Document:

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                                                                     Exhibit 4.6

                                 Execution Copy

                                  RES-CARE, INC.

                   STATEMENT OF ADDITIONAL TERMS AND CONDITIONS

                           Dated as of March 12, 1998

                                   relating to

                                   $22,000,000

                  5.90% Convertible Subordinated Notes due 2005

                                      -i-

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       STATEMENT OF ADDITIONAL TERMS AND CONDITIONS, dated as of March 15, 1998
by Res-Care, Inc., a corporation duly organized and existing under the laws of
the Commonwealth of Kentucky (herein called the "Company"), having its principal
executive offices at 10140 Linn Station Road, Louisville, Kentucky 40223 for the
benefit of the initial holders of its 5.90% Convertible Subordinated Notes due
2005 and any subsequent holders who have acquired the Securities in accordance
with the terms hereof and applicable securities laws.

RECITALS

      The Company has duly authorized the creation of an issue of its 5.90%
Convertible Subordinated Notes due 2005 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Statement of Additional Terms and Conditions.

      NOW, THEREFORE, THIS STATEMENT OF ADDITIONAL TERMS AND CONDITIONS
WITNESSETH:

      For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:

                                   ARTICLE ONE

             Definitions and Other Provisions of General Application

SECTION 101.      DEFINITIONS.

      For all purposes of this Statement of Terms, except as otherwise expressly
provided or unless the context otherwise requires:

      (1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;

      (2) all other terms used herein which are defined in the Trust Indenture
Act of 1939, as amended, either directly or by reference therein, have the
meanings assigned to them therein;

      (3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and, except as otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation

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required and permitted hereunder shall mean such accounting principles as are
generally accepted and adopted by the Company at the date of this Statement of
Terms; and

      (4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Statement of Terms as a whole and not to any
particular Article, Section or other subdivision.

      Certain terms used in Articles Twelve and Thirteen are defined in such
Articles.

      "Act" when used with respect to any Holder, has the meaning specified in
Section 104.

      "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

      "Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.

      "Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification and filed in the Company's permanent records.

      "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York and
Louisville, Kentucky are authorized or obligated to close by law or executive
order.

      "Change in Control" has the meaning specified in Section 1406.

      "Commission" means the Securities and Exchange Commission as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.

      "Common Stock" includes any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 1311, shares issuable on conversion of Securities shall
include only shares of the class designated as Common Stock of the Company as of
March 12, 1998

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or shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company and which are not subject to redemption
by the Company; provided, that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.

      "Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Statement of Terms, and thereafter "Company"
shall mean such successor Person.

      "Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and filed in the Company's permanent corporate records.

      "Current Market Price" has the meaning specified in Section 1304.

      "Defaulted Interest" has the meaning specified in Section 307.

      "Designated Senior Indebtedness" means the principal of, premium if any,
and interest, fees, indemnification amounts, reimbursements, damages and other
liabilities payable under the documentation governing indebtedness (a) under any
debt facility with banks or other lenders which provides for revolving credit
loans, term loans, receivables financing (including through the sale of
receivables) or letters of credit to the Company or any of its subsidiaries, and
(b) any other Senior Indebtedness the principal amount of which is $5.0 million
or more and that has been designated by the Company as "Designated Senior
Indebtedness."

      "Event of Default" has the meaning specified in Section 501.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "Holder" means a Person in whose name a Security is registered in the
Security Register maintained by the Company.

      "Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.

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      "Maturity" when used with respect to any Security, means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity thereof or by declaration of
acceleration, redemption or otherwise.

      "Officers' Certificate" means a certificate signed by the Chairman of the
Board, the Chief Executive Officer, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company, and filed in the Company's permanent corporate records. One of
the officers signing an Officers' Certificate given pursuant to Section 1004
shall be the principal executive, financial or accounting officer of the
Company.

      "Opinion of Counsel" means a written opinion of counsel who shall be
reasonably acceptable to the Company.

      "Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore issued by the Company in conformity
with this Statement of Terms and not theretofore purchased by the Company or an
affiliate thereof for redemption, cancellation, or conversion.

      "Outstanding Convertible Securities," means, as of the date of
determination, all Securities theretofore issued by the Company in conformity
with this Statement of Terms and not theretofore purchased by the Company or an
affiliate thereof for redemption, cancellation, or conversion, all of the
Company's 6% Convertible Subordinated Notes due 2004 issued by the Company (of
which the original principal amount thereof was $109,360,000,) and all other
securities theretofore issued by the Company which by their terms rank pari
passu in right of payment with the Securities and such 6% Convertible
Subordinated Notes and as of the date of determination outstanding for purposes
of the Statement of Terms or indenture pursuant to which such notes or other
securities were issued.

      "Paying Agent" means any Person authorized by the Company to pay the
principal of and premium, if any, and interest on any Securities on behalf of
the Company.

      "Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.

      "Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.

      "Record Date" means either a Regular Record Date or a Special Record Date,
as applicable.

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      "Redemption Date" when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Statement of
Terms.

      "Redemption Price" when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Statement of
Terms on the applicable Redemption Date.

      "Regular Record Date" for the interest payable on any Interest Payment
Date means March 1 or September 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.

      "Repurchase Date" has the meaning specified in Section 1401.

      "Repurchase Event" has the meaning specified in Section 1406.

      "Repurchase Price" has the meaning specified in Section 1401.

      "Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.

      "Senior Indebtedness" means the principal of and premium, if any, and
interest on (a) all indebtedness of the Company for money borrowed under the
Company's credit facilities and any predecessor or successor credit facilities
thereto, whether outstanding on the date of execution of the Statement of Terms
(such as the Company's bank credit agreement, any increase in the maximum
principal amount thereof and any predecessor or successor facilities thereto) or
thereafter created, incurred or assumed, (b) all indebtedness of the Company for
money borrowed, whether outstanding on the date of execution of the Statement of
Terms or thereafter created, incurred or assumed, except any such other
indebtedness that by the terms of the instrument or instruments by which such
indebtedness was created or incurred expressly provides that it (i) is junior in
right of payment to the Securities or (ii) ranks pari passu in right of payment
with the Securities, and (c) any amendments, renewals, extensions,
modifications, refinancings and refundings of the foregoing For these purposes,
the Company's 6% Convertible Subordinated Notes due 2004 shall rank pari passu
in right of payment with the Securities and shall not constitute Senior
Indebtedness. For the purposes of this definition, "indebtedness for money
borrowed" when used with respect to the Company means (i) any obligation of, or
any obligation guaranteed by, the Company for the repayment of borrowed money
(including without limitation fees, penalties or other obligations in respect
thereof), whether or not evidenced by bonds, debentures, notes or other written
instruments, (ii) any deferred payment obligation of, or any such obligation
guaranteed by, the Company for the payment of the purchase price of property or
assets evidenced by a note or similar instrument, and (iii) any obligation of,
or

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any such obligation guaranteed by, the Company for the payment of rent or other
amounts under a lease of property or assets which obligation is required to be
classified and accounted for as a capitalized lease on the balance sheet of the
Company under generally accepted accounting principles.

      "Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Company pursuant to Section 307.

      "Stated Maturity" when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.

      "Statement of Terms" means this Statement of Additional Terms and
Conditions relating to the Securities, as from time to time amended in
accordance with the terms thereof.

      "Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which ordinarily
has voting power for the election of directors, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.

      "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939, as so amended.

      "Vice President" when used with respect to the Company means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."

SECTION 102.      INTENTIONALLY OMITTED

SECTION 103.      INTENTIONALLY OMITTED

SECTION 104.      ACTS OF HOLDERS; RECORD DATES.

      (a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Statement of Terms to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided,

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such action shall become effective when such instrument or instruments are
delivered to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Statement of Terms and conclusive in favor of
the Company, if made in the manner provided in this Section.

      (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority.

      (c) The Company may, in the circumstances permitted by the Trust Indenture
Act, fix any day as the record date for the purpose of determining the Holders
entitled to give or take any request, demand, authorization, direction, notice,
consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 701)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.
Notwithstanding the foregoing, the Company shall not set a record date for, and
the provisions of this paragraph shall not apply with respect to, any Act by the
Holders pursuant to Section 501, 502 or 512.

      (d) The ownership of Securities shall be proved by the Security Register.

      (e) Any Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer therefor or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.

      (f) Without limiting the foregoing, a Holder entitled hereunder to give or
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any different part of such principal amount.

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SECTION 105.      NOTICES, ETC. TO COMPANY.

      Any Act of Holders or other documents provided or permitted by this
Statement of Terms to be made upon, given or furnished to, or filed with the
Company by any Holder shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to the Company, addressed to it at the address of its principal
executive offices or at any other address previously furnished in writing.

      All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two Business Days
after being deposited in the mail, registered or certified with postage prepaid,
if mailed; when answered back if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by nationally recognized overnight air courier guaranteeing next day
delivery.

SECTION 106.      NOTICE TO HOLDERS; WAIVER.

      Where this Statement of Terms provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if made, given, mailed or otherwise furnished or filed in writing to
each Holder affected by such event, at his address as it appears in the Security
Register, not later than the latest date (if any), and not earlier than the
earliest date (if any), prescribed for the giving of such notice. Where this
Statement of Terms provides for notice in any manner, such notice may be waived
in writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Company, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver. All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two Business Days
after being deposited in the mail, registered or certified with postage prepaid,
if mailed; when answered back if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by nationally recognized overnight air courier guaranteeing next day
delivery.

SECTION 107.      INTENTIONALLY OMITTED

SECTION 108.      EFFECT OF HEADINGS AND TABLE OF CONTENTS.

      The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

<PAGE>

SECTION 109.      SUCCESSORS AND ASSIGNS.

      All covenants and agreements in this Statement of Terms by the Company
shall bind each of their respective successors and assigns, whether so expressed
or not.

SECTION 110.      SEPARABILITY CLAUSE.

      In case any provision in this Statement of Terms or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

SECTION 111.      BENEFITS OF THE STATEMENT OF TERMS.

      Nothing in this Statement of Terms or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the Holders of Securities and, with respect to Article
Twelve, the holders of Senior Indebtedness, any benefit or any legal or
equitable right, remedy or claim under this Statement of Terms.

SECTION 112.      GOVERNING LAW

      This Statement of Terms and, except as may otherwise be required by
mandatory provisions of law, the Securities shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky, but without regard
to the principles of conflicts of laws thereof.

SECTION 113.      LEGAL HOLIDAYS.

      In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last date on which a Holder has the right to
convert his Securities shall not be a Business Day, then (notwithstanding any
other provision of this Statement of Terms or of the Securities) payment of
interest or principal and premium, if any, or conversion of the Securities need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date or
Redemption Date, or at the Stated Maturity, or on such last day for conversion;
provided, that no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date or Stated Maturity, as the case may be,
to the next succeeding Business Day.

SECTION 114.      NO SECURITY INTEREST CREATED.

      Nothing in this Statement of Terms or in the Securities, express or
implied, shall be construed to constitute a security interest under the Uniform
Commercial Code or similar legislation,

<PAGE>

as now or hereafter enacted and in effect in any jurisdiction where property of
the Company or its Subsidiaries is or may be located.

SECTION 115.      LIMITATION ON INDIVIDUAL LIABILITY.

      No recourse under or upon any obligation, covenant or agreement contained
in this Statement of Terms or in any Security, or for any claim based thereon or
otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company or any successor corporation, either directly or through the Company,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Statement of Terms and the obligations issued hereunder are
solely corporate obligations, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, the incorporators, shareholders,
officers or directors, as such, of the Company or any successor Person, or any
of them, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Statement of Terms or in any Security or implied therefrom; and that any and all
such personal liability of every name and nature, either at common law or in
equity or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, shareholder, officer or director, as such,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Statement
of Terms or in any Security or implied therefrom, are hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Statement of Terms and the issuance of such Security.

                                   ARTICLE TWO
                                 SECURITY FORMS

SECTION 201.      FORM OF SECURITY.

         The Securities shall be issued in definitive form only in substantially
the form set forth in Exhibit A hereto.

                                  ARTICLE THREE
                                 THE SECURITIES

SECTION 301.      TITLE AND TERMS.

      The aggregate principal amount of Securities which may shall be issued
pursuant to this Statement of Terms is limited to $22,000,000, except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Section 305, 306,
1108, or 1302.

<PAGE>

      The Securities shall be known and designated as the "5.90% Convertible
Subordinated Notes due 2005" of the Company. Their Stated Maturity shall be
March 1, 2005 and they shall bear interest at the rate of 5.90% per annum, from
the date of original issuance of Securities pursuant to this Statement of Terms
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable semi-annually on March 15 and
September 15 commencing September 15, 1998, until the principal thereof is paid
or made available for payment.

      The principal of and premium, if any, and interest on the Securities shall
be payable in respect of Securities held of record by Holders in same day funds
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002; provided, however, that at the option of the Company payment of
interest to Holders of record may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.

      The Securities shall rank pari passu in right of payment with the
Company's 6% Convertible Subordinated Notes due 2004.

      The Securities shall be subject to the transfer restrictions set forth in
Section 305.

      The Securities shall be redeemable as provided in Article Eleven.

      The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article Twelve.

      The Securities shall be convertible as provided in Article Thirteen

      The Securities shall be subject to repurchase at the option of the Holder
as provided in Article Fourteen.

SECTION 302.      DENOMINATIONS.

      The Securities shall be issuable only in fully registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.

SECTION 303.      EXECUTION, DELIVERY AND DATING.

      The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Chief Executive Officer, its President or one of its Vice
Presidents, under its corporate seal or a facsimile thereof reproduced thereon
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Securities may be manual or facsimile.

<PAGE>

      Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.

      Each Security shall be dated the date of its execution and delivery by the
Company.

SECTION 304.      INTENTIONALLY OMITTED.

SECTION 305.      REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.

      (a) The Company shall cause to be kept at its principal executive offices
a register (the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or in any form capable of being converted into written form within
a reasonably prompt period of time. At all reasonable times the Security
Register shall be open for inspection by the Company.

      (b) When Securities are presented to the Company with the request (x) to
register the transfer of the Securities or (y) to exchange such Securities for
an equal principal amount of Securities of other authorized denominations, the
Company shall register the transfer or make the exchange as requested if its
requirements for such transactions are met; provided, however, that the
Securities presented or surrendered for register of transfer or exchange:

            (i) shall be duly endorsed or accompanied by a written instruction
of transfer in form satisfactory to the Company (or the Securities Registrar, if
one has been appointed) duly executed by the Holder thereof or by its attorney,
duly authorized in writing; and

            (ii) shall be accompanied by the following additional information
and documents, as applicable: a certification of the Holder reasonably
acceptable to the Company and an Opinion of Counsel reasonably acceptable to the
Company to the effect that such transfer is in compliance with the Securities
Act.

      (c) Except as otherwise required by the Company, the Securities shall
bear a legend in substantially the following form:

            THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
      SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
      SECURITIES LAWS, AND, ACCORDINGLY, NEITHER

<PAGE>

      THIS SECURITY, THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
      SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE
      REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
      DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION
      IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. A HOLDER OF THIS SECURITY
      WILL NOT BE ABLE TO EXERCISE THE CONVERSION RIGHT PRIOR TO 367 DAYS AFTER
      THE DATE OF ORIGINAL ISSUANCE OF THIS NOTE AND THEN ONLY IF THE RESALE OF
      THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF IS EXEMPT FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933.

            THE HOLDER OF THIS SECURITY, BY ITS ACQUISITION HEREOF, AGREES THAT
      IT WILL NOT, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE
      ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
      AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
      PREDECESSOR OF SUCH SECURITY), RESELL OR OTHERWISE TRANSFER THE NOTE
      EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE
      EXCEPT (A) TO THE COMPANY, OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO THE
      EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
      (IF AVAILABLE), (C) PURSUANT TO ANOTHER APPLICABLE EXEMPTION FROM
      REGISTRATION IF THE REQUEST FOR TRANSFER IS ACCOMPANIED BY AN OPINION OF
      COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
      OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
      EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT
      THE TIME OF SUCH TRANSFER); AND AGREES THAT IT WILL DELIVER TO EACH PERSON
      TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE
      SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
      TRANSFER OF THE NOTE EVIDENCED HEREBY, OR THE SHARES OF COMMON STOCK
      ISSUABLE UPON CONVERSION THEREOF, WITHIN TWO YEARS AFTER THE ORIGINAL
      ISSUANCE OF SUCH NOTE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
      ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
      THIS CERTIFICATE TO THE COMPANY. THIS LEGEND WILL BE REMOVED UPON ANY
      TRANSFER OF THE NOTE EVIDENCED HEREBY, OR THE SHARES OF COMMON STOCK
      ISSUED UPON CONVERSION THEREOF, AFTER THE EXPIRATION OF TWO YEARS FROM THE
      ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY.

<PAGE>

      (d) The Company shall not be required to issue, register the transfer of
or exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing.

SECTION 306.      MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.

