Document:

<PAGE>

                                                                  Exhibit 10.3.6

                              EMPLOYMENT AGREEMENT
                                    (PETERS)

     AGREEMENT effective as of November 1, 2001, between AM GENERAL CORPORATION
("Employer"), and EDMOND L. PETERS ("Employee"). W I T N E S S E T H:

     WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;

     In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:

     1.   Term and Duties.

     Commencing on the date hereof and continuing until October 31, 2004, and
thereafter from year to year unless sooner terminated as herein provided (the
"Employment Term"), the Employer hereby employs the Employee as Senior Vice
President, Procurement and Business Development. The Employee hereby accepts
such employment and agrees to devote all of his business time and his best
efforts to the business of Employer and as may be necessary to perform his
duties in accordance with the policies and budgets established from time to time
by Employer and its Board of Directors and President.

     2.   Compensation.

     For Employee's services hereunder Employer shall pay to Employee

          (a)  a salary at the rate of Two Hundred Twenty-Five Thousand
($225,000) Dollars per year (or such greater amount as Employer may from time to
time determine), payable periodically in accordance with Employer's usual
executive payroll payment procedures; plus

          (b)  the opportunity to earn an annual bonus of up to One Hundred
Thousand ($100,000) Dollars for each fiscal year (ending October 31/st/)
provided that

               (i)  Employee achieves Employer's performance objectives to the
                    satisfaction of employer;

                                       1

<PAGE>

               (ii)  Employee is in the active employment of Employer, and
                     actually engaged in performing duties, at the close of such
                     fiscal year, and

               (iii) Employer's financial statements for such year, as prepared
                     by its independent public accountants, show a positive net
                     income available for common stock, as determined in
                     accordance with generally accepted accounting principles
                     consistently applied, but after adding back any non-cash
                     charges for post-employment benefits and before this bonus
                     and bonuses provided for in all other executive employment
                     agreements.

Such annual bonus for each year shall be payable within 15 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net income, as shown in such statements shall be conclusive on the
parties. Eligibility for this executive performance based bonus does not detract
from Employee's participation in the Profit Sharing Plan available to all
salaried employees.

          2 (c) In the event Employee's employment is terminated by the Employer
prior to the end of the Employment Term, and the Employee is not in default of
this Agreement as provided in Section 9, Employer shall continue Employee's
salary as defined in Section 2(a) for the remaining period of the Employment
Term, but in no case less than twelve months following termination of
employment. The provisions of Sections 1.0 through 4.0 of the AM General Salary
Continuation Plan shall not have application in the event of such a termination
of employment. In the event of a termination of employment under this
Subsection, Employee shall not be entitled to receive any annual bonus provided
for in Section 2(b) or to any proration thereof. The provisions of this
Subsection shall not apply in the event of Early Termination of Employment Term
on Disability or Death as provided by Section 5.

                                       2

<PAGE>

     3.   Place of Employment.

     The Employee's regular place of employment during the Employment Term shall
be located in the South Bend, Indiana area.

     4.   Travel;  Expenses.  The Employee shall engage in such travel as may
reasonably be required in connection with the performance of his duties.

     All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.

     5.   Early Termination of Employment Term on Disability or Death.

          (a)  If during the Employment Term, the Employee fails because of
illness or other incapacity (including incapacity because of substance abuse) to
render to the Employer the services required of him hereunder for a period of
two months (during which the Employer shall continue the Employee's compensation
at the rates herein provided), the Employer may, in its discretion, give one
month notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one-month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.

          (b)  The Employment Term shall end upon the death of the Employee.

          (c)  In the event of termination for disability or death, the Employer
               shall pay the Employee the $100,000 annual bonus provided for in
               Section 2(b) prorated for the period from the

                                       3

<PAGE>

               startof the fiscal year to date of termination, provided that the
               requirements of Subsections 2(b)(i) and (iii) have been met for
               such fiscal year.

     6.  Confidentiality; Competition.

         (a)  For the purposes hereof, all confidential information
about the business and affairs of the Employer (including, without limitation,
business plans, product design and specifications, financial, engineering and
marketing information and information about costs, manufacturing methods,
suppliers and customers) constitute "Employer Confidential Information."
Employee acknowledges that he will have access to and knowledge of Employer
Confidential Information, and that improper use or revelation of same by the
Employee during or after the termination of his employment by the Employer could
cause serious injury to the business of the Employer. Accordingly, the Employee
agrees that he will forever keep secret and inviolate all Employer Confidential
Information which comes into his possession, and that he will not use the same
for his own private benefit, or directly or indirectly for the benefit of
others, and that he will not disclose such Employer Confidential Information to
any other person except as necessary in pursuance of his duties.

         (b)  The Employee agrees that during the Employment Term and
for two years after the end of the Employment Term (the "Non-Competition
Period"), the Employee will not (whether as an officer, director, partner,
proprietor, investor, associate, employee, consultant, adviser, public relations
or advertising representative or otherwise), directly or indirectly, be engaged
in the business of manufacturing or assembly of trucks or component parts in any
part of the United States (which the parties acknowledge is the Employer's
trading area). For purposes of the preceding sentence, the Employee shall be
deemed to be engaged in any business which any person for whom he shall perform
services is engaged. Nothing herein contained shall be deemed to prohibit the
Employee from owning, as a passive investment, a security of any issuer which is
not a supplier, vendor, customer or competitor of the Employer. In situations
where an involuntary termination of the Employee may occur, the provisions
provided for in this subsection shall not be applicable. However, in situations
where an involuntary termination is a result of a default of employee under the
provisions of Paragraph 9, the provisions of this paragraph shall be applicable.

                                       4

<PAGE>

          (c)   Within the terms of this Agreement, it is intended to limit
disclosure and competition by the Employee to the maximum extent permitted by
law. If it shall be finally determined by any court of competent jurisdiction
ruling on this Agreement that the scope or  duration of any limitation
contained in this paragraph 6 is too extensive to be legally enforceable, then
the parties hereby agree that the scope and duration (not greater than that
provided for herein) of such limitation shall be the maximum scope and duration
which shall be legally enforceable and the Employee hereby consents to the
enforcement of such limitation as so modified.

          (d)   The Employee acknowledges that any violation by him of the
provisions of this paragraph 6 could cause serious and irreparable damages to
the Employer.  He further acknowledges that it might not be possible to measure
such damages in money.  Accordingly,  the Employee further acknowledges that, in
the event of a breach or threatened breach by him ofthe provisions of this
paragraph 6, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.

     7.   Benefits.

     The Employer agrees to provide to the Employee the benefits listed in
Schedule A hereto.

     8.   Employee's Representation.

     Employee hereby represents to the Employer that he has full lawful right
and power to enter into this Agreement and carry out his duties  hereunder,  and
that  same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.

     9.   Default by Employee. If the Employee shall:

          (i)   commit an act of dishonesty against the Employer or fraud upon
                the Employer; or

          (ii)  breach his obligations under this Agreement and fail to cure
                such breach within five (5) days after written notice thereof;
                or

          (iii) be convicted of a crime involving moral turpitude; or

                                       5

<PAGE>

          (iv) fail or neglect diligently to perform his duties hereunder and
               continue in his failure after written notice; or

          (v)  engage in any other acts of gross misconduct against employer

then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.

     10.  Successors.

     The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.

     11.  Automatic Roll-Over

     The Agreement shall automatically extend for an additional one year period,
on each expiration date, unless either party shall have theretofore  given at
least 90 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.

     12.  Notices.

     Notices  hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:

         To Employee:                       To Employer:
         -----------                        -----------

         Edmond L. Peters                         AM General Corporation
         52235 Avanelle Street                    105 North Niles Avenue
         Granger, IN   46530                      South Bend, IN 46617
                                                  Attention: President

                                       6

<PAGE>

                  with copy to:              The Renco Group, Inc.
                  ------------
                                             30 Rockefeller Plaza, 42/nd/ Floor
                                             New York, NY 10112

and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.

     13.  Waiver.

     The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.

                                       7

<PAGE>

     14. Entire Agreement; Governing Law.

     There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under; and shall be construed in accordance with, the laws of
Indiana, applicable to agreements to be performed wholly within that state.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

         Attest:                                       EMPLOYER:
                                                          AM GENERAL CORPORATION

         __________________________                    By ______________________

         Witness:                                          EMPLOYEE:

         ________________________                      _________________________
                                                       Edmond L. Peters

                                        8

<PAGE>

                                   SCHEDULE A
                     EDMOND L. PETERS/AM GENERAL CORPORATION
                              Employment Agreement
                           Effective November 1, 2001

                                Employee Benefits
                                -----------------

         *AMG Retirement Plan

         *AMG ERISA Excess Plan

         *AMG Capital/Accumulation Plan

         *AMG Profit Sharing Plan

         *AMG Salary Continuation Plan
          (Section 5.0 only)

         *AMG Medical and Dental Care Plans

         *AMG Educational Reimbursement Plan

         *AMG Vacation Plan

         *AMG Health Care Plan

         *AMG Disability Income Plan

         *AMG Cafeteria Plan
              .  Life Insurance
              .  Benefit Bank
              .  Optional Disability Income
              .  Optional Vacation

         *AMG Executive Lease Vehicle Program

         *AMG Club Membership Program

         *AMG Executive Wellness Program

                                       9

<PAGE>

                              EMPLOYMENT AGREEMENT
                                    (CAFIERO)

     AGREEMENT effective as of November 1, 2001, between AM GENERAL CORPORATION
("Employer"), and PAUL J. CAFIERO ("Employee").

                              W I T N E S S E T H:

     WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;

     In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:

     1.  Term and Duties.

     Commencing on the date hereof and continuing until October 31, 2004, and
thereafter from year to year unless sooner terminated as herein provided (the
"Employment Term"), the Employer hereby employs the Employee as Senior Vice
President and Chief Financial Officer. The Employee hereby accepts such
employment and agrees to devote all of his business time and his best efforts to
the business of Employer and as may be necessary to perform hisduties in
accordance with the policies and budgets established from time to time by
Employer and its Board of Directors and President.

     2.  Compensation.

     For Employee's services hereunder Employer shall pay to Employee

          (a)  a salary at the rate of Two Hundred and Twenty-Five Thousand
($225,000) Dollars per year (or such greater amountas Employer may from time to
time determine), payable periodically in accordance with Employer's usual
executive payroll payment procedures; plus

          (b)  the opportunity to earn an annual bonus of up to One Hundred
Thousand ($100,000) Dollars for each fiscal year (ending October 31/st/)
provided that

               (i)  Employee achieves Employer's performance objectives to the
                    satisfaction of employer;

                                       1

<PAGE>

           (ii)  Employee is in the active employment of Employer, and actually
                 engaged in performing duties, at the close of such fiscal year,
                 and

           (iii) Employer's financial statements forsuch year, as prepared by
                 its independent public accountants, show a positive net income
                 available for common stock, as determined in accordance with
                 generally accepted accounting principles consistently applied,
                 but after adding back any non-cash charges for post-employment
                 benefits and before this bonus and bonuses provided for in all
                 other executive employment agreements.

Such annual bonus for each year shall be payable within 15 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net income, as shown in such statements shall be conclusive on the
parties. Eligibility for this executive performance based bonus does not detract
from Employee's participation in the Profit Sharing Plan available to all
salaried employees.

     2 (c) In the event Employee's employment is terminated by the Employer
prior to the end of the Employment Term, and the Employee is not in default of
this Agreement as provided in Section 9, Employer shall continue Employee's
salary as defined in Section  2(a) for the remaining period of the Employment
Term, but in  no  case less than twelve months following termination of
employment. The provisions of Sections 1.0 through 4.0 of the AM General Salary
Continuation Plan shall not have application in the event of such a termination
of employment. In the event of a termination of employment under this
Subsection, Employee shall not be entitled to receive any annual bonus provided
for in Section 2(b) or to any  proration thereof. The provisions of this
Subsection shall not apply in the event of Early Termination of Employment Term
on Disability or Death as provided by Section 5.

                                       2

<PAGE>

     3. Place of Employment.

     The Employee's regular place of employment during the Employment Term shall
be located in the South Bend, Indiana area.

     4. Travel; Expenses.

     The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.

     All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.

     5. Early Termination of Employment Term on Disability or Death.

        (a)  If during the Employment Term, the Employee fails because of
illness or other incapacity (including incapacity because of substance abuse) to
render to the Employer the services required of him hereunder for a period of
two months (during which the Employer shall continue the Employee's compensation
at the rates herein provided), the Employer may, in its discretion, give one
month notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one-month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.

        (b)  The Employment Term shall end upon the death of the Employee.

        (c)  In the event of termination for disability or death, the Employer
             shall pay the Employee the $100,000 annual bonus provided for in
             Section 2(b) prorated for the period from the

                                       3

<PAGE>

               start of the fiscal year to date of termination, provided that
               the requirements of Subsections 2(b)(i) and (iii) have been met
               for such fiscal year.

     6.   Confidentiality; Competition.

          (a)  For the purposes hereof, all confidential information about the
business and affairs of the Employer (including, without limitation, business
plans, product design and specifications, financial, engineering and marketing
information and information about costs, manufacturing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.

          (b)  The Employee agrees that during the Employment Term and for two
years after the end of the Employment Term (the "Non-Competition Period"), the
Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of manufacturing or assembly of trucks or component parts in any
part of the United States (which the parties acknowledge is the Employer's
trading area). For purposes of the preceding sentence, the Employee shall be
deemed to be engaged in any business which any person for whom he shall perform
services is engaged. Nothing herein contained shall be deemed to prohibit the
Employee from owning, as a passive investment, a security of any issuer which is
not a supplier, vendor, customer or competitor of the Employer. In situations
where an involuntary termination of the Employee may occur, the provisions
provided for in this subsection shall not be applicable. However, in situations
where an involuntary termination is a result of a default of employee under the
provisions of Paragraph 9, the provisions of this paragraph shall be applicable.

