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<SEC-DOCUMENT>0000315374-02-000002.txt : 20020414
<SEC-HEADER>0000315374-02-000002.hdr.sgml : 20020414
ACCESSION NUMBER:		0000315374-02-000002
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20011031
FILED AS OF DATE:		20020129

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			HURCO COMPANIES INC
		CENTRAL INDEX KEY:			0000315374
		STANDARD INDUSTRIAL CLASSIFICATION:	INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823]
		IRS NUMBER:				351150732
		STATE OF INCORPORATION:			IN
		FISCAL YEAR END:			1031

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-09143
		FILM NUMBER:		02520099

	BUSINESS ADDRESS:	
		STREET 1:		ONE TECHNOLOGY WAY
		CITY:			INDIANAPOLIS
		STATE:			IN
		ZIP:			46268
		BUSINESS PHONE:		3172935390

	MAIL ADDRESS:	
		STREET 1:		HURCO COMPANIES INC
		STREET 2:		ONE TECHNOLOGY WAY
		CITY:			INDIANAPOLIS
		STATE:			IN
		ZIP:			46268

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	HURCO MANUFACTURING CO INC
		DATE OF NAME CHANGE:	19850324
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>annual_10k.txt
<TEXT>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

  X   Annual report pursuant to section 13 or 15(d) of the Securities Exchange
      Act of 1934 [Fee Required] for the fiscal year ended October 31, 2001 or
      Transition report pursuant to section 13 or 15(d) of the Securities
      Exchange Act of 1934 [No Fee Required] for the transition period from
      _________ to _________.


Commission File No. 0-9143

                              HURCO COMPANIES, INC.
         (Exact name of registrant as specified in its charter)

               Indiana                                   35-1150732
- ----------------------------------------  -------------------------------------
       (State or other jurisdiction of    I.R.S. Employer Identification Number)
       incorporation or organization)

       One Technology Way
       Indianapolis, Indiana                               46268
- ----------------------------------------  --------------------------------------
(Address of principal executive offices)                (Zip code)

Registrant's telephone number, including area code              (317) 293-5309
                                                                --------------


Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
                                                            No Par Value
                                                            -------------------
                                                            (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X No

The aggregate market value of the Registrant's voting stock held by
non-affiliates as of December 3, 2001 was $12,556,481.

The number of shares of the Registrant's common stock outstanding as of December
3, 2001 was 5,580,658.

DOCUMENTS  INCORPORATED BY REFERENCE:  Portions of the Registrant's  Proxy
Statement for its 2002 Annual Meeting of Shareholders  (Part III).

Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   X
<PAGE>
                                     PART I

Item 1.  BUSINESS

General

Hurco Companies, Inc. is an industrial automation systems company. We design and
produce interactive, personal computer (PC) based, computer control systems and
software and computerized machine systems for sale through a worldwide sales,
service and distribution network. Our proprietary computer control systems and
software products are sold primarily as an integral component of our
computerized machine tool systems. We also sell certain computer control models
to machine system end-users and other machine system manufacturers who integrate
them with their own products.

We pioneered the application of microprocessor technology and conversational
programming software for application on machine tool system computer controls
and, since our founding in 1968, have been a leader in the introduction of
interactive computer control systems that automate manufacturing processes and
improve productivity in the metal parts manufacturing industry. We have
concentrated on designing "user-friendly" computer control systems that can be
operated by both skilled and unskilled machine tool operators and yet are
capable of instructing a machine to perform complex tasks. The combination of
microprocessor technology and patented interactive, conversational programming
software in our computer control systems enables operators on the production
floor to quickly and easily create a program for machining or forming a
particular part from a blueprint or computer-aided design (CAD) and immediately
begin production of that part.

Our executive offices and principal design, engineering, and manufacturing
management operations are headquartered in Indianapolis, Indiana. Sales,
application engineering and service offices are located in Indianapolis,
Indiana; Farmington Hills, High Wycombe, England; Munich, Germany; Paris,
France; Milan, Italy and Singapore. Distribution facilities are located in Long
Beach, California and Venlo, the Netherlands; a manufacturing facility is
located in Taichung, Taiwan.

Our strategy is to design, develop, produce and market a comprehensive line of
interactive computer controls, software and computerized machine systems using
our proprietary technology designed to enhance the user's productivity through
ease of operation and higher levels of machine performance (speed, accuracy and
surface finish quality). We market these systems to the worldwide metal parts
manufacturing market. We use an open systems software architecture that permits
our computer control systems and software to be used with standard PC hardware
and have emphasized an operator friendly design that employs both interactive
conversational and graphical programming software. We have a well-established
global contract manufacturing network that supplies the computerized machine
systems to our selling divisions.

Products

Our principal products consist primarily of computerized machine tool systems
(milling machines, machining centers and metal bending machines) into which our
proprietary software and computer control systems have been fully integrated. We
also produce computer control systems and related software for both metal
cutting and metal bending machine applications that are sold primarily as
retrofit control systems. In addition, we produce and distribute software
options, control upgrades, hardware accessories and replacement parts and
provide operator training and support services to our customers.
<PAGE>
The following table sets forth the contribution of each of these product groups
to our total sales and service fees during each of the past three fiscal years:
<TABLE>

                                                                  Year Ended October 31,
                                           ---------------------------------------------------------------------
(Dollars in thousands)                                2001                    2000                    1999
                                                      ----                    ----                    ----
<S>                                           <C>       <C>           <C>       <C>           <C>       <C>
Computerized Machine Systems............      $73,286   (79.4%)       $71,708   (74.5%)       $63,793   (72.3%)
Computer Control
  Systems and Software*.................        5,716    (6.2%)         9,605   (10.0%)        10,623   (12.0%)
Service Parts...........................        9,516   (10.3%)        10,649   (11.1%)         9,574   (10.9%)
Service Fees............................        3,749    (4.1%)         4,242    (4.4%)         4,248    (4.8%)
                                           ----------     -----     --------- ---------     -------------------
                                              $92,267  (100.0%)       $96,204  (100.0%)       $88,238  (100.0%)
                                              =======  ========       =======  ========       =======  ========
</TABLE>
* Amounts shown do not include computer control systems sold as an integrated
component of computerized machine systems.


<PAGE>
Computerized Machine Systems

Ultimax(R)  - Metal Cutting Applications

We design and market computerized machine tool systems which are equipped with a
fully integrated interactive Ultimax(R) computer control system. Our patented
Ultimax(R) twin screen "conversational" computer control system is sold solely
as a fully integrated feature of a Hurco computerized machine system. This
computer control system enables a machine operator to create complex
two-dimensional part programs directly from blue prints or CAD. Machine
operators with little or no programming experience can successfully program
parts and begin machining operations in a short time with minimal special
training. Since the initial introduction of the Ultimax(R) computer control, we
have added enhancements related to operator programming productivity, CAD
compatibility, data processing throughput and motion control speed and accuracy.
Our latest Ultimax(R) programming stations use a Pentium* processor featuring an
operator console with liquid crystal display screens and incorporate personal
computer (PC) platform components. This upgradeable computer control product
offers improved performance while ensuring access to the most cost effective
computing hardware and software technology available.

Our current line of Ultimax(R) metal cutting machine systems is a complete
family of products including milling machines with an x-axis travel of 30 and 40
inches and computerized machining centers with an x-axis travel of 24, 30, 40,
50 and 64 inches. These products provide different levels of performance
features for different market applications and range in price from $25,000 to
$165,000.

Dynapath(TM) - Metal Cutting Applications

Our Dynapath(TM) product line includes two computerized milling machines and two
turning machines featuring our fully integrated Delta(TM) computer control
systems. These products are designed for and marketed to the entry level market
segment. They provide different levels of performance features for different
market applications and range in price from $20,000 to $40,000.

Autobend(R) - Metal Bending Applications

We offer a line of up-acting computerized press brake machines for metal bending
applications that incorporate our Autobend(R) computer control system as well as
high performance down-acting computerized press brake systems with
technologically advanced features, for high-accuracy performance and improved
productivity which incorporates a third-party computer control system. In
addition, we sell American and European style precision-ground tooling products
which are sold either in conjunction with a computerized press brake system or
directly to end-users of such equipment. These products are sold in the North
American market by independent distributors and, in certain territories, by our
direct sales personnel. The products provide different levels of performance
features for different market applications and range in price from $30,000 to
$300,000.
- ----------
* Pentium is a registered trademark of the Intel Corporation
<PAGE>

Computer Control Systems and Software

The following computer control systems and software products are marketed
directly to end-users and or to original equipment manufacturers.

o    Delta(TM) Series

Our Delta(TM) series computer control systems, which feature Pentium*
microprocessor-based electronics incorporating industry standard computer
components, are designed for the entry level segment of the worldwide parts
manufacturing industry, and are used on milling machines, machining centers,
turning centers and punching equipment. The Delta(TM) computer control system is
based on industry standard point-to-point programming methodology but
incorporates software features that group industry standard commands into useful
part features, such as circles and frames, to simplify programming. The
Delta(TM) computer control system is designed and configured as a
general-purpose product, which offers flexibility, reliability and ease of
integration with a wide variety of machine designs. The Delta(TM) computer
control system is sold either as an integrated component of our Dynapath(TM)
machine system or through retro-fitters to end-users of a wide range of entry
level machine systems.

o    Autobend(R)

Autobend(R) computer control systems are applied to metal bending press brake
machines that form parts from sheet metal and steel plate and consist of a
microprocessor-based computer control and back gauge (an automated gauging
system that determines where the bend will be made). We have manufactured and
sold the Autobend(R) product line since 1968. We currently market two models of
our Autobend(R) computer control systems for press brake machines, in
combination with six different back gauges, through distributors to end-users as
retrofit units for installation on existing or new press brake machines, as well
as to original equipment manufacturers and importers of such equipment. The
Autobend(R) computer control system is also sold as a fully integrated feature
on our up-acting press brake machine systems.

o    CAM and Software Products

In addition to our computer control product lines, we offer metal cutting and
forming software products for programming two and three-dimensional parts. These
products are marketed to users of Ultimax(R) computer control systems. The
primary products in this line are WinMax(R), a Windows** based off-line
programming system, and a data file transfer (DXF) software option. The DXF
software option eliminates manual data entry of part features by transferring
AutoCAD(TM) drawing files directly into an Ultimax(R) computer control or the
off-line programming system software, substantially increasing operator
productivity. We have augmented our Autobend(R) product line with a
computer-aided manufacturing (CAM) software product, Autobend PC(R), that
enables the user to create and manipulate computer control compatible metal
bending programs on a personal computer.

