amend, its certificate of incorporation,
     memorandum of association, bye-laws, or other organizational documents, or
     amend, terminate or waive any provision under, the Subscription Agreement
     or any other Agreement entered into in connection therewith;

          (2) split, consolidate, combine, subdivide, redeem or reclassify its
     share capital or other equity interests, or amend any term of the
     outstanding securities of the Company or its Subsidiaries;

          (3) declare, set aside, make or pay any dividend or other distribution
     in respect of its share capital or other equity interests, or purchase or
     redeem, directly or indirectly, any share capital or other equity interests
     (other than (A) dividends by a Subsidiary of the Company to the Company or
     a Subsidiary of the Company, and (B) dividends or other distributions by
     any entity in which the Company or any Subsidiary owns a minority interest,
     made in the normal course of business, consistent with past practice);

          (4) other than (A) in respect of grants or exercises under the 1999
     Long Term Incentive and Share Award Plan, the 1995 Long Term Incentive and
     Share Award Plan and the Long Term Incentive Plan for New Employees, (B)
     issuances of securities pursuant to the Subscription Agreement and the
     Management Subscription Agreement, and (C) issuances of securities upon
     conversion or exercise of securities issued pursuant to clause (B) or of
     securities outstanding on the date hereof, issue, deliver or sell, or
     authorize the issuance, delivery or sale of, any share capital of any
     class, any equity interest, or any options, warrants, conversion or other
     rights to purchase any such shares or equity interests, or any securities
     convertible into or exchangeable for such shares or equity interests, or
     issue or authorize the issuance of any other security in respect of or in
     lieu of or in substitution for shares of capital or equity interests, or
     enter into any agreements restricting the transfer of, or affecting the
     rights of holders of, Common Shares, grant any preemptive or anti-dilutive
     rights to any holder of any class of securities of the Company, or grant
     registration rights with respect to any of the Company's securities;

          (5) amend or waive any rights under any grants made under the Long
     Term Incentive Plan for New Employees;

<PAGE>
                                      -15-

          (6) incur any indebtedness for borrowed money, guarantee any such
     indebtedness or issue or sell any debt securities, in excess of $5,000,000
     in the aggregate, or prepay or refinance any indebtedness for borrowed
     money;

          (7) engage in any Interested Party Transaction;

          (8) acquire any assets or properties for cash or otherwise for an
     amount in excess of $5,000,000 in the aggregate;

          (9) acquire, whether by means of merger, stock or asset purchase,
     joint venture or other similar transaction, any equity interest in, or all
     or substantially all of the assets of any Person, or any business or
     division of any Person;

          (10) replace the independent auditors of the Company or make any
     material change in any method of financial accounting or accounting
     practice, except for any such change required by reason of a concurrent
     change in U.S. generally accepted accounting principles;

          (11) sell or otherwise dispose of assets material to the Company and
     its Subsidiaries taken as a whole, except as specifically contemplated by
     the Subscription Agreement;

          (12) increase by 5% or more the annual base compensation of any
     officer or key employee of the Company, or enter into or make any material
     change in any severance contract or arrangement with any such officer or
     key employee;

          (13) consummate a complete liquidation or dissolution of the Company,
     a merger or consolidation (A) in which the Company or any Subsidiary is a
     constituent corporation or (B) with respect to which the Common Shares
     would have the right to vote under applicable law, a sale of all or
     substantially all of the Company's assets, or any similar business
     combination; provided, however, that the foregoing shall not apply to any
     merger or consolidation solely between or among wholly owned Subsidiaries
     of the Company, other than any such transaction between Subsidiaries which
     are considered "Core Insurance Operations" under Section E, and
     Subsidiaries which are not considered "Core Insurance Operations";

          (14) enter into any transaction involving in excess of $1,000,000, or,
     if such transaction is in the ordinary course of business consistent with
     past practice, $5,000,000;

          (15) approve the annual plan, annual capital expenditure budget or the
     five-year plan of the Company and its Subsidiaries, taken as a whole;

<PAGE>
                                      -16-

          (16) remove the Chief Executive Officer or Chairman of the Company, or
     appoint a new Chief Executive Officer or Chairman of the Company; or

          (17) enter into any agreement with respect to the foregoing; provided,
     however, transactions solely between or among the Company and/or one or
     more of its wholly owned Subsidiaries shall be excluded from clauses (6),
     (8), (9), (11) and (14) (and from clause (17) to the extent relating to an
     agreement with respect to a transaction excluded by this proviso), other
     than any such transaction between Subsidiaries which are considered "Core
     Insurance Operations" under Section E, and Subsidiaries which are not
     considered "Core Insurance Operations". In addition, prior to the Approval
     Date, and after the Approval Date for so long as the Warburg Directors and
     the H&F Directors together constitute a majority of the Board, (i) the
     notice for each meeting of the Board called by the Chairman of the Board,
     the President of the Company, the Warburg Directors or the H&F Directors
     shall include a list of topics to be discussed at the meeting (the
     "Agenda") and (ii) the Board shall not act on any matter that is not within
     the Agenda without the consent of at least one Warburg Director and at
     least one H&F Director.

Nothing in this Section 3.3 shall grant either H&F or Warburg any right or
consent to the extent that such right would result in such party being deemed to
"control" an insurance subsidiary of the Company that is domiciled in any state
in the United States, where the exercise of such control would otherwise require
the prior approval of such state. In addition, the rights of Warburg and H&F set
forth in this Section 3.3 shall, in any event, terminate upon the mandatory
conversion of the Preference Shares under paragraph (g)(2) of the Certificate of
Designations for the Preference Shares (the "Mandatory Conversion Date") or the
earlier conversion of all Preference Shares in accordance with their terms.

     Section 3.4. Voting. Each Investor agrees to vote all Voting Securities
Beneficially Owned by such Investor or by any controlled Affiliate of such
Investor in favor of (a) the proposals to be submitted for approval of the
shareholders of the Company at the special general meeting of the Company's
shareholders to be held in connection with the Transactions and (b) the
proposals to approve the grant to Robert Clements of 1,689,629 restricted shares
and the grant to John M. Pasquesi of options to purchase 1,126,419 Common Shares
at $20.00 per share, which grants were made in connection with the Transactions,
which such proposals will be submitted for approval of the shareholders of the
Company at the 2002 annual general meeting of the Company's shareholders.

     Section 3.5. Chairman of the Company. For so long as he is willing and able
to serve as the Chairman of the Company, Warburg and H&F agree to take such
actions as may be necessary to cause Robert Clements to be duly elected as
Chairman of the Company.

<PAGE>
                                      -17-

     Section 3.6. Certain Transactions. For a period of two years after the
Closing, except for transactions specifically contemplated by this Agreement,
the Related Agreements (as defined in the Subscription Agreement) or the
Purchased Securities, neither Warburg nor H&F nor any of their respective
Affiliates will, directly or indirectly, without the prior approval of a
majority of the Independent Directors: (a) acquire securities or assets from the
Company or any of its Subsidiaries, (b) engage in any "Rule 13e-3 transaction"
(as such term is defined in Rule 13e-3(a)(3) under the Securities Exchange Act
of 1934, as amended) involving the Company, or (c) engage in any other
transaction that would result in the compulsory acquisition of Common Shares.
The Company shall not agree to amend this Section 3.6, without the prior
approval of a majority of the Independent Directors. The Company, Warburg and
H&F shall endeavor to include at all times two Independent Directors on the
Board.