                                       4

<PAGE>

          (c)  Within the terms of this Agreement, it is intended to limit
disclosure and competition by the Employee to the maximum extent permitted by
law. If it shall be finally determined by any court of competent jurisdiction
ruling on this Agreement that the scope or duration of any limitation contained
in this paragraph 6 is too extensive to be legally enforceable, then the parties
hereby agree that the scope and duration (not greater than that provided for
herein) of such limitation shall be the maximum scope and duration which shall
be legally enforceable and the Employee hereby consents to the enforcement of
such limitation as so modified.

          (d)  The Employee acknowledges that any violation by him of the
provisions of this paragraph 6 could cause serious and irreparable damages to
the Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that, in
the event of a breach or threatened breach by him of the provisions of this
paragraph 6, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.

     7.   Benefits.

     The Employer agrees to provide to the Employee the benefits listed in
Schedule A hereto.

     8.   Employee's Representation.

     Employee hereby represents to the Employer that he has full lawful right
and power to enter into this Agreement and carry out his duties hereunder, and
that same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.

     9.   Default by Employee.

     If the Employee shall:

          (i)   commit an act of dishonesty against the Employer or fraud upon
                the Employer; or

          (ii)  breach his obligations under this Agreement and fail to cure
                such breach within five (5) days after written notice thereof;
                or

          (iii) be convicted of a crime involving moral turpitude; or

                                       5

<PAGE>

         (iv) fail or neglect diligently to perform his duties hereunder and
              continue in his failure after written notice; or

         (v)  engage in any other acts of gross misconduct against employer

then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.

     10. Successors.

     The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.

     11. Automatic Roll-Over

     The Agreement shall automatically extend for an additional one year period,
on each expiration date, unless either party shall have theretofore given at
least 90 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.

     12. Notices.

     Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:

     To Employee:                       To Employer:
     -----------                        -----------

     Paul J. Cafiero                           AM General Corporation
     17549 Irongate Court                      105 North Niles Avenue
     Granger, IN   46530                       South Bend, IN 46617
                                                Attention: President

                                        6

<PAGE>

                  with copy to:         The Renco Group, Inc.
                  ------------
                                        30 Rockefeller Plaza, 42nd Floor
                                        New York, NY 10112

and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.

     13. Waiver.

     The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.

                                       7

<PAGE>

     14. Entire Agreement; Governing Law.

     There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under; and shall be construed in accordance with, the laws of
Indiana, applicable to agreements to be performed wholly within that state.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

         Attest:                                     EMPLOYER:
                                                        AM GENERAL CORPORATION

         ___________________________                 By ________________________

         Witness:                                    EMPLOYEE:

         ___________________________                 ___________________________
                                                     Paul J. Cafiero

                                       8

<PAGE>

                                   SCHEDULE A
                     PAUL J. CAFIERO/AM GENERAL CORPORATION
                              Employment Agreement
                           Effective November 1, 2001

                                Employee Benefits
                                -----------------

         *AMG Retirement Plan

         *AMG ERISA Excess Plan

         *AMG Capital/Accumulation Plan

         *AMG Profit Sharing Plan

         *AMG Salary Continuation Plan

          (Section 5.0 only)

         *AMG Medical and Dental Care Plans

         *AMG Educational Reimbursement Plan

         *AMG Vacation Plan

         *AMG Health Care Plan

         *AMG Disability Income Plan

         *AMG Cafeteria Plan
              . Life Insurance
              . Benefit Bank
              . Optional Disability Income
              . Optional Vacation

         *AMG Executive Lease Vehicle Program

         *AMG Club Membership Program

         *AMG Executive Wellness Program

                                       9

<PAGE>

                              EMPLOYMENT AGREEMENT
                                     (SMITH)

     AGREEMENT effective as of November 1, 2001, between AM GENERAL CORPORATION
("Employer"), and RICKY RAY SMITH ("Employee").

                              W I T N E S S E T H:

     WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;

     In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:

     1. Term and Duties.

     Commencing on the date hereof and continuing until October 31, 2004, and
thereafter from year to year unless sooner terminated as herein provided (the
"Employment Term"), the Employer hereby employs the Employee as Vice President -
H2 Operations and Special Projects. The Employee hereby accepts such employment
and agrees to devote all of his business time and his best efforts to the
business of Employer and as may be necessary to perform his duties in accordance
with the policies and budgets established from time to time by Employer and its
Board of Directors and President.

     2. Compensation.

     For Employee's services hereunder Employer shall pay to Employee

        (a)  a salary at the rate of Two Hundred and Twenty-Five Thousand
($225,000) Dollars per year (or such greater amount as Employer may from time to
time determine), payable periodically in accordance with Employer's usual
executive payroll payment procedures; plus

        (b)  the opportunity to earn an annual bonus of up to One Hundred
Thousand ($100,000) Dollars for each fiscal year (ending October 31st) provided
that

             (i)  Employee achieves Employer's performance objectives to the
                  satisfaction of employer;

                                       1

<PAGE>

            (ii)  Employee is in the active employment of Employer, and actually
                  engaged in performing duties, at the close of such fiscal
                  year, and

            (iii) Employer's financial statements for such year, as prepared by
                  its independent public accountants, show a positive net income
                  available for common stock, as determined in accordance with
                  generally accepted accounting principles consistently applied,
                  but after adding back any non-cash charges for post-employment
                  benefits and before this bonus and bonuses provided for in all
                  other executive employment agreements.

Such annual bonus for each year shall be payable within 15 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net income, as shown in such statements shall be conclusive on the
parties. Eligibility for this executive performance based bonus does not detract
from Employee's participation in the Profit Sharing Plan available to all
salaried employees.

     2 (c)  In the event Employee's employment is terminated by the Employer
prior to the end of the Employment Term, and the Employee is not in default of
this Agreement as provided in Section 9, Employer shall continue Employee's
salary as defined in Section 2(a) for the remaining period of the Employment
Term, but in no case less than twelve months following termination of
employment. The provisions of Sections 1.0 through 4.0 of the AM General Salary
Continuation Plan shall not have application in the event of such a termination
of employment. In the event of a termination of employment under this
Subsection, Employee shall not be entitled to receive any annual bonus provided
for in Section 2(b) or to any proration thereof. The provisions of this
Subsection shall not apply in the event of Early Termination of Employment Term
on Disability or Death as provided by Section 5.

                                       2

<PAGE>

     3. Place of Employment.

     The Employee's regular place of employment during the Employment Term shall
be located in the South Bend, Indiana area.

     4. Travel; Expenses.

     The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.

     All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.

     5. Early Termination of Employment Term on Disability or Death.

        (a) If during the Employment Term, the Employee fails because of illness
or other incapacity (including incapacity because of substance abuse) to render
to the Employer the services required of him hereunder for a period of two
months (during which the Employer shall continue the Employee's compensation at
the rates herein provided), the Employer may, in its discretion, give one month
notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one-month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.

        (b) The Employment Term shall end upon the death of the Employee.

        (c) In the event of termination for disability or death, the Employer
            shall pay the Employee the $100,000 annual bonus provided for in
            Section 2(b) prorated for the period from the

                                       3

<PAGE>

               start of the fiscal year to date of termination, provided that
               the requirements of Subsections 2(b)(i) and (iii) have been met
               for such fiscal year.

     6.   Confidentiality; Competition.

          (a)  For the purposes hereof, all confidential information about the
business and affairs of the Employer (including, without limitation, business
plans, product design and specifications, financial, engineering and marketing
information and information about costs, manufacturing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.

          (b)  The Employee agrees that during the Employment Term and for two
years after the end of the Employment Term (the "Non-Competition Period"), the
Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of manufacturing or assembly of trucks or component parts in any
part of the United States (which the parties acknowledge is the Employer's
trading area). For purposes of the preceding sentence, the Employee shall be
deemed to be engaged in any business which any person for whom he shall perform
services is engaged. Nothing herein contained shall be deemed to prohibit the
Employee from owning, as a passive investment, a security of any issuer which is
not a supplier, vendor, customer or competitor of the Employer. In situations
where an involuntary termination of the Employee may occur, the provisions
provided for in this subsection shall not be applicable. However, in situations
where an involuntary termination is a result of a default of employee under the
provisions of Paragraph 9, the provisions of this paragraph shall be applicable.

                                       4

<PAGE>

        (c) Within the terms of this Agreement, it is intended to limit
disclosure and competition by the Employee to the maximum extent permitted by
law. If it shall be finally determined by any court of competent jurisdiction
ruling on this Agreement that the scope or duration of any limitation contained
in this paragraph 6 is too extensive to be legally enforceable, then the parties
hereby agree that the scope and duration (not greater than that provided for
herein) of such limitation shall be the maximum scope and duration which shall
be legally enforceable and the Employee hereby consents to the enforcement of
such limitation as so modified.

        (d) The Employee acknowledges that any violation by him of the
provisions of this paragraph 6 could cause serious and irreparable damages to
the Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that, in
the event of a breach or threatened breach by him of the provisions of this
paragraph 6, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.

     7. Benefits.

         The Employer agrees to provide to the Employee the benefits listed in
Schedule A hereto.

     8. Employee's Representation.

     Employee hereby represents to the Employer that he has full lawful right
and power to enter into this Agreement and carry out his duties hereunder, and
that same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.

     9. Default by Employee.

     If the Employee shall:

        (i)   commit an act of dishonesty against the Employer or fraud upon the
Employer; or

        (ii)  breach his obligations under this Agreement and fail to cure such
breach within five (5) days after written notice thereof; or

        (iii) be convicted of a crime involving moral turpitude; or

                                       5

<PAGE>

        (iv) fail or neglect diligently to perform his duties hereunder and
             continue in his failure after written notice; or

        (v)  engage in any other acts of gross misconduct against employer

then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.

     10. Successors.

     The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.

     11. Automatic Roll-Over

     The Agreement shall automatically extend for an additional one year period,
on each expiration date, unless either party shall have theretofore given at
least 90 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.

     12. Notices.

     Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:

         To Employee:                       To Employer:
         -----------                        -----------

         Ricky Ray Smith                    AM General Corporation
         53199 Lehner Court                          105 North Niles Avenue
         Granger, IN   46530                         South Bend, IN 46617
                                                     Attention: President

                                       6

<PAGE>

                  with copy to:              The Renco Group, Inc.
                  ------------
                                             30 Rockefeller Plaza, 42/nd/ Floor
                                             New York, NY 10112

and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.

     13. Waiver.

     The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.

                                       7

<PAGE>

     14. Entire Agreement; Governing Law.

     There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under; and shall be construed in accordance with, the laws of
Indiana, applicable to agreements to be performed wholly within that state.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

         Attest:                                     EMPLOYER:
                                                          AM GENERAL CORPORATION

         ____________________________                By ________________________

         Witness:                                         EMPLOYEE:

         ____________________________                ___________________________
                                                     Ricky Ray Smith

                                       8

<PAGE>

                                   SCHEDULE A
                     RICKY RAY SMITH/AM GENERAL CORPORATION
                              Employment Agreement
                           Effective November 1, 2001

                                Employee Benefits
                                -----------------

         *AMG Retirement Plan

         *AMG ERISA Excess Plan

         *AMG Capital/Accumulation Plan

         *AMG Profit Sharing Plan

         *AMG Salary Continuation Plan
          (Section 5.0 only)

         *AMG Medical and Dental Care Plans

         *AMG Educational Reimbursement Plan

         *AMG Vacation Plan

         *AMG Health Care Plan

         *AMG Disability Income Plan

         *AMG Cafeteria Plan
              .  Life Insurance
              .  Benefit Bank
              .  Optional Disability Income
              .  Optional Vacation

         *AMG Executive Lease Vehicle Program

         *AMG Executive Wellness Program

                                       9

<PAGE>

                              EMPLOYMENT AGREEMENT
                              --------------------
                                     (GULA)

     AGREEMENT effective as of November 1, 2001, between AM GENERAL CORPORATION
("Employer"), and ROBERT J. GULA ("Employee").

                              W I T N E S S E T H:

     WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;

     In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:

     1. Term and Duties.

     Commencing on the date hereof and continuing until October 31, 2004, and
thereafter from year to year unless sooner terminated as herein provided (the
"Employment Term"), the Employer hereby employs the Employee as Senior Vice
President, Engineering and Product Development. The Employee hereby accepts such
employment and agrees to devote all of his business time and his best efforts to
the business of Employer and as may be necessary to perform his duties in
accordance with the policies and budgets established from time to time by
Employer and its Board of Directors and President.

     2. Compensation.

     For Employee's services hereunder Employer shall pay to Employee

        (a)  a salary at the rate of Two Hundred Five Thousand ($205,000)
Dollars per year (or such greater amount as Employer may from time to time
determine), payable periodically in accordance with Employer's usual executive
payroll payment procedures; plus

        (b)  the opportunity to earn an annual bonus of up to Seventy-Five
Thousand ($75,000) Dollars for each fiscal year (ending October 31st) provided
that

             (i)  Employee achieves Employer's performance objectives to the
                  satisfaction of employer;

                                       1

<PAGE>

            (ii)  Employee is in the active employment of Employer, and actually
                  engaged in performing duties, at the close of such fiscal
                  year, and

            (iii) Employer's financial statements for such year, as prepared by
                  its independent public accountants, show a positive net income
                  available for common stock, as determined in accordance with
                  generally accepted accounting principles consistently applied,
                  but after adding back any non-cash charges for post-employment
                  benefits and before this bonus and bonuses provided for in all
                  other executive employment agreements.

Such annual bonus for each year shall be payable within 15 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net income, as shown in such statements shall be conclusive on the
parties. Eligibility for this executive performance based bonus does not detract
from Employee's participation in the Profit Sharing Plan available to all
salaried employees.

     2 (c)  In the event Employee's employment is terminated by the Employer
prior to the end of the Employment Term, and the Employee is not in default of
this Agreement as provided in Section 9, Employer shall continue Employee's
salary as defined in Section 2(a) for the remaining period of the Employment
Term, but in no case less than twelve months following termination of
employment. The provisions of Sections 1.0 through 4.0 of the AM General Salary
Continuation Plan shall not have application in the event of such a termination
of employment. In the event of a termination of employment under this
Subsection, Employee shall not be entitled to receive any annual bonus provided
for in Section 2(b) or to any proration thereof. The provisions of this
Subsection shall not apply in the event of Early Termination of Employment Term
on Disability or Death as provided by Section 5.