UltiPro(TM) is a high performance machining software option for our
Pentium*-based Ultimax(R) computer control platform. The UltiPro(TM) software

- -------
* Pentium is a registered trademark of the Intel Corporation
** Windows is a registered trademark of the Microsoft Corporation.
<PAGE>

enables a customer to increase machine throughput by upgrading computer control
system performance with a high speed Pentium* CPU and advanced motion control
software. UltiNet(TM) is a networking software option for the Ultimax(R)
computer control used by our customers to transfer part design and manufacturing
information to computerized machine systems at high speeds and to network
computerized machine systems within a customer's manufacturing facility.

We also offer conversational part and tool dimension probing options for
Ultimax(R) based machines. These options permit the computerized dimensional
measurement of machined parts and the associated cutting tools. This
"on-machine" technique significantly improves the throughput of the measurement
process when compared to traditional "off-machine" approaches.

Parts and Service

Our global service organization provides installation, warranty, operator
training and customer support for our products worldwide. In the United States,
our principal distributors have primary responsibility for machine installation
and warranty service and support for new product sales only. We also service and
support a substantial installed base of existing customers. Our service
organization also sells software options, computer controls upgrades,
accessories and replacement parts for our products. Our after-sale parts and
service business helps strengthen our customer relationships and provides
continuous information concerning the evolving requirements of end-users.

Marketing and Distribution

We sell our products through approximately 258 independent agents and
distributors in 39 countries throughout North America, Europe and Asia. We also
have our own direct sales personnel in the United States, China, England,
France, Germany, Italy and Singapore, the world's principal computerized machine
tool system consuming countries. During fiscal 2001, no distributor accounted
for more than 5% of our sales and service fees. Approximately 80% of the
worldwide demand for computerized machine tool systems and computer control
systems comes from outside the U.S. In fiscal 2001, approximately 64% of our
revenues were from overseas customers.

The end-users of our products are precision tool, die and mold manufacturers,
independent metal parts manufacturers and specialized production groups within
large manufacturing corporations. Industries served include aerospace, defense,
medical equipment, energy, injection molding, transportation and computer
equipment.

Our computerized machine tool systems, along with related software options and
accessories, are sold primarily to end-users. We sell certain computer control
systems to original equipment manufacturers of new machine tools who integrate
them with their own products prior to the sale of those products to their own
customers, to retrofitters of used machine tools who integrate them with those
machines as part of the retrofitting operation and to end-users who have an
installed base of machine tools, either with or without related computer control
systems. During fiscal 2001, no single end-user of our products accounted for
more than 5% of our total sales and service fees.

We believe that advances in industrial technology and the related demand for
process improvements as well as capacity expansion drive the demand for
computerized machine systems and computer control systems.
<PAGE>
Factors affecting demand include:
o   the need to continuously improve productivity and shorten cycle time,
o   an aging installed base of machine tools that will require replacement with
    more advanced and efficient technology,
o   the rate of industrial development in emerging countries in Asia and Eastern
    Europe, and
o   the declining supply of skilled machinists,

However, the demand for computerized machine tool systems and related products
is highly dependent upon economic conditions and the general level of business
confidence, as well as such factors as production capacity utilization and
changes in governmental policies regarding tariffs, corporate taxation and other
investment incentives, and therefore, can be volatile. By marketing and
distributing our products on a worldwide basis, we seek to reduce the potential
impact on our total sales and service fees of adverse changes in economic
conditions in any particular geographic region.

Competition

We compete with many other companies in the United States and international
markets. Several of these competitors are larger and have greater financial
resources than we do. We strive to compete effectively by incorporating unique,
patented software and other proprietary features into our products that offer
enhanced productivity, superior technological capabilities and greater ease of
use. We offer our products in a range of prices and capabilities in order to
reach a broader potential market. We believe that our competitiveness is aided
by our reputation for reliability and quality, our strong international sales
and distribution organization and our extensive customer service organization.

In the United States and European metal cutting markets, major competitors
include Haas Automation,  Inc., Cincinnati Machine,  Deckel, Maho Gildemeister
Group (DMG),  Bridgeport  Machines,  Inc. and Fadal  Engineering along with a
large number of foreign  manufacturers including Okuma Machinery Works Ltd.,
Mori Seiki Co., Ltd.,  Masak and Matsuura  Machinery  Corporation.  The largest
competitors with respect to our computerized press brake systems for metal
bending applications include Amada America, Inc. and Trumpf.

Manufacturing

Our manufacturing strategy is based on the use of a global network of contract
suppliers who manufacture our products in accordance with our proprietary
designs, quality standards and cost specifications. This has enabled us to
achieve lower product costs and lower working capital per sales dollar and to
increase our worldwide manufacturing capacity without significant incremental
investment in capital equipment or personnel.

Our computerized metal cutting machine systems are manufactured to our
specifications by contractors in Taiwan, including our wholly owned subsidiary,
Hurco Manufacturing Limited, which we established in fiscal 2000. This
subsidiary has increased our overall capacity and reduced our dependence on
other Taiwan contract manufacturers. We also have a 24% ownership interest in
another primary contract manufacturer in Taiwan. We have worked closely with our
contract manufacturers to increase their production capacity to meet the rising
demand for our machine tool products and believe that such capacity is
sufficient to meet our current and projected demand. We are continuing to
consider additional contract manufacturing resources that will increase our
capacity; however, any significant reduction in capacity or performance
capability of our principal manufacturing contractors would have a material
adverse effect on our operations.
<PAGE>

We also have a contract manufacturing agreement for computer control systems
with a Taiwanese-based company in which we have a 35% ownership interest. This
company is manufacturing most of our computer control systems to our
specifications and supplies certain proprietary and standard components for use
in our domestic production. We believe that alternative sources for standard and
proprietary components are available.

Backlog

Our backlog consists of firm orders received from customers and distributors but
not shipped. Backlog was $9.1 million, $10.2 million and $8.5 million as of
October 31, 2001, 2000, and 1999, respectively.

Intellectual Property

We consider certain features of our products to be proprietary. We own, directly
or through a subsidiary, a number of patents that are significant to our
business. Our subsidiary, IMS Technology, Inc. (IMS), owns domestic and foreign
patents covering the machining method practiced when a machine tool is
integrated with an interactive computer control (these patents are collectively
referred to as the "Interactive Machining Patents"). We also hold a
non-exclusive license covering features of the automatic tool changer offered
with certain of our computer control machining centers. We also own a patent on
an object-oriented, open architecture methodology for computer control software,
as well as a patent for a manually operated apparatus for removal and insertion
of a machining tool from the machine.

Since 1995, IMS has actively pursued a program to stop infringement and license
the use of its interactive machining patents. During the past five fiscal years,
IMS has entered into agreements with approximately 40 computer control users
under which it has granted non-exclusive licenses of those patents. We recorded
license fee income of $700,000, $5.4 million and $300,000, net of legal fees and
expenses, in fiscal 2001, 2000, and 1999 respectively. In addition, IMS has
received a royalty-free non-exclusive license under six patents owned by two of
the licensees. There are only a limited number of remaining computer control
users that IMS has identified as potential licensees and we do not anticipate
that future license fee income will be significant.

Research and Development

Research and development expenditures for new products and significant product
improvements, included as period operating expenses, were $3.5 million, $3.2
million and $2.5 million in fiscal 2001, 2000, and 1999, respectively. In
addition, we recorded expenditures of $665,000 in 2001, $706,000 in 2000 and
$1.0 million in 1999 related to software development projects that were
capitalized.

Employees

We had approximately 250 employees at the end of fiscal 2001, none of whom are
covered by a collective-bargaining agreement or represented by a union. We have
experienced no employee-generated work stoppages or disruptions and we consider
our employee relations to be satisfactory.

Geographic Areas

Financial information about geographic areas is set forth in Note 14 to the
Consolidated Financial Statements.
<PAGE>

We are subject to the risks of doing business on a global basis, including
foreign currency fluctuation risks, changes in general economic and business
conditions in the countries and markets that we serve and government actions and
initiatives including import and export restrictions and tariffs.

<PAGE>

Item 2.  PROPERTIES
<TABLE>

The following table sets forth the location, size and principal use of each of
our facilities:

          Location                      Square Footage                            Principal Uses
<S>                                         <C>                      <C>
Indianapolis, Indiana                       165,000(1)               Corporate headquarters, design and
                                                                     engineering, product testing, computer control
                                                                     assembly, sales, application engineering and customer service

Farmington Hills, Michigan                   37,500(2)               Sales, application engineering and
                                                                     customer service

Long Beach, California                        3,000                  Warehouse and distribution

High Wycombe, England                        45,000(3)               Sales, application engineering and
                                                                     customer service

Paris, France                                 2,800                  Sales, application engineering and
                                                                     customer service

Munich, Germany                              17,100                  Sales, application engineering and
customer service

Milan, Italy                                  4,850                  Sales, application engineering and customer service

Singapore                                     3,000                  Sales, application engineering and
                                                                     customer service

Taichung, Taiwan                             26,600                  Manufacturing

- -----------------------------------------------------------------------------------------------------------------------------------
       (1)    Approximately 45,000 square feet is available for sublet.
       (2)    Approximately 24,000 square feet is under sublease through July 2002, the expiration date of the current lease.
       (3)    Approximately  24,000 square feet have been sublet to a subtenant  since 1995. The current lease expires in
              March 2002 at which time we expect to lease a new facility under acceptable
              terms near the location of our current facility.
</TABLE>

We own the Indianapolis facility and lease all other facilities. The leases have
terms expiring at various dates ranging from March 2002 to March 2006. We
believe that all of our facilities are well maintained and are adequate for our
needs now and in the foreseeable future. We do not believe that we would
experience any difficulty in replacing any of the present facilities if any of
our leases were not renewed at expiration.