      If any mutilated Security is surrendered to the Company, the Company shall
execute and deliver in exchange therefor a new Security of like tenor and
principal amount and bearing a number not contemporaneously outstanding.

      In every case the applicant for a substituted Security shall furnish to
the Company, (i) evidence to their satisfaction of the destruction, loss or
theft of any Security and (ii) such security or indemnity as may be required by
them to save each of them and any agent of either of them harmless, then, in the
absence of notice to the Company that such Security has been acquired by a bona
fide purchaser, the Company shall execute and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount and bearing a number not contemporaneously outstanding.

      In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable or is about to be converted into Common
Stock, the Company in its discretion may, instead of issuing a new Security, pay
such Security or convert or authorize the conversion of the same if the
applicant for such payment or conversion shall furnish to the Company such
security or indemnity as set forth above.

      Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith.

      Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Statement of Terms equally and
proportionately with any and all other Securities duly issued hereunder.

      The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.

<PAGE>

SECTION 307.      PAYMENT OF INTEREST; INTEREST RIGHTS.

      Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest. Payment of
interest will be made in same day funds at the executive office of the Company
in Louisville, Kentucky or at such other office or agency of the Company as it
shall maintain for that purpose pursuant to Section 1002, provided, however,
that, at the option of the Company, interest on any Security may be paid by
mailing checks to the addresses of the Holders thereof as such addresses appear
in the Securities Register.

      Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:

            (1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest which shall be fixed in the following
manner. The Company shall notify the Holders in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment, and, upon depositing sufficient sums in trust for the Holders,
shall fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the determination is made.
Thereupon, the Company shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in the
Security Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such Special Record Date
and shall no longer be payable pursuant to the following Clause (2).

            (2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange or automated quotation system on which the Securities may be listed or
designated for listing, and upon such notice as may be required by such exchange
or authorized quotation system.

<PAGE>

      Subject to the foregoing provisions of this Section, each Security
delivered under this Statement of Terms upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security. In
the case of any Security which is converted after any Regular Record Date and on
or prior to the business day next preceding next succeeding Interest Payment
Date (other than any Security whose Maturity is prior to such Interest Payment
Date), interest whose Stated Maturity is on such Interest Payment Date shall be
payable on such Interest Payment Date notwithstanding such conversion, and such
interest (whether or not punctually paid or duly provided for) shall be paid to
the Person in whose name that Security (or one or more Predecessor Securities)
is registered at the close of business on such Regular Record Date provided,
however, that Securities so surrendered for conversion shall (except in the case
of Securities or portions thereof called for redemption which is addressed in
Article 11 and in Section 1302 below) be accompanied by payment in funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount being surrendered for conversion.
Except as otherwise expressly provided above in this subsection (2), in Article
11 and in Section 1302, in the case of any Security which is converted, interest
whose Stated Maturity is after the date of conversion of such Security shall not
be payable.

SECTION 308.      PERSONS DEEMED OWNERS.

      Prior to due presentment of a Security for registration of transfer, the
Company and any agent of the Company may treat the Person in whose name such
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and premium, if any, and (subject to Section
307) interest on such Security and for all other purposes whatsoever, whether or
not such Security be overdue, and neither the Company nor any agent of the
Company shall be affected by notice to the contrary.

SECTION 309.      CANCELLATION.

   All Securities surrendered for payment, redemption, registration of transfer,
exchange or conversion shall, if surrendered to any Person, be delivered to the
Company and shall be promptly canceled by it. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section, except as expressly permitted by this Statement of Terms. All
Securities acquired or held by the Company shall be deemed to have been
automatically canceled by operation of law, unless the Company shall, by Board
Resolution, determine that such Securities shall continue to be Outstanding.

SECTION 310.      COMPUTATION OF INTEREST.

      Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.

<PAGE>

                      ARTICLE FOUR -- INTENTIONALLY OMITTED

                                  ARTICLE FIVE
                                    REMEDIES

SECTION 501.      EVENTS OF DEFAULT.

      "Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Twelve or be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or governmental
body);

            (1) default in the payment of the principal of, or premium, if any
on any Security at its Maturity, whether or not such payment is prohibited by
the provisions of Article Twelve; or

            (2) default in the payment of any interest upon any Security when it
becomes due and payable, whether or not such payment is prohibited by the
provisions of Article Twelve, and continuance of such default for a period of 30
days; or

            (3) failure to provide timely notice of a Repurchase Event as
required in accordance with the provisions of Article Fourteen; or

            (4) default in the payment of the Repurchase Price in respect of any
Security on the Repurchase Date therefor in accordance with the provisions of
Article Fourteen, whether or not such payment is prohibited by the provisions of
Article Twelve; or

            (5) default in the performance, or breach, of any covenant or
warranty of the Company in this Statement of Terms (or with respect to the
Company's 6% Convertible Subordinated Notes due 2004 in the Indenture providing
for the issuance thereof) (other than a covenant or warranty a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with), and continuance of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the Company by the
holders of at least 21% in principal amount of the Outstanding Convertible
Securities a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" hereunder
or under such Indenture; or

<PAGE>

            (6) default under one or more bonds, debentures, notes or other
evidences of indebtedness for money borrowed by the Company or any Subsidiary or
under one or more mortgages, indentures or instruments under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company or any Subsidiary, whether such indebtedness now exists
or shall hereafter be created, which default individually or in the aggregate
shall constitute a failure to pay the principal of indebtedness in excess of
$10,000,000 when due and payable after the expiration of any applicable grace
period with respect thereto or shall have resulted in indebtedness in excess of
$10,000,000 becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 30 days after there shall have been given, by registered or
certified mail, to the Company by the holders of at least 21% in principal
amount of the Outstanding Convertible Securities a written notice specifying
such default and requiring the Company to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and stating
that such notice is a "Notice of Default" hereunder or under such Indenture; or

            (7) the entry by a court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Company or any Subsidiary in an
involuntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or (B) a decree or order
adjudging the Company or any Subsidiary as bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Subsidiary under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Subsidiary or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 90 consecutive days; or

            (8) the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated as bankrupt or insolvent, or the consent by it to the entry of a
decree or order for relief in respect of the Company or any Subsidiary in an
involuntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under any
applicable Federal or State law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Subsidiary or of any substantial part of its property, or the
making by it of a general assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Company or any Subsidiary
in furtherance of any such action.

<PAGE>

      Upon receipt by the Company of any Notice of Default pursuant to this
Section 501, a record date shall automatically and without any other action by
any Person be set for the purpose of determining the Holders of Outstanding
Securities entitled to join in such Notice of Default, which record date shall
be the close of business on the day the Company receives such Notice of Default.
The Holders of Outstanding Securities on such record date (or their duly
appointed agents), and only such Persons, shall be entitled hereunder to join in
such Notice of Default, whether or not such Holders remain Holders after such
record date: provided, that unless such Notice of Default shall have become
effective by virtue of the Holders of the requisite principal amount of
Outstanding Convertible Securities on such record date (or their duly appointed
agents) having joined therein on or prior to the 90th day after such record
date, such Notice of Default shall automatically and without any action by any
Person be canceled and of no further force or effect.

SECTION 502.      ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.

      If an Event of Default (other than as specified in subparagraph (7) or (8)
of Section 501) occurs and is continuing, then and in every such case the
holders of not less than 25% in principal amount of the Outstanding Securities
(in a case specified in subparagraph (1) and (2) of Section 501) or the holders
of not less than 21% in principal amount of the Outstanding Convertible
Securities (in a case specified in subparagraph (5) or (6) of Section 501) may
declare the principal and premium, if any, of all the Securities to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration such principal plus any interest accrued on the securities to the
date of declaration shall become immediately due and payable. If an Event of
Default specified in subparagraph (7) or (8) of Section 501 occurs and is
continuing, then the principal of, premium, if any, and accrued and unpaid
interest, if any, on all of the Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
any Holder of Securities.

      At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained as
hereinafter in this Article provided, the Holders of a majority in principal
amount of the Outstanding Securities, by written notice to the Company, may
rescind and annul such declaration and its consequences if

            (1) the Company has paid or deposited in trust for the benefit of
the Holders of the Outstanding Securities a sum sufficient to pay

                  (A) all overdue interest on all Securities,

<PAGE>

                  (B) the principal of and premium, if any, on any Securities
which have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Securities,

                  (C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities, and

                  (D) all sums paid or advanced by the Holders of the
Outstanding Securities, their respective agents and counsel hereunder; and

            (2) all Events of Default, other than the nonpayment of the
principal of, and premium, if any, and interest on the Securities that has
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 513. No such rescission and waiver shall affect any
subsequent default or impair any right consequent thereon.

      Upon receipt by the Company of any declaration of acceleration, or any
rescission and annulment of any such declaration, pursuant to this Section 502,
a record date shall automatically and without any other action by any Person be
set for the purpose of determining the Holders of Outstanding Securities
entitled to join in such declaration, or rescission and annulment, as the case
may be, which record date shall be the close of business on the day the Company
receives such declaration, or rescission and annulment, as the case may be. The
Holders of Outstanding Securities on such record date (or their duly appointed
agents), and only such Persons, shall be entitled to join in such declaration,
or rescission and annulment, as the case may be, whether or not such Holders
remain Holders after such record date; provided, that unless such declaration,
or rescission and annulment, as the case may be, shall have become effective by
virtue of Holders of the requisite principal amount of Outstanding Securities on
such record date (or their duly appointed agents) having joined therein on or
prior to the 90th day after such record date, such declaration, or rescission
and annulment, as the case may be, shall automatically and without any action by
any Person be canceled and of no further force or effect.

SECTION 503.      COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT

The Company covenants that if

      (1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a period of
30 days, or

      (2) default is made in the payment of the principal or premium, if any, on
any Security at the Maturity thereof, the Company will pay to the Holders of
such Securities, the whole amount then due and payable on such Securities for
principal of, and premium, if any, and interest, and, to the

<PAGE>

extent that payment of such interest shall be legally enforceable, interest, on
any overdue principal and premium and any overdue interest, at the rate borne by
the Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection.

      If the Company fails to pay such amounts forthwith upon such demand, the
Holders of not less than 25% in principal amount of the Outstanding Securities
may institute a judicial proceeding for the collection of the sums so due and
unpaid and may prosecute any such proceeding to judgment or final decree, and
may enforce the same against the Company (or any other obligor upon the
Securities) and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company (or any other obligor
upon the Securities), wherever situated.

      If an Event of Default occurs and is continuing, the Holders of not less
than 25% in principal amount of the Outstanding Securities may proceed to
protect and enforce the rights of the Holders by such appropriate judicial
proceedings as such Holders shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Statement of Terms or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.

SECTION 504.      PROOFS OF CLAIM.

      In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Holders of not
less than 25% in principal amount of the Outstanding Securities shall be
entitled and empowered, by intervention in such proceeding or otherwise, to take
any and all actions authorized under the Trust Indenture Act in order to have
the claims of the Holders allowed in any such proceeding. In particular, such
Holders shall be authorized to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Holders.

      No provision of this Statement of Terms shall be deemed to authorize the
Holders to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize any Holder to
vote in respect of the claim of any other Holder in any such proceeding.

SECTION 505.      INTENTIONALLY OMITTED

<PAGE>

SECTION 506.      APPLICATION OF MONEY COLLECTED.

      Any money collected pursuant to this Article shall be applied in the
following order, in case of the distribution of such money on account of
principal or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:

      FIRST:  Subject to Article Twelve, to the holders of Senior Indebtedness
and to payment of any amounts due to any trustees for any other classes of
Outstanding Convertible Securities;

      SECOND: To the payment of the amounts then due and unpaid for principal of
and premium, if any, on and interest on the Outstanding Convertible Securities
in respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal and premium, if any, and
interest, respectively; and

      THIRD: The balance, if any, to the Company or any other Person or Persons
determined to be entitled thereto upon provision of an Officer's Certificate or
other evidence reasonably satisfactory to the Holders by the Company or such
other person verifying such entitlement.

SECTION 507.      LIMITATION ON SUITS.

      No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Statement of Terms, or
for the appointment of a receiver or trustee, or for any other remedy hereunder,
unless

            (1) such Holder has previously given written notice to the
Company of a continuing Event of Default;

            (2) the Holders of not less than 21% in principal amount of the
Outstanding Convertible Securities shall have made written request to the
Company to institute proceedings in respect of such Event of Default;

            (3) the trustee for any other series of Outstanding Convertible
Securities for 60 days after its receipt of such notice, request and offer of
indemnity has failed to institute any such proceeding; and

            (4) no direction inconsistent with such written request has been
given during such 60-day period by the Holders of a majority in principal amount
of the Outstanding Securities; it being understood and intended that no one or
more holders shall have any right in any manner whatever by

<PAGE>

virtue of, or by availing of, any provision of this Statement of Terms to
affect, disturb or prejudice the rights of any other Holders, or to obtain or to
seek to obtain priority or preference over any other Holders or to enforce any
right under this Statement of Terms, except in the manner herein provided and
for the equal and ratable benefit of all the Holders.

SECTION 508.      UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, AND
                        INTEREST AND TO CONVERT.

            Notwithstanding any other provision contained herein, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and (subject to Section
307) interest on such Security on the respective Stated Maturities expressed in
such Security (or, in the case of redemption, on the Redemption Date or, in the
case of a repurchase pursuant to Article Fourteen, on the Repurchase Date) and
to convert such Security in accordance with Article Thirteen and to institute
suit for the enforcement of any such payment and right to convert, and such
rights shall not be impaired without the consent of such Holder.

SECTION 509.      RESTORATION OF RIGHTS AND REMEDIES.

            If any Holder has instituted any proceeding to enforce any right or
remedy under this Statement of Terms and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to such Holder,
then and in every such case, subject to any determination in such proceeding,
the Company and, the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Holders shall continue as though no such proceeding had been instituted.

SECTION 510.      RIGHTS AND REMEDIES CUMULATIVE.

            Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 306, no
right or remedy herein conferred upon or reserved to the Holders is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

SECTION 511.      DELAY OR OMISSION NOT WAIVER.

            No delay or omission of any Holder of any Security to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of

<PAGE>

any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article or by law or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Holders, as the case may
be.

SECTION 512.      CONTROL BY HOLDERS.

            The Holders of a majority in principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Holders or exercising
any power conferred on the Holders; provided, that such direction shall not be
in conflict with any rule of law or with this Statement of Terms.

      Upon the request of 25% in principal amount of the Outstanding Securities
(or such other percentage as shall be specifically provided elsewhere herein), a
record date shall automatically and without any other action by any Person be
set for the purpose of determining the Holders of Outstanding Securities
entitled to join in such direction, which record date shall be the close of
business on the day the Company receives such request. The Holders of
Outstanding Securities on such record date (or their duly appointed agents), and
only such Persons, shall be entitled to join in such direction, whether or not
such Holders remain Holders after such record date; provided, that unless such
direction shall have become effective by virtue of Holders of the requisite
principal amount of Outstanding Securities on such record date (or their duly
appointed agents) having joined therein on or prior to the 90th day after such
record date, such direction shall automatically and without any action by any
Person be canceled and of no further force or effect.

SECTION 513.      WAIVER OF PAST DEFAULTS.

      The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except:

            (1) a default in the payment of the principal of or premium, if
any, or interest on any Security,

            (2) the right of a Holder to redeem or convert the Security, or

            (3) a default with respect to a covenant or provision hereof which
under Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.

<PAGE>

      Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Statement of Terms; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.

SECTION 514.      UNDERTAKING FOR COSTS.  INTENTIONALLY OMITTED

                      ARTICLE SIX -- INTENTIONALLY OMITTED

                                  ARTICLE SEVEN
                      Holders' Lists and Reports by Company

SECTION 701.      COMPANY TO FURNISH THE NAMES AND ADDRESSES OF HOLDERS.

      The Company will compile a list of the names and addresses of the Holders
as of each regular Record Date, and (b) at such other times as the Holders of a
majority in principal amount of the Outstanding Securities may request in
writing, within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior to the
time such list is furnished.

SECTION 702.   PRESERVATION OF INFORMATION; COMMUNICATION TO HOLDERS.

      (a)   The Company shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Company as provided in Section 701.

      (b)   Holders shall have the right to communicate with other Holders with
respect to their rights under this Statement of Terms or under the Securities.

      (c)   Every Holder of Securities, by receiving and holding the same,
agrees with the Company that neither the Company nor any agent shall be held
accountable by reason of any disclosure of information as to names and addresses
of Holders made in accordance with the terms of the Trust Indenture Act or
otherwise in accordance with this Statement of Terms.

SECTION 703.   INTENTIONALLY OMITTED

<PAGE>

SECTION 704.   REPORTS BY COMPANY.

      The Company shall transmit to Holders such information, documents and
other reports as shall be transmitted to Holders of other Outstanding
Convertible Securities pursuant to the Trust Indenture Act at the time and in
the manner provided pursuant to the Act.