                                   ARTICLE IV

                               REGISTRATION RIGHTS

     Section 4.1. Demand Registrations. (a) Warburg may at any time following
the date hereof and on not more than five separate occasions in the aggregate
and not more frequently than once during any 180 day period, require the Company
to file a registration statement under the Securities Act in respect of all or a
portion of the Investor Shares then Beneficially Owned by Warburg or by any
other person that Beneficially Owns Investor Shares and who acquired such
Investor Shares in connection with such person's status as a partner in any
partnership in which Warburg or any of its Affiliates is the general partner
(all such Investor Shares, the "Warburg Registrable Shares") (provided that such
request covers Warburg Registrable Shares with a Market Value on the date of the
Demand Request of at least $25 million), by delivering to the Company a written
notice stating that such right is being exercised, specifying the number of
Common Shares to be included in such registration (the shares subject to such
request, the "Warburg Demand Shares") and describing the intended method of
distribution thereof (a "Warburg Demand Request"). Upon receiving a Warburg
Demand Request, the Company shall (1) provide written notice of the Warburg
Demand Request, pursuant to Section 4.3 hereof, to H&F and each other Investor,
(2) use reasonable efforts to file as promptly as reasonably practicable a
registration statement on such form as the Company may reasonably deem
appropriate providing for the registration of the sale of such Warburg Demand
Shares and any other Investor Shares to be included pursuant to Sections 4.3 and
4.4 hereof pursuant to the intended method of distribution and (3) after the
filing of an initial version of the registration statement, use reasonable
efforts to cause such registration statement to be declared effective under the
Securities Act as promptly as practicable after the date of filing of such
registration

<PAGE>
                                      -18-

statement. Any Demand Registration filed pursuant to the request of Warburg may,
subject to the provisions of Section 4.4 below, include other Common Shares that
the Company is required to include in such registration statement by virtue of
existing agreements between the holders of such Common Shares and the Company
(the "Existing Registration Rights").

     (b) H&F may at any time following the date hereof and on not more than five
separate occasions in the aggregate and not more frequently than once during any
180 day period, require the Company to file a registration statement under the
Securities Act in respect of all or a portion of the Investor Shares then
Beneficially Owned by H&F or by any other person that Beneficially Owns Investor
Shares and who acquired such Investor Shares in connection with such person's
status as a partner in any partnership in which H&F or any of its Affiliates is
the general partner (all such Common Shares, the "H&F Registrable Shares," and
together with the Warburg Registrable Shares, the "Registrable Shares")
(provided that such request covers H&F Registrable Shares with a Market Value on
the date of the Demand Request of at least $25 million), by delivering to the
Company a written notice stating that such right is being exercised, specifying
the number of Common Shares to be included in such registration (the shares
subject to such request, the "H&F Demand Shares") and describing the intended
method of distribution thereof (a "H&F Demand Request"). Upon receiving a H&F
Demand Request, the Company shall (1) provide written notice of the H&F Demand
Request, pursuant to Section 4.3 hereof, to Warburg and each other Investor, (2)
use reasonable efforts to file as promptly as reasonably practicable a
registration statement on such form as the Company may reasonably deem
appropriate providing for the registration of the sale of such H&F Demand Shares
and any other Investor Shares to be included therein pursuant to Section 4.3 and
4.4 hereof pursuant to the intended method of distribution, and (3) after the
filing of an initial version of the registration statement, use reasonable
efforts to cause such registration statement to be declared effective under the
Securities Act as promptly as practicable after the date of filing of such
registration statement. Any Demand Registration filed pursuant to the request of
H&F may, subject to the provisions of Section 4.4 below, include other Common
Shares that the Company is required to include in such registration statement by
virtue of the Existing Registration Rights.

     (c) Notwithstanding anything in this Agreement to the contrary, the Company
shall be entitled to postpone and delay, for reasonable periods of time not to
exceed 60 consecutive days and in no event to exceed more than an aggregate of
90 days during any 360-day period (a "Blackout Period"), the filing or
effectiveness of any Demand Registration if the Board shall determine that any
such filing or the offering of any Registrable Shares would (1) in the good
faith judgment of the Board, impede, delay or otherwise interfere with any
pending or contemplated acquisition, corporate reorganization or other similar
material transaction involving the Company (each, a "Material Transaction"), (2)
based upon advice from the Company's investment banker or financial advisor,
adversely affect any pending or contemplated financing, offering or sale of any
class of securities by the Company, or (3) in

<PAGE>
                                      -19-

the good faith judgment of the Board, require disclosure of material non-public
information (other than information relating to an event described in clauses
(1) or (2) above) which, if disclosed at such time, would be harmful to the best
interests of the Company and its shareholders. Upon notice by the Company to
each Investor of any such determination, such Investor shall keep the fact of
any such notice strictly confidential, and during any Blackout Period promptly
halt any offer, sale, trading or transfer by it or any of its Subsidiaries of
any Common Shares for the duration of the Blackout Period set forth in such
notice (or until such Blackout Period shall be earlier terminated in writing by
the Company) and promptly halt any use, publication, dissemination or
distribution of the Demand Registration, each prospectus included therein, and
any amendment or supplement thereto by it for the duration of the Blackout
Period set forth in such notice (or until such Blackout Period shall be earlier
terminated in writing by the Company) and, if so directed by the Company, will
deliver to the Company any copies then in its possession of the prospectus
covering such Registrable Shares.

     (d) In case a Demand Registration has been filed, if a Material Transaction
has occurred, the Company may cause such Demand Registration to be withdrawn and
its effectiveness terminated or may postpone amending or supplementing such
Demand Registration for a reasonable period of time; provided, however, that in
no event shall a Demand Registration so withdrawn by the Company count for the
purposes of determining the number of Demand Registrations to which either
Warburg or H&F is entitled under Section 4.1(a) or (b).

     (e) In connection with any underwritten offering under this Section 4.1,
the managing underwriter for such Demand Registration shall be jointly selected
by Warburg and H&F, provided that such managing underwriter shall be a
nationally recognized investment banking firm.

     (f) Nothing in this Article IV shall affect or supersede any of the
transfer restrictions set forth in Article V hereof or any of the other
provisions of this Agreement.

     Section 4.2. Shelf Registration. At the request of either Warburg or H&F,
the Company shall use reasonable best efforts to file a registration statement
on Form S-3, or any successor form thereto, covering the offering of Investor
Shares by all Investors (subject to the provisions of Section 5.2 hereof) on a
delayed or continuous basis (the "Shelf Registration Statement") to be effective
as soon as reasonably practicable following the Closing Date. Upon effectiveness
of the Shelf Registration Statement, the Company will use its reasonable best
efforts to keep the Shelf Registration Statement effective with the SEC until
such time the Investor Shares held by all Investors are freely tradable under
Rule 144(k) under the Securities Act. Notwithstanding the foregoing, the Company
may suspend the effectiveness of the Shelf Registration Statement during any
Blackout Period.