Item 3.  LEGAL PROCEEDINGS

We are involved in various lawsuits arising in the normal course of business. We
believe that none of these suits is likely to have a material adverse effect on
our consolidated financial position or results of operations.

Item.  4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

<PAGE>

Executive Officers of the Registrant
<TABLE>

The following information sets forth as of December 31,2001, the name of each
executive officer, his age, tenure as an officer, principal occupation and
business experience for the last five years:

Name                               Age      Position(s) with the Company
<S>                                <C>      <C>
Michael Doar                       46       Chairman of the Board and Chief Executive Officer

James D. Fabris                    50       President and Chief Operating Officer

Roger J. Wolf                      61       Senior Vice President, Secretary, Treasurer and Chief Financial Officer

Bernard C. Faulkner                50       President - Hurco North America

David E. Platts                    49       Vice President, Technology and Business Development

Stephen J. Alesia                  35       Corporate Controller, Assistant Secretary
</TABLE>

Michael  Doar was  elected  Chairman  of the Board and Chief  Executive Officer
on November 14, 2001.  Mr. Doar had held various management positions with
Ingersoll Milling Machine Company from 1989 until 2001.  Mr. Doar has been a
director of Hurco since 2000.

James D. Fabris was elected President and Chief Operating Officer on November
14, 2001. Mr. Fabris served as Executive Vice President - Operations from
November 1997 until his current appointment and previously served as a Vice
President of Hurco since February 1995.

Roger J. Wolf has been Senior Vice President, Secretary, Treasurer and Chief
Financial Officer since January 1993.

David E. Platts has been employed by Hurco since 1982, and was elected Vice
President, Technology and Business Development in May 2000. Mr. Platts
previously served as Vice President of Research and Development since 1989.

Bernard C.  Faulkner  joined  Hurco in March 2000 and was  elected an executive
officer  in May 2000.  Prior to joining Hurco,  Mr. Faulkner was Vice President
and General Manager for the Industrial Products division of Flair  Corporation.
Mr. Faulkner was employed by the Flair Corporation for four years.

Stephen J. Alesia has been the Corporate Controller since joining Hurco in June
1996 and was elected an executive officer in September 1996. Prior to joining
Hurco, Mr. Alesia was employed for seven years by Arthur Andersen LLP, an
international public accounting firm.
<PAGE>

                                     PART II

Item 5.    MARKET FOR THE REGISTRANT'S EQUITY AND RELATED
           STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"HURC". The following table sets forth the high and low sales prices of the
shares of our common stock for the periods indicated, as reported by the Nasdaq
National Market:
<TABLE>

                                                               2001                             2000
                                                      ---------------------            ---------------------
         Fiscal Quarter Ended:                           High          Low                High          Low
         --------------------                           -------------------             --------------------
         <S>                                            <C>          <C>                 <C>          <C>
         January 31..............................       $3.875       $3.250              $4.125       $3.000
         April 30................................        4.188        3.150               5.875        3.188
         July 31.................................        3.660        2.150               4.750        3.625
         October 31..............................        2.990        2.080               4.813        3.375

</TABLE>

We do not currently pay dividends on our common stock and intend to continue to
retain earnings for working capital, capital expenditures and debt reduction.

There were 436 holders of record of our common stock as of December 3, 2001.
<PAGE>
Item 6.  SELECTED FINANCIAL DATA

The Selected Financial Data presented below have been derived from our
Consolidated Financial Statements for the years indicated and should be read in
conjunction with the Consolidated Financial Statements and related notes set
forth elsewhere herein.
<TABLE>
                                                          Year Ended October 31,
                                                 2001            2000          1999          1998         1997
                                          --------------------------------------------------------------------
Statement of Operations Data:                        (In thousands, except per share amounts)
   <S>                                     <C>             <C>            <C>           <C>            <C>
   Sales and service fees................  $    92,267     $    96,204    $   88,238    $   93,422     $  95,729

   Gross profit..........................  $    23,262     $    25,377    $   24,174    $   27,939     $  27,773

   Selling, general and adminis-
     trative expenses....................  $    24,040     $    23,538    $   21,259    $   21,786     $  21,047

   Restructuring charge (credit).........  $       143     $       300    $    (103)    $    1,162     $      --

   Operating income (loss)...............  $      (921)    $     1,539    $    3,018    $    4,991     $   6,726

   Interest expense......................  $       790     $       939    $    1,293    $      876     $   1,938

   License fee income and litigation
     settlement fees, net................  $       723     $     5,365    $      304    $    6,974     $  10,095

   Net income (loss).....................  $    (1,597)    $     5,035    $    1,802    $    9,254     $  13,804

   Earnings (loss)
     per common share-diluted............  $      (.28)    $       .84    $      .30    $     1.39     $    2.06

   Weighted average common
     shares outstanding-diluted..........       5,670            6,020         6,061         6,670         6,704
</TABLE>
<TABLE>
                                                               As of October 31,
                                               2001           2000             1999          1998         1997
                                         ---------------------------------------------------------------------
Balance Sheet Data:                                               (Dollars in thousands)
   <S>                                     <C>             <C>            <C>           <C>            <C>
   Current assets........................  $    49,510     $   49,195     $   52,856    $   55,143     $  42,222

   Current liabilities...................  $    18,217     $   23,124     $   19,580    $   25,794     $  19,370

   Working capital ......................  $    31,293     $   26,071     $   33,276    $   29,349     $  22,852

   Current ratio.........................          2.7            2.1            2.7           2.1           2.2

   Total assets..........................  $    66,217     $   65,024     $   69,632    $   71,696     $  58,748

   Long-term obligations.................  $    12,532     $    3,009     $   13,904    $    8,162     $   9,602

   Total debt............................  $    12,000     $    3,736     $   14,172    $    8,358     $  10,043

   Shareholders' equity..................  $    35,468     $   38,891     $   36,148    $   37,740     $  29,776

</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
        RESULTS OF OPERATIONS
- -------------------------------------------------------------
The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and Notes thereto
appearing elsewhere herein. Certain statements made in this report may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. These factors include, among others, changes in
general economic and business conditions that affect market demand for computer
control systems, machine tools and software products, changes in manufacturing
markets, planned inventory reductions, innovations by competitors, quality and
delivery performance by our contract manufacturers and governmental actions and
initiatives including import and export restrictions and tariffs.

Results of Operations

The following table presents, for the fiscal years indicated, selected items
from the Consolidated Statements of Operations expressed as a percentage of
worldwide sales and service fees and the year-to-year percentage changes in the
dollar amounts of those items.
<TABLE>
                                                  Percentage of Revenues             Year-to-Year % Change
                                                                                       Increase (Decrease)
                                               2001       2000        1999         01 vs. 00       00 vs. 99
                                               -----      -----       -----        ---------       ---------
   <S>                                         <C>        <C>         <C>            <C>            <C>
   Sales and service fees................      100.0%     100.0%      100.0%         (4.1%)          9.0%
   Gross profit..........................       25.2%      26.4%       27.4%         (8.3%)          5.0%
   Selling, general and
     administrative expenses.............       26.1%      24.5%       24.1%          2.1%          10.7%
   Operating income (loss)...............       (1.0%)      1.6%        3.4%          N.A            (49%)
   License fee income, net...............        0.8%       5.6%        0.3%          (87%)         1665%
   Interest expense......................        0.9%       0.9%        1.5%          (16%)          (27%)
   Net income (loss).....................       (1.7%)      5.2%        2.0%          N.A.           179%
</TABLE>

Fiscal 2001 Compared With Fiscal 2000

Net loss for the fiscal year ended October 31, 2001 was $1.6 million, or $.28
per share, on a diluted basis, compared to net income of $5.0 million, or $.84
per share, reported for the preceding year. The change in our year-to-year
results was due primarily to a significant decline in license fee income in
fiscal 2001 from that reported in fiscal 2000, and to a lesser extent, to a
decrease in sales.

Sales and service fees were $92.3 million, for fiscal 2001, a decrease of 4.1%
from the $96.2 million reported for fiscal 2000. The decline in sales was due in
major part to the adverse effects of a stronger U.S. dollar when translating
foreign sales for financial reporting purposes, and by a decrease in domestic
sales. When measured at constant exchange rates, sales for fiscal 2001 would
have been essentially the same as 2000. Domestic sales in fiscal 2001 declined
by $9.8 million, or 22.0%, as a result of a slowing economy in most industrial
sectors that began near the end of the first fiscal quarter, while sales in
Europe increased $8.8 million in spite of the strong dollar. Sales in Southeast
Asia declined by $3.0 million, or 54.1%, due to weak economic conditions in that
area during fiscal 2001.
<PAGE>

Net sales of computerized machine tool systems increased in fiscal 2001 by $4.8
million compared to the prior year when measured in constant dollars but was
offset by a $3.5 million decline in sales of stand-alone control systems. Net
sales of computerized machine systems in the U.S. declined 17% for the full
fiscal year 2001. In contrast, sales of computerized machine systems in Europe,
measured in constant dollars, increased 30% for the full year. Parts and service
fee revenues declined by $1.6 million, or 10.9%. The decrease was exclusively in
the United States and further reflects the weakening economic environment.

International sales, including export sales from the United States, approximated
64.3% of consolidated sales and service fees for fiscal 2001 compared to 57.5%
for fiscal 2000.