SECTION 705.   INTENTIONALLY OMITTED

                                  ARTICLE EIGHT
              Consolidation, Merger, Conveyance, Transfer or Lease

SECTION 801.   COMPANY MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS.

      The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company, unless:

            (1)   in case the Company shall consolidate with or merge into
another Person or convey, transfer or lease all or substantially all of its
properties and assets to any Person, the Person formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, all or substantially all of the properties and assets
of the Company shall be a corporation, partnership, limited liability company,
or trust, shall be organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and shall
expressly assume, by an instrument supplemental hereto, in form and content
substantially similar to a supplemental indenture, the due and punctual payment
of the principal of and premium, if any, and interest on all the Securities and
the performance or observance of every covenant of this Statement of Terms on
the part of the Company to be performed or observed and shall have provided for
conversion rights in accordance with Section 1311;

            (2)   immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing;

            (3)   such consolidation, merger, conveyance, transfer or lease does
not adversely affect the validity or enforceability of the Securities; and

            (4)   the Company or the successor Person has filed in the Company's
principal executive offices an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, conveyance, transfer or lease and,
if a supplement to the Statement of Terms is required in connection with such
transaction, such supplemental instrument comply with this

<PAGE>

Article and that all conditions precedent herein provided for relating to such
transaction have been complied with.

SECTION 802.   SUCCESSOR SUBSTITUTED.

      Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any conveyance, transfer or lease of all or substantially
all of the properties and assets of the Company in accordance with Section 801,
the successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Statement of Terms with the same effect as if such successor Person
had been named as the Company herein, and thereafter, except in the case of a
transfer by lease, the predecessor Person shall be relieved of all obligations
and covenants under this Statement of Terms and the Securities.

                                  ARTICLE NINE
                      Supplements to the Statement of Terms

SECTION 901.   SUPPLEMENTS TO STATEMENT OF TERMS WITHOUT CONSENT OF HOLDERS.

      Without the consent of any Holders, the Company, when authorized by a
Board Resolution and the provisions hereunder, at any time and from time to
time, may enter into one or more supplements to this Statement of Terms, in form
satisfactory to Company counsel, for any of the following purposes:

            (1)   to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the Company herein
and in the Securities; or

            (2)   to add to the covenants of the Company for the benefit of the
Holders or an additional Event of Default, or to surrender any right or power
conferred herein or in the Securities upon the Company; or

            (3)   to secure the Securities; or

            (4)   to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Section 1311; or

            (5)   to cure any ambiguity, to correct or supplement any provision
herein or in the Securities which may be defective or inconsistent with any
other provision herein or in the Securities, or to make any other provisions
with respect to matters or questions arising under this Statement of Terms which
shall not be inconsistent with the provisions of this Statement of Terms;

<PAGE>

provided, that such action pursuant to this Clause (5) shall not adversely
affect the interests of the Holders in any material respect; or

            (6)   subject to the proviso contained in Section 902 of this
Statement of Terms, to make any amendment to this Statement of Terms necessary
to conform any common provisions to any amendment to the Indenture providing for
the issuance of the 6% Convertible Subordinated Notes due 2004; provided such
amendment has been approved by the holders of the requisite percentage of the
outstanding 6% Convertible Subordinated Notes required under the Indenture
providing for the issuance of such Notes.

SECTION 902.   SUPPLEMENTS TO STATEMENT OF TERMS WITH CONSENT OF HOLDERS.

      With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company, the Company, when authorized by a Board Resolution, may enter into an
instrument hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Statement of Terms or of
modifying in any manner the rights of the Holders under this Statement of Terms;
provided, however, that no such supplemental instrument shall, without the
consent of the Holder of each Outstanding Security affected thereby,

            (1)   change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount thereof
or the rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in which,
any Security or any premium or interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or adversely affect the right to convert any Security as provided in
Article Thirteen (except as permitted by Section 901(5)), or the provisions of
this Statement of Terms with respect to the subordination of the Securities, in
a manner adverse to the Holders, or

            (2)   reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
instrument, or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Statement of Terms or certain
defaults hereunder and their consequences provided for in this Statement of
Terms, or

            (3)   modify any of the provisions of this Section, Section 513 or
Section 1006, except to increase any such percentage or to provide that certain
other provisions of this Statement of Terms cannot be modified or waived without
the consent of the Holder of each Outstanding Security affected thereby;

<PAGE>

      It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental instrument, but it
shall be sufficient if such Act shall approve the substance thereof.

SECTION 903.   INTENTIONALLY OMITTED

SECTION 904.   EFFECT OF SUPPLEMENTS TO STATEMENT OF TERMS.

      Upon the execution of any supplemental instrument under this Article, this
Statement of Terms shall be modified in accordance therewith, and such
supplemental instrument shall form a part of this Statement of Terms for all
purposes; and every Holder of Securities theretofore or thereafter authenticated
and delivered hereunder shall be bound thereby.

SECTION 905.   INTENTIONALLY OMITTED

SECTION 906.   REFERENCE IN SECURITIES TO SUPPLEMENTS TO STATEMENT OF TERMS.

      Securities authenticated and delivered after the execution of any
supplement to this Statement of Terms pursuant to this Article may, and shall if
required by the Company, bear a notation in form approved by the Company as to
any matter provided for in such supplement. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company, to any
such supplement may be prepared, executed, and delivered by the Company in
exchange for Outstanding Securities upon surrender of such Outstanding
Securities.

SECTION 907.   NOTICE OF SUPPLEMENTS.

      Promptly after the execution by the Company of any supplemental instrument
pursuant to Section 902, the Company shall transmit to the Holders a notice
setting forth the substance of such supplemental instrument.

                                   ARTICLE TEN
                                    Covenants

SECTION 1001.  PAYMENT OF PRINCIPAL AND INTEREST.

      The Company will duly and punctually pay the principal of and premium, if
any, and interest on the Securities in accordance with the terms of the
Securities and this Statement of Terms.

<PAGE>

SECTION 1002.  MAINTENANCE OF OFFICE OR AGENCY.

      The Company will maintain in Louisville, Kentucky an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer, where Securities may be
surrendered for exchange or conversion and where notices and demands to or upon
the Company in respect of the Securities and this Statement of Terms may be
served. The Company will give prompt written notice to the Holders of the
location, and any change in the location, of any such office or agency.

SECTION 1003.  MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.

      Because the Company shall act as its own Paying Agent, it will, on or
before each due date of the principal of and premium, if any, and interest on
any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal and premium, if
any, and interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided.

      Whenever the Company shall have one or more Paying Agents, it will, on or
prior to 11:00 a.m. (Louisville time) on each due date of the principal of, and
premium, if any, and interest on any Securities, deposit with a Paying Agent a
sum in same day funds sufficient to pay the principal and any premium and
interest so becoming due, such sum to be held as provided by the Trust Indenture
Act.

      Any money then placed by the Company in trust for the payment of the
principal of and premium, if any, and interest on any Security and remaining
unclaimed for two years after such principal and premium, if any, and interest
has become due and payable shall be paid to the Company on Company Request, or
shall be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Company as trustee thereof, shall
thereupon cease.

SECTION 1004.  STATEMENT BY OFFICERS AS TO DEFAULT.

      The Company will file with its permanent corporate records, within 120
days after the end of each fiscal year of the Company ending after the date
hereof, an Officers' Certificate stating whether or not to the best knowledge of
the signers thereof the Company is in default in the performance and observance
of any of the terms, provisions and conditions of this Statement of Terms
(without regard to any period of grace or requirement of notice provided
hereunder) and, if the Company shall be in default, specifying all such defaults
and the nature and status thereof of which they may have knowledge.

<PAGE>

SECTION 1005.  EXISTENCE.

      Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises and the existence, rights (charter
and statutory) and franchises of each Subsidiary; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.

SECTION 1006.  WAIVER OF CERTAIN COVENANTS.

      The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 1005, if before the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of any such covenant
or condition shall remain in full force and effect.

                                 ARTICLE ELEVEN
                            Redemption of Securities

SECTION 1101.  RIGHT OF REDEMPTION.

      The Securities may be redeemed at the election of the Company, in whole or
from time to time in part, at any time on or after March 15, 2001, at the
Redemption Price specified in the form of Security hereinbefore set forth,
together with accrued and unpaid interest up to but not including the Redemption
Date.

SECTION 1102.  APPLICABILITY OF ARTICLE.

      Redemption of Securities at the election of the Company as permitted by
any provision of this Statement of Terms shall be made in accordance with such
provision and this Article.

SECTION 1103.  ELECTION TO REDEEM; NOTICE.

      The election of the Company to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company of less than all the Securities, the Company shall, at
least 60 days prior to the Redemption Date fixed by the

<PAGE>

Company, notify the Holders in writing of such Redemption Date and of the
principal amount of Securities to be redeemed. In case of any redemption at the
election of the Company of all of the Securities, the Company shall, at least 45
days prior to the Redemption Date fixed by the Company, notify the Holders in
writing of such Redemption Date.

SECTION 1104.  SELECTION OF SECURITIES TO BE REDEEMED.

      If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 45 days prior to the
Redemption Date by the Company, from the Outstanding Securities not previously
called for redemption, by lot.

      If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed (so
far as may be) to be the portion selected for redemption. Securities which have
been converted during a selection of Securities to be redeemed shall be treated
by the Company as Outstanding for the purpose of such selection. In any case
where more than one Security is registered in the same name, the Company in its
discretion may treat the aggregate principal amount so registered as if it were
represented by one Security.

      For all purposes of this Statement of Terms, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.

SECTION 1105.  NOTICE OF REDEMPTION.

      Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.

      All notices of redemption shall state:

      (a)   the Redemption Date,

      (b)   the Redemption Price,

      (c)   if less than all the Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption of any Securities, the
principal amounts) of the particular Securities to be redeemed,

<PAGE>

      (d)   that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and that (unless the Company
shall default in payment of the Redemption Price) interest thereon will cease to
accrue on and after said date,

      (e)   the conversion price, the date on which the right to convert the
Securities to be redeemed will terminate (which right shall extend at least
until two business days prior to the Redemption Date) and the place or places
where such Securities may be surrendered for conversion,

      (f)   the place or places where such Securities are to be surrendered for
payment of the Redemption Price, and

      (g)   that, unless the Company defaults in making the redemption payment,
the only remaining right of the Holders shall be to receive payment of the
Redemption Price upon presentation and surrender of the Securities.

      Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company at least 30 days prior to the Redemption
Date in the name and at the expense of the Company.

SECTION 1106.  DEPOSIT OF REDEMPTION PRICE.

      At or prior to 9:00 a.m. (Louisville time) on any Redemption Date, the
Company shall segregate and hold in trust as provided in Section 1003 an amount
of money in same day funds sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) accrued
interest on, all the Securities or portions thereof which are to be redeemed on
that date other than any Securities or portions thereof called for redemption on
that date which have been delivered to the Company for cancellation or converted
prior to the date of such deposit.

      If any Security called for redemption is converted, any money so
segregated and held in trust for the redemption of such Security shall (subject
to any right of the Holder of such Security or any Predecessor Security to
receive interest as provided in the last paragraph of Section 307) be paid to
the Company upon Company Request or, if then held by the Company, shall be
discharged from such trust.

SECTION 1107.  SECURITIES PAYABLE ON REDEMPTION DATE.

      Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such

<PAGE>

Security for redemption in accordance with said notice, such Security shall be
paid by the Company at the Redemption Price, together with accrued interest to
the Redemption Date; provided, however, that installments of interest whose
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 307.

      If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal until paid, bear interest from the
Redemption Date at the rate borne by the Security.

SECTION 1108.  SECURITIES REDEEMED IN PART.

      Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company maintained for that purpose pursuant to
Section 1002 (with, if the Company so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company duly executed by, the
Holder thereof or his attorney duly authorized in writing), and the Company
shall execute and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.

SECTION 1109.  CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.

      In connection with any redemption of Securities, the Company may arrange
for the purchase and conversion of any Securities by an agreement with one or
more investment bankers or other purchasers to purchase such Securities by
paying segregating in trust for the benefit of the Holders, on or before the
date fixed for redemption, an amount not less than the applicable Redemption
Price, together with interest accrued to (but excluding) that date fixed for
redemption, of such Securities which have not been surrendered for conversion.
Notwithstanding anything to the contrary contained in this Article Eleven, the
obligation of the Company to pay the Redemption Price of such Securities,
together with interest accrued to (but excluding) the date fixed for redemption,
shall be deemed to be satisfied and discharged to the extent such amount is so
paid by such purchasers. If such an agreement is entered into, any Securities
not duly surrendered for conversion by the Holders thereof may, at the option of
the Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such Holders and surrendered by such purchasers for conversions,
all as of immediately prior to the close of business on the date fixed for
redemption (and the right to convert any such Securities shall be extended
through such time), subject to payment of the above amount as aforesaid. The
Company shall hold and dispose of any such amount paid to it in the same manner
as it would monies deposited with it by the Company for the redemption of
Securities.

<PAGE>

                                 ARTICLE TWELVE
                           SUBORDINATION OF SECURITIES

SECTION 1201.  SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.

      The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, at all times and in all
respects, the indebtedness represented by the Securities and the payment of the
principal of and premium, if any, and interest on each and all of the Securities
are hereby expressly made subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness.

SECTION 1202.  PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.

      In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding, relative to the Company or to its creditors, as such, or to a
substantial part of its assets, or (b) any proceeding for the liquidation,
dissolution or other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any general
assignment for the benefits of creditors or any other marshaling of assets and
liabilities of the Company, then and in any such event the holders of Senior
Indebtedness shall be entitled to receive payment in full of all amounts due or
to become due on or in respect of all Senior Indebtedness; or provision shall be
made for such payment in money or money's worth, before the Holders of the
Securities are entitled to receive any payment or distribution of any kind or
character, whether in cash, property or securities, on account of principal of
and premium, if any, or interest on the Securities, and to that end the holders
of Senior Indebtedness shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, including any such payment or distribution
which may be payable or deliverable by reason of the payment of any other
indebtedness of the Company being subordinated to the payment of the Securities,
which may be payable or deliverable in respect of the Securities in any such
case, proceeding, dissolution, liquidation or other winding up or event.

      In the event that, notwithstanding the foregoing provisions of this
Section, the Holder of any Security shall have received any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of the
Company being subordinated to the payment of the Securities, before all Senior
Indebtedness is paid in full or payment thereof provided for, and if such fact
shall, at or prior to the time of such payment or distribution, have been made
known to such Holder, as the case may be, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy,

<PAGE>

receiver, liquidating trustee, custodian, assignee, agent or other Person making
payment or distribution of assets of the Company for application to the payment
of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all
Senior Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.

      For purposes of this Article only, the words "cash, property or
securities" shall not be deemed to include securities of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, which are subordinated
in right of payment to all Senior Indebtedness which may at the time be
outstanding to substantially the same extent as, or to a greater extent than,
the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, general
assignment for the benefit of creditors or marshaling of assets and liabilities
of the Company for the purposes of this Section if the Person formed by such
consolidation or into which the Company is merged or which acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions set forth in Article Eight.

SECTION 1203.  PRIOR PAYMENT TO SENIOR INDEBTEDNESS UPON ACCELERATION OF
               SECURITIES.

      In the event that any Securities are declared due and payable before their
Stated Maturity, then and in such event the holders of Senior Indebtedness
outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of such
Senior Indebtedness, or provision shall be made for such payment in money or
money's worth, before the Holders of the Securities are entitled to receive any
payment (including any payment which may be payable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Securities) by the Company on account of the principal of or premium, if any, or
interest on the Securities or on account of the purchase or other acquisition of
Securities.

      In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Holder of any Security prohibited by the foregoing provisions
of this Section, and if such fact shall, at or prior to the time of such
payment, have been made known to such Holder, as the case may be, then and in
such event such payment shall be paid over the delivered forthwith to the
Company.

      The provisions of this Section shall not apply to any payment with respect
to which Section 1202 would be applicable.
<PAGE>

SECTION 1204.  PAYMENT WHEN DESIGNATED SENIOR INDEBTEDNESS IN DEFAULT.

      No payment shall be made with respect to the principal of, or premium, if
any, or interest on any Security (including, but not limited to, the redemption
price with respect to the Security to be called for redemption in accordance
with Article 11 or submitted for repurchase in accordance with Article 14, as
the case may be, as provided in this Statement of Terms), if:

      (a)   a default in the payment of principal, premium, interest, rent or
other obligations due on any Designated Senior Indebtedness occurs and is
continuing (or, in the case of Senior Indebtedness occurs and is continuing (or,
in the case of Designated Senior Indebtedness for which there is a period of
grace, in the event of such a default that continues beyond the period of grace,
if any, specified in the instrument or lease evidencing such Designated Senior
Indebtedness), unless and until such default shall have been cured or waived or
shall have ceased to exist (a "Payment Default"); or

      (b)   a default, other than a Payment Default, on any Designated Senior
Indebtedness occurs and is continuing that then permits holders of such
Designated Senior Indebtedness to accelerate its maturity (a "Non Payment
Default") and the Company receives a notice of default (a "Payment Blockage
Notice'") from a Holder.