                                       2

<PAGE>

     3. Place of Employment.

     The Employee's regular place of employment during the Employment Term shall
be in the Livonia, Michigan area.

     4. Travel; Expenses.

     The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.

     All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.

     5. Early Termination of Employment Term on Disability or Death.

        (a)  If during the Employment Term, the Employee fails because of
illness or other incapacity (including incapacity because of substance abuse) to
render to the Employer the services required of him hereunder for a period of
two months (during which the Employer shall continue the Employee's compensation
at the rates herein provided), the Employer may, in its discretion, give one
month notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one-month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.

        (b)  The Employment Term shall end upon the death of the Employee.

        (c)  In the event of termination for disability or death, the Employer
             shall pay the Employee the $75,000 annual bonus provided for in
             Section 2(b) prorated for the period from the

                                       3

<PAGE>

             start of the fiscal year to date of termination, provided that the
             requirements of Subsections 2(b)(i) and (iii) have been met for
             such fiscal year.

     6. Confidentiality; Competition.

        (a)  For the purposes hereof, all confidential information about the
business and affairs of the Employer (including, without limitation, business
plans, product design and specifications, financial, engineering and marketing
information and information about costs, manufacturing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.

        (b)  The Employee agrees that during the Employment Term and for two
years after the end of the Employment Term (the "Non-Competition Period"), the
Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of manufacturing or assembly of trucks or component parts in any
part of the United States (which the parties acknowledge is the Employer's
trading area). For purposes of the preceding sentence, the Employee shall be
deemed to be engaged in any business which any person for whom he shall perform
services is engaged. Nothing herein contained shall be deemed to prohibit the
Employee from owning, as a passive investment, a security of any issuer which is
not a supplier, vendor, customer or competitor of the Employer. In situations
where an involuntary termination of the Employee may occur, the provisions
provided for in this subsection shall not be applicable. However, in situations
where an involuntary termination is a result of a default of employee under the
provisions of Paragraph 9, the provisions of this paragraph shall be applicable.

                                       4

<PAGE>

        (c)   Within the terms of this Agreement, it is intended to limit
disclosure and competition by the Employee to the maximum extent permitted by
law. If it shall be finally determined by any court of competent jurisdiction
ruling on this Agreement that the scope or duration of any limitation contained
in this paragraph 6 is too extensive to be legally enforceable, then the parties
hereby agree that the scope and duration (not greater than that provided for
herein) of such limitation shall be the maximum scope and duration which shall
be legally enforceable and the Employee hereby consents to the enforcement of
such limitation as so modified.

        (d)   The Employee acknowledges that any violation by him of the
provisions of this paragraph 6 could cause serious and irreparable damages to
the Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that, in
the event of a breach or threatened breach by him of the provisions of this
paragraph 6, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.

     7. Benefits.

     The Employer agrees to provide to the Employee the benefits listed in
Schedule A hereto.

     8. Employee's Representation.

     Employee hereby represents to the Employer that he has full lawful right
and power to enter into this Agreement and carry out his duties hereunder, and
that same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.

     9. Default by Employee.

     If the Employee shall:

        (i)   commit an act of dishonesty against the Employer or fraud upon the
              Employer; or

        (ii)  breach his obligations under this Agreement and fail to cure such
              breach within five (5) days after written notice thereof; or

        (iii) be convicted of a crime involving moral turpitude; or

                                       5

<PAGE>

         (iv) fail or neglect diligently to perform his duties hereunder and
              continue in his failure after written notice; or

         (v)  engage in any other acts of gross misconduct against employer

then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.

     10. Successors.

     The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.

     11. Automatic Roll-Over

     The Agreement shall automatically extend for an additional one year period,
on each expiration date, unless either party shall have theretofore given at
least 90 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.

     12. Notices.

     Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:

         To Employee:                       To Employer:
         -----------                        -----------

         Robert J. Gula                              AM General Corporation
         5703 Alber Road                    105 North Niles Avenue
         Saline, MI   48176                          South Bend, IN 46617
                                                     Attention: President

                                       6

<PAGE>

                  with copy to:              The Renco Group, Inc.
                  ------------
                                             30 Rockefeller Plaza, 42/nd/ Floor
                                             New York, NY 10112

and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.

     13. Waiver.

     The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.

                                       7

<PAGE>

     14. Entire Agreement; Governing Law.

     There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under; and shall be construed in accordance with, the laws of
Indiana, applicable to agreements to be performed wholly within that state.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

         Attest:                                     EMPLOYER:

                                                          AM GENERAL CORPORATION

         ___________________________                 By ________________________

         Witness:                                    EMPLOYEE:

         ___________________________                 ___________________________
                                                     Robert J. Gula

                                       8

<PAGE>

                                   SCHEDULE A
                      ROBERT J. GULA/AM GENERAL CORPORATION
                              Employment Agreement
                           Effective November 1, 2001

                                Employee Benefits
                                -----------------

         *AMG Retirement Plan

         *AMG ERISA Excess Plan

         *AMG Capital/Accumulation Plan

         *AMG Profit Sharing Plan

         *AMG Salary Continuation Plan
          (Section 5.0 only)

         *AMG Medical and Dental Care Plans

         *AMG Educational Reimbursement Plan

         *AMG Vacation Plan

         *AMG Health Care Plan

         *AMG Disability Income Plan

         *AMG Cafeteria Plan
              .  Life Insurance
              .  Benefit Bank
              .  Optional Disability Income
              .  Optional Vacation

         *AMG Executive Lease Vehicle Program

         *AMG Executive Wellness Program

                                       9

<PAGE>

                              EMPLOYMENT AGREEMENT
                                    (O'REAR)

     AGREEMENT effective as of November 1, 2001, between AM GENERAL CORPORATION
("Employer"), and KEVIN DOYLE O'REAR ("Employee").

                              W I T N E S S E T H:

     WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;

     In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:

     1. Term and Duties.

     Commencing on the date hereof and continuing until October 31, 2004, and
thereafter from year to year unless sooner terminated as herein provided (the
"Employment Term"), the Employer hereby employs the Employee as Vice President
and General Counsel. The Employee hereby accepts such employment and agrees to
devote all of his business time and his best efforts to the business of Employer
and as may be necessary to perform his duties in accordance with the policies
and budgets established from time to time by Employer and its Board of Directors
and President.

     2. Compensation.

     For Employee's services hereunder Employer shall pay to Employee

        (a) a salary at the rate of One Hundred Fifty Thousand ($150,000)
Dollars per year (or such greater amount as Employer may from time to time
determine), payable periodically in accordance with Employer's usual executive
payroll payment procedures; plus

        (b) the opportunity to earn an annual bonus of up to Fifty Thousand
($50,000) Dollars for each fiscal year (ending October 31st) provided that

            (i)  Employee achieves Employer's performance objectives to the
                 satisfaction of employer;

                                        1

<PAGE>

             (ii)  Employee is in the active employment of Employer, and
                   actually engaged in performing duties, at the close of such
                   fiscal year, and

             (iii) Employer's financial statements for such year, as prepared by
                   its independent public accountants, show a positive net
                   income available for common stock, as determined in
                   accordance with generally accepted accounting principles
                   consistently applied, but after adding back any non-cash
                   charges for post-employment benefits and before this bonus
                   and bonuses provided for in all other executive employment
                   agreements.

Such annual bonus for each year shall be payable within 15 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net income, as shown in such statements shall be conclusive on the
parties. Eligibility for this executive performance based bonus does not detract
from Employee's participation in the Profit Sharing Plan available to all
salaried employees.

        (c)  In the event Employee's employment is terminated by the Employer
prior to the end of the Employment Term, and the Employee is not in default of
this Agreement as provided in Section 9, Employer shall continue Employee's
salary as defined in Section 2(a) for the remaining period of the Employment
Term, but in no case less than twelve months following termination of
employment. The provisions of Sections 1.0 through 4.0 of the AM General Salary
Continuation Plan shall not have application in the event of such a termination
of employment. In the event of a termination of employment under this
Subsection, Employee shall not be entitled to receive any annual bonus provided
for in Section 2(b) or to any proration thereof. The provisions of this
Subsection shall not apply in the event of Early Termination of Employment Term
on Disability or Death as provided by Section 5.

                                       2

<PAGE>

     3. Place of Employment.

     The Employee's regular place of employment during the Employment Term shall
be located in the South Bend, Indiana area.

     4. Travel; Expenses.

     The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.

     All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.

     5. Early Termination of Employment Term on Disability or Death.

        (a) If during the Employment Term, the Employee fails because of illness
or other incapacity (including incapacity because of substance abuse) to render
to the Employer the services required of him hereunder for a period of two
months (during which the Employer shall continue the Employee's compensation at
the rates herein provided), the Employer may, in its discretion, give one month
notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one-month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.

        (b)  The Employment Term shall end upon the death of the Employee.

        (c)  In the event of termination for disability or death, the Employer
             shall pay the Employee the $50,000 annual bonus provided for in
             Section 2(b) prorated for the period from the

                                       3

<PAGE>

             start of the fiscal year to date of termination, provided that the
             requirements of Subsections 2(b)(i) and (iii) have been met for
             such fiscal year.

     6. Confidentiality; Competition.

        (a)  For the purposes hereof, all confidential information about the
business and affairs of the Employer (including, without limitation, business
plans, product design and specifications, financial, engineering and marketing
information and information about costs, manufacturing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.

        (b)  The Employee agrees that during the Employment Term and for two
years after the end of the Employment Term (the "Non-Competition Period"), the
Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of manufacturing or assembly of trucks or component parts in any
part of the United States (which the parties acknowledge is the Employer's
trading area). For purposes of the preceding sentence, the Employee shall be
deemed to be engaged in any business which any person for whom he shall perform
services is engaged. Nothing herein contained shall be deemed to prohibit the
Employee from owning, as a passive investment, a security of any issuer which is
not a supplier, vendor, customer or competitor of the Employer. In situations
where an involuntary termination of the Employee may occur, the provisions
provided for in this subsection shall not be applicable. However, in situations
where an involuntary termination is a result of a default of employee under the
provisions of Paragraph 9, the provisions of this paragraph shall be applicable.

                                       4

<PAGE>

        (c)  Within the terms of this Agreement, it is intended to limit
disclosure and competition by the Employee to the maximum extent permitted by
law. If it shall be finally determined by any court of competent jurisdiction
ruling on this Agreement that the scope or duration of any limitation contained
in this paragraph 6 is too extensive to be legally enforceable, then the parties
hereby agree that the scope and duration (not greater than that provided for
herein) of such limitation shall be the maximum scope and duration which shall
be legally enforceable and the Employee hereby consents to the enforcement of
such limitation as so modified.

        (d)  The Employee acknowledges that any violation by him of the
provisions of this paragraph 6 could cause serious and irreparable damages to
the Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that, in
the event of a breach or threatened breach by him of the provisions of this
paragraph 6, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.

     7. Benefits.

     The Employer agrees to provide to the Employee the benefits listed in
Schedule A hereto.

     8. Employee's Representation.

     Employee hereby represents to the Employer that he has full lawful right
and power to enter into this Agreement and carry out his duties hereunder, and
that same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.

     9. Default by Employee.

     If the Employee shall:

        (i)   commit an act of dishonesty against the Employer or fraud upon the
              Employer; or

        (ii)  breach his obligations under this Agreement and fail to cure such
              breach within five (5) days after written notice thereof; or

        (iii) be convicted of a crime involving moral turpitude; or

                                       5

<PAGE>

                  (iv) fail or neglect diligently to perform his duties
                       hereunder and continue in his failure after written
                       notice; or

                  (v)  engage in any other acts of gross misconduct against
                       employer

then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.

         10.      Successors.

         The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.

         11.      Automatic Roll-Over

         The Agreement shall automatically extend for an additional one year
period, on each expiration date, unless either party shall have theretofore
given at least 90 days prior written notice of termination. Any extension shall
be on the terms in force immediately preceding said extension, unless otherwise
agreed in writing

         12.      Notices.

         Notices hereunder shall be in writing and shall be sent by telegraph or
by certified or registered mail, telecopy, or recognized overnight delivery
service (such as Federal Express) prepaid as follows:

         To Employee:                          To Employer:
         ------------                          ------------

         Kevin Doyle O'Rear                          AM General Corporation
         51630 Bluffside Court                       105 North Niles Avenue
         Granger, IN   46530                         South Bend, IN 46617
                                                     Attention: President

                                       6

<PAGE>

              with copy to:                     The Renco Group, Inc.
              ------------
                                                30 Rockefeller Plaza, 42nd Floor
                                                New York, NY 10112

and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.

         13.      Waiver.

         The failure of either party to insist upon the strict performance of
any of the terms, conditions, and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and said
terms, conditions, and provisions shall remain in full force and effect. No
waiver of any term or condition of this Agreement on the part of the Employer
shall be effective for any purposes whatsoever unless such waiver is in writing
and signed by the Employer.

                                        7

<PAGE>

         14.   Entire Agreement; Governing Law.

         There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under; and shall be construed in accordance with, the laws of
Indiana, applicable to agreements to be performed wholly within that state.

         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

         Attest:                                     EMPLOYER:
                                                          AM GENERAL CORPORATION
         ___________________________
                                                     By ________________________

         Witness:                                         EMPLOYEE:

         ___________________________                 ___________________________
                                                         Kevin Doyle O'Rear

                                       8

<PAGE>

                                   SCHEDULE A
                    Kevin Doyle O'Rear/AM GENERAL CORPORATION
                              Employment Agreement
                           Effective November 1, 2001

                                Employee Benefits
                                -----------------

         *AMG Retirement Plan

         *AMG ERISA Excess Plan

         *AMG Capital/Accumulation Plan

         *AMG Profit Sharing Plan

         *AMG Salary Continuation Plan
           (Section 5.0 only)

         *AMG Medical and Dental Care Plans

         *AMG Educational Reimbursement Plan

         *AMG Vacation Plan

         *AMG Health Care Plan

         *AMG Disability Income Plan

         *AMG Cafeteria Plan
              . Life Insurance
              . Benefit Bank
              . Optional Disability Income
              . Optional Vacation

         *AMG Executive Lease Vehicle Program

         *AMG Executive Wellness Program

                                        9

<PAGE>

                              EMPLOYMENT AGREEMENT
                                    (BOTICH)

     AGREEMENT effective as of November 1, 2001, between AM GENERAL CORPORATION
("Employer"), and WALTER R. BOTICH ("Employee").