New order bookings for fiscal 2001 were $89.4 million, compared to $100.7
million for the prior year period, a decrease of 11.3%. Orders were $28.1
million in the first quarter of fiscal 2001 but declined to $21.1 million, $19.2
and $21.0 million second, third and fourth quarter, respectively. The decline in
orders from the first quarter is the result of weak economic conditions in most
industrial market sectors in the U.S. along with a softening in the German
economy. The decline in orders was most pronounced in the United States where
computerized machine system orders declined 30.4% in dollars. This was partially
offset by a 19% increase in computerized machine system orders in Europe,
measured in constant dollars. We have experienced a further decline in orders in
the first quarter of fiscal 2002 reflecting the recessionary environment in our
primary markets.  Backlog was $9.1 million at October 31, 2001, compared to
$10.2 million at October 31, 2000.

Gross profit margin declined in fiscal 2001 to 25.2% from 26.4% in fiscal 2000,
due primarily to the unfavorable effects of the stronger U.S. dollar.

Operating expenses increased 2.1% to $24.0 million in fiscal 2001 from $23.5
million in fiscal 2000, due primarily to increased costs for enhanced product
development activities associated with our next generation computer control
technology. The increased operating expense for the full fiscal year combined
with reduced sales and gross profit margins, resulted in an operating loss of
$921,000 for fiscal 2001 as compared to an operating profit of $1.5 million in
the prior year.

Restructuring expense of $143,000 in fiscal 2001 included a reversal of $328,000
primarily related to sub-letting space in a leased facility that was reserved as
part of a previous restructuring plan. In addition, a restructuring charge of
$471,000 was recorded for severance costs related reductions in our domestic
operations. In fiscal 2000, we recorded a restructuring charge of $300,000 for
severance costs related to the termination of employees at our Farmington Hills
facility in connection with the consolidation of this operation into our North
American sales and service business.

License fee income and litigation settlement fees in fiscal 2001 consisted of
several licenses that were granted during the year, while the substantial
license fees reported in fiscal 2000 were primarily the result of the settlement
of a long-standing patent infringement claim. The licensing program that
resulted in the license and litigation settlement fees has effectively been
completed and we do not expect significant license fees in fiscal 2002.
<PAGE>

Other expense in fiscal 2001 was $215,000 compared to $395,000 in fiscal 2000
and consisted primarily of typhoon-related flood damage at our manufacturing
facility in Taiwan of which our insurers have denied coverage. Fiscal 2000 other
expense consisted primarily of realized and unrealized currency losses
associated with accounts receivable denominated in foreign currencies, primarily
those linked to the Euro, which for the most part, were not hedged during fiscal
2000. In fiscal 2001, these accounts receivable were fully hedged.

The provision for foreign income tax in both fiscal 2001 and fiscal 2000
consists mostly of income tax expense related to the earnings of our foreign
subsidiaries.

Fiscal 2000 Compared With Fiscal 1999

Net income for the fiscal year ended October 31, 2000 was $5.0 million, or $.84
per share, on a diluted basis, compared to $1.8 million, or $.30 per share, for
the preceding year. Fiscal 2000 net income was due almost entirely to the
receipt in the fourth quarter of proceeds from a settlement of a long-standing
patent infringement claim.

Operating results for fiscal 2000, however, compared unfavorably to those for
the prior year, due to the substantial adverse impact of converting foreign
sales and costs, particularly those denominated in Euros, to U.S. dollars for
financial reporting purposes. Had exchange rates in fiscal 2000 remained the
same as the average rate in effect during fiscal 1999, income before taxes for
fiscal 2000 would have increased by approximately $3.5 million.

Sales and service fees were $96.2 million for fiscal 2000, an increase of 9.0%
from the $88.2 million reported for fiscal 1999. At constant exchange rates net
sales and service fees would have been approximately $102.2 million for the
fiscal year, an increase of 15.6% compared to the prior year.

The increase in sales and service fees was primarily driven by an increase in
sales of computerized machine systems. Sales of computerized machine systems
totaled $71.7 million in fiscal 2000 compared to $63.8 million in fiscal 1999, a
12.4% increase. Domestic sales of computerized machine systems in fiscal 2000
increased by $4.3 million, or 20.4%, due primarily to a 25% increase in units
shipped. Shipments of computerized machine systems in Europe also increased by
15.5%. Shipments of computerized machine systems in Southeast Asia also
benefited from significantly improved market conditions.

International sales, including export sales from the United States, approximated
57.5% of consolidated sales and service fees for fiscal 2000 compared to 58.4%
for fiscal 1999.

New order bookings for fiscal 2000 were $100.7 million compared to $89.9 million
for fiscal 1999, an increase of 12%. Orders for computerized machine systems
increased $11.2 million reflecting a 30% increase in unit orders. Unit orders
for machine systems in the U.S. increased 40% over fiscal 1999 as a result of a
very strong fourth quarter, which reflected favorable acceptance of our new
products introduced at the biennial International Manufacturing Technology Show
(IMTS) in September 2000, along with improved market conditions. Outside of the
United States, orders for machine systems increased 23% due principally to
increased market penetration in continental Europe and Southeast Asia. Orders in
Southeast Asia also benefited from significantly improved market conditions.
Backlog was $10.2 million at October 31, 2000, compared to $8.5 million at the
end of fiscal 1999.
<PAGE>

Gross profit margin, as a percentage of sales, declined in fiscal 2000 to 26.4%
from 27.4% in fiscal 1999, due primarily to the unfavorable effects of the
stronger U.S. dollar particularly in relationship to the Euro. The unfavorable
effect was most pronounced in the fourth fiscal quarter.

Operating expenses increased to $23.5 million in fiscal 2000 from $21.3 million
in fiscal 1999, due primarily to product development costs associated with the
our new line of computerized machine systems as well as costs associated with
expanded sales and marketing activities. The increased operating expenses,
combined with the adverse margin impact of the strong U.S. dollar, resulted in a
decrease in operating profit from $3.0 million in fiscal 1999 to $1.5 million in
fiscal 2000.

In the fourth quarter of fiscal 2000, we recorded a restructuring charge of
$300,000 for severance costs related to the termination of employees at our
subsidiary, Autocon Technologies, Inc. in connection with the completion of the
consolidation of this operation into our North American sales and service
business. Fourteen employees received notice that their position would be
eliminated in fiscal 2001.

Interest expense for fiscal 2000 declined by $354,000, or 27.4%, from the level
in fiscal 1999, primarily due to the significant reduction in our outstanding
borrowings.

Other expense was $359,000 in fiscal 2000 compared to other income of $25,000 in
fiscal 1999. The increase is primarily the result of realized and unrealized
currency losses associated with accounts receivable denominated in foreign
currencies, primarily those linked to the Euro, which for the most part, were
not hedged during fiscal 2000.

The provision for income taxes of $571,000 in fiscal 2000 is primarily related
to the earnings of a foreign subsidiary as well as to the settlement of a
previously disclosed German tax issue for approximately $275,000.

Domestic net operating loss carryforwards were substantially utilized in fiscal
2000. We would have recorded an additional tax provision of approximately $1.9
million in fiscal 2000 without the benefit of net operating loss carryforwards.
Note 6 to the Consolidated Financial Statements contains more information with
respect to our net operating loss carryforwards.

EURO Currency

Many of the countries in which we sell our products and services are Member
States of the Economic and Monetary Union (EMU). Beginning January 1, 1999,
Member States of the EMU were permitted to begin trading in either their local
currencies or the Euro, the official currency of EMU participating Member
States. Effective January 1, 2002, the Euro replaced the national currencies of
the participating Member States. We have not incurred and do not anticipate
incurring any material adverse effects on our operations related to the Euro.
<PAGE>
Foreign Currency Risk Management

We manage our foreign currency exposure through the use of foreign currency
forward exchange contracts. We enter into foreign currency forward exchange
contracts periodically to hedge certain forecasted inter-company sales and
forecasted inter-company and third-party purchases denominated in foreign
currencies (primarily the Pound Sterling, Euro and New Taiwan Dollar). We also
enter into foreign currency forward exchange contracts to protect against the
effects of foreign currency fluctuations on receivables and payables denominated
in foreign currencies. We do not speculate in the financial markets and,
therefore, do not enter into these contracts for trading purposes. We also
moderate our currency risk related to significant purchase commitments with
certain foreign vendors through price adjustment agreements that provide for a
sharing of, or otherwise limit, the risk of currency fluctuations on the costs
of purchased products. Note 1 to the Consolidated Financial Statements has more
information on this subject.

Liquidity and Capital Resources

At October 31, 2001, we had cash and cash equivalents of $3.5 million compared
to $3.4 million at October 31, 2000. Cash used for operations totaled $3.5
million in fiscal 2001, compared to cash provided by operations of $12.9 million
in fiscal 2000. Cash flow from operations in fiscal 2000 was enhanced by license
fee receipts of approximately $5.4 million, net of related legal fees and
expenses.

Working capital, excluding short-term debt, was $31.5 million at October 31,
2001, compared to $28.1 million at October 31, 2000. The increase in working
capital is attributable to an increase in inventory of $4.0 million and a
decrease in accounts payable of $3.5 million offset by a $3.1 million decrease
in accounts receivable. The increase in inventory related primarily to increased
units of finished product available for sale, because shipments during the year
to customers in the U.S. and Southeast Asia markets were below planned levels.
We have adjusted our production schedules, which began to take effect in the
fourth fiscal quarter of 2001. Accordingly, we expect a reduction in inventory
and operating working capital during fiscal 2002.

Capital investments during the year consisted of expenditures for software
development projects and purchases of equipment. Investments also included
$672,000 for a secured loan to a software company as more fully described in
Note 17. During fiscal 2001, we repurchased 391,101 shares of our common stock
for $1.7 million. We funded these expenditures and our other cash needs with
borrowings under our bank credit facility.