      If the Company receives any Payment Blockage Notice pursuant to clause (b)
above, no subsequent Payment Blockage Notice shall be effective for purposes of
this Section unless and until (1) at least 365 days shall have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice, and (2) all
scheduled payments of principal, premium, and interest on the Securities that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Company shall be, or be made, the basis for a subsequent Payment Blockage
Notice.

      The Company may and shall resume payments on and distributions in respect
of the Securities upon the earlier of:

            (x)   the date upon which the default is cured or waived;

            (y)   in the case of a default referred to in clause (b) above, the
                  date the applicable Payment Blockage Notice is retracted by
                  written notice to the Company from a representative of the
                  holders of the Designated Senior Indebtedness which have given
                  the Payment Blockage Notice; or

            (z)   in the case of a default referred to in clause (b) above, 179
                  days pass after notice is received by the Company if the
                  maturity of such Designated Senior

<PAGE>

                        Indebtedness has not been accelerated, unless this
                        Article 12 otherwise prohibits the payment or
                        distribution at the time of such payment or
                        distribution.

        In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Holder of any Security prohibited by the foregoing provisions
of this Section, and if such fact shall, at or prior to the time of such
payment, have been made known to such Holder, as the case may be, then and in
such event such payment shall be paid over and delivered forthwith to the
Holders.

        The provisions of this Section shall not apply to any payment with
respect to which Section 1202 would be applicable.

SECTION 1205. PAYMENT PERMITTED IF NO DEFAULT.

        Nothing contained in this Article or elsewhere in this Statement of
Terms or in any of the Securities shall prevent (a) the Company, at any time
except during the pendency of any case, proceeding, dissolution, liquidation or
other winding up, general assignment for the benefit of creditors or other
marshaling of assets and liabilities of the Company referred to in Section 1202
or under the conditions described in Section 1203 or 1204, from making payments
at any time of principal of and premium, if any, and interest on the Securities,
or (b) the application by the Company of any money deposited with it hereunder
to the payment of or on account of the principal of and premium, if any, or
interest on the Securities or the retention of such payment by the Holders, if,
at the time of such application by the Company, it did not have knowledge that
such payment would have been prohibited by the provisions of this Article.

SECTION 1206. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.

        Subject to the payment in full of all amounts due on or in respect of
Senior Indebtedness, the Holders of the Securities shall be subrogated to the
extent of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article (equally and ratably
with the holders of all indebtedness of the Company which by its express terms
is subordinated to other indebtedness of the Company to substantially the same
extent as the Securities are subordinated and is entitled to like rights of
subrogation) to the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness until the principal of and premium, if any, and Interest on
the Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders of the Securities would otherwise be
entitled except for the provisions of this Article, and no payments over
pursuant to the provisions of this Article to the holders of Senior Indebtedness
by Holders of the Securities, shall, as among the Company, its creditors other
than holders of Senior Indebtedness and the Holders

<PAGE>

of the Securities, be deemed to be a payment or distribution by the Company to
or on account of the Senior Indebtedness.

SECTION 1207. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.

        The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article or elsewhere in this Statement of Terms or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and premium, if any,
and interest on the Securities as and when the same shall become due and payable
in accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of Senior Indebtedness; or (c) prevent the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Statement of Terms, subject to the rights, if any, under this Article
of the holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the such Holder.

SECTION 1208. COMPANY TO EFFECTUATE SUBORDINATION.

        Each holder of a Security by his acceptance thereof authorizes and
directs the Company on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Company his attorney-in-fact for any and all such purposes.

SECTION 1209. NO WAIVER OF SUBORDINATION PROVISIONS.

        No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Statement of Terms, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.

        Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Holders of the Securities, without
incurring responsibility to the Holders of the Securities and without impairing
or releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any

<PAGE>

instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of Senior Indebtedness; and (iv)
exercise or refrain from exercising any rights against the Company and any other
Person.

SECTION 1210. INTENTIONALLY OMITTED

SECTION 1211. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.

        Upon any payment or distribution of assets of the Company referred to in
this Article, the Holders of the Securities shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other person making such payment or
distribution, delivered to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article.

SECTION 1212. INTENTIONALLY OMITTED

SECTION 1213. INTENTIONALLY OMITTED

SECTION 1214. INTENTIONALLY OMITTED

SECTION 1215. CERTAIN CONVERSIONS DEEMED PAYMENT.

        For the purposes of this Article only, (1) the issuance and delivery of
junior securities upon conversion of Securities in accordance with Article
Thirteen shall not be deemed to constitute a payment or distribution on account
of the principal of or premium or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment, issuance or
delivery of cash, property or securities (other than junior securities) upon
conversion of a Security shall be deemed to constitute payment on account of the
principal of such Security. For the purposes of this Section, the term "junior
securities" means (a) shares of any class of capital stock of the Company and
(b) securities of the Company which are subordinated in right of payment to all
Senior Indebtedness which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as

<PAGE>

provided in this Article. Nothing contained in this Article or elsewhere in this
Statement of Terms or in the Securities is intended to or shall impair, as among
the Company, its creditors other than holders of Senior Indebtedness and the
Holders of the Securities, the right, which is absolute and unconditional, of
the Holder of any Security to convert such Security in accordance with Article
Thirteen.

SECTION 1216. NO SUSPENSION OF REMEDIES.

        Nothing contained in this Article shall limit the right of the Holders
of the Securities to take any action to accelerate the maturity of the
Securities pursuant to the provisions described under Article Five and as set
forth in this Statement of Terms or to pursue any rights or remedies hereunder
or under applicable law, subject to the rights, if any, under this Article of
the holders, from time to time, of Senior Indebtedness to receive the cash,
property or securities receivable upon the exercise of such rights or remedies.

                                ARTICLE THIRTEEN
                            CONVERSION OF SECURITIES

SECTION 1301. CONVERSION PRIVILEGE AND CONVERSION PRICE.

        Subject to and upon compliance with the provisions of this Article, at
the option of the Holder thereof, any Security or any portion of the principal
amount thereof which equals $1,000 or any integral multiple thereof may be
converted at any time beginning on the date 367 days after the date of issuance
of such Security and prior to redemption or final maturity of Securities under
this Statement of Terms at the principal amount thereof, or of such portion
thereof, into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100 of a share) of Common Stock, at the conversion
price, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on March 15, 2005.
In case a Security or portion thereof is called for redemption, such conversion
right in respect of the Security or portion so called shall expire at the close
of business on the second business day next preceding the applicable Redemption
Date, unless the Company defaults in making the payment due upon redemption.

        The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $38.7531
per share of Common Stock. The conversion price shall be adjusted in certain
instances as provided in paragraphs (a), (b), (c), (d), (e), (f), (g) and (i) of
Section 1304.

<PAGE>

SECTION 1302. EXERCISE OF CONVERSION PRIVILEGE.

        In order to exercise the conversion privilege, the Holder of any
Security shall surrender such Security, duly endorsed or assigned to the Company
or in blank, at any office or agency of the Company maintained pursuant to
Section 1002, accompanied by written notice to the Company in the form provided
in the Security (or such other notice as is acceptable to the Company) at such
office or agency that the Holder elects to convert such Security or, if less
than the entire principal amount thereof is to be converted, the portion thereof
to be converted.

        Securities surrendered for conversion during the period after any
Regular Record Date next preceding any Interest Payment Date to the close of
business on the business day next preceding such Interest Payment Date shall
(unless such Security or portion thereof being converted shall have been called
for redemption during the period from the close of business on such Regular
Record Date to the close of business on the second business day next succeeding
the following Interest Payment Date, as described in the succeeding sentence) be
accompanied by payment in funds acceptable to the Company of an amount equal to
the interest payable on such Interest Payment Date on the principal amount being
surrendered for conversion; provided, however, that no such payment need be made
if there shall exist at the time of conversion a default in the payment of
interest on the Security. If such Security or portion thereof being converted
shall have been called for redemption during the period from the close of
business on the Regular Record Date to the close of business on the second
business day next succeeding the following Interest Payment Date, then such
Security or portion thereof shall be accompanied by payment in funds acceptable
to the Company of an amount equal to the difference between (i) the interest on
the principal amount of such Security or portion thereof payable on such
Interest Payment Date and (ii) the amount of accrued interest on the principal
amount of such Security or portion thereof to but not including the date of
Conversion Date. Except as provided above in this Section 1302 and subject to
the fourth paragraph of Section 307, no payment or adjustment shall be made upon
any conversion on account of any interest accrued on the Securities surrendered
for conversion or on account of any dividends on the Common Stock issued upon
conversion.

        Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes of the record holder or holders of such Common Stock as and
after such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 1303.

<PAGE>

        In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and deliver to the Holder thereof, at the
expense of the Company, a new Security or Securities of authorized denominations
in aggregate principal amount equal to the unconverted portion of the principal
amount of such Security.

SECTION 1303. FRACTIONS OF SHARES.

        No fractional share of Common Stock shall be issued upon conversion of
Securities. If more than one Security shall be surrendered for conversion at one
time by the same Holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof) so surrendered. Instead
of any fractional share of Common Stock which would otherwise be issuable upon
conversion of any Security or Securities (or specified portions thereof), the
Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Closing Price (as hereinafter defined) at the
close of business on the day of conversion (or, if such day is not a Trading Day
(as hereafter defined), on the Trading Day immediately preceding such day).

SECTION 1304. ADJUSTMENT OF CONVERSION PRICE.

        (a)     In case the Company shall pay or make a dividend or other
distribution on the Common Stock exclusively in Common Stock or shall pay or
make a dividend or other distribution on any other class of capital stock of the
Company which dividend or distribution includes Common Stock, the conversion
price in effect at the opening of business on the day following the date fixed
for the determination of shareholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such conversion price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination. For the purpose of this paragraph (a),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company. The Company shall not pay any
dividend or make any distribution on shares of Common Stock held in the treasury
of the Company.

        (b)     Subject to paragraph (h) of this Section, in case the Company
shall pay or make a dividend or other distribution on the Common Stock
consisting exclusively of, or shall otherwise issue to all holders of the Common
Stock, rights or warrants entitling the holders thereof to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (determined as provided in paragraph (i) of this Section) on the
date fixed for the determination of shareholders entitled to receive such rights
or warrants, the conversion price in effect at the opening

<PAGE>

of business on the day following the date fixed for such determination shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination plus the number of shares
of Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
such Current Market Price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (b), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company. The Company shall not issue any rights or warrants in
respect of shares of Common Stock held in the treasury of the Company. In
determining whether any rights or warrants entitle the holders to subscribe for
or purchase shares of Common Stock at less than such Current Market Price, and
in determining the aggregate offering price of such shares of Common Stock,
there shall be taken into account any consideration received by the Company for
such rights or warrants, the value of such consideration, if other than cash, to
be determined by the Board of Directors.

        (c)     In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and, conversely,
in case outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the conversion price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which subdivision or combination becomes
effective.

        (d)     Subject to the last sentence of this paragraph (d) and to
paragraph (h) of this Section, in case the Company shall, by dividend or
otherwise, distribute to all holders of the Common Stock evidences of its
indebtedness, shares of any class of its capital stock, cash or other assets
(including securities, but excluding any rights or warrants referred to in
paragraph (b) of this Section, excluding any dividend or distribution paid
exclusively in cash and excluding any dividend or distribution referred to in
paragraph (a) of this Section), the conversion price shall be reduced by
multiplying the conversion price in effect immediately prior to the close of
business on the date fixed for the determination of shareholders entitled to
such distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in paragraph (i) of this Section) on such
date less the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) on such
date of the portion of the evidences of indebtedness, shares of capital stock,
cash and other assets to be distributed applicable to one share

<PAGE>

of Common Stock and the denominator shall be such Current Market Price, such
reduction to become effective immediately prior to the opening of business on
the day following such date. If the Board of Directors determines the fair
market value of any distribution for purposes of this paragraph (d) by reference
to the actual or when-issued trading market for any securities comprising part
or all of such distribution, it must in doing so consider the prices in such
market over the same period used in computing the Current Market Price pursuant
to paragraph (i) of this Section, to the extent possible. For purposes of this
paragraph (d), any dividend or distribution that includes shares of Common
Stock, rights or warrants to subscribe for or purchase shares of Common Stock or
securities convertible into or exchangeable for shares of Common Stock shall be
deemed to be (x) a dividend or distribution of the evidences of indebtedness,
cash, assets or shares of capital stock other than such shares of Common Stock,
such rights or warrants or such convertible or exchangeable securities (making
any conversion price reduction required by this paragraph (d)) immediately
followed by (y) in the case of such shares of Common Stock or such rights or
warrants, a dividend or distribution thereof (making any further conversion
price reduction required by paragraph (a) and (b) of this Section, except any
shares of Common Stock included in such dividend or distribution shall not be
deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of paragraph (a) of this Section), or (z) in
the case of such convertible or exchangeable securities, a dividend or
distribution of the number of shares of Common Stock as would then be issuable
upon the conversion or exchange thereof, whether or not the conversion or
exchange of such securities is subject to any conditions (making any further
conversion price reduction required by paragraph (a) of this Section, except the
shares deemed to constitute such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such determination"
within the meaning of paragraph (a) of this Section).

        (e)     In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of the Common Stock cash (excluding any cash that is
distributed as part of a distribution referred to in paragraph (d) of this
Section or in connection with a transaction to which Section 1311 applies) in an
aggregate amount that, together with (A) the aggregate amount of any other
distributions to all holders of the Common Stock made exclusively in cash within
the 12 months preceding the date fixed for the determination of shareholders
entitled to such distribution and in respect of which no conversion price
adjustment pursuant to this paragraph (e) has been made previously and (B) the
aggregate of any cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) as of such date of determination of consideration payable in respect
of any tender offer by the Company or a Subsidiary for all or any portion of the
Common Stock consummated within the 12 months preceding such date of
determination and in respect of which no conversion price adjustment pursuant to
paragraph (f) of this Section has been made previously, exceeds the greater of
(I) 10.0% of the product of the Current Market Price (determined as provided in
paragraph (i) of this Section) on such date of determination times the number of
shares of Common Stock outstanding on such date or (II) the Company's retained
earnings on the date fixed for determining the stockholders

<PAGE>

entitled to such distribution, the conversion price shall be reduced by
multiplying the conversion price in effect immediately prior to the close of
business on such date of determination by a fraction of which the numerator
shall be the Current Market Price (determined as provided in paragraph (i) of
this Section) on such date less the amount of cash to be distributed at such
time applicable to one share of Common Stock and the denominator shall be such
Current Market Price, such reduction to become effective immediately prior to
the opening of business on the day after such date.

        (f)     In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall be consummated and such tender
offer shall involve an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) as of the last time that tenders may be
made pursuant to such tender offer (as it shall have been amended) (the
"Expiration Time") that, together with (A) the aggregate of the cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution) as of the Expiration
Time of the other consideration paid in respect of any other tender offer by the
Company or a Subsidiary for all or any portion of the Common Stock consummated
within the 12 months preceding the Expiration Time and in respect of which no
conversion price adjustment pursuant to this paragraph (f) has been made
previously and (B) the aggregate amount of any distributions to all holders of
the Common Stock made exclusively in cash within the 12 months preceding the
Expiration Time and in respect of which no conversion price adjustment pursuant
to paragraph (e) of this Section has been made previously, exceeds the greater
of (I) 10.0% of the product of the Current Market Price (determined as provided
in paragraph (i) of this Section) immediately prior to the Expiration Time times
the number of shares of Common Stock outstanding (including any tendered shares)
at the Expiration Time or (II) the Company's retained earnings as of the
Expiration Time, the conversion price shall be reduced by multiplying the
conversion price in effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be (x) the product of the Current Market
Price (determined as provided in paragraph (i) of this Section) immediately
prior to the Expiration Time times the number of shares of Common Stock
outstanding (including any tendered shares at the Expiration Time minus (y) the
fair market value (determined as aforesaid) of the aggregate consideration
payable to shareholders upon consummation of such tender offer and the
denominator shall be the product of (A) such Current Market Price times (B) such
number of outstanding shares at the Expiration Time minus the number of shares
accepted for payment in such tender offer (the "Purchased Shares"), such
reduction to become effective immediately prior to the opening of business on
the day following the Expiration Time; provided, that if the number of Purchased
Shares or the aggregate consideration payable therefor have not been finally
determined by such opening of business, the adjustment required by this
paragraph (f) shall, pending such final determination, be made based upon the
preliminarily announced results of such tender offer, and, after such final
determination shall have been made, the adjustment required by this paragraph
(f) shall be made based upon the number of Purchased Shares and the aggregate
consideration payable therefor as so finally determined.