                              W I T N E S S E T H:

     WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;

     In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:

     1.   Term and Duties.

     Commencing on the date hereof and continuing until October 31, 2004, and
thereafter from year to year unless sooner terminated as herein provided (the
"Employment Term"), the Employer hereby employs the Employee as Vice President -
Corporate Quality Assurance. The Employee hereby accepts such employment and
agrees to devote all of his business time and his best efforts to the business
of Employer and as may be necessary to perform his duties in accordance with the
policies and budgets established from time to time by Employer and its Board of
Directors and President.

     2.   Compensation.

     For Employee's services hereunder Employer shall pay to Employee

          (a)  a salary at the rate of One Hundred Thirty-Five Thousand
($135,000) Dollars per year (or such greater amount as Employer may from time to
time determine), payable periodically in accordance with Employer's usual
executive payroll payment procedures; plus

          (b)  the opportunity to earn an annual bonus of up to Forty Thousand
($40,000) Dollars for each fiscal year (ending October 31/st/) provided that

               (i)  Employee achieves Employer's performance objectives to the
                    satisfaction of employer;

                                        1

<PAGE>

               (ii)  Employee is in the active employment of Employer, and
                     actually engaged in performing duties, at the close of such
                     fiscal year, and

               (iii) Employer's financial statements for such year, as prepared
                     by its independent public accountants, show a positive net
                     income available for common stock, as determined in
                     accordance with generally accepted accounting principles
                     consistently applied, but after adding back any non-cash
                     charges for post-employment benefits and before this bonus
                     and bonuses provided for in all other executive employment
                     agreements.

Such annual bonus for each year shall be payable within 15 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net income, as shown in such statements shall be conclusive on the
parties. Eligibility for this executive performance based bonus does not detract
from Employee's participation in the Profit Sharing Plan available to all
salaried employees.

          2 (c) In the event Employee's employment is terminated by the Employer
prior to the end of the Employment Term, and the Employee is not in default of
this Agreement as provided in Section 9, Employer shall continue Employee's
salary as defined in Section 2(a) for the remaining period of the Employment
Term, but in no case less than twelve months following termination of
employment. The provisions of Sections 1.0 through 4.0 of the AM General Salary
Continuation Plan shall not have application in the event of such a termination
of employment. In the event of a termination of employment under this
Subsection, Employee shall not be entitled to receive any annual bonus provided
for in Section 2(b) or to any proration thereof. The provisions of this
Subsection shall not apply in the event of Early Termination of Employment Term
on Disability or Death as provided by Section 5.

                                       2

<PAGE>

     3.   Place of Employment.

     The Employee's regular place of employment during the Employment Term shall
be located in the South Bend, Indiana area.

     4.   Travel; Expenses.

     The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.

     All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.

     5.   Early Termination of Employment Term on Disability or Death.

          (a)  If during the Employment Term, the Employee fails because
of illness or other incapacity (including incapacity because of substance abuse)
to render to the Employer the services required of him hereunder for a period of
two months (during which the Employer shall continue the Employee's compensation
at the rates herein provided), the Employer may, in its discretion, give one
month notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one-month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.

          (b)  The Employment Term shall end upon the death of the Employee.

          (c)  In the event of termination for disability or death, the Employer
               shall pay the Employee the $40,000 annual bonus provided for in
               Section 2(b) prorated for the period from the

                                       3

<PAGE>

               start of the fiscal year to date of termination, provided that
               the requirements of Subsections 2(b)(i) and (iii) have been met
               for such fiscal year.

     6.   Confidentiality; Competition.

          (a)  For the purposes hereof, all confidential information about the
business and affairs of the Employer (including, without limitation, business
plans, product design and specifications, financial, engineering and marketing
information and information about costs, manufacturing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.

          (b)  The Employee agrees that during the Employment Term and for two
years after the end of the Employment Term (the "Non-Competition Period"), the
Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of manufacturing or assembly of trucks or component parts in any
part of the United States (which the parties acknowledge is the Employer's
trading area). For purposes of the preceding sentence, the Employee shall be
deemed to be engaged in any business which any person for whom he shall perform
services is engaged. Nothing herein contained shall be deemed to prohibit the
Employee from owning, as a passive investment, a security of any issuer which is
not a supplier, vendor, customer or competitor of the Employer. In situations
where an involuntary termination of the Employee may occur, the provisions
provided for in this subsection shall not be applicable. However, in situations
where an involuntary termination is a result of a default of employee under the
provisions of Paragraph 9, the provisions of this paragraph shall be applicable.

                                       4

<PAGE>

          (c)  Within the terms of this Agreement, it is intended to limit
disclosure and competition by the Employee to the maximum extent permitted by
law. If it shall be finally determined by any court of competent jurisdiction
ruling on this Agreement that the scope or duration of any limitation contained
in this paragraph 6 is too extensive to be legally enforceable, then the parties
hereby agree that the scope and duration (not greater than that provided for
herein) of such limitation shall be the maximum scope and duration which shall
be legally enforceable and the Employee hereby consents to the enforcement of
such limitation as so modified.

          (d)  The Employee acknowledges that any violation by him of the
provisions of this paragraph 6 could cause serious and irreparable damages to
the Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that, in
the event of a breach or threatened breach by him of the provisions of this
paragraph 6, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.

     7.   Benefits.

     The Employer agrees to provide to the Employee the benefits listed in
Schedule A hereto.

     8.   Employee's Representation.

     Employee hereby represents to the Employer that he has full lawful right
and power to enter into this Agreement and carry out his duties hereunder, and
that same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.

     9.   Default by Employee.

     If the Employee shall:

          (i)   commit an act of dishonesty against the Employer or fraud upon
                the Employer; or

          (ii)  breach his obligations under this Agreement and fail to cure
                such breach within five (5) days after written notice thereof;
                or

          (iii) be convicted of a crime involving moral turpitude; or

                                       5

<PAGE>

          (iv)  fail or neglect diligently to perform his duties hereunder and
                continue in his failure after written notice; or

          (v)   engage in any other acts of gross misconduct against employer

then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.

     10.  Successors.

     The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.

     11.  Automatic Roll-Over

     The Agreement shall automatically extend for an additional one year period,
on each expiration date, unless either party shall have theretofore given at
least 90 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing.

     12.  Notices.

     Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:

     To Employee:                  To Employer:
     -----------                   -----------

     Walter R. Botich              AM General Corporation
     5749 Danbury Drive                  105 North Niles Avenue
     South Bend, IN 46614                South Bend, IN 46617
                                         Attention: President

                                       6

<PAGE>

     with copy to:          The Renco Group, Inc.
     ------------
                            30 Rockefeller Plaza, 42/nd/ Floor
                            New York, NY 10112

and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.

     13.  Waiver.

     The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.

                                       7

<PAGE>

     14.  Entire Agreement; Governing Law.

     There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under; and shall be construed in accordance with, the laws of
Indiana, applicable to agreements to be performed wholly within that state.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

     Attest:                       EMPLOYER:
                                        AM GENERAL CORPORATION

     ____________________          By _________________________________

     Witness:                          EMPLOYEE:

     ____________________          ____________________________________
                                   Walter R. Botich

                                       8

<PAGE>

                                   SCHEDULE A
                     WALTER R. BOTICH/AM GENERAL CORPORATION
                              Employment Agreement
                           Effective November 1, 2001

                                Employee Benefits
                                ----------------
*AMG Retirement Plan

*AMG ERISA Excess Plan

*AMG Capital/Accumulation Plan

*AMG Profit Sharing Plan

*AMG Salary Continuation Plan
  (Section 5.0 only)

*AMG Medical and Dental Care Plans

*AMG Educational Reimbursement Plan

*AMG Vacation Plan

*AMG Health Care Plan

*AMG Disability Income Plan

*AMG Cafeteria Plan
   . Life Insurance
   . Benefit Bank
   . Optional Disability Income
   . Optional Vacation

*AMG Executive Lease Vehicle Program

*AMG Executive Wellness Program

                                       9

<PAGE>

                              EMPLOYMENT AGREEMENT
                                     (TULL)

     AGREEMENT effective as of November 1, 2001, between AM GENERAL CORPORATION
("Employer"), and GARY TULL ("Employee").

                              W I T N E S S E T H:

     WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;

     In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:

     1.  Term and Duties.

     Commencing on the date hereof and continuing until October 31, 2004, and
thereafter from year to year unless sooner terminated as herein provided (the
"Employment Term"), the Employer hereby employs the Employee as Vice President -
Washington Operations. The Employee hereby accepts such employment and agrees to
devote all of his business time and his best efforts to the business of Employer
and as may be necessary to perform his duties in accordance with the policies
and budgets established from time to time by Employer and its Board of Directors
and President.

     2.  Compensation.

     For Employee's services hereunder Employer shall pay to Employee

          (a)  a salary at the rate of One Hundred Thirty-Five Thousand
($135,000) Dollars per year (or such greater amount as Employer may from time to
time determine), payable periodically in accordance with Employer's usual
executive payroll payment procedures; plus

          (b)  the opportunity to earn an annual bonus of up to Twenty-Five
Thousand ($25,000) Dollars for each fiscal year (ending October 31st) provided
that

               (i)  Employee achieves Employer's performance objectives to the
                    satisfaction of employer;

                                       1

<PAGE>

          (ii)   Employee is in the active employment of Employer, and actually
                 engaged in performing duties, at the close of such fiscal year,
                 and

          (iii)  Employer's financial statements for such year, as prepared by
                 its independent public accountants, show a positive net income
                 available for common stock, as determined in accordance with
                 generally accepted accounting principles consistently applied,
                 but after adding back any non-cash charges for post-employment
                 benefits and before this bonus and bonuses provided for in all
                 other executive employment agreements.

Such annual bonus for each year shall be payable within 15 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net income, as shown in such statements shall be conclusive on the
parties. Eligibility for this executive performance based bonus does not detract
from Employee's participation in the Profit Sharing Plan available to all
salaried employees.

     (c)   In the event Employee's employment is terminated by the Employer
           prior to the end of the Employment Term, and the Employee is not in
           default of this Agreement as provided in Section 9, Employer shall
           continue Employee's salary as defined in Section 2(a) for the
           remaining period of the Employment Term, but in no case less than
           twelve months following termination of employment. The provisions of
           Sections 1.0 through 4.0 of the AM General Salary Continuation Plan
           shall not have application in the event of such a termination of
           employment. In the event of a termination of employment under this
           Subsection, Employee shall not be entitled to receive any annual
           bonus provided for in Section 2(b) or to any proration thereof. The
           provisions of this Subsection shall not apply in the event of Early
           Termination of Employment Term on Disability or Death as provided by
           Section 5.

                                       2

<PAGE>

     3.  Place of Employment.

     The Employee's regular place of employment during the Employment Term shall
be located in the Washington DC area.

     4.  Travel; Expenses.

     The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.

     All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.

     5.  Early Termination of Employment Term on Disability or Death.

         (a)  If during the Employment Term, the Employee fails because of
illness or other incapacity (including incapacity because of substance abuse) to
render to the Employer the services required of him hereunder for a period of
two months (during which the Employer shall continue the Employee's compensation
at the rates herein provided), the Employer may, in its discretion, give one
month notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one-month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.

         (b)  The Employment Term shall end upon the death of the Employee.

         (c)  In the event of termination for disability or death, the Employer
              shall pay the Employee the $25,000 annual bonus provided for in
              Section 2(b) prorated for the period from the

                                       3

<PAGE>

              start of the fiscal year to date of termination, provided that the
              requirements of Subsections 2(b)(i) and (iii) have been met for
              such fiscal year.

     6.  Confidentiality; Competition.

         (a)  For the purposes hereof, all confidential information about the
business and affairs of the Employer (including, without limitation, business
plans, product design and specifications, financial, engineering and marketing
information and information about costs, manufacturing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.

         (b)  The Employee agrees that during the Employment Term and for two
years after the end of the Employment Term (the "Non-Competition Period"), the
Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of manufacturing or assembly of trucks or component parts in any
part of the United States (which the parties acknowledge is the Employer's
trading area). For purposes of the preceding sentence, the Employee shall be
deemed to be engaged in any business which any person for whom he shall perform
services is engaged. Nothing herein contained shall be deemed to prohibit the
Employee from owning, as a passive investment, a security of any issuer which is
not a supplier, vendor, customer or competitor of the Employer. In situations
where an involuntary termination of the Employee may occur, the provisions
provided for in this subsection shall not be applicable. However, in situations
where an involuntary termination is a result of a default of employee under the
provisions of Paragraph 9, the provisions of this paragraph shall be applicable.

                                       4

<PAGE>

         (c)  Within the terms of this Agreement, it is intended to limit
disclosure and competition by the Employee to the maximum extent permitted by
law. If it shall be finally determined by any court of competent jurisdiction
ruling on this Agreement that the scope or duration of any limitation contained
in this paragraph 6 is too extensive to be legally enforceable, then the parties
hereby agree that the scope and duration (not greater than that provided for
herein) of such limitation shall be the maximum scope and duration which shall
be legally enforceable and the Employee hereby consents to the enforcement of
such limitation as so modified.

         (d)  The Employee acknowledges that any violation by him of the
provisions of this paragraph 6 could cause serious and irreparable damages to
the Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that, in
the event of a breach or threatened breach by him of the provisions of this
paragraph 6, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.

     7.  Benefits.

     The Employer agrees to provide to the Employee the benefits listed in
Schedule A hereto.

     8.  Employee's Representation.

     Employee hereby represents to the Employer that he has full lawful right
and power to enter into this Agreement and carry out his duties hereunder, and
that same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.

     9.  Default by Employee.

     If the Employee shall:

         (i)    commit an act of dishonesty against the Employer or fraud upon
                the Employer; or

         (ii)   breach his obligations under this Agreement and fail to cure
                such breach within five (5) days after written notice thereof;
                or

         (iii)  be convicted of a crime involving moral turpitude; or

                                        5

<PAGE>

          (iv)  fail or neglect diligently to perform his duties hereunder and
                continue in his failure after written notice; or

          (v)   engage in any other acts of gross misconduct against employer

then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.