Effective October 31, 2001, we entered into an amended and restated credit
agreement, maturing December 31, 2002. The restated credit agreement provides
for increased interest rates during the second half of fiscal 2002 of one to one
and one half percentage points more than those called for by the prior credit
agreement, as well as a facility fee of up to $150,000 if we have not reduced
the commitment by $7.5 million at May 1, 2002 or replaced the facility by August
1, 2002. The restated credit agreement provides the bank lender with a security
interest in substantially all of our domestic assets and 67% of the common stock
of our U.S. holding companies which own our foreign subsidiaries. Also, as
discussed in Note 4, we are in discussion with other lenders for long-term
replacement credit facilities, and while we believe that we will be able to
obtain replacement facilities in fiscal 2002 under acceptable terms, no such
assurance can be given.
<PAGE>

The financial covenants included in the restated credit agreement require us to
maintain a specified working capital base, meet quarterly net worth and EBITDA
(earnings before interest, taxes, depreciation, and amortization) requirements
and impose a maximum leverage ratio and restrict our capital expenditures.

Total debt at October 31, 2001 was $12.0 million, representing 25% of total
capitalization, compared to $3.7 million, or 9% of total capitalization, at
October 31, 2000. We were in compliance with all loan covenants, and had an
additional credit availability of $9.2 million at October 31, 2001.

Based on our business plan for fiscal 2002, which include planned reductions of
operating expenses and working capital, we believe that cash flow generated from
operations and borrowings available to us under our restated credit agreement
will be sufficient to meet our anticipated cash requirements in fiscal 2002.
Although, we believe that the assumptions underlying our 2002 business plan are
reasonable there are risks related to further declines in market demand and
reduced sales in the U.S. and Europe, adverse currency movements, realization of
anticipated cost reductions and cash realized from planned inventory reductions,
that could cause our actual results to differ from our business plan.  During
the first quarter of fiscal 2002, order rates have deteriorated further, both
in the U.S. and Europe.  Should these below plan order rates continue into our
second fiscal quarter, we are prepared to take additional cost cutting actions.
Although we anticipate continued operating losses in our first fiscal quarter,
we expect to reduce outstanding borrowings at January 31, 2002 compared to
October 31, 2001, due to planned working capital reductions.

On January 8, 2002, our German subsidiary obtained a 3.0 million Euro working
capital credit facility that is available through December 31, 2002. As a
result, our domestic credit facility was reduced by $2.7 million to $19.8
million.

New Accounting Pronouncements

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. (SAB) 101, "Revenue Recognition." This bulletin
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition. We adopted SAB 101 in Fiscal 2001 and the impact on our
financial statements was immaterial.

In June 2001, the Financial Accounting Standards Board issued statement No. 141,
Business Combinations (FAS 141) and statement No. 142, Goodwill and Other
Intangible Assets (FAS 142). FAS 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting. Under FAS 142, amortization of goodwill will cease and the goodwill
carrying values will be tested periodically for impairment. We are required to
adopt FAS 142 effective November 1, 2002 for goodwill and intangible assets
acquired prior to July 1, 2001. Goodwill and intangible assets acquired after
June 30, 2001 will be subject immediately to the goodwill non-amortization and
intangible provisions of this statement. The impact on our financial statements
will be immaterial.

In August 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144),
which is effective for the fiscal year beginning November 1, 2002. FAS 144
establishes a single model to account for impairment of assets to be held or
disposed, incorporating guidelines for accounting and disclosure of discontinued
operations. We believe the impact on our financial statements will be
immaterial.
<PAGE>
Item 7A.  Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Risk

Our earnings are effected by changes in interest expense on our outstanding
debt, all of which is subject to floating rates, either LIBOR or prime. If
interest rates on our outstanding borrowings during each of the last two fiscal
years were to have increased by one percentage point (1%) (or 100 basis points)
over the actual rates that we paid in that year, our interest expense would have
increased by approximately $110,000 in fiscal 2001 and approximately $90,000 in
fiscal 2000. See Note 4 of the Consolidated Financial Statements for a
discussion of the interest rates under our restated credit agreement. At October
31, 2001, outstanding borrowings under our bank credit facilities were $11.2
million and our total indebtedness was $12.0 million.

Foreign Currency Exchange Risk

In fiscal 2001, approximately 64.3% of our sales and service fees, including
export sales, were derived from foreign markets. All of our computerized machine
systems and computer control systems, as well as certain proprietary service
parts, are sourced by our U.S.-based engineering and manufacturing division and
re-invoiced to our foreign sales and service subsidiaries, primarily in their
functional currencies.

Our products are sourced from foreign suppliers or built to our specifications
by either our wholly owned subsidiary in Taiwan, or contract manufacturers
overseas. These purchases are predominantly in foreign currencies and in many
cases our arrangements with these suppliers include foreign currency risk
sharing agreements, which reduce (but do not eliminate) the effects of currency
fluctuations on product costs. The predominant portion of our exchange rate risk
associated with product purchases relates to the New Taiwan Dollar.

We enter into foreign currency forward exchange from time to time to hedge the
cash flow risk related to forecasted inter-company sales, and forecasted
inter-company and third party purchases denominated in, or based on, foreign
currencies. We also enter into foreign currency forward exchange contracts to
protect against the effects of foreign currency fluctuations on receivables and
payables denominated in foreign currencies. We do not speculate in the financial
markets and, therefore, do not enter into these contracts for trading purposes.
<PAGE>

Forward contracts for the sale or purchase of foreign currencies as of October
31, 2001 which are designated as cash flow hedges under SFAS No. 133 were as
follows:
<TABLE>

                                                       Weighted
                                Notional Amount          Avg.       Contract Amount at Forward Rates
           Forward                 in Foreign          Forward                     in
          Contracts                 Currency             Rate                 U.S. Dollars
          ---------                 --------             ----                 ------------
                                                                       Contract                               Maturity
                                                                         Date        October 31, 2001          Dates
                                                                         ----        ----------------          -----
   Sale Contracts:
   <S>                              <C>                 <C>           <C>               <C>              <C>
   Euro                             3,500,000           $ .8924       $3,123,400        $3,144,023       Nov 2001-Jan 2002

   Sterling                           400,000           $1.4521         $580,840          $578,870       Nov 2001-Jan 2002

   Purchase Contracts:

   New Taiwan Dollar               45,000,000           34.25*        $1,314,000        $1,304,310       Nov 2001-Jan 2002

*  NT Dollars per U.S. dollars
</TABLE>


Forward contracts for the sale of foreign currencies as of October 31, 2001
which were entered into to protect against the effects of foreign currency
fluctuations on receivables and payables denominated in foreign currencies were
as follows:
<TABLE>
                                                     Weighted
                              Notional Amount          Avg.        Contract Amount at Forward Rates
        Forward                 in Foreign            Forward                     in
       Contracts                 Currency              Rate                  U.S. Dollars
       ---------                 --------              ----                  ------------
                                                                     Contract                                Maturity
                                                                     ---------
                                                                       Date        October 31, 2001           Dates
                                                                       ----       -----------------           -----
Sale Contracts:
<S>                              <C>                  <C>              <C>                <C>             <C>
Euro                             9,105,196            $ .9034          $8,225,634         $8,187,658      Nov - Dec 2001

Singapore Dollar                 2,415,675            $ .5557          $1,342,391         $1,326,977      Nov 2001 -Jan 2002


</TABLE>
<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                    Report of Independent Public Accountants

To the Shareholders and
Board of Directors of
Hurco Companies, Inc.:

We have audited the accompanying consolidated balance sheets of Hurco Companies,
Inc. (an Indiana corporation) and subsidiaries as of October 31, 2001 and 2000,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended October
31, 2001. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hurco Companies,
Inc. and subsidiaries as of October 31, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended October 31, 2001, in conformity with accounting principles
generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a) 2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.






                                                       ARTHUR ANDERSEN LLP


Indianapolis, Indiana,
January 15, 2002.

<PAGE>
                              HURCO COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>

                                                                                 Year Ended October 31,
                                                                                 ----------------------
                                                                         2001              2000             1999
                                                                         ----              ----             ----
                                                                    (Dollars in thousands, except per share amounts)
<S>                                                                  <C>                 <C>            <C>
Sales and service fees........................................       $ 92,267            $96,204        $ 88,238

Cost of sales and service ....................................         69,005             70,827          64,064
                                                                     --------         ----------        --------

     Gross profit.............................................         23,262             25,377          24,174

Selling, general and administrative expenses..................         24,040             23,538          21,259

Restructuring charge (credit) (Note 15).......................            143               300             (103)
                                                                     ---------        ----------        -------

     Operating income (loss)..................................           (921)            1,539            3,018

License fee income and litigation settlement fees, net
     (Note 10 and 12).........................................            723             5,365              304

Interest expense..............................................            790               939            1,293

Earnings from equity investments..............................            383                36              192

Other expense, net............................................            215               395              167
                                                                     ---------        ----------        ---------

     Income (loss) before income taxes........................           (820)            5,606            2,054

Provision for income taxes (Note 6)...........................            777               571              252
                                                                     ---------        ----------        ----------

Net income (loss) ............................................       $ (1,597)        $   5,035         $  1,802
                                                                     =========        =========         ========


Earnings (loss) per common share - basic......................       $   (.28)             $.85             $.30
                                                                     =========             ====             ====

Weighted average common shares outstanding - basic............          5,670             5,952            5,980
                                                                     ========          =========         ========

Earnings (loss) per common share - diluted....................       $   (.28)             $.84            $.30
                                                                     =========             ====            =====

Weighted average common shares outstanding - diluted..........          5,670             6,020            6,061
                                                                     ========           =======           ======
</TABLE>