<PAGE>
                                      -20-

     Section 4.3. Piggy-Back Registration. If, at any time following the date
hereof, the Company proposes to register any Common Shares under the Securities
Act on its behalf or on behalf of any of its shareholders (including pursuant to
a Demand Registration), on a form and in a manner that would permit registration
of Common Shares (other than in connection with dividend reinvestment plans,
rights offerings or a registration statement on Form S-4 or S-8 or any similar
successor form), the Company shall give reasonably prompt written notice to each
Investor of its intention to do so. Upon the written election of any Investor (a
"Piggy-Back Request"), given within ten Business Days following the receipt by
such Investor of any such written notice (which election shall specify the
number of the Investor Shares intended to be disposed of by such Investor), the
Company shall include in such registration statement (a "Piggy-Back
Registration"), subject to the provisions of Section 4.4 hereof, such number of
the Investor Shares as shall be set forth in such Piggy-Back Request.

     Section 4.4. Allocation of Shares to be Registered. In the event that the
Company proposes to register Common Shares in connection with an underwritten
offering and a nationally recognized investment banking firm selected by the
Company, or in the case of a Demand Registration selected by Warburg and H&F, to
act as managing underwriter thereof reasonably and in good faith shall have
advised the Company and each Investor in writing that, in its opinion, the
inclusion in the registration statement of some or all of the Investor Shares
sought to be registered in a Piggy-Back Request would adversely affect the price
or success of the offering, the Company shall include in such registration
statement such number of Common Shares as the Company is advised can be sold in
such offering without such an effect (the "Maximum Number") as follows and in
the following order of priority: (a) first, if such registration is not in
connection with a Demand Registration, such number of Common Shares, if any, as
the Company intended to be registered by the Company for its own account, or to
be registered pursuant to Existing Registration Rights, to the extent such
Existing Registration Rights so require; (b) second, if and to the extent that
the number of Common Shares to be registered under clause (a) is less than the
Maximum Number (or because the registration is a Demand Registration, in which
case the Company is not permitted to offer Common Shares), such number of
Investor Shares as Warburg, H&F, Trident, Farallon and GE (and, to the extent
required by any Existing Registration Rights, any other holder of Common Shares
having such rights) shall have intended to register which, when added to the
number of Common Shares to be registered under clause (a), is less than or equal
to the Maximum Number, it being understood that the number of shares included by
Warburg, H&F, Trident, Farallon and GE (and such other holders under Existing
Registration Rights) shall be cut back, if necessary, in proportion to their
relative ownership at the time; and (c) third, if and to the extent that the
number of Common Shares to be registered under clause (b) is less than the
Maximum Number, such number of Investor Shares as the Participating Investors
(other than Warburg, H&F, Trident, Farallon and GE (and such other holders under
Existing Registration Rights)) shall have intended to register which, when

<PAGE>
                                      -21-

added to the number of Common Shares to be registered under clauses (a) and (b),
is less than or equal to the Maximum Number, it being understood that the number
of shares included by the Participating Investors (other than Warburg, H&F,
Trident, Farallon and GE (and such other holders under Existing Registration
Rights)) shall be cut back, if necessary, in proportion to their relative
ownership.

     Section 4.5. Registration Procedures. (a) In connection with each
registration statement prepared pursuant to this Article IV, and in accordance
with the intended method or methods of distribution of the Investor Shares as
described in such registration statement, the Company shall, as soon as
reasonably practicable and to the extent practicable:

          (1) prepare and file with the SEC a registration statement on an
     appropriate registration form and use reasonable efforts to cause such
     registration statement to become and remain effective as promptly as
     reasonably practicable; provided that before filing a registration
     statement or prospectus or any amendments or supplements thereto, the
     Company shall furnish to counsel to H&F and Warburg, if disposing of
     Registrable Shares under such registration statement, draft copies of all
     such documents proposed to be filed at least five days prior to such
     filing, which documents will be subject to the reasonable review of each of
     H&F and Warburg, as appropriate, and its agents and representatives;

          (2) furnish without charge to each Investor seeking to dispose of
     Investor Shares thereunder (each, a "Participating Investor"), and the
     managing underwriter or underwriters, if any, at least one conformed copy
     of the registration statement and each post-effective amendment or
     supplement thereto (but excluding schedules, all documents incorporated or
     deemed incorporated therein by reference and all exhibits, unless requested
     in writing by such Participating Investor or such underwriter) and such
     number of copies of the summary, preliminary, final, amended or
     supplemented prospectuses included in such registration statement as such
     Participating Investor or such underwriter may reasonably request;

          (3) except with respect to a Shelf Registration Statement, the
     obligations of the Company with respect to the effectiveness thereof to be
     governed by Section 4.2, use reasonable best efforts to keep such
     registration statement effective for the earlier of (A) 180 days and (B)
     such time as all of the securities covered by the registration statement
     have been disposed (the "Effective Period"); prepare and file with the SEC
     such amendments, post-effective amendments and supplements to the
     registration statement and the prospectus as may be necessary to maintain
     the effectiveness of the registration for the Effective Period and to cause
     the prospectus (and any amendments or supplements thereto) to be filed;

<PAGE>
                                      -22-

          (4) use reasonable efforts to register or qualify the Investor Shares
     covered by such registration statement under such other securities or "blue
     sky" laws of such jurisdictions in the United States as are reasonably
     necessary, keep such registrations or qualifications in effect for so long
     as the registration statement remains in effect, and do any and all other
     acts and things which may be reasonably necessary to enable each
     Participating Investor or any underwriter to consummate the disposition of
     the Investor Shares in such jurisdictions;

          (5) use reasonable efforts to cause the Investor Shares to be
     registered with or approved by such other governmental agencies or
     authorities as may be necessary to enable each Participating Investor to
     consummate the disposition of the Investor Shares;

          (6) use reasonable efforts to cause all Investor Shares covered by
     such registration statement to be listed on the Nasdaq or on the principal
     securities exchange on which the Common Shares are then listed;

          (7) promptly notify each Participating Investor and the managing
     underwriter or underwriters, if any, after becoming aware thereof, (A) when
     the registration statement or any related prospectus or any amendment or
     supplement thereto has been filed, and, with respect to the registration
     statement or any post-effective amendment, when the same has become
     effective, (B) of any request by the SEC for amendments or supplements to
     the registration statement or the related prospectus or for additional
     information, (C) of the issuance by the SEC of any stop order suspending
     the effectiveness of the registration statement or the initiation of any
     proceedings for that purpose, (D) of the receipt by the Company of any
     notification with respect to the suspension of the qualification of the
     Investor Shares to be registered for sale in any jurisdiction or the
     initiation of any proceeding for such purpose or (E) within the Effective
     Period of the happening of any event or the existence of any fact that
     makes any statement in the registration statement or any post-effective
     amendment thereto, prospectus or any amendment or supplement thereto, or
     any document incorporated therein by reference untrue in any material
     respect or which requires the making of any changes in the registration
     statement or post-effective amendment thereto or any prospectus or
     amendment or supplement thereto so that they will not contain any untrue
     statement of a material fact or omit to state any material fact required to
     be stated therein or necessary to make the statements therein, in light of
     the circumstances under which they were made, not misleading;

          (8) during the Effective Period, use its reasonable efforts to obtain
     the withdrawal of any order enjoining or suspending the use or
     effectiveness of the registration statement or any post-effective amendment
     thereto;

<PAGE>
                                      -23-

          (9) deliver promptly to each of Warburg and H&F, if disposing of
     Investor Shares under such registration statement, copies of all
     correspondence between the SEC and the Company, its counsel or auditors and
     all memoranda relating to discussions with the SEC or its staff with
     respect to the registration statement and permit each of Warburg and H&F,
     if disposing of Investor Shares under such registration statement, to do
     such investigation, with respect to information contained in or omitted
     from the registration statement, as it reasonably deems necessary;

          (10) in the case of an underwritten offering, use best efforts to
     enter into an underwriting agreement customary in form and scope for
     underwritten secondary offerings of the nature contemplated by the
     applicable registration statement;

          (11) provide a transfer agent and registrar for all such Investor
     Shares covered by such registration statement not later than the effective
     date of such registration statement, subject to any applicable laws or
     regulations; and

          (12) cooperate with each Participating Investor and the managing
     underwriter or underwriters, if any, to facilitate the timely preparation
     and delivery of certificates representing such Investor Shares to be sold
     under the registration statement; and, in the case of an underwritten
     offering, enable such Investor Shares to be in such denominations and
     registered in such names as the managing underwriter or underwriters, if
     any, may request in writing at least two Business Days prior to any sale of
     the Investor Shares to the underwriters.