     10.  Successors.

     The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.

     11.  Automatic Roll-Over

     The Agreement shall automatically extend for an additional one year period,
on each expiration date, unless either party shall have theretofore given at
least 90 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing

     12.  Notices.

     Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:

     To Employee:                       To Employer:
     -----------                        -----------

     Gary Tull                          AM General Corporation
     46429 Montgomery Place                  105 North Niles Avenue
     Potomac Falls, VA 20165                 South Bend, IN 46617
                                             Attention: President

                                       6

<PAGE>

          with copy to:           The Renco Group, Inc.
          ------------
                                  30 Rockefeller Plaza, 42/nd/ Floor
                                  New York, NY 10112

and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.

     13.  Waiver.

     The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.

                                       7

<PAGE>

     14.  Entire Agreement; Governing Law.

     There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under; and shall be construed in accordance with, the laws of
Indiana, applicable to agreements to be performed wholly within that state.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

     Attest:                         EMPLOYER:
                                          AM GENERAL CORPORATION

     ________________                By _________________________________

     Witness:                             EMPLOYEE:

     ________________                ____________________________________
                                     Gary Tull

                                       8

<PAGE>

                                   SCHEDULE A
                        GARY TULL/AM GENERAL CORPORATION
                              Employment Agreement
                           Effective November 1, 2001

                                Employee Benefits
                                -----------------

*AMG Retirement Plan

*AMG ERISA Excess Plan

*AMG Capital/Accumulation Plan

*AMG Profit Sharing Plan

*AMG Salary Continuation Plan
  (Section 5.0 only)

*AMG Medical and Dental Care Plans

*AMG Educational Reimbursement Plan

*AMG Vacation Plan

*AMG Health Care Plan

*AMG Disability Income Plan

*AMG Cafeteria Plan
   . Life Insurance
   . Benefit Bank
   . Optional Disability Income
   . Optional Vacation

*AMG Executive Lease Vehicle Program

*AMG Executive Wellness Program

                                       9

<PAGE>

                              EMPLOYMENT AGREEMENT
                                    (WUSLICH)

     AGREEMENT effective as of November 1, 2001, between AM GENERAL CORPORATION
("Employer"), and GARY L. WUSLICH ("Employee").

                              W I T N E S S E T H:

     WHEREAS Employer desires to employ Employee on the terms hereof, and
Employee desires to accept employment on such terms;

     In consideration of the mutual covenants herein contained, the parties
hereto hereby agree as follows:

     1.   Term and Duties.

     Commencing on the date hereof and continuing until October 31, 2004, and
thereafter from year to year unless sooner terminated as herein provided (the
"Employment Term"), the Employer hereby employs the Employee as Vice President -
Human Resources. The Employee hereby accepts such employment and agrees to
devote all of his business time and his best efforts to the business of Employer
and as may be necessary to perform his duties in accordance with the policies
and budgets established from time to time by Employer and its Board of Directors
and President.

     2.   Compensation.

     For Employee's services hereunder Employer shall pay to Employee

          (a)  a salary at the rate of One Hundred Twenty-Five Thousand
($125,000) Dollars per year (or such greater amount as Employer may from time to
time determine), payable periodically in accordance with Employer's usual
executive payroll payment procedures; plus

          (b)  the opportunity to earn an annual bonus of up to Thirty Thousand
($30,000) Dollars for each fiscal year (ending October 31st) provided that

               (i)  Employee achieves Employer's performance objectives to the
                    satisfaction of employer;

                                       1

<PAGE>

               (ii)  Employee is in the active employment of Employer, and
                     actually engaged in performing duties, at the close of such
                     fiscal year, and

               (iii) Employer's financial statements for such year, as prepared
                     by its independent public accountants, show a positive net
                     income available for common stock, as determined in
                     accordance with generally accepted accounting principles
                     consistently applied, but after adding back any non-cash
                     charges for post-employment benefits and before this bonus
                     and bonuses provided for in all other executive employment
                     agreements.

Such annual bonus for each year shall be payable within 15 days after the
Employer's accountants have completed preparation of the Employer's financial
statement for such year. The determination of such accountants as to the amount
of the net income, as shown in such statements shall be conclusive on the
parties. Eligibility for this executive performance based bonus does not detract
from Employee's participation in the Profit Sharing Plan available to all
salaried employees.

          (c)  In the event Employee's employment is terminated by the Employer
               prior to the end of the Employment Term, and the Employee is not
               in default of this Agreement as provided in Section 9, Employer
               shall continue Employee's salary as defined in Section 2(a) for
               the remaining period of the Employment Term, but in no case less
               than twelve months following termination of employment. The
               provisions of Sections 1.0 through 4.0 of the AM General Salary
               Continuation Plan shall not have application in the event of such
               a termination of employment. In the event of a termination of
               employment under this Subsection, Employee shall not be entitled
               to receive any annual bonus provided for in Section 2(b) or to
               any proration thereof. The provisions of this Subsection shall
               not apply in the event of Early Termination of Employment Term on
               Disability or Death as provided by Section 5.

                                       2

<PAGE>

     3.   Place of Employment.

     The Employee's regular place of employment during the Employment Term shall
be located in the South Bend, Indiana area.

     4.   Travel; Expenses.

     The Employee shall engage in such travel as may reasonably be required in
connection with the performance of his duties.

     All reasonable travel and other expenses incurred by the Employee (in
accordance with the policies and the budget of the Employer established from
time to time) in carrying out his duties hereunder will be reimbursed by the
Employer on presentation to it of expense accounts and appropriate documentation
in accordance with the customary procedures of the Employer for reimbursement of
executive expenses.

     5.   Early Termination of Employment Term on Disability or Death.

          (a)  If during the Employment Term, the Employee fails because of
illness or other incapacity (including incapacity because of substance abuse) to
render to the Employer the services required of him hereunder for a period of
two months (during which the Employer shall continue the Employee's compensation
at the rates herein provided), the Employer may, in its discretion, give one
month notice of termination of the Employment Term (during which the Employee's
compensation shall likewise be continued), and if the Employee shall not resume
full performance of his duties within such one-month period, the Employment Term
shall terminate at the expiration thereof, provided that any such termination
shall not affect the right of the Employee (or his estate) to continue to
receive benefits under any disability insurance plan covering the Employee which
is in effect at the date of termination.

          (b)  The Employment Term shall end upon the death of the Employee.

          (c)  In the event of termination for disability or death, the Employer
               shall pay the Employee the $30,000 annual bonus provided for in
               Section 2(b) prorated for the period from the

                                       3

<PAGE>

               start of the fiscal year to date of termination, provided that
               the requirements of Subsections 2(b)(i) and (iii) have been met
               for such fiscal year.

     6.   Confidentiality; Competition.

          (a)  For the purposes hereof, all confidential information about the
business and affairs of the Employer (including, without limitation, business
plans, product design and specifications, financial, engineering and marketing
information and information about costs, manufacturing methods, suppliers and
customers) constitute "Employer Confidential Information." Employee acknowledges
that he will have access to and knowledge of Employer Confidential Information,
and that improper use or revelation of same by the Employee during or after the
termination of his employment by the Employer could cause serious injury to the
business of the Employer. Accordingly, the Employee agrees that he will forever
keep secret and inviolate all Employer Confidential Information which comes into
his possession, and that he will not use the same for his own private benefit,
or directly or indirectly for the benefit of others, and that he will not
disclose such Employer Confidential Information to any other person except as
necessary in pursuance of his duties.

          (b)  The Employee agrees that during the Employment Term and for two
years after the end of the Employment Term (the "Non-Competition Period"), the
Employee will not (whether as an officer, director, partner, proprietor,
investor, associate, employee, consultant, adviser, public relations or
advertising representative or otherwise), directly or indirectly, be engaged in
the business of manufacturing or assembly of trucks or component parts in any
part of the United States (which the parties acknowledge is the Employer's
trading area). For purposes of the preceding sentence, the Employee shall be
deemed to be engaged in any business which any person for whom he shall perform
services is engaged. Nothing herein contained shall be deemed to prohibit the
Employee from owning, as a passive investment, a security of any issuer which is
not a supplier, vendor, customer or competitor of the Employer. In situations
where an involuntary termination of the Employee may occur, the provisions
provided for in this subsection shall not be applicable. However, in situations
where an involuntary termination is a result of a default of employee under the
provisions of Paragraph 9, the provisions of this paragraph shall be applicable.

                                       4

<PAGE>

          (c)  Within the terms of this Agreement, it is intended to limit
disclosure and competition by the Employee to the maximum extent permitted by
law. If it shall be finally determined by any court of competent jurisdiction
ruling on this Agreement that the scope or duration of any limitation contained
in this paragraph 6 is too extensive to be legally enforceable, then the parties
hereby agree that the scope and duration (not greater than that provided for
herein) of such limitation shall be the maximum scope and duration which shall
be legally enforceable and the Employee hereby consents to the enforcement of
such limitation as so modified.

          (d)  The Employee acknowledges that any violation by him of the
provisions of this paragraph 6 could cause serious and irreparable damages to
the Employer. He further acknowledges that it might not be possible to measure
such damages in money. Accordingly, the Employee further acknowledges that, in
the event of a breach or threatened breach by him of the provisions of this
paragraph 6, the Employer may seek, in addition to any other rights or remedies,
including money damages, an injunction or restraining order, restraining the
Employee from doing or continuing to do or perform any acts constituting such
breach or threatened breach.

     7.   Benefits.

     The Employer agrees to provide to the Employee the benefits listed in
Schedule A hereto.

     8.   Employee's Representation.

     Employee hereby represents to the Employer that he has full lawful right
and power to enter into this Agreement and carry out his duties hereunder, and
that same will not constitute a breach of or default under any employment,
confidentiality, non-competition or other agreement by which he may be bound.

     9.   Default by Employee.

     If the Employee shall:

          (i)   commit an act of dishonesty against the Employer or fraud upon
                the Employer; or

          (ii)  breach his obligations under this Agreement and fail to cure
                such breach within five (5) days after written notice thereof;
                or

          (iii) be convicted of a crime involving moral turpitude; or

                                       5

<PAGE>

          (iv)   fail or neglect diligently to perform his duties hereunder and
                 continue in his failure after written notice; or

          (v)    engage in any other acts of gross misconduct against employer

then, and in any such case, the Employer may terminate the employment of the
Employee hereunder and, in the event of any such termination, the Employee shall
no longer have any right to any of the benefits (including future salary
payments) which would otherwise have accrued after such termination.

     10.  Successors.

     The rights, benefits, duties and obligations under this Agreement shall
inure to and be binding upon the Employer, its successors and assigns and upon
the Employee and his legal representatives, legatees and heirs. It is
specifically understood, however, that this Agreement may not be transferred or
assigned by the Employee. The Employer may assign any of its rights and
obligations hereunder to any subsidiary or affiliate of the Employer, or to a
successor or survivor resulting from a merger, consolidation, sale of assets or
stock or other corporate reorganization, on condition that the assignee shall
assume all of the Employer's obligations hereunder and it is agreed that such
successor or surviving corporation shall continue to be obligated to perform the
provisions of this Agreement.

     11.  Automatic Roll-Over

     The Agreement shall automatically extend for an additional one year period,
on each expiration date, unless either party shall have theretofore given at
least 90 days prior written notice of termination. Any extension shall be on the
terms in force immediately preceding said extension, unless otherwise agreed in
writing

     12.  Notices.

     Notices hereunder shall be in writing and shall be sent by telegraph or by
certified or registered mail, telecopy, or recognized overnight delivery service
(such as Federal Express) prepaid as follows:

     To Employee:                 To Employer:
     -----------                  -----------

     Gary L. Wuslich              AM General Corporation
     15801 Ashville Lane                105 North Niles Avenue
     Granger, IN 46530                  South Bend, IN 46617
                                        Attention: President

                                       6

<PAGE>

     with copy to:             The Renco Group, Inc.
     ------------
                               30 Rockefeller Plaza, 42/nd/ Floor
                               New York, NY 10112

and shall be deemed to have been given when telecopied to the addressee or three
days after placed in the mail or the second business day following delivery to a
recognized overnight delivery service (such as Federal Express) or a telegraph
company, prepaid and properly addressed. Notices to the Employee may also be
delivered to him personally. Notices of change of address shall be given as
provided above, but shall be effective only when actually received.

     13.  Waiver.

     The failure of either party to insist upon the strict performance of any of
the terms, conditions, and provisions of this Agreement shall not be construed
as a waiver or relinquishment of future compliance therewith, and said terms,
conditions, and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of the Employer shall be
effective for any purposes whatsoever unless such waiver is in writing and
signed by the Employer.