The accompanying notes are an integral part of the
Consolidated Financial Statements.
<PAGE><TABLE>
                                HURCO COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                                                                          As of October 31,
                                  ASSETS                                                2001           2000
                                                                                        ----           ----
                                                                  (Dollars in thousands, except per share amounts)
<S>                                                                                <C>            <C>
Current assets:
   Cash and cash equivalents.....................................................  $   3,523      $   3,384
   Accounts receivable, less allowance for doubtful accounts
    of $907 in 2001 and $741 in 2000.............................................     14,436         17,842
   Inventories ..................................................................     30,319         26,176
   Other.........................................................................      1,232          1,793
                                                                                   ---------      ---------
     Total current assets........................................................     49,510         49,195
Property and equipment:
   Land..........................................................................        761            761
   Building......................................................................      7,187          7,162
   Machinery and equipment.......................................................     11,410         11,000
   Leasehold improvements........................................................      1,059            992
                                                                                   ---------        -------
                                                                                      20,417         19,915
   Less accumulated depreciation and amortization................................    (11,653)       (11,122)
                                                                                   ---------        --------
                                                                                       8,764          8,793
Software development costs, less accumulated amortization........................      3,066          3,326
Investments and other assets.....................................................      4,877          3,710
                                                                                   ---------      ---------
                                                                                   $  66,217      $  65,024
                                                                                   ---------      ---------
                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable..............................................................  $   7,601      $  10,896
   Accounts payable-related parties..............................................      2,335          2,697
   Accrued expenses and other....................................................      7,289          6,714
   Accrued warranty expenses.....................................................        792            831
   Current portion of long-term debt.............................................        200          1,986
                                                                                   ---------      ---------
     Total current liabilities...................................................     18,217         23,124
Non-current liabilities:
   Long-term debt ...............................................................     11,800          1,750
   Deferred credits and other ...................................................        732          1,259
                                                                                   ---------      ---------
                                                                                      12,532          3,009
Commitments and contingencies (Notes 10 and 11)
Shareholders' equity:
   Preferred stock: no par value per share; 1,000,000 shares
     authorized; no shares issued................................................         --             --
   Common stock: no par value; $.10 stated value per share; 12,500,000
     shares authorized; 5,580,658 and 5,955,359 shares issued and
     outstanding in 2001 and 2000, respectively..................................        558            596
   Additional paid-in capital....................................................     44,714         46,347
   Accumulated deficit...........................................................     (1,910)          (313)
   Accumulated other comprehensive income........................................     (7,894)        (7,739)
                                                                                   ----------     ---------
     Total shareholders' equity..................................................     35,468         38,891
                                                                                   ---------      ---------
                                                                                   $  66,217      $  65,024
                                                                                   =========      =========
The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
<PAGE><TABLE>

                                                 HURCO COMPANIES, INC.
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS


Year Ended October 31,
                                                                                    2001         2000          1999
(Dollars in thousands)                                                              ----         ----          ----
<S>                                                                             <C>           <C>         <C>
Cash flows from operating activities:
   Net income .............................................................     $ (1,597)     $ 5,035     $   1,802
   Adjustments to reconcile net income to
   net cash provided by (used for) operating activities:
     Provision for doubtful accounts.......................................          547          185           231
     Equity in income of affiliates........................................         (383)         (36)         (192)
     Depreciation and amortization.........................................        2,196        2,519         2,428
     Restructuring charge (credit) ........................................         (195)         300          (103)
     Change in assets/liabilities
      (Increase) decrease in accounts receivable...........................        3,113       (2,286)          743
      (Increase) decrease in inventories...................................       (4,018)       2,717           801
      Increase (decrease) in accounts payable..............................       (3,521)       2,917        (4,825)
      Increase (decrease) in accrued expenses..............................          558        1,023          (928)
      Other................................................................         (182)         476          (784)
                                                                                -----------   ----------    ----------
         Net cash provided by (used for) operating activities..............       (3,482)      12,850          (827)
                                                                                -----------   ----------    ----------
Cash flows from investing activities:
   Proceeds from sale of equipment.........................................           38           36            69
   Purchase of property and equipment......................................       (1,253)      (1,193        (1,176)
   Software development costs..............................................         (665)        (706)         (981)
   Other investments.......................................................         (829)        (138)         (288)
                                                                                -----------   ----------    ----------
         Net cash (used for) investing activities..........................       (2,709)      (2,001)        (2,376)
                                                                                -----------   ----------    ----------
Cash flows from financing activities:
   Advances on bank credit facilities......................................       44,300       28,500         61,920
   Repayments of bank credit facilities....................................      (34,050)     (37,150)       (54,320)
   Repayments of term debt.................................................       (1,986)      (1,786)        (1,786)
   Proceeds from exercise of common stock options..........................           35            8             18
   Repurchase of common stock................................................     (1,706)          --         (2,379)
                                                                                --------     --------       ---------
         Net cash provided by (used for) financing activities..............        6,593      (10,428)        3,453
                                                                                --------     ---------      ---------

Effect of exchange rate changes on cash....................................         (263)        (532)          (31)
                                                                                -----------   ----------    --------
         Net increase (decrease) in cash...................................          139         (111)          219

Cash and cash equivalents at beginning of year.............................        3,384        3,495         3,276
                                                                                --------     --------       --------
Cash and cash equivalents at end of year...................................       $3,523       $3,384        $3,495
                                                                                  ======      ========      =======

Supplemental disclosures:
   Cash paid for:
      Interest.............................................................     $    682     $    834     $   1,016
      Income taxes.........................................................     $    501     $    739     $   1,003
The accompanying notes are an integral part of the Consolidated Finacial Statements.
</TABLE>
<PAGE>

                                        HURCO COMPANIES, INC.
                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>

                                                                                                              Accumulated
                                                                   Common Stock                                  Other
                                                         -----------------------     Additional               Comprehensive
                                                         Shares Issued                Paid-In    Accumulated     Income
(Dollars in thousands)                                   & Outstanding    Amount      Capital       Deficit      (loss)       Total
<S>                                                         <C>           <C>        <C>          <C>          <C>          <C>
Balances, October 31, 1998...........................       6,340,111     $  634     $  48,662    $(7,150)     $(4,406)     $37,740
                                                           ----------      -----      --------     --------     --------      ------

Net income...........................................              --         --            --      1,802         --          1,802

Translation of foreign currency financial
   statements........................................              --         --            --         --       (1,033)      (1,033)
                                                                                                                             -------
Comprehensive Income.................................                                                                           769

Exercise of common stock options.....................           7,500          1            17         --          --            18

Repurchase of common stock...........................        (395,752)       (40)       (2,339)        --          --        (2,379)
                                                           ----------     -------       -------     -------      -------    --------

Balances, October 31, 1999...........................       5,951,859     $  595      $46,340     $(5,348)        $(5,439)  $36,148
                                                           ----------     ------      -------     --------        --------  --------
Net income...........................................             --         --            --        5,035            --      5,035

Translation of foreign currency financial
   statements........................................              --         --            --           --        (2,300)   (2,300)
                                                                                                                             -------
Comprehensive Income.................................                                                                         2,735

Exercise of common stock options.....................           3,500          1             7           --            --         8
                                                              ---------    -------      --------   ----------    -------   --------

Balances, October 31, 2000..............................    5,955,359    $   596       $46,347       $(313)       $(7,739)  $38,891
                                                             =========    =======     =========      ======       =======   ========

Net income (loss)....................................              --         --            --      (1,597)            --    (1,597)

Translation of foreign currency financial
   statements........................................              --         --            --           --           315       315
Unrealized loss of derivative instruments............              --         --            --           --          (470)     (470)
                                                                                                                             -------
Comprehensive Income.................................                                                                        (1,752)

Exercise of common stock options.....................          16,400          1             34          --            --        35
Repurchase of common stock...........................        (391,101)       (39)        (1,667)         --            --    (1,706)
                                                             ---------       ----        -------        -----        ------  -------

Balances, October 31, 2001..............................    5,580,658    $   558      $  44,714      $(1,910)     $(7,894)  $35,468
                                                            =========      ======      =========      ========    ========  ========

The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
<PAGE>
                              HURCO COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation. The consolidated financial statements include the accounts of
Hurco Companies, Inc. (an Indiana corporation) and our wholly owned and
controlled subsidiaries. We have a 35% and 24% ownership interest in two
affiliates accounted for using the equity method. Our combined investments are
approximately $1.6 million and are included in Other Assets on the accompanying
Consolidated Balance Sheets. Intercompany accounts and transactions have been
eliminated.

Statements of Cash Flows. We consider all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. Cash flows from
hedges are classified consistent with the items being hedged.

Translation of Foreign Currencies. All balance sheet accounts of non-U.S.
subsidiaries are translated at the exchange rate as of the end of the year.
Income and expenses are translated at the average exchange rates during the
year. Foreign currency translation adjustments of $7.4 million are included in
Accumulated Other Comprehensive Income in shareholders' equity. Foreign currency
transaction gains and losses are recorded as income or expense as incurred.

Hedging. On November 1, 2000, we adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In accordance with the provisions of SFAS No. 133, we recorded a
transition adjustment upon the adoption of the standard to recognize the
difference between the fair value of the derivative instruments recorded on the
balance sheet and the previous carrying amount of those derivatives. The effect
of this transition adjustment was insignificant and is reflected in the Other
Income (Expense) in the Condensed Consolidated Statement of Operations. We also
recorded a transition adjustment of approximately $129,000 in Accumulated Other
Comprehensive Income to recognize previously deferred net losses on derivatives
designated as cash flow hedges.

We enter into foreign currency forward exchange contracts periodically to hedge
certain forecasted inter-company sales and forecasted inter-company and
third-party purchases denominated in foreign currencies (primarily the Pound
Sterling, Euro and New Taiwan Dollar). The purpose of these instruments is to
mitigate the risk that the U.S. Dollar net cash inflows and outflows resulting
from sales and purchases denominated in foreign currencies will be adversely
affected by changes in exchange rates. These forward contracts have been
designated as cash flow hedge instruments, and are recorded in the Consolidated
Balance Sheet at fair value in Other Current Assets and Accrued Liabilities and
Other. Gains and losses resulting from changes in the fair value of these hedge
contracts are deferred in Accumulated Other Comprehensive Income and recognized
as an adjustment to the related sale or purchase transaction in the period that
the transaction occurs. Net losses on cash flow hedge contracts which we
reclassified from Other Comprehensive Income to Cost of Sales in the fiscal year
ended October 31, 2001 were $261,000.