     (b) In the event that the Company would be required, pursuant to Section
4.5(a)(7)(E) above, to notify each Participating Investor or the managing
underwriter or underwriters, if any, of the happening of any event specified
therein, the Company shall, subject to the provisions of Section 4.1(c) hereof,
as promptly as practicable, prepare and furnish to each Participating Investor
and to each such underwriter a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Investor Shares that have been registered pursuant to this Agreement, such
prospectus shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each Participating Investor agrees that, upon receipt of
any notice from the Company pursuant to Section 4.5(a)(7)(E) hereof, it shall,
and shall use its reasonable best efforts to cause any sales or placement agent
or agents for the Investor Shares and the underwriters, if any, to, forthwith
discontinue disposition of the Investor Shares until such Person shall have
received copies of such amended or supplemented prospectus and, if so directed
by the Company, to destroy or to deliver to the Company all copies, other than
permanent file copies, then in its possession of the prospectus (prior to such

<PAGE>
                                      -24-

amendment or supplement) covering such Investor Shares as soon as practicable
after such Participating Investor's receipt of such notice.

     (c) Each Participating Investor shall furnish to the Company in writing its
intended method of distribution of the Investor Shares it proposes to dispose of
and such other information as the Company may from time to time reasonably
request in writing, but only to the extent that such information is required in
order for the Company to comply with its obligations under all applicable
securities and other laws and to ensure that the prospectus relating to such
Investor Shares conforms to the applicable requirements of the Securities Act.
Each Participating Investor shall notify the Company as promptly as practicable
of any inaccuracy or change in information previously furnished by such
Participating Investor to the Company or of the occurrence of any event, in
either case as a result of which any prospectus relating to the Investor Shares
contains or would contain an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly furnish to the Company any additional information
required to correct and update any previously furnished information or required
so that such prospectus shall not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

     (d) In the case of any registration under Section 4.1 hereof pursuant to an
underwritten offering, or in the case of a registration under Section 4.3 hereof
if the Company has determined to enter into an underwriting agreement in
connection therewith, all Investor Shares to be included in such registration
shall be subject to the applicable underwriting agreement and no Person may
participate in such registration unless such Person agrees to sell such Person's
securities on the basis provided therein and completes and executes all
questionnaires, indemnities, underwriting agreements and other documents (other
than powers of attorney) which must be executed in connection therewith, and
provides such other information to the Company or the underwriter as may be
reasonably requested to register such Person's Investor Shares.

     Section 4.6. Registration Expenses. The Company shall bear all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, fees and expenses in connection with the review of underwriting
arrangements by the NASD Regulation, Inc. (including the fees of any "qualified
independent underwriter"), agent fees and commissions, printing costs and fees
and disbursements of its counsel, and of one counsel as may be reasonably
selected by Warburg and H&F on behalf of the Participating Investors, and
accountants, in each case, in connection with any registration and listing of
any Investor Shares pursuant to Section 4.1, 4.2 or 4.3, other than underwriting
discounts or

<PAGE>
                                      -25-

commissions in connection with the Investor Shares disposed of by any
Participating Investor, which shall be borne by such Participating Investor.

     Section 4.7. Indemnification; Contribution. (a) The Company shall, and it
hereby agrees to, indemnify and hold harmless each Participating Investor and
its partners, members, officers, directors, employees and controlling Persons,
if any, and each underwriter, its partners, officers, directors, employees and
controlling Persons, if any, in any offering or sale of Common Shares, against
any losses, claims, damages or liabilities to which each such indemnified party
may become subject, insofar as such losses, claims, damages or liabilities, or
actions or proceedings in respect thereof, including any amounts paid in
settlement as provided herein (collectively, "Claims"), arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any registration statement, or any preliminary or final prospectus
contained therein, or any amendment or supplement thereto, or any document
incorporated by reference therein, or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and the Company shall,
and it hereby agrees to, reimburse each Participating Investor or any such
underwriter for any legal or other out-of-pocket expenses reasonably incurred by
it in connection with investigating or defending any such Claims; provided,
however, that the Company shall not be liable to any such Person in any such
case to the extent that any such Claims arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, or preliminary or final prospectus, or amendment or
supplement thereto, in reliance upon and in conformity with information
furnished in writing to the Company by such Participating Investor or any
underwriter expressly for use therein.

     (b) Each Participating Investor shall, and hereby agrees to (1) indemnify
and hold harmless the Company, its directors, officers, employees and
controlling Persons, if any, and each underwriter, its partners, officers,
directors, employees and controlling Persons, if any, in any offering or sale of
Common Shares, against any Claims to which each such indemnified party may
become subject, insofar as such Claims arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, or any preliminary or final prospectus contained
therein, or any amendment or supplement thereto, or any document incorporated by
reference therein, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case only to
the extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Participating Investor expressly
for use therein, and (2) reimburse the Company for any legal or other
out-of-pocket expenses reasonably incurred by the Company in connection with
investigating or defending any such Claim.

<PAGE>
                                      -26-

     (c) Promptly after receipt by an indemnified party under Section 4.7(a) or
Section 4.7(b) of written notice of the commencement of any action or proceeding
for which indemnification under Section 4.7(a) or Section 4.7(b) may be
requested, such indemnified party shall notify the indemnifying party in writing
of the commencement of such action or proceeding, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party in respect of such action or proceeding hereunder
unless the indemnifying party was materially prejudiced by such failure of the
indemnified party to give such notice, and in no event shall such omission
relieve the indemnifying party from any other liability it may have to such
indemnified party. In case any such action or proceeding shall be brought
against any indemnified party and it shall notify an indemnifying party of the
commencement thereof, such indemnifying party shall be entitled to participate
therein and, to the extent that it shall determine, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, such indemnifying party shall not be liable to such
indemnified party for any legal or any other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. If the indemnifying party is not entitled to,
or elects not to, assume the defense of a claim, it will not be obligated to pay
the fees and expenses of more than one counsel for each indemnified party with
respect to such claim. The indemnifying party will not be subject to any
liability for any settlement made without its consent, which consent shall not
be unreasonably withheld or delayed. No indemnifying party shall, without the
prior written consent of the indemnified party, compromise or consent to entry
of any judgment or enter into any settlement agreement with respect to any
action or proceeding in respect of which indemnification is sought under Section
4.7(a) or Section 4.7(b) (whether or not the indemnified party is an actual or
potential party thereto), unless such compromise, consent or settlement includes
an unconditional release of the indemnified party from all liability in respect
of such claim or litigation and does not subject the indemnified party to any
material injunctive relief or other material equitable remedy.