                                       7

<PAGE>

     14.  Entire Agreement; Governing Law.

     There are no oral or written understandings concerning the Employee's
employment by Employer outside of this Agreement. This Agreement may not be
modified except by a writing signed by the parties hereto. This Agreement
supersedes any and all prior employment agreements or understandings. This
Agreement is made under; and shall be construed in accordance with, the laws of
Indiana, applicable to agreements to be performed wholly within that state.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

     Attest:                         EMPLOYER:
                                          AM GENERAL CORPORATION

     _______________                 By _________________________________

     Witness:                             EMPLOYEE:

     _______________                 ____________________________________
                                     Gary L. Wuslich

                                       8

<PAGE>

                                   SCHEDULE A
                     GARY L. WUSLICH/AM GENERAL CORPORATION
                              Employment Agreement
                           Effective November 1, 2001

                                Employee Benefits
                                -----------------

*AMG Retirement Plan

*AMG ERISA Excess Plan

*AMG Capital/Accumulation Plan

*AMG Profit Sharing Plan

*AMG Salary Continuation Plan
 (Section 5.0 only)

*AMG Medical and Dental Care Plans

*AMG Educational Reimbursement Plan

*AMG Vacation Plan

*AMG Health Care Plan

*AMG Disability Income Plan

*AMG Cafeteria Plan
   . Life Insurance
   . Benefit Bank
   . Optional Disability Income
   . Optional Vacation

*AMG Executive Lease Vehicle Program

*AMG Executive Wellness Program

                                       9<PAGE>
                                                                    EXHIBIT 10.1

LAW OFFICES OF GEORGE DONALDSON
GEORGE DONALDSON (79971)
DANIEL B. HARRIS (117230)
350 California Street, Suite 1750
San Francisco, CA 94104
Telephone: 415/394-8500

Settlement Counsel and
Attorneys for Plaintiffs

                          UNITED STATES DISTRICT COURT

                    FOR THE NORTHERN DISTRICT OF CALIFORNIA

JACK OLIVE, JONATHAN NOBLE,        )    Case No. C 89 4331 MHP
M.D., JOHN P. PEDJOE AND           )
ALLSOP, INC. PROFIT SHARING        )    DERIVATIVE ACTION
PLAN & TRUST, on behalf of         )
themselves and all                 )    SECOND AMENDMENT TO THE
others similarly situated and      )    MODIFICATION OF STIPULATION OF
derivatively on behalf of          )    SETTLEMENT
NATIONAL INCOME REALTY TRUST,      )    ------------------------------
a California business trust,       )
CONTINENTAL MORTGAGE AND EQUITY    )
TRUST, a California business       )
trust, TRANSCONTINENTAL REALTY     )
INVESTORS, a California            )
business trust, and INCOME         )
OPPORTUNITY REALTY TRUST, a        )
California                         )
business trust,                    )
                                   )
                    Plaintiffs,    )
                                   )
     vs.                           )
                                   )
GENE E. PHILLIPS; WILLIAM S.       )
FRIEDMAN; RICHARD N. LAPP;         )
MICHAEL E. SMITH; WILLIE K.        )
DAVIS; RAYMOND V. J. SCHRAG;       )
RANDALL K. GONZALEZ; JAMES W.      )
HAMMOND, JR.; NATIONAL REALTY      )
ADVISORS, INC., a Texas            )
corporation; NATIONAL REALTY,      )
L.P.,                              )
                                   )
    -- caption continues --        )
                                   )
---------------------------------  )

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
<PAGE>
a Delaware limited partnership; )
AMERICAN REALTY TRUST, INC., a  )
Georgia corporation; NATIONAL   )
OPERATING L.P., a Delaware      )
limited partnership;            )
                                )
               Defendants,      )
                                )
    -and-                       )
                                )
                                )
                                )
                                )
NATIONAL INCOME REALTY TRUST, a )
California business trust;      )
CONTINENTAL MORTGAGE AND EQUITY )
TRUST, a California business    )
trust, TRANSCONTINENTAL REALTY  )
INVESTORS, a California         )
business trust; and INCOME      )
OPPORTUNITY REALTY TRUST, a     )
California business trust;      )
                                )
          Nominal Defendants.   )
                                )
_______________________________ )

     This Second Amendment to the Modification of Stipulation of Settlement (the
"Second Amendment") is made and entered into as of October 5, 2001, by and among
(i) Settlement Counsel; (ii) Transcontinental Realty Investors, Inc. ("TRI") and
Income Opportunity Realty Investors, Inc. ("IORI") (collectively referred to as
the "Dallas Trusts"), and (iii) Gene E. Phillips ("Phillips"), Basic Capital
Management, Inc. ("BCM"), American Realty Investors, Inc. ("ARI"), the parent
corporation of American Realty Trust, Inc. ("ART") (collectively referred to as
the "Settling Defendants").
///
///

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       1
<PAGE>

                                FACTUAL RECITALS

     A.   On or about April 27, 1994, the parties to this Second Amendment,
along with others, executed the Modification of Stipulation of Settlement (the
"Modification"). The Modification amended a Stipulation of Settlement (the
"Stipulation"), previously executed on or about February 21, 1990, which settled
all of the claims asserted in an amended complaint filed on or about February
26, 1990, in the above-captioned action.

     B.   As of January 9, 1997, the parties to this Second Amendment, along
with others, entered the Amendment to the Modification of Stipulation of
Settlement (the "Amendment"), settling disputes which had arisen over
compliance with the Modification.

     C.   On or about May 24, 1999, Settlement Counsel filed a request with the
court presiding over this action (the "District Court") to exercise its
retained jurisdiction in accordance with Paragraph B.(17) of the Modification.
In essence, Settlement Counsel asserted that certain of the defendants who were
parties to the Modification had breached the terms of Paragraphs D.(4) thereof,
which provision directs the Boards of Directors of the Dallas Trusts to retain
a compensation consultant to evaluate the fairness of the contracts between BCM
and its affiliates and the Dallas Trusts, including, but not limited to, the
fairness to the Dallas Trusts of such contracts relative to other means of
administration.

     D.   On June 30, 2000, Settlement Counsel filed an amended request that
the District Court exercise its retained jurisdiction, contending that two
loans, totaling $12 million, made

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       2

<PAGE>
by TRI to BCM and ART to satisfy margin calls relative to stock owned by BCM
and ART (the "Loans") were contrary to the provisions of Paragraph B.(7) of the
Modification, which prohibit the use of the funds and assets of the Dallas
Trusts to satisfy certain types of claims asserted against Phillips and/or his
affiliates. The Loans have been repaid with interest.

     E.   On August 31, 2000, and by subsequent order dated September 5, 2000,
the District Court issued an order finding, inter alia, that it had
jurisdiction to entertain Settlement Counsel's claim that the Loans violated
the Modification. Presently, Settlement Counsel's request relative to the
evaluation of contracts by a compensation consultant remains pending in the
District Court.

     F.   On October 24, 2000, the Dallas Trusts appealed the District Court's
August 31, 2000 order to the United States Court of Appeals for the Ninth
Circuit (the ""Appeals Court"), contending, inter alia, that the Modification
had expired and that the District Court lacked jurisdiction to entertain
Settlement Counsel's assertions respecting the Loans (the "Appeal").

     G.   The parties hereto acknowledge that further and substantial expense
and time will be necessary to litigate the matters raised by Settlement
Counsel's pending requests that the District Court exercise its retained
jurisdiction. The parties desire to compromise, settle and discharge all claims
arising from such matters and to finally put an end to this litigation in order
to avoid the anticipated expense, inconvenience, distraction, and risk of
further legal proceedings.

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       3
<PAGE>
         H. To that end, Settlement Counsel and the Settling Defendants have
engaged in extensive arms' length negotiations over the matters set forth below,
and Settlement Counsel has been assisted in that process by a reputable real
estate valuation and consulting firm.

         NOW, THEREFORE, the parties hereto agree that, as of the Effective
Date, all of their prior settlement agreements made and entered into in this
action, including those embodied in the Stipulation, the Modification and the
Amendment, be and hereby are supplanted and replaced in their entirety as
follows:

     A. DEFINITIONS

         As used in this Second Amendment, the following terms, in addition to
those defined elsewhere herein, shall have the meanings specified below:

         1. "Directors" or "Boards of Directors" means the persons presently
acting as directors and/or trustees of TRI and IORI, i.e., Ted P. Stokely,
Edward G. Zampa, R. Douglas Leonhard, and Martin L. White, and any other person
who acted in such a capacity at any time since the execution of the Amendment,
i.e., Larry E. Harley, Edward L. Tixier, Murray Shaw and Richard W. Douglas.

         2. "Effective Date" is the date on which the settlement embodied in
this Second Amendment becomes "effective," which is the date on which the
District Court's judgment approving the settlement herein contained,
substantially in the form of Exhibit A hereto (the "Final Judgment"), becomes
final, i.e., the date of the final affirmance on appeal, the expiration of the
time for

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       4

<PAGE>
petitions for writs of certiorari to the Supreme Court of the United States and,
if certiorari be granted, the date of final affirmance following review pursuant
to that grant; or the final dismissal of any appeal or proceedings on certiorari
to the Supreme Court of the United States; or the expiration, in the absence of
the filing or noticing of any appeal or petition for a writ of certiorari to the
Supreme Court of the United States, of the time to appeal or petition from the
District Court's judgment.

         3. "Escrow Agent" means the Law Offices of George Donaldson.

         4. "Final Judgment" means the judgment to be entered approving the
proposed settlement contemplated herein and dismissing this action with
prejudice, as set forth in Section D. below and substantially in the form of
Exhibit A hereto.

         5. "Freeze-Out Merger" means a transaction whereby a target entity is
merged with another entity, the target entity's shares are purchased, and no
shareholders in the target entity remain upon completion of the merger other
than the acquiring entity.

         6. "Person" means any individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated organization, and any other type of legal entity and their
heirs, successors, or assigns.

         7. "Released Parties" means collectively the Settling Defendants, the
Directors, IORI, TRI and his or its respective predecessors and successors,
parents, subsidiaries, affiliates, and

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       5
<PAGE>
all their present and former partners, principals, officers, directors,
employees, agents, attorneys, assigns, representatives, heirs, executors,
members of the immediate family, and administrators who are or ever may become
liable with respect to the Settled Claims.

         8.   "Settled Claims" means any and all claims, actions or causes of
action of whatever nature, character or description, whether known, unknown,
suspected or unsuspected, that could or do arise out of or are or could be in
any way based on, connected with or related to any alleged breach of the
Stipulation, the Modification, the Amendment or to any of the matters raised in
Settlement Counsel's requests that the District Court exercise its retained
jurisdiction, as described above, including the Directors' alleged failure to
obtain a compensation consultant's report and the Loans.

         9.   "Settlement Counsel" means the Law Offices of George Donaldson,
350 California Street, Suite 1750, San Francisco, California 94104.

         10.  "Settlement Shareholders" means all owners of shares of the
common stock or of rights to acquire the common stock, if any, of TRI and/or
IORI on the date when the Freeze-Out Mergers become effective who did not
exercise applicable rights of dissent and who are not affiliated with the
Released Parties.

         11.  "Tender Offer" means an offer to purchase all of the outstanding
shares of the subject entity.

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       6
<PAGE>

     B.   SETTLEMENT TERMS

          1.   Through the mechanism of a Freeze-Out Merger, Income Opportunity
Acquisition Corporation ("IOAC"), a subsidiary of ARI, shall be merged into IORI
pursuant to which all shares of IORI's common stock held by persons not
affiliated with the Released Parties shall be purchased, directly or indirectly,
by ARI at $19 per share in cash or, at the affirmative election of such persons,
in Series H Preferred Stock of ARI in an amount having a liquidation value of
$21.50 in exchange for each share of IORI common stock. In connection with such
Freeze-Out Merger, all of the shares of IORI that are held by the Released
Parties shall be exchanged for Series H Preferred Stock in an amount having a
liquidation value of $21.50 in exchange for each share of IORI common stock.

          2.   Through the mechanism of a Freeze-Out Merger, Transcontinental
Realty Acquisition Corporation ("TRAC"), a subsidiary of ARI, shall be merged
into TRI pursuant to which all shares of TRI's common stock held by persons not
affiliated with the Released Parties shall be purchased, directly or indirectly,
by ARI at $17.50 per share in cash or, at the affirmative election of such
persons, in Series G Preferred Stock of ARI in an amount having a liquidation
value of $20 per share in exchange for each share of TRI common stock. In
connection with such Freeze-Out Merger, all of the shares of TRI that are held
by the Released Parties shall be exchanged for Series G Preferred Stock in an
amount having a liquidation value of $20 in exchange for each share of TRI
common stock.

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       7
<PAGE>
         3.   The rights, preferences and privileges of the Series H Preferred
Stock shall be those set forth in Exhibit B hereto. The rights, preferences and
privileges of the Series G Stock shall be those set forth in Exhibit C hereto.

         4.   The purchase prices and the liquidation values stated in
Paragraphs B.1. and 2. above shall be reduced by all cash dividends declared and
paid by each of IORI and TRI after January 2, 2002.

         5.   The cash consideration to be paid to persons not affiliated with
the Released Parties in connection with the Freeze-Out Mergers described in
Paragraphs B.1. and 2. above shall be guaranteed by and become an obligation of
the Settling Defendants.

         6.   The Freeze-Out Mergers described in Paragraphs B.1. and 2. above
shall occur as soon as practicable after the satisfaction of each of the
following conditions:

         (a)  the entry of a Final Judgment, substantially in the form of
Exhibit A hereto, dismissing this action with prejudice with a finding that, in
light of the Freeze-Out Mergers and the related offers to purchase, the proposed
settlement herein provided is fair, reasonable and adequate within the meaning
of Federal Rule 23.1, as contemplated by Section C hereof;

         (b)  the occurrence of an Effective Date;

         (c)  receipt of all necessary regulatory approvals with respect to the
offers to purchase, including any required review of proxy solicitation
materials and registration statements by the Securities and Exchange Commission
(the "SEC"); and

         (d)  approval of the respective Freeze-Out Merger and

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       8

<PAGE>
related offer to purchase by a majority of the shareholders of TRI and/or IORI
who are unaffiliated with any of the Settling Defendants.

     7.   In order to effectuate the Freeze-Out Mergers, the Settling
Defendants shall timely perform each of the following acts:

     (a)  On or before November 30, 2001, which date may be reasonably
extended, if necessary, the Board of Directors of TRI and IORI, at the Settling
Defendants' expense, shall obtain a fairness opinion from a reputable
investment banking firm opining that the consideration to be paid to the
unaffiliated shareholders of TRI and IORI in each respective Freeze-Out Merger
or, alternatively, in the Tender Offers described in Paragraphs B.8. and 9.
below is fair from a financial point of view.

     (b)  Upon entry of the Court's order preliminarily approving the proposed
settlement (the "Preliminary Approval Order"), as described in Section C below,
the Settling Defendants shall deposit $1 million with the Escrow Agent (the
"Good Faith Deposit"). In accordance with the Escrow Agency Agreement attached
hereto as Exhibit D, the Good Faith Deposit shall be held by the Escrow Agent
at least until each Freeze-Out Merger is effective and complete or,
alternatively, until an uncured default occurs, as specified in Paragraph B.8.
below. Upon occurrence of a default, the Good Faith Deposit shall be available
to Settlement Counsel to pay all reasonable costs and fees necessary to compel
the payment of the liquidated damages stipulated in Paragraph B.8. below.
Subject to Paragraph G.2. below, when the Freeze-Out Mergers have

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       9

<PAGE>
been completed, or, alternatively, when the Tender Offers have been completed
without the occurrence of any uncured default, the Good Faith Deposit, plus all
interest earned thereon, shall be returned to the Settling Defendants. Subject
to paragraph G.2. below, should an uncured default have occurred and been later
fully remedied, the Good Faith Deposit, less all reasonable fees and expenses
drawn by or awarded Settlement Counsel, shall be returned to the Settling
Defendants.