At October 31, 2001 we had $470,000 of unrealized losses related to cash flow
hedges deferred in Other Comprehensive Income, which we expect to recognize in
Cost of Sales within the next twelve months. Cash flow hedge contracts mature at
various dates through January 2002.
<PAGE>

We also enter into foreign currency forward exchange contracts to protect
against the effects of foreign currency fluctuations on receivables and payables
denominated in foreign currencies. These derivative instruments are not
designated as hedges under SFAS 133 and as a result, changes in fair value are
reported currently as Other Income (Expense) in the Consolidated Statement of
Operations consistent with the transaction gain or (loss) on the related foreign

<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

denominated receivable or payable. Such net transaction gains and (losses) were
($50,000), ($638,000) and ($48,000) for the years ended October 31, 2001, 2000,
and 1999, respectively.

Inventories.  Inventories are stated at the lower of cost or market, with cost
determined using the first-in, first-out method.

Property and Equipment. Property and equipment are carried at cost. Depreciation
and amortization of assets are provided primarily under the straight-line method
over the shorter of the estimated useful lives or the lease terms as follows:
                                                           Number of Years
                  Building                                       40
                  Machines                                       10
                  Shop and office equipment                       5
                  Leasehold improvements                          5

Revenue Recognition. We recognize revenue at the time of shipment because title
and risk of loss passes to the customer at that time and payment terms are
fixed. Our computerized machine systems are general-purpose computer control
machine tools that are typically used in stand-alone operations. We do not
utilize contractual customer acceptance arrangements in connection with any
sales transactions. Prior to shipment, we test each machine to ensure the
machine's compliance with standard operating specifications as listed in our
sales literature.

Depending upon geographic location, the machine installation at the end user may
be completed by a distributor, independent contractor or Hurco service
technician. In most instances where a machine is sold through a distributor, we
have no installation involvement. If sales are direct or through sales agents,
we will typically complete the machine installation. The machine installation
consists of the reassembly of certain parts that were removed for shipping and
the re-testing of the machine to ensure that it is performing with the standard
specifications. We consider the machine installation process inconsequential and
perfunctory.

Service fees from maintenance contracts are deferred and recognized in earnings
on a pro rata basis over the period of the agreement. Sales related to software
products are recognized when shipped in conformity with American Institute of
Certified Public Accountants' Statement of Position 97-2 Software Revenue
Recognition.

License Fee Income, Net. From time to time, our wholly owned subsidiary, IMS
Technology, Inc. (IMS) enters into agreements for the licensing of its
interactive computer control patents. License fees received or receivable under
a fully paid-up license, for which there are no future performance requirements
or contingencies and litigation settlement fees, are recognized in income, net
of legal fees and expenses, if any, at the time the related agreement is
executed. License fees received in periodic installments that are contingent
upon the continuing validity of a licensed patent were recognized in income, net
of legal fees and expenses, if any, over the life of the licensed patent, which
expired in October 2001. As a result, we have no deferred license fee income at
October 31, 2001.

Product Warranty.  Expected future product warranty expense is recorded when
the product is sold.
<PAGE>

Research and Development Costs. The costs associated with research and
development programs for new products and significant product improvements are
expensed as incurred and included in selling, general and administrative
expenses. Research and development expenses totaled $3.5 million, $3.2 million
and $2.5 million in fiscal 2001, 2000, and 1999, respectively.

<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Costs incurred to develop computer software products and significant
enhancements to software features of existing products to be sold or otherwise
marketed are capitalized, after technological feasibility is established.
Software development costs are amortized to Cost of Sales on a straight-line
basis over the estimated product life of the related software, which ranges from
three to five years. We capitalized $665,000 in 2001, $706,000 in 2000 and $1.0
million in 1999 related to software development projects. Amortization expense
was $925,000, $1.3 million and $1.3 million for the years ended October 31,
2001, 2000, and 1999, respectively.

Earnings Per Share. Earnings per share of common stock are based on the weighted
average number of common shares outstanding, which, for diluted purposes,
includes the effects of outstanding stock options computed using the treasury
method. For the year ended October 31, 2001, no effect was given to outstanding
options because of their antidilutive effect.

Income Taxes. We record income taxes under SFAS 109 "Accounting for Income
Taxes". SFAS 109 utilizes the liability method for computing deferred income
taxes and requires that the benefit of certain loss carryforwards be recorded as
an asset and that a valuation allowance be established against the asset to the
extent it is "more likely than not" that the benefit will not be realized.

Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates.

2.  BUSINESS OPERATIONS

Nature of Business. We design and produce computer control systems and software
and computerized machine systems for sale through our own distribution system to
the worldwide machine tool industry.

The end market for our products consists primarily of precision tool, die and
mold manufacturers, independent job shops and specialized short-run production
applications within large manufacturing operations. Industries served include:
aerospace, defense, medical equipment, energy, transportation and computer
industries. Our products are sold through independent agents and distributors in
countries throughout North America, Europe and Asia. We also maintain direct
sales operations in the United States, England, France, Germany, Italy and
Singapore.

Credit Risk. We sell products to customers located throughout the world. We
perform ongoing credit evaluations of customers and generally do not require
collateral. Allowances are maintained for potential credit losses, and such
losses have been within our expectations. Concentration of credit risk with
respect to trade accounts receivable is limited due to the large number of
customers and their dispersion across many geographic areas. Although a
significant amount of trade receivables are with distributors primarily located
in the United States, no single distributor or region represents a significant
concentration of credit risk.
<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Reliance on Contract Manufacturers. We contract with manufacturing contractors
located in Taiwan and Europe for the manufacture and assembly of computerized
machine tool systems, based on our designs and/or specifications. Any
interruption from these sources would restrict the availability of our
computerized machine tool systems and would affect operating results adversely.

3. INVENTORIES

Inventories as of October 31, 2001 and 2000 are summarized below (in thousands):
<TABLE>

                                                                                               2001           2000
                                                                                         ----------     ----------
               <S>                                                                       <C>            <C>
               Purchased parts and sub-assemblies...................................     $    7,853     $    9,837
               Work-in-process......................................................          1,256          1,339
               Finished goods.......................................................         21,210         15,000
                                                                                          ---------         ------
                                                                                         $   30,319     $   26,176
                                                                                          =========         ======
</TABLE>

4.  DEBT AGREEMENTS
<TABLE>

Long-term debt as of October 31, 2001 and 2000, consisted of (in thousands):
                                                                                               2001           2000
                                                                                           --------       --------
         <S>                                                                             <C>            <C>
         Bank revolving credit facility...............................................   $   11,200     $      950
         Senior Notes.................................................................           --          1,786
         Economic Development Revenue Bonds, Series 1990..............................         800           1,000
                                                                                          --------       ---------
                                                                                             12,000          3,736
         Less current portion.........................................................          200          1,986
                                                                                          ---------      ---------
                                                                                         $   11,800     $    1,750
                                                                                          =========      =========
</TABLE>
<TABLE>

As of October 31, 2001, long-term debt was payable as follows (in thousands):
         <S>                                                                            <C>
         Fiscal 2002..................................................................   $      200
         Fiscal 2003..................................................................       11,400
         Fiscal 2004..................................................................          200
         Fiscal 2005............................................................                200
                                                                                          ---------
                                                                                            $12,000
</TABLE>

As of October 31, 2001 and 2000, we had $2.1 million and $8.5 million,
respectively, of outstanding letters of credit issued to non-U.S. suppliers for
inventory purchase commitments. As of October 31, 2001, we had unutilized credit
facilities of $9.2 million available for either direct borrowings or commercial
letters of credit.

Interest on the bank credit facility was payable at rates ranging from 3.5% to
5.5% at October 31, 2001 and 9.5% at October 21, 2000.
<PAGE>

Effective October 31, 2001, our bank credit agreement was amended and restated.
The restated credit agreement provides for a secured, revolving credit facility
expiring December 31, 2002, and permits borrowings, at any one time outstanding,
of up to $22.5 million (inclusive of outstanding letters of credit of up to
$15.0 million) through May 1, 2002 and $20.0 million thereafter. Of such
borrowings, up to $5.0 million U.S. dollar equivalent may be drawn on designated
European currencies. Interest on all outstanding borrowings is payable at Libor,
plus an applicable Eurodollar rate margin, or at our option, prime rate plus a
specified margin, as follows:

<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

                                            Libor margin           Prime margin
                                          ----------------       ---------------
                                          ----------------       ---------------
November 1, 2001 - April 30, 2002                2.0%                    --
May 1, 2002 - July 31, 2002                      3.0%                   1.0%
August 1, 2002 - December 31, 2002               3.5%                   1.5%


The restated credit agreement requires us to maintain a specified working
capital borrowing base and meet quarterly minimum net worth requirements,
minimum quarterly EBITDA (earnings before interest, taxes, depreciation, and
amortization) requirements and imposes a maximum leverage ratio and restricts
capital expenditures and investments, all in relation to our business plan. The
net worth covenant requires that tangible net worth, exclusive of Accumulated
Other Comprehensive Income, be not less than $35.9 million at October 31, 2001,
which decreases quarterly to $32.3 million at October 31, 2002. As of October
31, 2001, we were in compliance with all loan covenants. The restated credit
agreement provides the bank lender with a security interest in substantially all
domestic assets and 67% of the common stock of our U.S. holding companies which
own our foreign subsidiaries.

The restated credit agreement requires a $50,000 facility fee payable May 1,
2002, if the commitment is not reduced to $15.0 million and a $100,000 facility
fee payable August 1, 2002, if we have not obtained a new financing agreement.
The restated credit agreement also provides for an anticipated third party
European working capital facility not to exceed 3.0 million Euro and permits
refinancing of our corporate headquarters facility for up to $5.0 million,
accompanied by an equivalent reduction in the revolving credit facility. We are
involved in discussions with other lenders with respect to such refinancing, as
well as with respect to a total replacement of our bank credit agreement;
however, there can be no assurance that replacement facilities, with acceptable
terms, will be obtained.