     (d) Each Participating Investor and the Company agree that if, for any
reason, the indemnification provisions contemplated by Sections 4.7(a) or 4.7(b)
hereof are unavailable to or are insufficient to hold harmless an indemnified
party in respect of any Claims referred to therein (other than as a result of
the provisos thereto), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such Claims in
such proportion as is appropriate to reflect the relative fault of and benefits
derived by the indemnifying party, on the one hand, and the indemnified party,
on the other hand, as well as other equitable considerations. The amount paid or
payable by an indemnified party as a result of the Claims referred to above
shall be deemed to include (subject to the limitations set forth in Section
4.7(c) hereof) any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action,
pro-

<PAGE>
                                      -27-

ceeding or claim. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.

                                    ARTICLE V

                      TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS;
                     RESTRICTIONS ON TRANSFER AND CONVERSION

     Section 5.1. Tag-Along Rights; Drag-Along Rights. (a) In the event that
Warburg, H&F or GE proposes to sell, convey, dispose or otherwise transfer
Initial Shares (such party proposing to sell, the "Selling Investor") in a bona
fide transaction to an un-Affiliated third party, or in a series of related bona
fide transactions to multiple un-Affiliated third parties, and the net proceeds
of such sale are reasonably expected to exceed $50 million (such a transaction,
or series of related transactions, a "Third Party Sale"), such Selling Investor
shall notify the other Investors having rights under this Section 5.1 (each such
other Investor, a "Tag-Along Investor") in writing of such Third Party Sale,
which notice shall set forth the material terms of such Third Party Sale,
including, without limitation, the number of Initial Shares proposed to be sold
and the per share price thereof (the "Third Party Sale Notice"). Such Tag-Along
Investor shall have the right, but not the obligation, to participate in such
Third Party Sale with respect to Initial Shares upon providing the Selling
Investor written notice of intent to exercise such right within ten Business
Days of the receipt of Third Party Sale Notice; provided, however, that (i) GE
shall have such rights only (A) if Warburg is the Selling Investor, or (B) if
H&F is the Selling Investor and Warburg shall have exercised its rights to
become at Tag-Along Investor under this Section 5.1, and (ii) Farallon shall
have such rights only (A) if H&F is the Selling Investor, or (B) if Warburg is
the Selling Investor and H&F shall have exercised its rights to become a
Tag-Along Investor under this Section 5.1. Such notice shall set forth the
number of Initial Shares that such Tag-Along Investor desires to sell in such
Third Party Sale, which such number shall not exceed that number of Initial
Shares equal to the product of (i) the number of Initial Shares set forth in the
Third Party Sale Notice, and (ii) the quotient of (A) the Retained Investment of
such Tag-Along Investor, over (B) the sum of (I) the Retained Investment of the
Selling Investor, and (II) the Retained Investment of all Tag-Along Investors.
Notwithstanding the foregoing, this Section 5.1 shall not be applicable to any
sale effected in the public markets (including by means of a "block trade"
effected through any registered broker-dealer), or to any distribution to
partners of any partnership in which either Warburg or H&F, or any of their
respective Affiliates, is the general partner.

<PAGE>
                                      -28-

     (b) In the event that Warburg or H&F proposes to become a Selling
Investor under Section 5.1(a), Trident shall have the rights of a Tag-Along
Investor under Section 5.1(a).

     (c) In the event that Warburg and/or H&F proposes to sell, convey, dispose
or otherwise transfer Initial Shares representing either 51% of the votes then
entitled to be cast in the election of directors, or 51% of the then outstanding
Common Shares (taking into account Common Shares issuable upon conversion of the
Preference Shares) in a transaction, or in a series of related transactions, to
a single Person or group, Warburg and H&F shall have the right to require that
Trident, and Trident shall have the obligation to, participate in such
transaction, up to a number of Initial Shares then Beneficially Owned by Trident
that shall not exceed that number of Initial Shares equal to the product of (i)
the number of Initial Shares proposed to be transferred, and (ii) the quotient
of (A) the Retained Investment of Trident, over (B) the sum of (I) the Retained
Investment of Warburg and H&F, and (II) the Retained Investment of Trident and
all other Investors participating in such sale.

     (d) No Tag-Along Investor under this Sections 5.1 shall be required to
assume any responsibility for any indemnification obligations arising under such
Third Party Sale in excess of the proportion of the number of Initial Shares
sold by such party to the total number of Initial Shares sold in such Third
Party Sale; provided, however, that the limitation provided in this Section
5.1(d) shall not be applicable to any indemnification obligations resulting from
representations or warranties specifically relating to, and made by or on behalf
of, such party.

     Section 5.2. Restrictions on Transfer. Until the earliest to occur of (a)
the first anniversary of the Closing, (b) the occurrence of any event that would
cause Company's outstanding Class B Warrants to vest and/or become exercisable,
or (c) the completion by the Company of a registered public offering of Common
Shares the net proceeds to the Company of which exceed $25 million, each of
Warburg, H&F, Farallon, GE and Trident, and each Management Purchaser, agrees
that it or he will not sell, dispose, convey or otherwise transfer any of such
Investor's Initial Shares if, following the consummation of such sale, the
Retained Percentage of such Investor would be less that 66%; provided, however,
that GE and Farallon shall have the right to sell, dispose, convey or otherwise
transfer Initial Shares to any GE Permitted Transferee or any Farallon Permitted
Transferee, respectively; provided, further, that such GE Permitted Transferee
or such Farallon Permitted Transferee, as the case may be, shall become a party
hereto and agree to be bound by the terms hereof. Following the earliest to
occur of clauses (a), (b) or (c) in the preceding sentence, there shall be no
restrictions on transfer of any Initial Shares, except as may be imposed by
applicable law, including by the Securities Act. Nothing in this Section 5.2
shall be deemed to affect any disposition of Initial Shares pursuant to the
terms of any merger, consolidation or other business combination transaction, or
to the tender of any Initial Shares into any tender or

<PAGE>
                                      -29-

exchange offer, provided, that such merger, consolidation or other business
combination has been approved by, or such tender or exchange offer has been
recommended to, the shareholders of the Company by, the Board.

     Section 5.3. Restrictions on Conversion. Prior to the receipt of the
Requisite Nasdaq Approval, no Investor shall convert any Preference Share or
exercise any Class A Warrant, if the number of Common Shares to be issued to
such Investor upon such conversion or exercise, together with all Common Shares
issued upon prior conversions or exercise by such holder, would exceed such
Investor's Permissible Conversion Amount. An Investor's "Permissible Conversion
Amount" shall be a number of Common Shares equal to the product of (a) the total
number of Common Shares issuable to such Investor upon conversion or exercise of
all such Investor's Initial Shares, and (b) a fraction the numerator of which is
(i) (A) the lesser of (x) the product of .199 times the total number of Common
Shares issued and outstanding on November 19, 2001 and (y) the product of .199
times the total voting power of the Common Shares issued and outstanding on
November 19, 2001, minus (B) the 140,380 Common Shares issued on November 20,
2001, and the denominator of which is (ii) the total number of Common Shares
issuable upon conversion or exercise of all Initial Shares. Prior to the Receipt
of the Requisite Shareholder Approval, each holder of Preference Shares and
Class A Warrants issued under the Subscription Agreement or the Management
Subscription Agreement shall require any transferee of Preference Shares or
Class A Warrants to agree to this restriction, such that it applies to such
transferee as if such transferee had acquired such securities at Closing, and
attributing to such transferee a pro rata portion of any conversion or exercise
by the transferor, prior to such transfer. Prior to receipt of the Requisite
Regulatory Approval, no Investor shall convert any Preference Shares into Common
Shares or exercise any Class A Warrants unless all necessary approvals for such
ownership of Common Shares have been obtained, it being understood that, subject
to Section 5.2 hereof, this restriction on conversion and exercise shall not
restrict an Investor from converting or exercising and selling, or otherwise
disposing of, the shares received on conversion or exercise in such a manner as
would not result in violation of any applicable regulation. GE shall not convert
any Preference Shares, or exercise any Class A Warrant, until such time as any
required waiting period, including extensions thereof, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired or been terminated.