     (c) As soon as practicable after entry of the Preliminary Approval Order,
ARI, TRI and IORI shall file proxy solicitation materials with the SEC seeking
shareholder approval of the contemplated transactions. The proxy solicitation
materials shall include Freeze-Out Merger agreements which provide, inter alia,
that:

          (i)  IORI shall be acquired by ARI and IOAC shall be merged into IORI
               and all Settlement Shareholders holding shares of IORI, subject
               to paragraph B.5. above, shall receive $19.00 cash in exchange
               for each such share, or, if such persons affirmatively so elect,
               ARI preferred stock in an amount having a liquidation value of
               $21.50 per share in exchange for each share of IORI common stock;
               and

          (ii) TRI shall be acquired by ARI and TRAC shall be merged into TRI
               and all Settlement Shareholders holding shares of the common
               stock of TRI

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       10
<PAGE>

               shall, subject to Paragraph B.5. above, receive $17.50 cash in
               exchange for each such share, or, if such persons affirmatively
               so elect, ARI preferred stock in an amount having a liquidation
               value of $20.00 per share in exchange for each share of TRI
               common stock.

          8.   Should ARI, TRI and IORI fail to complete the SEC review process
relative to the proxy solicitation materials with respect to each Freeze-Out
Merger prior to March 31, 2002, which may be reasonably extended by consent of
Settlement Counsel, the Settling Defendants shall be in default and liable for
liquidated damages equal to $5.00 for each share of TRI and IORI common stock
held by the owners thereof, except that, within thirty (30) days of the
occurrence of such default, the Settling Defendants may cure the default by
filing Tender Offers for all of the shares of IORI and TRI held by the
Settlement Shareholders, provided such Tender Offers have with respect to the
cash option the same or better economic terms and conditions as the Freeze-Out
Merger to which they relate, except that no dissenting holder shall be required
to surrender his or her shares in the Tender Offers and the approval of the SEC
shall not be required with respect to the Tender Offers. If the Tender Offers
are substantially completed within one hundred and twenty (120) days following
their distribution and public announcement, the Settling Defendants shall be
deemed to have complied in all respects with this Second Amendment.

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       11

<PAGE>
     9. Should the proxy solicitation materials with respect to each Freeze-Out
Merger become effective, and thereafter should the voting shareholders of
either of IORI or TRI who are unaffiliated with the Settling Defendants reject
the proposed Freeze-Out Merger, then the Settling Defendants shall make a
Tender Offer with respect to the rejecting entity on the same terms described
in Paragraph B.8. above, and, in that event, the Settling Defendants shall have
fully performed their obligations under this Second Amendment as to such
rejecting shareholders and shall have no further obligation to them under this
Second Amendment.

     10. The Settling Defendants shall not acquire any additional shares of TRI
and/or IORI not already owned by them as of October 5, 2001 until the
expiration of ten (10) business days following publication of the Summary
Notice, as provided in Paragraph C.6. below.

     11. In connection with the Freeze-Out Mergers or the Tender Offers, other
than that necessary to obtain the requisite quorum for any vote of shareholders
that is required hereunder, which may include retention of a proxy solicitation
firm, the Released Parties shall not engage in any solicitation activity
directed at Settlement Shareholders, including, without limitation, acts
intended to have or having the effect of causing Settlement Shareholders to
accept preferred stock rather than cash. The Settling Defendants shall cooperate
with all reasonable requests of Settlement Counsel to insure compliance with the
requirements of this paragraph.

     12. Immediately after execution of this Second

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       12
<PAGE>
Amendment, Settlement Counsel and counsel for the Dallas Trusts shall jointly
request the Appeals Court to postpone oral argument until a date no earlier
than February 28, 2002 unless the parties hereafter jointly inform the Appeals
Court that the settlement has terminated and the Appeal should be placed back
on the calendar for oral argument.

     C.   THE PRELIMINARY APPROVAL ORDER

          Promptly after execution of this Second Amendment, Settlement Counsel
shall file this Second Amendment with the Clerk of the District Court and move
the District Court for the entry of the Preliminary Approval Order,
substantially in the form of Exhibit E hereto, providing for notice of and
hearing on the proposed settlement. The Preliminary Approval Order shall
specifically include provisions which:

          1. Preliminarily approve the proposed settlement embodied in this
Second Amendment as being within the range of fairness and reasonableness;

          2. Approve a form of notice for mailing to the shareholders of the
Dallas Trusts, substantially in the form of Exhibit F hereto (the "Settlement
Notice"), that notifies such persons of the hearing on approval of the
settlement and of their rights with respect thereto;

          3. Approve a form of summary notice of the hearing on the proposed
settlement for publication to the shareholders of the Dallas Trusts,
substantially in the form of Exhibit G hereto (the "Summary Notice");

          4. Relieve Gene E. Phillips and A. Cal Rossi from the

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       13
<PAGE>
restrictions on involvement in the affairs of TRI and IORI, as provided in the
Court's Order of July 21, 2000, to the extent necessary to accomplish the
purposes hereto;

     5. Direct the Dallas Trusts, at the Settling Defendants' expense, to mail
or cause to be mailed the Settlement Notice to those shareholders of the Dallas
Trusts who can be identified through reasonable effort;

     6. Direct Settlement Counsel, at the Settling Defendants' expense, to
cause the Summary Notice to be published on one occasion in the national
edition of The Wall Street Journal;

     7. Find that mailing and publication pursuant to Paragraphs C.5. and 6.
above constitute the best notice practicable under the circumstances, including
individual notice to all shareholders of the Dallas Trusts who can be
identified through reasonable effort, are due and sufficient notice of the
matters set forth in the Settlement Notice to all such persons, and fully
satisfy the requirements of due process and Rule 23.1 of the Federal Rules of
Civil Procedure;

     8. Schedule a hearing (the "Settlement Hearing") to determine whether the
proposed settlement embodied in this Second Amendment should be finally
approved as fair, reasonable and adequate and whether an order approving the
settlement should be entered thereon; and

     9. Provide that any objections to the proposed settlement shall be heard
and any papers submitted in support of said objections shall be received and
considered by the District Court at the Settlement Hearing (unless, in its
discretion, the

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       14

<PAGE>

District Court shall otherwise direct) only if, on or before a date to be
specified in the Preliminary Approval Order, persons making objections shall
file notice of their intention to appear and copies of any papers in support of
their position with Clerk of the District Court and serve such notice and papers
on counsel to the parties this Second Amendment.

     D.  JUDGMENT TO BE ENTERED BY THE DISTRICT COURT APPROVING THE SETTLEMENT

         Upon approval by the District Court of the settlement, as herein
contemplated, the Final Judgment shall be entered, substantially in the form of
Exhibit A hereto, which shall:

         1. Approve the settlement embodied in this Second Amendment as fair,
reasonable and adequate to the Dallas Trusts and their shareholders within the
meaning of Federal Rule 23.1;

         2. Adjudge that the Dallas Trusts and the shareholders of the Dallas
Trusts, in their derivative capacity, shall be deemed conclusively to have
released the Settled Claims against the Released Parties;

         3. Bar and permanently enjoin the Dallas Trusts, and their shareholders
in a derivative capacity, from prosecuting the Settled Claims against the
Released Parties; and

         4. Reserve jurisdiction, without affecting the finality of the Final
Judgment entered, only over: (a) implementation of the settlement embodied in
this Second Amendment; (b) any hearing and/or determination on the applications
of Settlement counsel for an award of attorneys' fees and expenses; and (c)
enforcing and administering this Second Amendment. Upon the Effective Date, the
terms of this Second Amendment shall supersede and extinguish any

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       15

<PAGE>
and all prior agreements between the parties. By acknowledging the Court's
jurisdiction to approve this Second Amendment, the Dallas Trusts and the
Settling Defendants do not in any way waive their position that the Court does
not have any continuing jurisdiction to enforce or otherwise interpret the
previous agreements between the parties, including the Stipulation, the
Modification and the Amendment.

     E.  CONDITIONS OF SETTLEMENT

         1. This Second Amendment shall be effective only on the condition
that all of the following events occur:

          (a)  The District Court enters the Preliminary Approval Order;

          (b)  The District Court enters the Final Judgment; and

          (c)  There is an Effective Date.

         2. Upon the occurrence of all of the events referenced in Paragraph
E.1. above, the Dallas Trusts and the named plaintiffs to this action (a) are
deemed to dismiss this action with prejudice; (b) acknowledge full and complete
satisfaction of, and do hereby fully, finally and forever settle, release and
discharge the Settled Claims with respect to the Released Parties; (c) do hereby
further acknowledge that he, she or it is aware that he, she or it may hereafter
discover facts in addition to or different from those which he, she or it now
knows or believes to be true with respect to the subject matter of this release,
but that it is his, her or its intention to, and he, she or it does hereby,
fully, finally, and forever settle, release and discharge all claims

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       16
<PAGE>
referenced in this Paragraph E.2. without regard to the subsequent discovery or
existence of such different or additional facts.

         3.   Upon the occurrence of all of the events referenced in Paragraph
E.1. above, the Dallas Trusts shall dismiss the Appeal with prejudice.

         4.   Notwithstanding the foregoing, nothing herein other than the
events specified in Section F. below shall relieve the Settling Defendants from
performing any of their respective obligations under this Second Amendment.

     F.  EFFECT OF DISAPPROVAL, CANCELLATION OR TERMINATION

         1.   If the District Court does not enter the Final Judgment or if the
District Court enters the Final Judgment and appellate review is sought and on
such review such judgment is materially modified or reversed, then this Second
Amendment shall not be cancelled and terminated if all parties to this Second
Amendment who are adversely affected thereby, within thirty (30) days from the
date of mailing of such ruling to such parties, provide written notice to all
other parties hereto of their intent to proceed with this Second Amendment. Such
notice may be provided on behalf of each party to this Second Amendment by his
or its counsel.

         2.   If the Effective Date does not occur, or if this Second Amendment
is terminated or cancelled pursuant to its terms, the parties to this Second
Amendment shall be deemed to have reverted to their respective status as of the
date and time immediately prior to the execution of this Second Amendment, and
they shall proceed in all respects as if this Second Amendment had

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       17
<PAGE>
not been executed.

     G.   ATTORNEYS' FEES AND EXPENSES

          1.  The parties shall use their best efforts to agree on a
reasonable award of attorneys' fees and expenses to Settlement Counsel for its
services in connection with the matters leading up to this Second Amendment, in
which event Settlement Counsel shall apply to the District Court for an award
that does not exceed the agreed-upon amount. Should the parties be unable to
agree, Settlement Counsel shall move the District Court for an award of
attorneys' fees and expenses in whatever amount it deems appropriate, and the
Settling Defendants shall respond to any such request in whatever manner they
deem appropriate. In either event, the Settling Defendants shall be obligated
to and shall pay the award of attorneys' fees and expenses approved by the
District Court no later than five (5) days after the Effective Date.

          2.  If and to the extent not previously distributed pursuant to the
terms hereof, the Good Faith Deposit shall remain in escrow until all fees and
reimbursable expenses have been disbursed and shall serve as security therefor.

     H.   MISCELLANEOUS PROVISIONS

          1.  The parties hereto agree to cooperate to the extent necessary to
effectuate all terms and conditions of this Second Amendment.

          2.  All of the exhibits attached hereto are hereby incorporated by
this reference as though fully set forth herein.

          3.  This Second Amendment may be amended or modified only by a written
instrument signed by all parties, their

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       18

<PAGE>
successors-in-interest of their counsel of record.

          4.  This Second Amendment and the exhibits attached hereto constitute
the entire agreement among the parties hereto and no representations,
warranties or inducements have been made to any party concerning this Second
Amendment or its exhibits other than the representations, warranties and
covenants contained and memorialized in such documents.

          5.  Settlement Counsel, on behalf of the named plaintiffs and the
Dallas Trusts, is expressly authorized to take all appropriate action required
or permitted to be taken by it pursuant to this Second Amendment to effectuate
its terms and is also expressly authorized to enter into any modifications or
amendments to this Second Amendment which they deem appropriate.

          6.  Counsel for the Released Parties whose names appear on the
signature pages are authorized to sign this Second Amendment on behalf of their
respective clients.

          7.  This Second Amendment may be executed in one or more
counterparts. All executed counterparts and each of them shall be deemed to be
one and the same instrument. Counsel for the parties to this Second Amendment
shall exchange among themselves original signed counterparts and a complete set
of original executed counterparts shall be filed with the District Court.

          8.  This Second Amendment shall be binding upon, and inure to the
benefit of, the successors and assigns of the parties hereto.

          9.  All terms of this Second Amendment and the exhibits hereto shall
be governed by and interpreted according to the laws

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       19

<PAGE>
of the State of California.

     10. All parties shall use best efforts to perform all terms of this Second
Amendment.

     IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be executed, by their duly authorized attorneys, as of the date and year first
above written.

Dated: October 17, 2001                   LAW OFFICES OF GEORGE DONALDSON
                                          350 California Street, Suite 1750
                                          San Francisco, CA 94104
                                          Telephone: (415) 394-8500

                                          By /s/ GEORGE DONALDSON
                                             ---------------------------------
                                             George Donaldson
                                          Settlement Counsel and Attorneys for
                                          the Plaintiffs

Dated: October 17, 2001                   COOLEY GODWARD LLP
                                          One Maritime Plaza, Suite 2000
                                          San Francisco, CA 94111
                                          Telephone: (415) 693-2000

                                          SIMON, WARNER & DOBY, L.L.P.
                                          1700 City Center Tower II
                                          301 Commerce Street
                                          Fort Worth, TX 76102
                                          Telephone: (817) 810-5250

                                          By /s/ HENRY W. SIMON, JR.
                                             ---------------------------------
                                             Henry W. Simon, Jr.
                                          Attorneys for Gene E. Phillips and
                                          Basic Capital Management, Inc.,
                                          American Realty Trust, Inc. and
                                          American Realty Investors, Inc.