<PAGE>

        (g)     In case a tender offer or exchange offer made by a Person other
than the Company or any Subsidiary, which offer is not recommended for rejection
by the Company's Board of Directors, shall be consummated with respect to such
number of shares of Common Stock which, as of the closing date of such tender
offer or exchange offer, as amended, increases the acquiring Person's ownership
of Common Stock to more than 25% of the total shares of Common Stock outstanding
and if the cash and fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and described in a Board Resolution) of
any other consideration included in such payment per share of Common Stock
exceeds the current market price per share of Common Stock on the Business Day
next succeeding the last date on which tenders or exchanges may be made pursuant
to such tender offer or exchange offer, the conversion price shall be reduced by
multiplying the conversion price in effect immediately prior to the closing of
such offer by a fraction of which the numerator shall be (x) the product of the
current market price (determined as described above in this paragraph (g)) times
the number of shares of Common Stock outstanding (including any tendered or
exchanged shares at the closing) minus (y) the fair market value (determined as
aforesaid) of the aggregate consideration payable to shareholders upon the
consummation of such offer and the denominator shall be the product of (A) the
current market price (as determined above) times (B) such number of outstanding
shares at the closing minus the number of shares accepted for payment in such
tender offer or exchange offer, such reduction to become effective immediately
prior to the opening of business on the day following the closing; provided,
that if the number of shares tendered or exchanged or the aggregate
consideration payable therefor has not been finally determined by such opening
of business, the adjustment required by this paragraph shall, pending such final
determination, be made based upon the preliminarily announced results of such
tender or exchange offer, and, after such final determination shall have been
made, the adjustment required by this paragraph shall be made based upon the
number of shares tendered or exchanged and the aggregate consideration payable
therefor as so finally determined. The adjustment referred to in the paragraph
will generally not be made, however, if, as of the closing of such tender offer
or exchange offer, the offering documents with respect to such offer disclose a
plan or an intention to cause the Company to engage in a consolidation or merger
of the Company, or a sale of all or substantially all of the Company's assets.

        (h)     The reclassification of Common Stock into securities which
include securities other than Common Stock (other than any reclassification upon
a consolidation or merger to which Section 1311 applies) shall be deemed to
involve (i) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be "the date fixed for the determination of shareholders entitled
to such distribution" within the meaning of paragraph (d) of this Section), and
(ii) a subdivision or combination, as the case may be, of the number of shares
of Common Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day upon
which such

<PAGE>

subdivision becomes effective" or "the day upon which such combination becomes
effective," as the case may be, and "the day upon which such subdivision or
combination becomes effective" within the meaning of paragraph (c) of this
Section).

        Rights or warrants issued by the Company to all holders of the Common
Stock entitling the holders thereof to subscribe for or purchase shares of
Common Stock (either initially or under certain circumstances), which rights or
warrants (i) are deemed to be transferred with such shares of Common Stock, (ii)
are not exercisable and (iii) are also issued in respect of future issuances of
Common Stock, in each case in clauses (i) through (iii) until the occurrence of
a specified event or events ("Trigger Event"), shall for purposes of this
Section 1304 not be deemed issued or distributed until the occurrence of the
earliest Trigger Event, whereupon such rights and warrants shall be deemed to
have been distributed and an appropriate adjustment (if any is required) to the
Conversion Price shall be made under this Section 1304. If any such rights or
warrants, including any such existing rights or warrants distributed prior to
the date of this Statement of Terms are subject to subsequent events, upon the
occurrence of each of which such rights or warrants shall become exercisable to
purchase different securities, evidences of indebtedness or other assets, then
the occurrence of each such event shall be deemed to be such date of issuance
and record date with respect to new rights or warrants (and a termination or
expiration of the existing rights or warrants without exercise by the holder
thereof). In addition, in the event of any distribution (or deemed distribution)
of rights or warrants, or any Trigger Event with respect thereto, that was
counted for purposes of calculating a distribution amount for which an
adjustment to the Conversion Price under this Section 1304 was made, (1) in the
case of any such rights or warrant which shall all have been redeemed or
repurchased without exercise by any holders thereof, the Conversion Price shall
be readjusted upon such final redemption or repurchase to give effect to such
distribution or Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price received by
a holder or holders of Common Stock with respect to such rights or warrants
(assuming such holder had retained such rights or warrants), made to all holders
of Common Stock as of the date of such redemption or repurchase, and (2) in the
case of such rights or warrants which shall have expired or been terminated
without exercise by any holders thereof, the Conversion Price shall be
readjusted as if such rights and warrants had not been issued.

        Notwithstanding any other provision of this Section 1304 to the
contrary, rights, warrants, evidences of indebtedness, other securities, cash or
other assets (including, without limitation, any rights distributed pursuant to
any stockholder rights plan) shall be deemed not to have been distributed for
purposes of this Section 1304 if the Company makes proper provision so that each
holder of Securities who converts a Security (or any portion thereof) after the
date fixed for determination of stockholders entitled to receive such
distribution shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversions, the amount and kind
of such distributions that such holder would have been entitled to receive if
such

<PAGE>

holder had, immediately prior to such determination date, converted such
Security into Common Stock.

        (i)     For the purpose of any computation under this paragraph and
paragraphs (b), (d) and (e) of this Section, the current market price per share
of Common Stock (the "Current Market Price") on any date shall be deemed to be
the average of the daily Closing Prices for the 10 consecutive Trading Days
immediately prior to the date in question; provided, however, that (i) if the
"ex" date for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) above occurs during such 10 consecutive
Trading Days, the Closing Price for each Trading Day prior to the "ex" date for
such other event shall be adjusted by multiplying such Closing Price by the same
fraction by which the conversion price is so required to be adjusted as a result
of such other event, (ii) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that requires an adjustment
to the conversion price pursuant to paragraph (a), (b), (c), (d), (e) or (f)
above occurs on or after the "ex" date for the issuance or distribution
requiring such computation and on or prior to the date in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the reciprocal of the fraction
by which the conversion price is so required to be adjusted as a result of such
other event, and (iii) if the "ex" date for the issuance or distribution
requiring such computation is on or prior to the date in question, after taking
into account any adjustment required pursuant to clause (ii) of this proviso,
the Closing Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the amount of any cash and the fair market value on
the date in question (as determined by the Board of Directors in a manner
consistent with any determination of such value for purposes of paragraph (d) or
(e) of this Section, whose determination shall be conclusive and described in a
Board Resolution) of the evidences of indebtedness, shares of capital stock or
assets being distributed applicable to one share of Common Stock as of the close
of business on the day before such "ex" date. For the purpose of any computation
under paragraph (f) of this Section, the Current Market Price on any date shall
be deemed to be the average of the daily Closing Prices for such day and the
next two succeeding Trading Days; provided, however, that if the "ex" date for
any event (other than the tender offer requiring such computation) that requires
an adjustment to the conversion price pursuant to paragraph (a), (b), (c), (d),
(e) or (f) above occurs on or after the Commencement Date and prior to the
Expiration Time for the tender offer requiring such computation, the Closing
Price for each Trading Day prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the same fraction by which the
conversion price is so required to be adjusted as a result of such other event.
The closing price for any Trading Day (the "Closing Price") shall be the last
reported sales price regular way or, in case no such reported sale takes place
on such day, the average of the reported closing bid and asked prices regular
way, in either case on the New York Stock Exchange or, if the Common Stock is
not listed or admitted to trading on such exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange, on
the Nasdaq

<PAGE>

Stock Market's National Market or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on such National
Market, the average of the closing bid and asked prices in the over-the-counter
market as furnished by any New York Stock Exchange member firm selected from
time to time by the Company for that purpose. For purposes of this paragraph,
the term "Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are generally not traded on the
applicable securities exchange or in the applicable securities market and the
term "'ex' date," (i) when used with respect to any issuance or distribution,
means the first date on which the Common Stock trades regular way on the
relevant exchange or in the relevant market from which the Closing Prices were
obtained without the right to receive such issuance or distribution, (ii) when
used with respect to any subdivision or combination of shares of Common Stock,
means the first date on which the Common Stock trades regular way on such
exchange or in such market after the time at which such subdivision or
combination becomes effective, and (iii) when used with respect to any tender
offer means the first date on which the Common Stock trades regular way on such
exchange or in such market after the Expiration Time.

        (j)     The Company may make such reductions in the conversion price, in
addition to those required by paragraphs (a), (b), (c), (d), (e), (f) and (g) of
this Section, as it considers to be advisable (as evidenced by a Board
Resolution) in order that any event treated for federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the recipients or, if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event.

        (k)     No adjustment in the conversion price shall be required unless
such adjustment (plus any other adjustments not previously made by reason of
this paragraph (k)) would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any adjustments which by reason of
this paragraph (k) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.

        (l)     Notwithstanding any other provision of this Section 1304, no
adjustment to the conversion price shall reduce the conversion price below the
then par value per share of the Common Stock, and any such purported adjustment
shall instead reduce the conversion price to such par value. The Company hereby
covenants not to take any action to increase the par value per share of the
Common Stock.

SECTION 1305. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.

        Whenever the conversion price is adjusted as herein provided:

        (a)     the Company shall compute the adjusted conversion price in
accordance with Section 1304 and shall prepare an Officers' Certificate signed
by the Treasurer of the Company setting forth the adjusted conversion price and
showing in reasonable detail the facts upon which such adjustment

<PAGE>

is based, and such certificate shall forthwith be filed at each office or agency
maintained for the purpose of conversion of Securities pursuant to Section 1002;
and

        (b)     a notice stating that the conversion price has been adjusted and
setting forth the adjusted conversion price shall forthwith be prepared, and as
soon as practicable after it is prepared, such notice shall be mailed by the
Company to all Holders at their last addresses as they shall appear in the
Security Register.

SECTION 1306. NOTICE OF CERTAIN CORPORATE ACTION.

        In case:

        (a)     the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require a conversion price
adjustment pursuant to paragraph (e) of Section 1304; or

        (b)     the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any other rights (excluding shares of capital
stock or option for capital stock issued pursuant to a benefit plan for
employees, officers or directors of the Company); or

        (c)     of any reclassification of the Common Stock (other than a
subdivision or combination of the outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or

        (d)     of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;

        (e)     the Company or any Subsidiary shall commence a tender offer for
all or a portion of the outstanding shares of Common Stock (or shall amend any
such tender offer to change the maximum number of shares being sought or the
amount or type of consideration being offered therefor); or

        (f)     the Company shall receive notice of a tender offer or exchange
offer with respect to 25% or more of its outstanding Common Stock;

then the Company shall cause to be filed at each office or agency maintained
pursuant to Section 1002, and shall cause to be mailed to all Holders at their
last addresses as they shall appear in the Security Register, at least 21 days
(or 11 days in any case specified in clause (a), (b), (e), or (f)

<PAGE>

above) prior to the applicable record, effective or expiration date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution or granting of rights or warrants,
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record who will be entitled to such dividend, distribution, rights or
warrants are to be determined, (y) the date on which such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up, or (z) the date on which such
tender offer or exchange offer commenced, the date on which such tender offer is
scheduled to expire unless extended, the consideration offered and the other
material terms thereof or exchange offer (or the material terms of any amendment
thereto). Neither the failure to give any such notice nor any defect therein
shall affect the legality or validity of any action described in clauses (a)
through (e) of this Section 1306.

SECTION 1307. COMPANY TO RESERVE COMMON STOCK.

        The Company shall at all times reserve and keep available, free from
preemptive rights, out of the authorized but unissued Common Stock or out of the
shares of Common Stock held in treasury, for the purpose of effecting the
conversion of Securities, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding Securities. Shares of Common
Stock issuable upon conversion of outstanding Securities shall be issued out of
the Common Stock held in Treasury to the extent available.

SECTION 1308. TAXES ON CONVERSIONS.

        The Company will pay any and all taxes that may be payable in respect of
the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or Securities to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid.

SECTION 1309. COVENANT AS TO COMMON STOCK.

        The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and
nonassessable and, except as provided in Section 1308, the Company will pay all
taxes, liens and charges with respect to the issue thereof.

<PAGE>

SECTION 1310. CANCELLATION OF CONVERTED SECURITIES.

        All Securities delivered for conversion shall be canceled by the
Company, which shall dispose of the same as provided in Section 309.

SECTION 1311. PROVISIONS OF CONSOLIDATION, MERGER OR SALE OF ASSETS.

        In case of any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock) or any sale or
transfer of all or substantially all of the assets of the Company, the Person
formed by such consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall execute and deliver a supplemental
instrument providing that the Holder of each Security then Outstanding shall
have the right thereafter, during the period such Security shall be convertible
as specified in Section 1301, to convert such Security only into the kind and
amount of securities, cash and other property, if any, receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Security might have been converted immediately
prior to such consolidation, merger, sale or transfer, assuming such holder of
Common Stock (i) is not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or transfer was made, as the case may be (a "Constituent Person"), or an
Affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer (provided
that if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer is not the same for each share
of Common Stock held immediately prior to such consolidation, merger, sale or
transfer by other than a Constituent Person or an Affiliate thereof and in
respect of which such rights of election shall not have been exercised
("nonelecting share"), then for the purpose of this Section the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by each nonelecting share shall be deemed to be the
kind and amount so receivable per share by a plurality of the nonelecting
shares). Such supplemental instrument shall provide for adjustments which, for
events subsequent to the effective date of such supplemental instrument, shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Article. The above provisions of this Section shall similarly apply to
successive consolidations, mergers, sales or transfers.

SECTION 1312. INTENTIONALLY OMITTED

<PAGE>

                                ARTICLE FOURTEEN
                           RIGHT TO REQUIRE REPURCHASE

SECTION 1401. RIGHT TO REQUIRE REPURCHASE.

        In the event that there shall occur a Repurchase Event (as defined in
Section 1406), then each Holder shall have the right, at such Holder's option,
to require the Company to purchase, and upon the exercise of such right, the
Company shall, subject to the provisions of Section 1203, purchase, all or any
part of such Holder's Securities on the date (the "Repurchase Date") that is 30
days after the date the Company gives notice of the Repurchase Event as
contemplated in Section 1402(a) at a price (the "Repurchase Price") equal to
100% of the principal amount thereof, together with accrued and unpaid interest,
but excluding, to the Repurchase Date.

SECTION 1402. NOTICE; METHOD OF EXERCISING REPURCHASE RIGHT.

        (a)     On or before the 15th day after the occurrence of a Repurchase
Event, the Company shall give notice of the occurrence of the Repurchase Event
and of the repurchase right set forth herein arising as a result thereof by
first-class mail, postage prepaid, to each Holder of the Securities at such
Holder's address appearing in the Security Register.

        Each notice of a repurchase right shall state:

                (1)     the event constituting the Repurchase Event and the date
thereof,

                (2)     the Repurchase Date,

                (3)     the date by which the repurchase right must be
exercised,

                (4)     the Repurchase Price, and

                (5)     the instructions a Holder must follow to exercise a
repurchase right.

        No failure of the Company to give the foregoing notice shall limit any
Holder's right to exercise a repurchase right.

        (b)     To exercise a repurchase right, a Holder shall deliver to the
Company (or an agent designated by the Company for such purpose in the notice
referred to in (a) above) on or before the close of business on the Repurchase
Date (i) written notice of the Holder's exercise of such right, which notice
shall set forth the name of the Holder, the principal amount of the Security or
Securities (or portion of a Security) to be repurchased, and a statement that an
election to exercise the

<PAGE>

repurchased right is being made thereby, and (ii) the Security or Securities
with respect to which the repurchase right is being exercised, duly endorsed for
transfer to the Company. Such written notice shall be irrevocable. If the
Repurchase Date falls between any Regular Record Date and the next succeeding
Interest Payment Date, Securities to be repurchased must be accompanied by
payment from the Holder of an amount equal to the interest thereon which the
registered Holder thereof is to receive on such Interest Payment Date.

        In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall on the Repurchase Date pay or cause to be
paid in cash to the Holder thereof the Repurchase Price of the Security or
Securities as to which the repurchase right had been exercised. In the event
that a repurchase right is exercised with respect to less than the entire
principal amount of a surrendered Security, the Company shall execute and
deliver for issuance in the name of the Holder a new Security or Securities,
containing identical terms and conditions, in the aggregate principal amount of
the unrepurchased portion of such surrendered security.

SECTION 1403. DEPOSIT OF REPURCHASE PRICE.

        On or prior to the Repurchase Date, the Company shall deposit with a
Paying Agent (or, if the Company is acting as its own Paying Agent, segregate
and hold in trust as provided in Section 1003) an amount of money in same day
funds sufficient to pay the Repurchase Price of the Securities which are to be
repaid on the Repurchase Date.

SECTION 1404. SECURITIES NOT REPURCHASED ON REPURCHASE DATE.

        If any Security surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at the rate per annum borne
by such Security.

SECTION 1405. SECURITIES REPURCHASED IN PART.

        Any Security which is to be repurchased only in part shall be
surrendered at any office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company so requires, due endorsement by,
or written instrument of transfer in form satisfactory to the Company duly
executed by, the Holder thereof or his attorney duly authorized in writing), and
the Company shall execute and deliver to the Holder of such Security without
service charge, a new Security or Securities, containing identical terms and
conditions, of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Security so surrendered.