<PAGE>
                                      -30-

                                   ARTICLE VI

                 RESTRICTIONS ON DIVIDENDS AND SHARE REPURCHASES

     The Company shall not declare any dividend or make any other distribution
on, or in respect of, any Common Shares, and shall not repurchase any Common
Shares, until such time as the Company has repurchased from Warburg and H&F, in
proportion to their respective Retained Investments at the time of such
repurchase, Initial Shares having an aggregate value of $250 million, at a per
share price acceptable to Warburg and H&F.

                                   ARTICLE VII

                          EFFECTIVENESS AND TERMINATION

     Section 7.1. Effectiveness. This Agreement shall take effect immediately
upon the Closing and shall remain in effect until it is terminated pursuant to
Section 7.2 hereof.

     Section 7.2. Termination. Other than with respect to Article IV hereof and
with respect to the termination provisions specifically elsewhere set forth in
this Agreement as may be applicable to any particular Section of this Agreement,
this Agreement shall terminate upon the earliest to occur of the following:

          (a) the tenth anniversary of the Closing; or

          (b) mutual written agreement of the Company, Warburg and H&F at any
     time to terminate this Agreement.

                                  ARTICLE VIII

                                  MISCELLANEOUS

     Section 8.1. Injunctive Relief. Each party hereto acknowledges that it
would be impossible to determine the amount of damages that would result from
any breach of any of the provisions of this Agreement and that the remedy at law
for any breach, or threatened breach, of any of such provisions would likely be
inadequate and, accordingly, agrees that each other party shall, in addition to
any other rights or remedies which it may have, be entitled to seek such
equitable and injunctive relief as may be available from any

<PAGE>
                                      -31-

court of competent jurisdiction to compel specific performance of, or restrain
any party from violating, any of such provisions. In connection with any action
or proceeding for injunctive relief, each party hereto hereby waives the claim
or defense that a remedy at law alone is adequate and agrees, to the maximum
extent permitted by law, to have each provision of this Agreement specifically
enforced against it, without the necessity of posting bond or other security
against it, and consents to the entry of injunctive relief against it enjoining
or restraining any breach or threatened breach of such provisions of this
Agreement.

     Section 8.2. Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of and be enforceable by the Company, Warburg and
H&F, and for the purposes of such provisions hereof as may be indicated
immediately above the signatures of Farallon, GE, Trident and each Management
Purchaser, and their respective successors and permitted assigns, and no such
term or provision is for the benefit of, or intended to create any obligations
to, any other Person, except as otherwise specifically provided in this
Agreement. Neither this Agreement nor any rights or obligations hereunder shall
be assignable without the consent of each other party; provided, however, that
in connection with any sale or transfer by Warburg or H&F of any Investor
Shares, the transferee of such Investor Shares may become a party hereto solely
for purposes of Article IV and Sections 3.4, 5.2 and 5.3 hereof and have the
rights of, and be subject to the obligations of, an "Investor" upon due
execution and delivery of a counterpart signature page hereto. Notwithstanding
the foregoing, GE or Farallon may assign its rights hereunder to any GE
Permitted Transferee or any Farallon Permitted Transferee, respectively,
provided such GE Permitted Transferee or Farallon Permitted Transferee, as the
case may be, becomes a party hereto and agrees to be bound by the terms hereof.

     Section 8.3. Amendments; Waiver. This Agreement may be amended only by an
agreement in writing executed by the parties hereto. Any party may waive in
whole or in part any benefit or right provided to it under this Agreement, such
waiver being effective only if contained in a writing executed by the waiving
party. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon breach thereof shall constitute a waiver of any
such breach or of any other covenant, duty, agreement or condition, nor shall
any delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.

     Section 8.4. Notices. Except as otherwise provided in this Agreement, all
notices, requests, claims, demands, waivers and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
by hand, when delivered personally or by facsimile transmission if promptly
electronically confirmed, as follows, or as set forth on the signature page
executed by the any Investor:

<PAGE>
                                      -32-

                  If to Company:

                  Arch Capital Group, Ltd.
                  20 Horseneck Lane
                  Greenwich, Connecticut 06830
                  Attention:  General Counsel
                  Telephone:  (203) 862-4300
                  Fax:  (203) 861-7240

                  with a copy to:

                  Cahill Gordon & Reindel
                  80 Pine Street
                  New York, New York 10005
                  Attention:  Immanuel Kohn, Esq.
                  Telephone:  (212) 701-3000
                  Fax:  (212) 269-5420

                  If to Warburg:

                  c/o Warburg, Pincus Equity Partners, L.P.
                  466 Lexington Avenue
                  New York, New York 10017
                  Attention:  Scott A. Arenare, Esq.
                  Telephone:  (212) 878-0600
                  Fax:  (212) 878-9200

                  with a copy to:

                  Wachtell, Lipton, Rosen & Katz
                  51 West 52nd Street
                  New York, NY  10019
                  Attention:  Andrew R. Brownstein, Esq.
                  Telephone:  (212) 403-1000
                  Fax:  (212) 403-2000

                  If to H&F:

                  c/o Hellman & Friedman LLC
                  One Maritime Plaza
                  Suite 1200
                  San Francisco, CA 94111
                  Attention:  Richard M. Levine, Esq.
                  Telephone:  (415) 788-5111
                  Fax:  (415) 788-0176

                  with a copy to:

                  Wachtell, Lipton, Rosen & Katz
                  51 West 52nd Street
                  New York, NY  10019
                  Attention:  Patricia A. Vlahakis, Esq.
                  Telephone:  (212) 403-1000
                  Fax:  (212) 403-2000

<PAGE>
                                      -33-

or to such other address, facsimile number or telephone as either party may,
from time to time, designate in a written notice given in a like manner.

     Section 8.5. Applicable Law. Except to the extent of the applicability of
the Companies Law of Bermuda to this Agreement, this Agreement shall be governed
by and construed in accordance with the laws of the State of New York with
regard to contracts formed and to be entirely performed within such state
without giving effect to principles of conflicts of law.

     Section 8.6. Headings. The descriptive headings of the several sections in
this Agreement are for convenience only and do not constitute a part of this
Agreement and shall not be deemed to limit or affect in any way the meaning or
interpretation of this Agreement. References to "Sections" and "Articles" herein
shall be to the Sections or Articles of this Agreement, unless the context
requires otherwise.

     Section 8.7. Integration. This Agreement and the other writings referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter.