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       20

<PAGE>
Dated: October 17, 2001                      HELLER EHRMAN WHITE & MCAULIFFE
                                             333 Bush Street, Suite 3000
                                             San Francisco, CA 94104-2878

                                             By    /s/ JESSICA S. PERS
                                               -----------------------------
                                                     Jessica S. Pers
                                             Attorneys for the Dallas Trusts

SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT

                                       21

<PAGE>
                                                                       EXHIBIT A
<PAGE>
LAW OFFICES OF GEORGE DONALDSON
GEORGE DONALDSON (79971)
DANIEL B. HARRIS (117230)
350 California Street, Suite 1750
San Francisco, CA 94104
Telephone: 415/394-8500

Settlement Counsel and
Attorneys for Plaintiffs

                          UNITED STATES DISTRICT COURT

                    FOR THE NORTHERN DISTRICT OF CALIFORNIA

JACK OLIVE, JONATHAN NOBLE,                  )   Case No. C 89 4331 MHP
M.D., JOHN P. PEDJOE AND                     )
ALLSOP, INC. PROFIT SHARING                  )   DERIVATIVE ACTION
PLAN & TRUST, on behalf of                   )
themselves and all                           )   FINAL JUDGMENT AND ORDER OF
others similarly situated and                )   DISMISSAL
derivatively on behalf of                    )   ---------------------------
NATIONAL INCOME REALTY TRUST,                )
a California business trust,                 )
CONTINENTAL MORTGAGE AND EQUITY              )
TRUST, a California business                 )
trust, TRANSCONTINENTAL REALTY               )
INVESTORS, a California                      )
business trust, and INCOME                   )
OPPORTUNITY REALTY TRUST, a                  )
California business trust,                   )

                                 Plaintiffs, )
                                             )
         vs.                                 )
                                             )
GENE E. PHILLIPS; WILLIAM S.                 )
FRIEDMAN; RICHARD N. LAPP;                   )
MICHAEL E. SMITH; WILLIE K.                  )
DAVIS; RAYMOND V. J. SCHRAG;                 )
RANDALL K. GONZALEZ; JAMES W.                )
HAMMOND, JR.; NATIONAL REALTY                )
ADVISORS, INC., a Texas                      )
corporation; NATIONAL REALTY, L.P.,          )
                                             )
       --  caption continues  --             )
                                             )
---------------------------------------------

FINAL JUDGMENT AND ORDER OF DISMISSAL
<PAGE>
a Delaware limited partnership;         )
AMERICAN REALTY TRUST, INC., a          )
Georgia corporation; NATIONAL           )
OPERATING L.P., a Delaware              )
limited partnership;                    )
                                        )
                         Defendants,    )
                                        )
     -and-                              )
                                        )
NATIONAL INCOME REALTY TRUST, a         )
California business trust;              )
CONTINENTAL MORTGAGE AND EQUITY         )
TRUST, a California business            )
trust; TRANSCONTINENTAL REALTY          )
INVESTORS, a California                 )
business trust; and INCOME              )
OPPORTUNITY REALTY TRUST, a             )
California business trust;              )
                                        )
               Nominal Defendants.      )
                                        )
--------------------------------------- )

     This matter came before the Court on the motion of Settlement Counsel, on
behalf of the Dallas Trusts, as those terms are defined in the Second Amendment
to the Modification of Stipulation of Settlement, dated as of October 5, 2001
(the "Second Amendment"), for approval of a settlement in this action, as
embodied in the Second Amendment. The Court, having considered all papers filed
in connection with said motion and good cause appearing therefor, hereby
ORDERS, ADJUDGES AND DECREES as follows:

     1.   This Court has jurisdiction over the subject matter and parties to
these actions and over all parties to the Second Amendment. By acknowledging
the Court's jurisdiction over the subject matter of the Second Amendment, the
Settling Defendants and the Dallas Trusts do not acknowledge the jurisdiction
of the Court to do anything other than enter this Final Judgment and Order of

FINAL JUDGMENT AND ORDER OF DISMISSAL

                                       1

<PAGE>

Dismissal and this will not be deemed to be a waiver of their objection to the
Court's exercise of jurisdiction over the Settling Defendants or the Dallas
Trusts arising from any of the previous settlement agreements in this action.

     2.   This Court hereby finally approves the settlement embodied in the
Second Amendment and finds that said settlement is fair, reasonable and
adequate to the Dallas Trusts, as defined in the Second Amendment, and their
shareholders.

     3.   The Court hereby dismisses, with prejudice and without costs to any
party as against any other, except as provided in the Second Amendment, this
action and any and all claims, actions, or causes of actions alleged by the
plaintiffs, on behalf of the Dallas Trusts, in the above-captioned action
against Gene E. Phillips, Basic Capital Management, Inc., American Realty
Investors, Inc., American Realty Trust, Inc., Ted P. Stokely, Edward G.
Zampa, R. Douglas Leonhard, Martin L. White, Larry E. Harley, Murray Shaw and
Richard W. Douglas (collectively referred to herein as the "Released
Defendants").

     4.   The Dallas Trusts and all persons claiming to represent such Trusts
in any agency or derivative capacity shall be deemed conclusively to have
released and are hereby permanently barred and enjoined from prosecuting
against the Released Defendants, including, without limitation, his or its
respective predecessors and successors, parents, subsidiaries, affiliates and
all their present and former partners, principals, officers, directors,
employees, agents, attorneys, assigns, representatives, heirs, executors and
administrators, any and all claims, actions,

FINAL JUDGMENT AND ORDER OF DISMISSAL

                                       2
<PAGE>
or causes of action of whatever nature, character or description, whether known,
unknown, suspected or unsuspected, that could or do arise out of or are or could
be in any way based on, connected with or related to any alleged breach of the
Stipulation, the Modification, or the Amendment, as those terms are defined in
the Second Amendment, or to any of the matters raised in Settlement Counsel's
requests that the District Court exercise its retained jurisdiction, including,
as described in the Second Amendment, the alleged failure by certain of the
defendants to obtain a compensation consultant's report and the defendants'
conduct respecting the Loans.

         5.   Notwithstanding the foregoing, nothing herein shall relieve any
party the Second Amendment from liability for failing to abide by the terms and
obligations imposed by the Second Amendment.

         6.   The notice given to the shareholders of the Dallas Trusts of the
settlement set forth in the Second Amendment, as required by this Court's Order
Preliminarily Approving Proposed Derivative Action Settlement, entered on
October ___, 2001, was the best notice practicable under the circumstances,
including individual notice to all shareholders of the Dallas Trusts who could
be identified through reasonable effort. Said notice provided due and sufficient
notice of the proceedings regarding final approval of the settlement, including
the terms of the proposed settlement set forth in the Second Amendment, to all
persons entitled to such notice, and said notice fully satisfies the
requirements of due process and Federal Rule 23.1.

FINAL JUDGMENT AND ORDER OF DISMISSAL

                                       3

<PAGE>

     7. Without affecting the finality of this judgment, the Court hereby
reserves jurisdiction over only (a) enforcement and administration of the
Second Amendment; and (b) any hearing on and determination of the applications
for attorneys' fees, costs, interest and expenses in this action.

Dated:

                                          -------------------------------------
                                          The Honorable Marilyn Hall Patel
                                          United States District Court Judge

APPROVED AS TO FORM AND CONTENT:

Dated: October   , 2001                   COOLEY GODWARD LLP
               --                         One Maritime Plaza, Suite 2000
                                          San Francisco, CA 94111
                                          Telephone: (415) 693-2000

                                          SIMON, WARNER & DOBY, L.L.P.
                                          1700 City Center Tower II
                                          301 Commerce Street
                                          Fort Worth, TX 76102
                                          Telephone: (817) 810-5250

                                          By /s/ HENRY W. SIMON, JR.
                                             -----------------------------------
                                          Attorneys for Gene E. Phillips, Basic
                                          Capital Management, Inc., American
                                          Realty Trust, Inc. and American Realty
                                          Investors, Inc.

Dated: October 18, 2001                   HELLER EHRMAN WHITE & MCAULIFFE
                                          333 Bush Street, Suite 3000
                                          San Francisco, CA 94104-2878

                                          By /s/ JESSICA S. PERS
                                             -----------------------------------
                                             Jessica S. Pers
                                          Attorneys for the Dallas Trusts

FINAL JUDGMENT AND ORDER OF DISMISSAL

                                       4

<PAGE>
     7.   Without affecting the finality of this judgment, the Court hereby
reserves jurisdiction over only (a) enforcement and administration of the
Second Amendment; and (b) any hearing on and determination of the applications
for attorneys' fees, costs, interest and expenses in this action.

Dated:

                                        -------------------------------------
                                        The Honorable Marilyn Hall Patel
                                        United States District Court Judge

APPROVED AS TO FORM AND CONTENT:

Dated: October __, 2001                 COOLEY GODWARD LLP
                                        One Maritime Plaza, Suite 2000
                                        San Francisco, CA 94111
                                        Telephone: (415) 693-2000

                                        SIMON, WARNER & DOBY, L.L.P.
                                        1700 City Center Tower II
                                        301 Commerce Street
                                        Fort Worth, TX 76102
                                        Telephone: (817) 810-5250

                                        By
                                          -----------------------------------
                                          Henry W. Simon, Jr.
                                        Attorneys for Gene E. Phillips, Basic
                                        Capital Management, Inc., American
                                        Realty Trust, Inc. and American Realty
                                        Investors, Inc.

Dated: October 18, 2001                 HELLER EHRMAN WHITE & MCAULIFFE
                                        333 Bush Street, Suite 3000
                                        San Francisco, CA 94104-2878

                                        By
                                          -----------------------------------
                                          Jessica S. Pers
                                        Attorneys for the Dallas Trusts

FINAL JUDGMENT AND ORDER OF DISMISSAL

                                       4
<PAGE>
                                                                       EXHIBIT B
<PAGE>

                                                                       EXHIBIT B

                        AMERICAN REALTY INVESTORS, INC.

                SERIES H CUMULATIVE CONVERTIBLE PREFERRED STOCK
                          ("SERIES H PREFERRED STOCK")

ISSUANCE:

     Series H Preferred Stock will be issued in exchange for shares of IORI
common stock if a IORI stockholder elects to receive stock in lieu of a cash
payment.

EXCHANGE RATIO:  ONE-FOR-ONE

     The Series H Preferred Stock will have a liquidation value of $21.50 per
share. The IORI shareholder will receive a number of Series H shares equal to
the number of IORI shares exchanged.

EXCHANGE EXAMPLE:

     Submit -- 100 IORI shares at $19.00 each = $1,900.00
     Receive -- 100 Series H Shares at $21.50 each = $2,150.00

                    DESCRIPTION OF SERIES H PREFERRED STOCK

<Table>
<S>                 <C>
Par Value:          $2.00 per share
Liquidation Value:  $21.50 per share
Number Authorized:  1,030,000 shares
Dividend Rate:      10% per annum, payable quarterly in arrears from date of
                    issuance
Voting Rights:      The Series H shares will have the voting rights required by
                    the NYSE, the same as the ARI Series A shares.
Conversion Rights:  For a six month period commencing on the first anniversary
                    of the date of acquisition of IORI by ARI, the Series H
                    Shares may be converted into shares of ARI common stock.
                    Each Series H share will be convertible into shares of ARI
                    common stock on an exchange ratio which will provide for a
                    number of shares of ARI common stock with an underlying
                    asset value equal to the underlying asset value of one share
                    of IORI common stock at the time of the merger. This ratio
                    will be set by the investment banker that provides the
                    fairness opinion.
Redemption Rights:  None by holder. Redeemable by ARI at any time for 100% of
                    the liquidation value plus any accrued but unpaid dividends.
Listing:            If there are an adequate number of Series H shareholders and
                    Series H shares issued, an application will be made to list
                    the Series H shares on the NYSE.
</Table>

                                        1
<PAGE>
                                                                       EXHIBIT C
<PAGE>

                                                                       EXHIBIT C

                        AMERICAN REALTY INVESTORS, INC.

                SERIES G CUMULATIVE CONVERTIBLE PREFERRED STOCK
                          ("SERIES G PREFERRED STOCK")

ISSUANCE:

     Series G Preferred Stock will be issued in exchange for shares of TRI
common stock if a TRI stockholder elects to receive stock in lieu of a cash
payment.

EXCHANGE RATIO:  ONE-FOR-ONE

     The Series G Preferred Stock will have a liquidation value of $20.00 per
share. The TRI shareholder will receive a number of Series G shares equal to the
number of TRI shares exchanged.

EXCHANGE EXAMPLE:

     Submit -- 100 TRI shares at $17.50 each = $1,750.00
     Receive -- 100 Series G Shares at $20.00 each = $2,000.00

                    DESCRIPTION OF SERIES G PREFERRED STOCK

<Table>
<S>                 <C>
Par Value:          $2.00 per share
Liquidation Value:  $20.00 per share
Number Authorized:  4,050,000 shares
Dividend Rate:      10% per annum, payable quarterly in arrears from date of
                    issuance
Voting Rights:      The Series G shares will have the voting rights required by
                    the NYSE, the same as the ARI Series A shares.
Conversion Rights:  For a six month period commencing on the first anniversary
                    of the date of acquisition of TRI by ARI, the Series G
                    Shares may be converted into shares of ARI common stock.
                    Each Series G share will be convertible into shares of ARI
                    common stock on an exchange ratio which will provide for a
                    number of shares of ARI common stock with an underlying
                    asset value equal to the underlying asset value of one share
                    of TRI common stock at the time of the merger. This ratio
                    will be set by the investment banker that provides the
                    fairness opinion.
Redemption Rights:  None by holder. Redeemable by ARI at any time for 100% of
                    the liquidation value plus any accrued but unpaid dividends.
Listing:            If there are an adequate number of Series G shareholders and
                    Series G shares issued, an application will be made to list
                    the Series G shares on the NYSE.
</Table>

                                        1

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