<PAGE>

SECTION 1406. CERTAIN DEFINITIONS.

        For purposes of this Article:

        (a)     A "Repurchase Event" shall have occurred upon the occurrence of
a Change in Control or Termination of Trading after the date of this Statement
of Terms and on or prior to March 15, 2005.

        (b)     A "Change in Control" shall occur when :

                (i)     all or substantially all of the Company's assets are
sold as an entirety to any person or related group of persons;

                (ii)    there shall be consummated any consolidation or merger
of the Company (A) in which the Company is not the continuing or surviving
corporation (other than a consolidation or merger with a wholly owned subsidiary
of the Company in which all shares of Common Stock outstanding immediately prior
to the effectiveness thereof are changed into or exchanged for the same
consideration) or (B) pursuant to which the Common Stock would be converted into
cash, securities or other property, in each case, other than a consolidation or
merger of the Company in which the holders of the Common Stock immediately prior
to the consolidation or merger have, directly or indirectly, at least a majority
of the total voting power of all classes of capital stock entitled to vote
generally in the election of directors of the continuing or surviving
corporation immediately after such consolidation or merger in substantially the
same proportion as their ownership of Common Stock immediately before such
transaction;

                (iii)   any person, or any persons acting together which would
constitute a "group" for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof, shall beneficially own (as
defined in Rule 13d-3 under the Exchange Act) at least 50% of the total voting
power of all classes of capital stock of the Company entitled to vote generally
in the election of directors of the Company; or

                (iv)    at any time during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
or

<PAGE>

                (v)     the Company is liquidated or dissolved or adopts a plan
of liquidation or dissolution.

        (c)     A "Termination of Trading" shall occur if the Common Stock (or
other common stock into which the Securities are then convertible) is neither
listed for trading on a U.S. national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States.

        This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.

        IN WITNESS WHEREOF, the parties hereto have caused this Statement of
Additional Terms and Conditions to be duly executed, and their respective
corporate seals to be hereunto affixed and attested, all as of the day and year
first above written.

                                     RES-CARE, INC.

                                     By:  /s/ E. Halsey Sandford
                                          --------------------------------------

                                     Name:   E. Halsey Sandford
                                             -----------------------------------

                                     Title:   Senior Executive
                                              ----------------------------------

<PAGE>

Attest:

Name:  /s/ Paul G. Dunn
       --------------------------------------------

Title: Paul G. Dunn
       --------------------------------------------

Title: Executive Vice President - Development
       --------------------------------------------

<PAGE>

                                    Exhibit A

          Form of Face of 5.90% Convertible Subordinated Note due 2005:

             THIS SECURITY IS SUBJECT TO SUBSTANTIAL RESTRICTIONS ON
           TRANSFER, AS SET FORTH IN THE RESTRICTIVE TRANSFER LEGENDS
                  CONTAINED ON PAGE R-11 ON THE REVERSE HEREOF.

                                 RES-CARE, INC.

                  5.90% Convertible Subordinated Notes due 2005

                                                                  No. K-________

        Res-Care, Inc., a corporation duly organized and existing under the laws
of the Commonwealth of Kentucky (herein called the "Company," which term
includes any successor Person under the Statement of Terms hereinafter referred
to), for value received, hereby promises to pay to the order of
__________________________________, or its registered assigns, the principal sum
of __________ Dollars ($_________) on March 15, 2005 upon surrender hereof to
the Company or any agent which may hereafter be designated, and to pay interest
thereon from the date of original issuance of the Securities or from and
including the most recent Interest Payment Date to which interest has been paid
or duly provided for, semi-annually on March 15 and September 15 in each year,
commencing September 15, 1998 at the rate of 5.90% per annum, until the
principal hereof is paid or made available for payment. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the March 1 or September 1 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Company or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed and upon such
notice as may be required by such exchange, all as more fully provided in said
Statement of Terms. Notice of a Special Record Date shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date. Payment of
the principal of and premium, if any, and interest on this Security will be made
in same day funds at the office or agency of the Company maintained for that
purpose in Louisville, Kentucky in such coin or currency of the United States of

                                      - 1 -
<PAGE>

America as of the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Company payment of
interest in respect of Securities may be made by check mailed to the address of
the Holders thereof as such addresses shall appear in the Security Register.

                                      - 2 -
<PAGE>

        Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

        IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.

Dated: March 12, 1998                   RES-CARE, INC.

                                           By:
                                                      Authorized Officer
Attest:

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

                                      - 3 -
<PAGE>

        Form of Reverse of 5.90% Convertible Subordinated Note due 2005:

                                 RES-CARE, INC.

                  5.90% Convertible Subordinated Notes due 2005

                               Reverse of Security

        This Security is one of a duly authorized issue of Securities of the
Company designated as its 5.90% Convertible Subordinated Notes due 2005 (herein
called the "Securities"), limited in aggregate principal amount to $22,000,000
issued and to be issued under a Stock Purchase Agreement dated as of February
4,1998 among Res-Care, Inc., Normal Life, Inc., and J. Robert Shaver, Kathryn S.
Graham, Frederic H. Davis, and certain individuals listed on Schedule A to the
Stock Purchase Agreement (the "Agreement") and pursuant to the Statement of
Additional Terms and Conditions relating to the Securities included as an
exhibit to the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission in March, 1998 to reflection completion of the
transactions contemplated the the foregoing agreement (herein called the
"Statement of Terms"), to which Statement of Terms reference is hereby made for
a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the holders of Senior Indebtedness and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered.

        Subject to and upon compliance with the provisions of the Statement of
Terms, the Holder of this Security is entitled, at his or her option, at any
time on or after 367 days after the date of original issuance of this Security
and on or before the close of business on March 15, 2005, or in case this
Security or a portion hereof is called for redemption, then in respect of this
Security or such portion hereof until and including, but (unless the Company
defaults in making the payment due upon redemption) not after, the close of
business on the second business day preceding the Redemption Date, to convert
this Security (or any portion of the principal amount hereof which is $1,000 or
an integral multiple thereof), at the principal amount hereof, or of such
portion, into fully paid and non-assessable shares (calculated as to each
conversion to the nearest 1/100th of a share) of Common Stock at a conversion
price equal to $38.7531 principal amount for each share of Common Stock (or at
the current adjusted conversion price if an adjustment has been made as provided
in the Statement of Terms) by surrender of this Security, duly endorsed or
assigned to the Company or in blank, to the Company at its principal executive
office in Louisville, Kentucky or at such agency maintained for that purpose as
the Company shall designate from time to time, accompanied by written notice to
the Company in the form provided in this Security (or such other notice as is
acceptable to the Company) that the Holder hereof elects to convert this
Security, or if less than the entire principal amount hereof is to be converted,
the portion hereof to be converted, and, in case such surrender shall be made
during

<PAGE>

the period from the opening of business on any Regular Record Date next
preceding any Interest Payment Date to the close of business on such Interest
Payment Date (unless this Security or the portion thereof being converted has
been called for redemption), also accompanied by payment in funds acceptable to
the Company of an amount equal to the interest payable on such Interest Payment
Date on the principal amount of this Security then being converted. Subject to
the aforesaid requirement for payment and, in the case of a conversion after the
Regular Record Date next preceding any Interest Payment Date and on or before
such Interest Payment Date, to the right of the Holder of this Security (or any
Predecessor Security) of record at such Regular Record Date to receive an
installment of interest (with certain exceptions provided in the Statement of
Terms), no payment or adjustment is to be made upon conversion on account of any
interest accrued hereon or on account of any dividends on the Common Stock
issued upon conversion. No fractional shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional share the
Company shall pay a cash adjustment as provided in the Statement of Terms. The
conversion price is subject to adjustment as provided in the Statement of Terms.
In addition, the Statement of Terms provides that in case of certain
consolidations or mergers to which the Company is a party or the sale or
transfer of all or substantially all of the assets of the Company, the Statement
of Terms shall be amended, without the consent of any Holders of Securities, so
that this Security, if then outstanding, will be convertible thereafter, during
the period this Security shall be convertible as specified above, only into the
kind and amount of securities, cash and other property receivable upon the
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which this Security might have been converted immediately
prior to such consolidation, merger, sale or transfer (assuming such holder of
Common Stock failed to exercise any rights of election and received per share
the kind and amount received per share by a plurality of non-electing shares).

        The Securities are subject to redemption upon not less than 30 and not
more than 60 days' notice by mail, at any time on or after March 15, 2001 and
prior to Maturity, as a whole or in part, at the election of the Company, at the
Redemption Prices set forth below, expressed as percentages of the principal
amount thereof, plus accrued and unpaid interest to the Redemption Date (subject
to the right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).

        If redeemed during the period beginning March 15 in the year indicated,
and ending on the succeeding February 14, the redemption price shall be:

<TABLE>
<CAPTION>
                        Redemption Year             Redemption Price
<S>                                                      <C>
                             2001                        103.37%

                             2002                        102.53%
</TABLE>

<PAGE>

<TABLE>
<S>                                                      <C>
                             2003                        101.68%

                             2004                        100.85%

                             2005                        100.00%
</TABLE>

in each case together with accrued and unpaid interest, if any, up to but not
including the date of redemption.

        In certain circumstances involving the occurrence of a Repurchase Event
(as defined in the Statement of Terms), the Holder hereof shall have the right
to require the Company to repurchase all or any part of this Security at 100% of
the principal amount hereof, together with accrued and unpaid interest, if any,
to the Repurchase Date, but interest installments whose Stated Maturity is on or
prior to such Repurchase Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Statement of Terms.

        In the event of redemption or conversion of this Security in part only,
a new Security or Securities for the unredeemed or unconverted portion hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.

        The Securities shall rank pari passu in right of payment with the
Company's 6% Convertible Subordinated Notes due 2004.

        The indebtedness evidenced by this Security is, in all respects,
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness of the Company, and this Security is issued subject to the
provisions of the Statement of Terms with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by the
provisions of the Statement of Terms, (b) authorizes the Company to take such
action as may be necessary or appropriate to effectuate the subordination so
provided, and (c) appoints the Company his attorney-in-fact for any and all such
purposes.

        If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Statement of Terms.

        The Statement of Terms permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities
subject to the Statement of Terms at any time by the Company with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding, and, under certain limited circumstances, by

<PAGE>

the Company, without the consent of the Holders. The Statement of Terms also
contains provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions governing the Notes and to waive certain past defaults and Events of
Default under the Statement of Terms and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.

        No provision of this Security or of the Statement of Terms shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and premium, if any, and interest on this Security at the
times, place and rate, and in the coin or currency, herein prescribed or to
convert this Security as provided in the Statement of Terms.

        Subject to certain limitations set forth in the Statement of Terms, the
transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the office or agency
of the Company in any place where the principal of, and premium, if any, and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company (and, if one
has been appointed, the Security Registrar) duly executed by, the Holder hereof
or his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.

        The Securities are issuable only in fully registered form without
coupons in minimum denominations of $1,000 and any integral multiple thereof.
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.

        No service charge shall be made for any such registration of transfer or
exchange except as provided in the Statement of Terms, and the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.

        Prior to due presentment of this Security for registration of transfer,
the Company and any agent of the Company may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, except as provided
in this Security, whether or not this Security be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

        All terms used in this Security which are defined in the Statement of
Terms shall have the meanings assigned to them in the Statement of Terms. The
Company will furnish to any Holder upon written request and without charge a
copy of the Statement of Terms, which shall also be

<PAGE>

available for inspection at the Company's executive offices and shall be on file
with the Securities and Exchange Commission so long as the Company has
securities registered thereunder.

<PAGE>

                           [FORM OF CONVERSION NOTICE]

TO RES-CARE, INC.

        The undersigned registered owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion hereof (which is
$1,000 or a multiple thereof) designated below, into shares of Common Stock of
Res-Care, Inc. in accordance with the terms of the Statement of Terms referred
to in this Security, and directs that the shares issuable and deliverable upon
the conversion, together with any check in payment for a fractional share and
any Security representing any unconverted principal amount hereof, be issued and
delivered to the registered Holder hereof unless a different name has been
provided below. If this Notice is being delivered on a date after the close of
business on a Regular Record Date and prior to the close of business on the
related Interest Payment Date, this Notice is accompanied by payment in funds
acceptable to the Company, of an amount equal to the interest payable on such
Interest Payment Date on the principal of this Security to be converted (unless
this Security has been called for redemption). If shares or any portion of this
Security not converted are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Security.

Dated:

                                  Signature(s)

Signature(s) must be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program) pursuant to S.E.C. Rule
17Ad-15, if shares of Common Stock are to be delivered, or Securities to be
issued, other than to and in the name of the registered Holder.

------------------------------------
Signature Guarantee

<PAGE>

Fill in for registration of shares of Common Stock if they are to be delivered,
or Securities if they are to be issued, other than to and in the name of the
registered Holder:

        (Name)

        (Street Address)

        (City, State and zip code)

(Please print name and address)

Register:  _____ Common Stock

               _____ Securities

(Check appropriate line(s)).

Principal amount to be converted (if less than all):  $__________,000

                                            Social Security or other Taxpayer

                                            Identification Number of owner

<PAGE>

                                 ASSIGNMENT FORM

If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:

I or we assign and transfer this Security to

(Insert assignee's social security or tax ID number)

(Print or type assignee's name, address and zip code) and irrevocably appoint

agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.

Date:                          Your signature:

                               (Sign exactly as your name appears on the face of
                               this Security)

Signature Guarantee:

        The signature to this assignment should be guaranteed by an eligible
guarantor institution (banks, stockbrokers, savings and loan associations and
credit unions with membership in an approved signature guarantee medallion
program) pursuant to S.E.C. Rule 17Ad-15.

<PAGE>

              [FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
                     REGISTRATION OF TRANSFER OF SECURITIES]

                      CERTIFICATE FOR EXCHANGE OR TRANSFER

Re: 5.90% Convertible Subordinated Notes due 2005

        This Certificate relates to $_________ principal amount of Securities
held in **____________ book-entry or **____________ definitive form by _________
(the "Transferor").

The Transferor**:

 In connection with such request and in respect of each such security, the
Transferor does hereby certify to the Company that Transferor is familiar with
the Statement of Terms relating to the above captioned Notes and, as provided in
Section 305 of such Statement of Terms, the transfer of this Security does not
require registration under the Securities Act (as defined below) because**:

[  ]    Such Security is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 305(b)(ii)(B), Section 305(f)(i)(B)
or Section 305(k)(ii) of the Statement of Terms). If such Security is being
transferred in accordance with Rule 144 under the Securities Act, an opinion of
counsel to the effect that such transfer does not require registration under the
Securities Act accompanies this Certificate (in satisfaction of Section
305(b)(ii)(B), Section 305(f)(i)(B) or Section 305(k)(ii) of the Statement of
Terms).

[  ]    Such Security is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Securities Act, other
than Rule 144A, 144 or Regulation S under the Securities Act. An opinion of
counsel to the effect that such transfer does not require registration under the
Securities Act accompanies this Certificate (in satisfaction of Section
305(b)(ii)(C) or Section 305(f)(i)(C) of the Statement of Terms).

        You are entitled to rely upon this certificate and you are irrevocably
authorized to produce this certificate or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect to
the matters covered hereby.

--------------------------------
   (1)*Check applicable box.

<PAGE>

                                            [INSERT NAME OF TRANSFEROR]

                                       By:

Date:

<PAGE>

                      [OPTION OF HOLDER TO ELECT PURCHASE]

        IF YOU WISH TO HAVE THIS SECURITY PURCHASED BY THE COMPANY PURSUANT TO
SECTION 1401 OF THE STATEMENT OF TERMS, CHECK THE BOX: [  ]

        If you wish to have a portion of this Security (which is $1,000 or an
integral multiple thereof) purchased by the Company pursuant to Section 1401 of
the Statement of Terms, state the amount you wish to have purchased:

$

Date:                                       Your Signature(s):

                                            Tax Identification No.:

(Sign exactly as your name appears on the face of this Security)

Signature Guarantee:

The signature to this option of holder to elect purchase should be guaranteed by
an eligible guarantor institution (banks, stockbrokers, savings and loan
associations and credit unions with membership in an approved signature
guarantee medallion program) pursuant to S.E.C. Rule 17Ad-15.

<PAGE>

        THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND, ACCORDINGLY, NEITHER THIS SECURITY, THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN OR THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. A
HOLDER OF THIS SECURITY WILL NOT BE ABLE TO EXERCISE THE CONVERSION RIGHT PRIOR
TO 367 DAYS AFTER THE DATE OF ORIGINAL ISSUANCE OF THIS NOTE AND THEN ONLY IF
THE RESALE OF THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933.