     Section 8.8. Severability. If any term or provision of this Agreement or
any application thereof shall be declared or held invalid, illegal or
unenforceable, in whole or in part, whether generally or in any particular
jurisdiction, such provision shall be deemed

<PAGE>
                                      -34-

amended to the extent, but only to the extent, necessary to cure such
invalidity, illegality or unenforceability, and the validity, legality and
enforceability of the remaining provisions, both generally and in every other
jurisdiction, shall not in any way be affected or impaired thereby.

     Section 8.9. Consent to Jurisdiction. In connection with any suit, claim,
action or proceeding arising out of this Agreement, the parties each hereby
consent to the in personam jurisdiction of the United States federal courts and
state courts located in the Borough of Manhattan, City of New York, State of New
York; the Company, Warburg and H&F each agree that service in the manner set
forth in Section 8.4 hereof shall be valid and sufficient for all purposes; and
the parties each agree o, and irrevocably waive any objection based on forum non
conveniens or venue, appear in any United States federal court or state court
located in the Borough of Manhattan, City of New York, State of New York.

     Section 8.10. Counterparts. This Agreement may be executed by the parties
hereto in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.

<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective authorized officers as of the date set forth at the
head of this Agreement.

                             ARCH CAPITAL GROUP LTD.

                             By:    /s/ Louis T. Petrillo
                                    --------------------------------------------
                                    Name:    Louis T. Petrillo
                                    Title:   Senior Vice President and
                                             General Counsel

                             HFCP IV (BERMUDA), L.P.

                             By:    H&F Investors IV (Bermuda), L.P.,
                                    its General Partner,

                                    By:   H&F Corporate Investors IV
                                          (Bermuda) Ltd., its General Partner

                             By:    /s/ David R. Tunnell
                                    --------------------------------------------
                                    Name:    David R. Tunnell
                                    Title:   Authorized Signatory

                             H&F INTERNATIONAL PARTNERS
                                  IV-A (BERMUDA), L.P.

                             By:    H&F Investors IV (Bermuda), L.P.,
                                    its General Partner,

                                    By:   H&F Corporate Investors IV
                                          (Bermuda) Ltd., its General Partner

                             By:    /s/ David R. Tunnell
                                    --------------------------------------------
                                    Name:    David R. Tunnell
                                    Title:   Authorized Signatory

<PAGE>

                             H&F INTERNATIONAL PARTNERS
                                  IV-B (BERMUDA), L.P.

                             By:    H&F Investors IV (Bermuda), L.P.,
                                                            its General Partner,

                                   By:   H&F Corporate Investors IV
                                         (Bermuda) Ltd., its General Partner

                            By:    /s/ David R. Tunnell
                                   ---------------------------------------------
                                   Name:    David R. Tunnell
                                   Title:   Authorized Signatory

                            H&F EXECUTIVE FUND IV
                                 (BERMUDA), L.P.

                            By:    H&F Investors IV (Bermuda), L.P.,
                                   its General Partner,

                                   By:   H&F Corporate Investors IV
                                         (Bermuda) Ltd., its General Partner

                            By:    /s/ David R. Tunnell
                                   --------------------------------------------
                                   Name:    David R. Tunnell
                                   Title:   Authorized Signatory

<PAGE>

                            WARBURG PINCUS NETHERLANDS
                                 INTERNATIONAL PARTNERS I, C.V.

                                   By:   Warburg, Pincus & Co.,
                                         its General Partner,

                            By:    /s/ Kewsong Lee
                                   ---------------------------------------------
                                   Name:    Kewsong Lee
                                   Title:   Partner

                            WARBURG PINCUS NETHERLANDS
                                 INTERNATIONAL PARTNERS II, C.V.

                                   By:   Warburg, Pincus & Co.,
                                         its General Partner,

                            By:    /s/ Kewsong Lee
                                   ---------------------------------------------
                                   Name:    Kewsong Lee
                                   Title:   Partner

                            WARBURG PINCUS (BERMUDA)
                                 INTERNATIONAL PARTNERS, L.P.

                                   By:   Warburg, Pincus (Bermuda)
                                         International Ltd.
                                         its General Partner,

                            By:    /s/ Kewsong Lee
                                   ---------------------------------------------
                                   Name:    Kewsong Lee
                                   Title:   Partner

<PAGE>

                            WARBURG PINCUS (BERMUDA)
                                 PRIVATE EQUITY VIII, L.P.

                                   By:   Warburg, Pincus (Bermuda)
                                         Private Equity Ltd.
                                         its General Partner,

                            By:    /s/ Kewsong Lee
                                   ---------------------------------------------
                                   Name:    Kewsong Lee
                                   Title:   Partner

<PAGE>

                            For purposes of Articles
                            II, IV and V and Section
                            3.4 hereof:

                            TRIDENT II, L.P.

                                   By:   MMC Capital, Inc.,
                                         as Manager

                            By:    /s/ David J. Wermuth
                                   ---------------------------------------------
                                   Name:    David J. Wermuth
                                   Title:   Principal

                            Notice Information for
                            Trident II, L.P.:

                            c/o Maples and Calder Ugland House
                            South Church Street
                            George Town Grand Cayman
                            Cayman Islands, British West Indies
                            Attention:  Charles Jennings
                            Facsimile:  (345) 949-8080

                                       and

                            c/o MMC Capital, Inc.
                            20 Horseneck Lane
                            Greenwich, CT  06830
                            Attention:  David Wermuth
                            Facsimile:  (203) 862-2925

<PAGE>

                            For purposes of Articles
                            II, IV and V and Section
                            3.4 hereof:

                            MARSH & MCLENNAN CAPITAL
                                 PROFESSIONALS FUND, L.P.

                                   By:   MMC Capital, Inc.,
                                         as Manager

                            By:    /s/ David J. Wermuth
                                   ---------------------------------------------
                                   Name:    David J. Wermuth
                                   Title:   Principal

                            Notice Information for
                            Trident II, L.P.:

                            c/o Maples and Calder Ugland House
                            South Church Street
                            George Town Grand Cayman
                            Cayman Islands, British West Indies
                            Attention:  Charles Jennings
                            Facsimile:  (345) 949-8080

                                       and

                            c/o MMC Capital, Inc.
                            20 Horseneck Lane
                            Greenwich, CT  06830
                            Attention:  David Wermuth
                            Facsimile:  (203) 862-2925

<PAGE>

                            For purposes of Articles
                            II, IV and V and Section
                            3.4 hereof:

                            MARSH & MCLENNAN EMPLOYEES'
                                 SECURITIES COMPANY, L.P.

                                   By:   MMC Capital, Inc.,
                                         as Manager

                            By:    /s/ David J. Wermuth
                                   --------------------------------------------
                                   Name:    David J. Wermuth
                                   Title:   Principal

                            Notice Information for
                            Trident II, L.P.:

                            c/o Maples and Calder Ugland House
                            South Church Street
                            George Town Grand Cayman
                            Cayman Islands, British West Indies
                            Attention:  Charles Jennings
                            Facsimile:  (345) 949-8080

                                       and

                            c/o MMC Capital, Inc.
                            20 Horseneck Lane
                            Greenwich, CT  06830
                            Attention:  David Wermuth
                            Facsimile:  (203) 862-2925

<PAGE>

                            For purposes of Articles
                            II, IV and V and Section
                            3.4 hereof:

                            FARALLON CAPITAL PARTNERS, L.P.