        THE HOLDER OF THIS SECURITY, BY ITS ACQUISITION HEREOF, AGREES THAT IT
WILL NOT, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY),
RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY, OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (C) PURSUANT TO ANOTHER
APPLICABLE EXEMPTION FROM REGISTRATION IF THE REQUEST FOR TRANSFER IS
ACCOMPANIED BY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THE NOTE EVIDENCED HEREBY, OR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION THEREOF, WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH NOTE,
THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE
COMPANY. THIS LEGEND WILL BE REMOVED UPON ANY TRANSFER OF THE NOTE EVIDENCED
HEREBY, OR THE SHARES OF COMMON STOCK ISSUED UPON CONVERSION THEREOF, AFTER THE
EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY.<PAGE>
                                                                   EXHIBIT 10.17
                                                                  EXECUTION COPY

                           SECOND AMENDMENT AGREEMENT

      This Second Amendment Agreement is made as of the 15th day of November,
2002, by and among RES-CARE, INC., a Kentucky corporation ("Res-Care"), those
subsidiaries of Res-Care named in Schedule 1 to the Credit and Security
Agreement, as defined herein, (together with Res-Care, collectively "Borrowers",
and individually, "Borrower"), the lending institutions named in Schedule 2 to
the Credit and Security Agreement, as defined herein (collectively, "Banks", and
individually, "Bank"), NATIONAL CITY BANK OF KENTUCKY, as Agent for the Banks
under the Credit and Security Agreement ("Agent"), BANK ONE, KENTUCKY, N.A., as
syndication agent for the Banks under the Credit and Security Agreement
("Syndication Agent"), and U.S. BANK, NATIONAL ASSOCIATION, as documentation
agent for the Banks under the Credit and Security Agreement ("Documentation
Agent").

      WHEREAS, Borrowers, Banks, Agent, Syndication Agent and Documentation
Agent are parties to a certain Credit and Security Agreement dated as of
November 15, 2001, as amended and as it may from time to time be further
amended, restated or otherwise modified (the "Credit and Security Agreement");

      WHEREAS, Borrowers, Banks, Agent, Syndication Agent and Documentation
Agent desire to amend the Credit and Security Agreement to modify certain
provisions thereof; and

      WHEREAS, each term used herein shall be defined in accordance with the
Credit and Security Agreement.

      NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein and for other valuable considerations, Borrowers, Banks, Agent,
Syndication Agent and Documentation Agent agree as follows:

      1. Article I of the Credit and Security Agreement is hereby amended to
delete the definition of "Applicable Margin" therefrom in its entirety with the
following being inserted in place thereof:

            "Applicable Margin" shall mean:

            (a) for the period from the Closing Date through October 31, 2002,
      two hundred fifty (250) basis points for LIBOR Loans and one hundred fifty
      (150) basis points for Base Rate Loans;

            (b) for the period from November 1, 2002 through December 31, 2002,
      two hundred seventy-five (275) basis points for LIBOR Loans and one
      hundred seventy-five (175) basis points for Base Rate Loans; and

            (c) commencing January 1, 2003, the number of basis points
      (depending upon whether Loans are LIBOR Loans or Base Rate Loans) set
      forth in the following matrix, based upon the result of the computation of
      the Leverage Ratio, shall be used to establish the number of basis points
      that will go into effect on January 1, 2003 and thereafter:

<PAGE>

<TABLE>
<CAPTION>
                                                                    APPLICABLE BASIS     APPLICABLE BASIS
                                                                    POINTS FOR LIBOR        POINTS FOR
                    LEVERAGE RATIO                                        LOANS           BASE RATE LOANS
                    --------------                                  ----------------     ----------------
<S>                                                                 <C>                  <C>
         Greater than or equal to 4.00 to 1.00                             275                  175

         Greater than or equal to 3.00 to 1.00
         but less than 4.00 to 1.00                                        250                  150

         Greater than or equal to 2.50 to 1.00
         but less than 3.00 to 1.00                                        225                  125

         Greater than or equal to 2.00 to 1.00
         but less than 2.50 to 1.00                                        200                  100

         Less than 2.00 to 1.00                                            175                  75
</TABLE>

            Changes to the Applicable Margin shall be effective on the first day
      of each month after Agent receives, or if earlier, should have received,
      pursuant to Section 5.3(b) and 5.3(c) hereof, the quarterly or annual
      financial statements of the Companies. The above matrix does not modify or
      waive, in any respect, the requirements of Section 5.7 hereof, the rights
      of the Banks to charge the Default Rate, or the rights and remedies of
      Agent and the Banks pursuant to Articles VIII and IX hereof.

      2. Article I of the Credit and Security Agreement is hereby amended to
delete the definition of "Consolidated EBITDA" therefrom in its entirety with
the following being inserted in place thereof:

            "Consolidated EBITDA" shall mean, for any period, on a Consolidated
      basis and in accordance with GAAP, Consolidated Net Earnings minus any
      interest income for such period plus the aggregate amounts deducted in
      determining such Consolidated Net Earnings in respect of (a) income taxes,
      (b) Consolidated Interest Expense, (c) Consolidated Depreciation and
      Amortization Charges, and (d) any restructuring charges relating to the
      Citadel Disposition, so long as the aggregate amount of such restructuring
      charges does not exceed One Million Five Hundred Thousand Dollars
      ($1,500,000). For purposes of determining Consolidated EBITDA for any
      rolling period of four (4) fiscal quarters, (i) any gains resulting from
      debt redemptions shall be subtracted from Consolidated Net Earnings; (ii)
      any non-cash income associated with the write-up of goodwill pursuant to
      FASB no. 142 shall be subtracted from Consolidated Net Earnings and any
      non-cash expense associated with the write-down of goodwill pursuant to
      FASB no. 142 shall be added back to Consolidated Net Earnings, and (iii)
      any non-cash expense associated with any write-offs of unreserved accounts
      receivable of Borrowers for the fiscal year 2000 and any prior periods
      which are

                                       2
<PAGE>

      less than the aggregate amount of Fifteen Million Dollars ($15,000,000),
      shall not be taken into account when calculating Consolidated EBITDA.

      3. Article I of the Credit and Security Agreement is hereby amended to
delete the definition of "Consolidated Net Worth" therefrom in its entirety with
the following being inserted in place thereof:

            "Consolidated Net Worth" shall mean at any date, as determined in
      accordance with GAAP, the Consolidated shareholders' equity of the
      Companies determined as of such date, excluding the impact of any
      write-offs of unreserved accounts receivable of Borrowers for the fiscal
      year 2000 and any prior periods which are less than the aggregate amount
      of Fifteen Million Dollars ($15,000,000).

      4. Article I of the Credit and Security Agreement is hereby amended to
delete the definition of "Note" therefrom in its entirety with the following
being inserted in place thereof:

            "Note" shall mean the Revolving Credit Note, or any other Note
      delivered pursuant to this Agreement, together with any replacement or
      substitution thereof, any addition or allonge thereto, and any amendment,
      restatement or other modification thereto.

      5. The Credit and Security Agreement is hereby amended by inserting the
following new definitions into Article I thereof:

            "Arbor" shall mean Arbor, Inc., a Pennsylvania corporation.

            "Arbor Acquisition" shall mean the acquisition by any Borrower of
      certain assets and liabilities consisting of the E&T Division of Arbor
      from Arbor.

            "Arbor Acquisition Documents" shall mean the Arbor Purchase
      Agreement and all agreements, instruments and documents executed pursuant
      thereto or in connection therewith, as any of the foregoing may from time
      to time be amended, restated or otherwise modified.

            "Arbor Purchase Agreement" shall mean that certain agreement
      pursuant to which the Arbor Acquisition is consummated.

            "Citadel" shall mean The Citadel Group, Inc., a Texas corporation
      and a Borrower under the Credit and Security Agreement.

            "Citadel Disposition" shall mean the disposition by Citadel of
      certain of its assets and certain of its liabilities.

      6. The Credit and Security Agreement is hereby amended to delete Section
5.7 therefrom in its entirety and to insert in place thereof the following:

            SECTION 5.7. FINANCIAL COVENANTS.

                                       3
<PAGE>

            (a) MINIMUM EBITDA. Borrowers and their Subsidiaries shall not
      suffer or permit Consolidated EBITDA at any time, on a Consolidated basis,
      based upon Borrowers' and their Subsidiaries financial statements for the
      most recently completed fiscal quarter and the three (3) previous fiscal
      quarters (on a rolling four (4) quarter basis), to be less than the
      following:

<TABLE>
<S>                                                        <C>
      Closing Date through September 30, 2003              $51,000,000

      October 1, 2003 through December 31, 2003            $53,000,000

      January 1, 2004 through March 31, 2004               $54,000,000

      April 1, 2004 through June 30, 2004                  $55,000,000

      July 1, 2004 and thereafter                          $56,000,000
</TABLE>

      Provided that notwithstanding anything to the contrary contained in this
      Agreement, (a) upon consummation of an Acquisition (other than the Arbor
      Acquisition) pursuant to Section 5.13 hereof, in which EBITDA of such
      Person or business acquired for the most recent rolling four (4) quarters
      is greater than One Million Dollars ($1,000,000), the covenant levels set
      forth in this Section 5.7(a) shall be increased by an amount equal to
      eighty-five percent (85%) of the actual EBITDA (as defined in Section
      5.13(f)) of the Person or business acquired for the most recently
      completed fiscal quarter and the three (3) previous fiscal quarters of
      such Person or business acquired, as applicable, and (b) in the event that
      the Earle C. Clements Job Corp Center (Contract # 3-JC-830-51) Contract
      between Res-Care and the U.S. Department of Labor, Office of Job Corp.,
      dated May 1, 1998, as amended (the "Clements Contract") is renewed, the
      covenant levels set forth in this Section 5.7(a) shall be (i) increased by
      an amount equal to Four Hundred Thousand Dollars on September 20, 2003,
      (ii) increased by an additional Four Hundred Thousand Dollars on the last
      day of each succeeding fiscal quarter thereafter through June 30, 2004,
      and (iii) for each fiscal quarter ending after June 30, 2004, the prior
      increases pursuant to (i) and (ii) above shall remain in effect, but no
      additional increases shall be made.

            (b) NET WORTH. Borrowers and their Subsidiaries shall not suffer or
      permit Consolidated Net Worth at any time, based upon the financial
      statements of Borrowers and their Subsidiaries for the most recently
      completed fiscal quarter, to be less than the current minimum amount
      required, which current minimum amount required shall be One Hundred
      Sixty-Five Million Dollars ($165,000,000) on September 30, 2002, with such
      current minimum amount required to be positively increased by the Increase
      Amount on the last day of each succeeding fiscal quarter thereafter. As
      used herein, the term "Increase Amount" shall mean an amount equal to
      seventy-five percent (75%) of Consolidated Net Earnings for the fiscal
      quarter then ended with no deduction for losses.

                                       4
<PAGE>

            (c) EBITDA TO CONSOLIDATED INTEREST EXPENSE. Borrowers and their
      Subsidiaries shall not suffer or permit, at any time, on a Consolidated
      basis, the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest
      Expense minus any non-cash amortization of debt issuance costs, to be less
      than the following:

<TABLE>
<S>                                                          <C>
      October 1, 2002 through June 30, 2003                  1.90 to 1.00

      July 1, 2003 through September 30, 2003                2.00 to 1.00

      October 1, 2003 through March 31, 2004                 2.10 to 1.00

      April 1, 2004 and thereafter                           2.25 to 1.00
</TABLE>

      based upon Borrowers' and their Subsidiaries' financial statements for the
      most recently completed fiscal quarter and the three (3) previous fiscal
      quarters (on a rolling four (4) quarter basis).

            (d) LEVERAGE RATIO. Borrowers and their Subsidiaries shall not
      suffer or permit at any time, on a Consolidated basis, the Leverage Ratio
      to exceed the following:

<TABLE>
<S>                                                          <C>
      Closing Date through December 31, 2002                 5.00 to 1.00

      January 1, 2003 through June 30, 2003                  4.75 to 1.00

      July 1, 2003 through September 30, 2003                4.50 to 1.00

      October 1, 2003 and thereafter                         4.25 to 1.00
</TABLE>

      Provided that notwithstanding anything to the contrary contained in this
      Agreement, upon consummation of an Acquisition (other than the Arbor
      Acquisition) pursuant to Section 5.13 hereof, Consolidated EBITDA shall
      include the actual EBITDA (as defined in Section 5.13(f)) of the Person or
      business acquired for the most recently completed fiscal quarter and the
      three (3) previous fiscal quarters of such Person or business acquired, as
      applicable.

      7. The Credit and Security Agreement is hereby amended by inserting the
following sentence at the end of Section 5.8:

            Notwithstanding anything to the contrary contained in this Section
      5.8, Res-Care may incur Indebtedness to Arbor as part of the purchase
      price in connection with the Arbor Acquisition which Indebtedness shall
      not exceed the aggregate principal amount of One Million Two Hundred Fifty
      Thousand Dollars ($1,250,000) and shall bear interest at a rate not in
      excess of six percent (6%) per

                                       5
<PAGE>

      annum with a maturity date one (1) year from the date of issuance (the
      "Arbor Seller Notes"). The Arbor Seller Notes shall not otherwise be
      subject to the provisions of this Section 5.8.

      8. Section 5.11 of the Credit and Security Agreement is hereby amended to
delete subparagraphs (ix) and (xi) therefrom in their entirety and to insert in
place thereof the following:

            (ix) [RESERVED]

            (x) the creation of any Subsidiary for purposes of making an
      Acquisition permitted pursuant to Section 5.13 hereof or for purposes of
      other transactions so long as such Subsidiary becomes a Borrower promptly
      following such Acquisition and otherwise complies with the terms of
      Section 5.20 hereof;

            (xi) the holding of any Subsidiary as a result of an Acquisition
      made pursuant to Section 5.13 hereof so long as such Subsidiary becomes a
      Borrower promptly following such Acquisition and otherwise complies with
      the terms of Section 5.20 hereof;

      9. The Credit and Security Agreement is hereby amended by inserting the
following sentence at the end of Section 5.12:

            Notwithstanding anything to the contrary contained in this Section
      5.12, Agent and the Banks hereby consent to the Citadel Disposition.

      10. Section 5.13 of the Credit and Security Agreement is hereby amended to
delete subparagraph (e) therefrom in its entirety and to insert in place thereof
the following:

            (e) the aggregate consideration to be paid for all Acquisitions
      (other than the Arbor Acquisition) pursuant to this Section 5.13, shall
      not exceed an aggregate amount equal to Ten Million Dollars ($10,000,000)
      per annum, based on a rolling four (4) quarter basis;

      11. Section 5.13 of the Credit and Security Agreement is hereby amended to
delete subparagraph (g) therefrom in its entirety and to insert in place thereof
the following:

            (g) If the Acquisition is for an aggregate consideration in excess
      of Five Hundred Thousand Dollars ($500,000) or if Agent, in its discretion
      shall otherwise require, Borrowers shall have provided to Agent and the
      Banks, at least thirty (30) days prior to such Acquisition, (i) historical
      financial statements of the business to be acquired, (ii) a pro forma
      financial statement of the Companies accompanied by a certificate of a
      Financial Officer of a Borrower showing pro forma compliance with the
      provisions of Section 5.7 hereof, both before and after the proposed
      Acquisition; and (iii) such other information regarding the Acquisition as
      Agent may reasonably request; and

      12. The Credit and Security Agreement is hereby amended by inserting the
following sentence at the end of Section 5.13:

                                       6
<PAGE>

            Notwithstanding anything to the contrary contained in this Section
      5.13, provided that no Event of Default then exists, or after giving
      effect thereto would result, Agent and the Banks consent to the Arbor
      Acquisition, provided that, (A) the total consideration for such
      acquisition does not exceed the aggregate amount of Ten Million Two
      Hundred Fifty Thousand Dollars ($10,250,000) plus fees and expenses, (B)
      Res-Care assigns its rights under the Arbor Acquisition Documents to
      Agent, for the benefit of the Banks, in form and substance satisfactory to
      Agent and the Banks, (C) Res-Care shall deliver to Agent, fully executed
      copies of the Arbor Acquisition Documents together with such other
      evidence that Agent may require that the Arbor Acquisition has been
      consummated and evidence of Agent's and the Banks' ability to rely on the
      legal opinion(s) of counsel to Arbor delivered in connection with the
      Arbor Acquisition, and (D) if the Arbor Acquisition shall be an
      acquisition contemplated by Section 5.12(x) or (xi) hereof, then Arbor
      shall comply with the terms of Section 5.20 hereof.