                                   By:   Farallon Partners, L.L.C.,
                                         its General Partner

                            By:    /s/ Monica R. Landry
                                   --------------------------------------------
                                   Name:    Monica R. Landry
                                   Title:   Managing Member

                            Notice Information for Farallon Capital
                            Partners, L.P.:

                            c/o Farallon Capital Management, L.L.C.
                            One Maritime Plaza
                            Suite 1325
                            San Francisco, CA  94111
                            Attention:  Mark Wehrly and
                                         Sarah Aitcheson
                            Telephone:  (415) 421-2132
                            Facsimile:  (415) 421-2133

<PAGE>

                             For purposes of Articles
                             II, IV and V and Section
                             3.4 hereof:

                             FARALLON CAPITAL INSTITUTIONAL
                                  PARTNERS II, L.P.

                                    By:   Farallon Partners, L.L.C.,
                                          its General Partner

                             By:    /s/ Monica R. Landry
                                    -------------------------------------------
                                    Name:    Monica R. Landry
                                    Title:   Managing Member

                             Notice Information for Farallon Capital
                             Institutional Partners II, L.P.:

                             c/o Farallon Capital Management, L.L.C.
                             One Maritime Plaza
                             Suite 1325
                             San Francisco, CA  94111
                             Attention:  Mark Wehrly and
                                          Sarah Aitcheson
                             Telephone:  (415) 421-2132
                             Facsimile:  (415) 421-2133

<PAGE>

                            For purposes of Articles
                            II, IV and V and Section
                            3.4 hereof:

                            FARALLON CAPITAL INSTITUTIONAL
                                 PARTNERS III, L.P.

                                   By:   Farallon Partners, L.L.C.,
                                         its General Partner

                            By:    /s/ Monica R. Landry
                                   ---------------------------------------------
                                   Name:    Monica R. Landry
                                   Title:   Managing Member

                            Notice Information for Farallon Capital
                            Institutional Partners III, L.P.:

                            c/o Farallon Capital Management, L.L.C.
                            One Maritime Plaza
                            Suite 1325
                            San Francisco, CA  94111
                            Attention:  Mark Wehrly and
                                         Sarah Aitcheson
                            Telephone:  (415) 421-2132
                            Facsimile:  (415) 421-2133

<PAGE>

                            For purposes of Articles
                            II, IV and V and Section
                            3.4 hereof:

                            RR CAPITAL PARTNERS, L.P.

                                   By:   Farallon Partners, L.L.C.,
                                         its General Partner

                            By:    /s/ Monica R. Landry
                                   ---------------------------------------------
                                   Name:    Monica R. Landry
                                   Title:   Managing Member

                            Notice Information for RR Capital Partners, L.P.:

                            c/o Farallon Capital Management, L.L.C.
                            One Maritime Plaza
                            Suite 1325
                            San Francisco, CA  94111
                            Attention:  Mark Wehrly and
                                         Sarah Aitcheson
                            Telephone:  (415) 421-2132
                            Facsimile:  (415) 421-2133

<PAGE>

                            For purposes of Articles
                            II, IV and V and Section
                            3.4 hereof:

                            INSURANCE PRIVATE EQUITY
                               INVESTORS, L.L.C.

                                   By:   GE Asset Management Incorporated,
                                         its Manager,

                            By:    /s/ Patrick McNeela
                                   ---------------------------------------------
                                   Name:    Patrick McNeela
                                   Title:   Vice President

                            Notice Information for Insurance Private Equity
                            Investors, L.L.C.:

                            c/o GE Asset Management Incorporated
                            3003 Summer Street
                            Stamford, CT  06905
                            Attention:  Michael M. Pastore, Esq.

                            For purposes of Articles
                            II, IV and V and Section
                            3.4 hereof:

                            ORBITAL HOLDINGS, LTD.

                            By:    /s/ Lorraine Hliboki
                                   ---------------------------------------------
                                   Name:    Lorraine Hliboki
                                   Title:   Attorney-in-fact

                            Notice Information for Orbital Holdings, Ltd.:

                            c/o GE Capital
                            120 Longridge Rd.
                            Stamford, CT  06927

<PAGE>

                            For purposes of Article IV
                            and Sections 3.4, 5.2 and
                            5.3 hereof:

                            SOUND VIEW PARTNERS LP

                                   By:   Robert Clements,
                                         its General Partner

                            By:    /s/ Robert Clements
                                   ---------------------------------------------
                                   Name:    Robert Clements
                                   Title:   General Partner

                            Notice Information for Sound View Partners LP:

                            c/o Arch Capital Group Ltd.
                            20 Horseneck Lane
                            Greenwich, CT  06830
                            Attention:  Robert Clements
                            Facsimile:  (203) 625-8366

<PAGE>

                            For purposes of Article IV
                            and Sections 3.4, 5.2 and
                            5.3 hereof:

                            OTTER CAPITAL LLC

                                   By:   John Pasquesi,
                                         its Managing Member

                            By:    /s/ John Pasquesi
                                   ---------------------------------------------
                                   Name:    John Pasquesi
                                   Title:   Managing Member

                            Notice Information for Otter Capital LLC:

                            One Maritime Plaza, 12th Floor
                            San Francisco, CA  94111
                            Attention:  John Pasquesi
                            Facsimile:  (415) 788-0176

<PAGE>

                            For purposes of Article IV
                            and Sections 3.4, 5.2 and
                            5.3 hereof:

                            PETER A. APPEL

                            By:    /s/ Peter A. Appel
                                   ---------------------------------------------
                                   Name:    Peter A. Appel

                            Notice Information for Peter A. Appel:

                            c/o Arch Capital Group Ltd.
                            20 Horseneck Lane
                            Greenwich, CT  06830
                            Attention:  Robert Clements
                            Facsimile:  (203) 625-8366

<PAGE>

                            For purposes of Article IV
                            and Sections 3.4, 5.2 and
                            5.3 hereof:

                            PAUL B. INGREY

                            By:    /s/ Paul B. Ingrey
                                   ---------------------------------------------
                                   Name:    Paul B. Ingrey

                            Notice Information for Paul B. Ingrey:

                            c/o Arch Reinsurance Ltd.
                            Craig Appin House
                            8 Wesley Street
                            Hamilton HM 11
                            Bermuda
                            Attention:  Paul B. Ingrey
                            Facsimile:  (441) 296-8241

<PAGE>

                            For purposes of Article IV
                            and Sections 3.4, 5.2 and
                            5.3 hereof:

                            DWIGHT R. EVANS

                            By:    /s/ Dwight R. Evans
                                   ---------------------------------------------
                                   Name:    Dwight R. Evans

                            Notice Information for Dwight R. Evans:

                            8 Kent Place
                            Westfield, NJ  07090
                            Attention:  Dwight R. Evans

<PAGE>

                            For purposes of Article IV
                            and Sections 3.4, 5.2 and
                            5.3 hereof:

                            MARC GRANDISSON

                            By:    /s/ Marc Grandisson
                                   ---------------------------------------------
                                   Name:    Marc Grandisson

                            Notice Information Marc Grandisson:

                            c/o Arch Reinsurance Ltd.
                            Craig Appin House
                            8 Wesley Street
                            Hamilton HM 11
                            Bermuda
                            Attention:  Marc Grandisson
                            Facsimile:  (441) 296-8241

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00033-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00033-of-00352.parquet"}]]