      13. The Credit and Security Agreement is hereby amended to delete Section
5.20 therefrom in its entirety and to insert in place thereof the following:

            SECTION 5.20. ADDITIONAL BORROWERS, SECURITY AGREEMENTS AND PLEDGES
      OF OWNERSHIP INTERESTS. Each Subsidiary created, acquired or held
      subsequent to the Closing Date, shall, as soon as practicable (but in no
      event later than thirty (30) days from such creation or acquisition),
      become a Borrower pursuant to this Agreement, the Notes and certain other
      Loan Documents by executing a joinder and assumption agreement, in form
      and substance satisfactory to Agent together with UCC financing statements
      to perfect the security interest granted hereunder. In addition, upon the
      request of Agent, Borrowers shall grant to Agent, for the benefit of the
      Banks, a security interest in all of the issued and outstanding ownership
      interests of any Subsidiary owned by a Borrower, such pledge to be
      evidenced by a Pledge Agreement or Security Agreement in form and
      substance satisfactory to Agent and the Required Banks, with any stock
      certificates to be delivered to Agent for the benefit of the Banks
      together with blank stock power appropriately endorsed. In addition,
      Borrowers shall cause such Subsidiary to deliver to Agent (I) an officer's
      certificate certifying the names of the officers of such Subsidiary
      authorized to sign the Loan Documents, together with the true signatures
      of such officers and certified copies of (A) the resolutions of such
      Subsidiary evidencing approval of the execution and delivery of the Loan
      Documents and the execution of other Related Writings to which such
      Subsidiary, is a party, (B) the Articles (or Certificate) of Incorporation
      or similar organizational documents and all amendments thereto of such
      Subsidiary, in each case having been certified, as of a recent date, by
      the Secretary of State of the jurisdiction under which such Subsidiary
      shall have been organized, and (C) the By-Laws (or Code of Regulations) or
      similar organizational documents and all amendments thereto of such
      Subsidiary, (II) an opinion of counsel for such Subsidiary, in form and
      substance satisfactory to Agent and the Banks, and (III) a good standing
      certificate for such Subsidiary, issued on or about the Closing Date by
      the

                                       7
<PAGE>

      Secretary of State in the state(s) where such Subsidiary is incorporated
      or qualified as a foreign corporation.

      14. Section 11.10 of the Credit and Security Agreement is hereby amended
by inserting a new subsection C at the end thereof as follows:

            C. Mandatory Assignment. In the event that Agent requests the
      consent of a Bank pursuant to Section 11.3 of this Agreement and such Bank
      shall not respond or reply to Agent in writing within thirty (30) days of
      delivery of such request, such Bank shall be deemed to have denied the
      matter that was the subject of the request. In the event that Agent
      requests the consent of a Bank pursuant to Section 11.3 of this Agreement
      and such request is denied or deemed to have been denied, then Agent may,
      at its option, require such Bank to assign (i) its interest in the Loans,
      (ii) its Commitment, (iii) its Notes, and (iv) its interest in any Letter
      of Credit, to Agent or to another Bank or to any other Person designated
      by the Agent (the "Designated Lender"), for a price equal to (a) such
      Bank's Commitment Percentage multiplied by the Revolving Credit Exposure,
      plus (b) accrued and unpaid interest and fees due such Bank, which
      interest and fees shall be paid when collected from Borrowers. In the
      event that Agent elects to require any Bank to assign its interest to
      Agent or to the Designated Lender pursuant to this Section 11.10(C), Agent
      will so notify such Bank in writing within forty-five (45) days following
      such Bank's denial or deemed denial, and such Bank will assign its
      interest to Agent or the Designated Lender no later than five (5) days
      following receipt of such notice pursuant to an Assignment Agreement
      unless, in the case of a deemed denial, such Bank has actually consented
      to the subject request prior to such date, in which case such Bank shall
      not be required to assign its interest.

      15. The Credit and Security Agreement is hereby amended to insert a new
Section 5.25 and a new Section 5.26 thereto as follows:

            SECTION 5.25. BOLIVAR. Borrowers and Bolivar Development Center,
      Inc., a Missouri non-profit corporation ("Bolivar") covenant that Bolivar
      shall not have any business operations at any time and shall not hold any
      assets, including but not limited to, any Collateral; provided that,
      notwithstanding the foregoing, Bolivar may remain a party to that certain
      Management Agreement dated as of January 1, 1998 between Bolivar and
      Community Alternatives Missouri, Inc., a Delaware corporation and to
      continue to perform its obligations and responsibilities thereunder,
      including, but not limited to, the holding of licenses in connection
      therewith.

            SECTION 5.26. CITADEL. Borrowers and Citadel covenant that upon the
      consummation of the Citadel Disposition, Citadel shall commence a
      wind-down of its business affairs and shall use its best efforts to
      dissolve on or prior to December 31, 2003.

      16. The Credit and Security Agreement is hereby amended to delete Section
8.2 therefrom in its entirety and to insert in place thereof the following:

                                       8
<PAGE>

            SECTION 8.2. SPECIAL COVENANTS. If any Company or any Obligor shall
      fail or omit to perform and observe Sections 5.7, 5.9, 5.11, 5.12, 5.13,
      5.19, 5.21, 5.22, 5.25 or 5.26 hereof.

      17. Schedule 1 to the Credit and Security Agreement is hereby amended to
delete Bolivar therefrom, and, upon the dissolution of Citadel pursuant to
Section 5.26 of the Credit and Security Agreement, to delete Citadel therefrom.
Upon the deletion of Bolivar and Citadel from Schedule 1 to the Credit and
Security Agreement, as the case may be, each of Bolivar and Citadel shall
thereby be released from any obligations as a Borrower under the Credit and
Security Agreement.

      18. Agent and the Banks agree to waive Borrowers' failure to comply with
(i) subparagraph (c) (EBITDA to Consolidated Interest Expense) of Section 5.7
(Financial Covenants) of the Credit and Security Agreement for the fiscal
quarter ended September 30, 2002, (ii) Section 4.5 (Good Standing Certificates)
of the Credit and Security Agreement with respect to Bolivar's failure to
deliver a good standing certificate, and (iii) Section 5.5 (Franchises) of the
Credit and Security Agreement with respect to any past failure of Bolivar to
remain in good standing.

      19. As a condition precedent to the effectiveness of this Second Amendment
Agreement, Borrowers shall:

            (a) pay to Agent, for the pro rata benefit of the Banks, an
      amendment fee equal to One Hundred Thousand Dollars ($100,000);

            (b) pay all reasonable legal fees and expenses of Agent incurred in
      connection with this Second Amendment Agreement; and

            (c) deliver an officer's certificate of each Borrower certifying the
      names of the officers of such Borrower authorized to sign the Second
      Amendment Agreement, together with the true signatures of such officers
      and certified copies of the resolutions of each Borrower evidencing
      approval of the execution and delivery of this Second Amendment Agreement.

      20. Borrowers agree to use their best efforts deliver updated Schedules to
the Credit and Security Agreement and the other Loan Documents, if necessary,
prior to the effective date of this Second Amendment Agreement, and, in any
event, shall deliver such updated Schedules within thirty (30) days hereof.

      21. Each Borrower hereby represents and warrants to Agent and the Banks
that (a) such Borrower has the legal power and authority to execute and deliver
this Second Amendment Agreement; (b) the officers executing this Second
Amendment Agreement have been duly authorized to execute and deliver the same
and bind such Borrower with respect to the provisions hereof; (c) the execution
and delivery hereof by such Borrower and the performance and observance by such
Borrower of the provisions hereof do not violate or conflict with the
organizational agreements of such Borrower or any law applicable to such
Borrower or result in a breach of any provision of or constitute a default under
any other agreement, instrument or document binding upon or enforceable against
such Borrower; (d) no Default or Event of Default

                                       9
<PAGE>

exists, nor will any occur immediately after the execution and delivery of this
Second Amendment Agreement or by the performance or observance of any provision
hereof; (e) no Borrower is aware of any claim or offset against, or defense or
counterclaim to, any Borrower's obligations or liabilities under the Credit and
Security Agreement or any Related Writing; and (f) this Second Amendment
Agreement constitutes a valid and binding obligation of each Borrower in every
respect enforceable in accordance with its terms.

      22. In consideration of this Second Amendment Agreement, each Borrower
hereby waives and releases Agent and each Bank and their respective directors,
officers, employees, attorneys, affiliates and subsidiaries from any and all
such claims, offsets, defenses and counterclaims of which such Borrower is
aware, such waiver and release being with full knowledge and understanding of
the circumstances and effect thereof and after having consulted legal counsel
with respect thereto.

      23. Each reference that is made in the Credit and Security Agreement or
any other writing to the Credit and Security Agreement shall hereafter be
construed as a reference to the Credit and Security Agreement as amended hereby.
Except as herein otherwise specifically provided, all provisions of the Credit
and Security Agreement shall remain in full force and effect and be unaffected
hereby. This Second Amendment Agreement is a Related Writing as defined in the
Credit and Security Agreement.

      24. This Second Amendment Agreement may be executed in any number of
counterparts, by different parties hereto in separate counterparts and by
facsimile signature, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.

      25. The rights and obligations of all parties hereto shall be governed by
the laws of the State of Ohio, without regard to principles of conflicts of
laws.

            [The remainder of this page is intentionally left blank.]

                                       10
<PAGE>

      26. JURY TRIAL WAIVER. BORROWERS, AGENT AND EACH OF THE BANKS WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG BORROWERS, AGENT AND THE BANKS, OR ANY
THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT
IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY AGENT'S OR ANY BANK'S ABILITY
TO PURSUE REMEDIES PURSUANT TO ANY PROVISION CONTAINED IN ANY NOTE OR OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT AMONG BORROWERS, AGENT AND THE BANKS, OR ANY
THEREOF.

Address: 101 South Fifth Street               NATIONAL CITY BANK OF KENTUCKY,
         Louisville, Kentucky  40202          as Agent and as a Bank
         Attn: Deroy Scott
                                              By:_______________________________
                                              Title:____________________________

Address: 416 W. Jefferson Street, 2nd Floor   BANK ONE, KENTUCKY, N.A.,
         Louisville, Kentucky  40202          as Syndication Agent and as a Bank
         Attn: Thelma Ferguson
                                              By:_______________________________
                                              Title:____________________________

Address: 1 Financial Square                   U.S. BANK, NATIONAL ASSOCIATION,
         Louisville, Kentucky 40202-3322      as Documentation Agent and as a
         Attn: Toby Rau                       Bank

                                              By:_______________________________
                                              Title:____________________________

Address: 677 Washington Boulevard             UBS AG, Stamford Branch
         Stamford, Connecticut  06901
         Attn: Deborah Porter                 By:_______________________________
                                              Title:____________________________

                                              and by:___________________________
                                              Title:____________________________

Address: 745 Seventh Avenue                   LEHMAN COMMERCIAL PAPER INC.
         19th Floor
         New York, New York 10019
         Attn: Francis J. Chang               By:_______________________________
                                              Title:____________________________

                                       11
<PAGE>

Address: 10140 Linn Station Road              RES-CARE, INC.
         Louisville, Kentucky 40223-3813
         Attn:  L. Bryan Shaul                By:    ___________________________
                                                     L. Bryan Shaul
                                              Title: Executive Vice President of
                                                     Finance and Administration,
                                                     Chief Financial Officer &
                                                     Assistant Treasurer

ALTERNATIVE CHOICES, INC.
BALD EAGLE ENTERPRISES, INC.
CAPITAL TX INVESTMENTS, INC.
CATX PROPERTIES, INC.
CNC/ACCESS, INC.
COMMUNITY ADVANTAGE, INC.
COMMUNITY ALTERNATIVES ILLINOIS, INC.
COMMUNITY ALTERNATIVES INDIANA, INC.
COMMUNITY ALTERNATIVES KENTUCKY, INC.
COMMUNITY ALTERNATIVES MISSOURI, INC.
COMMUNITY ALTERNATIVES NEBRASKA, INC.
COMMUNITY ALTERNATIVES TEXAS PARTNER, INC.
COMMUNITY ALTERNATIVES VIRGINIA, INC.
EDUCARE COMMUNITY LIVING-TEXAS LIVING CENTERS, INC.
J. & J. CARE CENTERS, INC.
NORMAL LIFE, INC.
PEOPLESERVE, INC.
RAISE GEAUGA, INC.
RES-CARE ALABAMA, INC.
RES-CARE CALIFORNIA, INC. D/B/A RCCA SERVICES
RES-CARE ILLINOIS, INC.
RES-CARE KANSAS, INC.
RES-CARE NEW JERSEY, INC.
RES-CARE NEW MEXICO, INC.
RES-CARE OHIO, INC.
RES-CARE OKLAHOMA, INC.
RES-CARE OTHER OPTIONS, INC.
RES-CARE PREMIER, INC.
RES-CARE PREMIER CANADA, INC.
RES-CARE TENNESSEE, INC.
RES-CARE TRAINING TECHNOLOGIES, INC.
RES-CARE WASHINGTON, INC.
ROCKCREEK, INC.
RSCR CALIFORNIA, INC.
RSCR INLAND, INC.
RSCR WEST VIRGINIA, INC.
SOUTHERN HOME CARE SERVICES, INC.
TANGRAM REHABILITATION NETWORK, INC.
TEXAS HOME MANAGEMENT, INC.

                                       12
<PAGE>

THM HOMES, INC.
BRINKLEY GROUP HOMES, INC.
BAKER MANAGEMENT, INC.
BOLIVAR DEVELOPMENTAL TRAINING CENTER, INC.
BOLIVAR ESTATES, INC.
EBENEZER ESTATES, INC.
FORT MASON ESTATES, INC.
HILLSIDE ESTATES, INC.
HYDESBURG ESTATES, INC.
INDIVIDUALIZED SUPPORTED LIVING, INC.
MEADOW LANE ESTATES, INC.
MISSOURI PROGRESSIVE SERVICES, INC.
OAK WOOD SUITES OF BOLIVAR, INC.
OAKVIEW ESTATES OF BOLIVAR, INC.
PEBBLE CREEK ESTATES, INC.
RIVER BLUFF ESTATES, INC.
SHA-REE ESTATES, INC.
SKYVIEW ESTATES, INC.
UPWARD BOUND, INC.
WILLARD ESTATES, INC.
CAREERS IN PROGRESS, INC.
EDUCARE COMMUNITY LIVING-NORMAL LIFE, INC.
NORMAL LIFE OF CALIFORNIA, INC.
NORMAL LIFE OF CENTRAL INDIANA, INC.
NORMAL LIFE FAMILY SERVICES, INC.
NORMAL LIFE OF GEORGIA, INC.
NORMAL LIFE OF LAFAYETTE, INC.
NORMAL LIFE OF LAKE CHARLES, INC.
NORMAL LIFE OF LOUISIANA, INC.
NORMAL LIFE OF SOUTHERN INDIANA, INC.
RES-CARE FLORIDA, INC.
EDUCARE COMMUNITY LIVING CORPORATION-AMERICA
PSI HOLDINGS, INC.
VOCA CORPORATION OF AMERICA
VOCA RESIDENTAL SERVICES, INC.
B.W.J. OPPORTUNITY CENTERS, INC.
THE CITADEL GROUP, INC.
EDUCARE COMMUNITY LIVING CORPORATION-GULF COAST
EDUCARE COMMUNITY LIVING CORPORATION-MISSOURI
EDUCARE COMMUNITY LIVING CORPORATION-NEVADA
EDUCARE COMMUNITY LIVING CORPORATION-NEW MEXICO
EDUCARECOMMUNITY LIVING CORPORATION-NORTH CAROLINA
EDUCARE COMMUNITY LIVING CORPORATION-TEXAS
VOCA CORP.
VOCA CORPORATION OF FLORIDA
VOCA CORPORATION OF INDIANA
VOCA CORPORATION OF MARYLAND

                                       13
<PAGE>

VOCA CORPORATION OF NEW JERSEY
VOCA CORPORATION OF NORTH CAROLINA
VOCA CORPORATION OF OHIO
VOCA CORPORATION OF WASHINGTON, D.C.
VOCA CORPORATION OF WEST VIRGINIA, INC.

By: _____________________________________
       L. Bryan Shaul
Title: Assistant Treasurer

THE ACADEMY FOR INDIVIDUAL EXCELLENCE, INC.
ALTERNATIVE YOUTH SERVICES, INC.
RES-CARE AVIATION, INC.
GENERAL HEALTH CORPORATION
YOUTHTRACK, INC.
EMPLOY-ABILITY UNLIMITED, INC.

By: _____________________________________
       L. Bryan Shaul
Title: Treasurer

EDUCARE COMMUNITY LIVING LIMITED PARTNERSHIP
By:  Community Alternatives Texas Partner, Inc.
Its: General Partner

     By:_________________________________
            L. Bryan Shaul
     Title: Assistant Treasurer

                                       14
<PAGE>

NORMAL LIFE OF INDIANA
By:    Normal Life of Central Indiana, Inc.
       one of its General Partners

       By:_______________________________
               L. Bryan Shaul
       Title:  Assistant Treasurer

and

By:    Normal Life of Southern Indiana, Inc.
       the other General Partner

       By:_______________________________
               L. Bryan Shaul
       Title:  Assistant Treasurer

VOCA OF INDIANA, LLC, a limited liability company

By:______________________________________
       L. Bryan Shaul
Title: Assistant Treasurer

CREATIVE NETWORKS, LLC

By:______________________________________
       L. Bryan Shaul
Title: Manager

                                       15

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