Based on our business plan and financial projections for fiscal 2002, which
include planned reductions of operating expenses and working capital, we believe
that cash flow generated from operations and borrowings available to us under
our restated credit agreement will be sufficient to meet our anticipated cash
requirements in fiscal 2002. We believe that the assumptions underlying our 2002
business plan are reasonable; however, there are risks related to further
declines in market demand and reduced sales in the U.S. and Europe, adverse
currency movements, realization of anticipated cost reductions and cash realized
from planned inventory reductions, that could cause our actual results to differ
from our business plan.

At October 31, 2001, our ability to repurchase shares of our common stock and
pay cash dividends were restricted under the restated credit agreement.

At October 31, 2000, we had outstanding approximately $1.8 million of unsecured
Senior Notes, bearing an interest rate of 10.37%. The final installment of $1.8
million was paid December 1, 2000.

The Economic Development Revenue Bonds are payable in four remaining equal
annual installments due on September 1, 2002 thru 2005 and are secured by a
letter of credit issued by a bank. Interest rates on the bonds adjust weekly
and, as of October 31, 2001 and 2000, interest was accruing at a rate of 2.40%
and 4.65%, respectively.
<PAGE>


                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

5. FINANCIAL INSTRUMENTS

The carrying amounts for trade receivables and payables approximate their fair
values. At October 31, 2001, the carrying amounts and fair values of our
financial instruments, which includes bank revolving credit facilities, senior
notes and Economic Development Revenue Bonds are not materially different. The
fair value of long-term debt, including the current portion, is estimated based
on quoted market prices for similar issues or on current rates offered to us for
debt of the similar terms and maturities.

We also have financial instruments in the form of foreign currency forward
exchange contracts as described in Note 1 to the Consolidated Financial
Statements. The U.S. dollar equivalent notional amount of these contracts was
$14.6 million and the contract amount at forward rates was $14.5 million at
October 31, 2001. Current market prices were used to estimate the fair value of
the foreign currency forward exchange contracts.

The future value of the foreign currency forward exchange contracts and the
related currency positions are subject to offsetting market risk resulting from
foreign currency exchange rate volatility. The counterparties to these contracts
are substantial and creditworthy financial institutions. Neither the risk of
counterparty non-performance nor the economic consequences of counterparty
non-performance associated with these contracts are considered material.


<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

6.  INCOME TAXES

Deferred income taxes reflect the effect of temporary differences between the
tax basis of assets and liabilities and the reported amounts of those assets and
liabilities for financial reporting purposes. Deferred income taxes also reflect
the value of net operating losses and an offsetting valuation allowance. Our
total deferred tax assets and corresponding valuation allowance at October 31,
2001 and 2000, consisted of the following (in thousands):
<TABLE>

                                                                                                   October 31,
                                                                                        ----------------------------
                                                                                            2001                2000
                                                                                            ----                ----
<S>                                                                                    <C>                  <C>
Tax effects of future tax deductible items related to:
     Accrued inventory reserves.................................................       $      758           $     890
     Accrued warranty expenses..................................................              211                 226
     Deferred compensation .....................................................              359                 365
     Other accrued expenses.....................................................              669                 830
                                                                                        ---------              ------
         Total deferred tax assets..............................................            1,997               2,311
                                                                                        ---------             -------

Tax effects of future taxable differences related to:
     Accelerated tax deduction and other tax over book
       deductions related to property, equipment and software...................         ( 1,422)              (1,552)
     Other......................................................................            (669)                (672)
                                                                                         --------           ---------
       Total deferred tax liabilities...........................................          (2,091)              (2,224)
                                                                                         ---------             -------

       Net tax effects of temporary differences.................................             (94)                  87
                                                                                        ---------           -----------

Tax effects of carryforward benefits:
     U.S. federal net operating loss carryforwards, expiring 2021...............            1,182                  --
     Foreign tax benefit carryforwards, expiring 2002-2005......................              296                  --
     Foreign tax benefit carryforwards, with no expiration......................              852               1,561
     U.S. federal general business tax credits,
       expiring 2004-2012.......................................................              828                 548
     U.S. Alternative Minimum Tax Credit with no expiration.....................              426                 508
                                                                                        ---------           ---------
         Tax effects of carryforwards ..........................................            3,584               2,617
                                                                                        ---------           ---------

         Tax effects of temporary differences and carryforwards.................            3,490               2,704
         Less valuation allowance...............................................           (3,064)             (2,196)
                                                                                          -------           ----------
         Net deferred tax asset.................................................       $      426          $      508
                                                                                        =========           =========
</TABLE>
<PAGE>

Except as indicated above, our carryforwards expire at specific future dates and
utilization of certain carryforwards is limited to specific amounts each year
and further limitations may be imposed if an "ownership change" would occur.
Realization is entirely dependent upon generating sufficient future earnings in
specific tax jurisdictions prior to the expiration of the loss carryforwards.
Due to the uncertain nature of their ultimate realization based upon past
performance and expiration dates, we have established a full valuation allowance
against carryforward benefits. Alternative minimum tax credits may be carried
forward indefinitely and as a result, are not provided with a valuation
allowance. While the need for this valuation allowance is subject to periodic
review, if the allowance is reduced, the tax benefits of the carryforwards will
be recorded in future operations as a reduction of our income tax expense.


<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
<TABLE>

Income (loss) before income taxes (in thousands):                           Year Ended October 31,
                                                                            ----------------------
                                                                       2001            2000           1999
                                                                   ----------       ---------        ---------
<S>                                                                <C>              <C>             <C>
       Domestic...............................................     $  (2,980)        $   5,459       $  1,848
       Foreign................................................         2,160               147            206
                                                                     -------          ---------      ---------
                                                                   $    (820)       $    5,606       $  2,054
                                                                    =========        =========        =======

Differences between the effective tax rate and
U.S. federal income tax rate were (in thousands):
Tax at U.S. statutory rate....................................     $    (287)       $    1,962       $    719
Federal Tax...................................................            95                --             --
Foreign withholding taxes.....................................            --                19              4
German tax settlement (Note 10)...............................            --               275             --
Effect of tax rates of international jurisdictions
  in excess of U.S. statutory rates...........................           155                39            209
State income taxes............................................            --                46             41
Effect of losses without current year benefit.................         1,043                --             --
Utilization of net operating loss carryforwards...............          (229)           (1,770)          (721)
                                                                     --------           ------           ----
Provision for income taxes....................................     $     777        $      571       $    252
                                                                    ========         =========        =========
</TABLE>

Foreign withholding taxes are the result of foreign dividends received during
fiscal 2000 and 1999. Our provision for income taxes in fiscal 2001, 2000 and
1999 represents taxes currently payable.

We have not provided any U.S. income taxes on the undistributed earnings of our
foreign subsidiaries or equity method investments based upon our determination
that such earnings will be indefinitely reinvested.

7.  EMPLOYEE BENEFITS

We have defined contribution plans that include a majority of our employees
worldwide, under which our contributions are discretionary. The purpose of these
plans is generally to provide additional financial security during retirement by
providing employees with an incentive to save throughout their employment. Our
contributions to the plans are based on employee contributions or compensation.
Our contributions totaled $344,811, $321,422, and $331,605 for the years ended
October 31, 2001, 2000 and 1999, respectively.

We also have split-dollar life insurance agreements with our executive officers.
Under the terms of the agreements, we pay all of the premiums on behalf of the
officers. We will be repaid the premiums from the policies' cash surrender value
when the policies are terminated in accordance with the provisions of the
agreements.

<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

8.  STOCK OPTIONS

In March 1997, we adopted the 1997 Stock Option and Incentive Plan (the 1997
Plan) which allows us to grant awards of options to purchase shares of our
common stock, stock appreciation rights, restricted shares and performance
shares. The 1997 Plan was amended in fiscal 2000 to increase the maximum number
of shares of common stock that may be issued from 500,000 to 750,000 and to
increase the maximum number of shares of common stock that may be granted to any
individual during the term of the 1997 Plan from 100,000 to 200,000 shares.
Options granted under the 1997 Plan are exercisable for a period up to ten years
after date of grant and vest in equal annual installments as specified by the
Compensation Committee of our Board of Directors at the time of grant. The
option price of options intended to qualify as incentive stock options may not
be less than 100% of the fair market value of a share of common stock on the
date of grant. As of October 31, 2001, options to purchase 475,000 shares had
been granted under the 1997 Plan.

In 1990, we adopted the 1990 Stock Option Plan (the 1990 Plan) which allowed us
to grant options to purchase shares of our common stock and related stock
appreciation rights and limited rights to officers and our key employees. Under
the provisions of the 1990 Plan, the maximum number of shares of common stock
which may be issued under options and related rights is 500,000. There is no
annual limit on the number of such shares with respect to which options and
rights may be granted. Options granted under the 1990 Plan are exercisable for a
period up to ten years after date of grant and vest in equal installments over a
period of three to five years from the date of grant. The option price may not
be less than 100% of the fair market value of a share of common stock on the
date of grant and no options or rights may be granted under the 1990 Plan after
April 30, 2000.

A summary of the status of the options under the 1990 and 1997 Plans as of
October 31, 2001, 2000 and 1999 and the related activity for the year is as
follows:
                                       Shares under    Weighted average exercise
                                          option              price per share
- ---------------------------------- -------------------- ------------------------
Balance October 31, 1998                   394,080                        $4.54
  Granted                                  305,500                         5.68
  Cancelled                                (20,400)                        4.91
  Expired                                       -                            -
  Exercised                                 (7,500)                        2.42
- --------------------------------- -------------------- -------------------------
Balance October 31, 1999                   671,680                        $5.07
  Granted                                  180,600                         3.76
  Cancelled                                (22,120)                        6.15
  Expired                                       -                            -
  Exercised                                 (3,500)                        2.13
- -------------------------------- -------------------- --------------------------
Balance October 31, 2000                   826,660                        $4.77
  Granted                                   57,000                         3.67
  Cancelled                                (82,000)                        5.23
  Expired                                  (20,000)                        7.15
  Exercised                                (16,400)                        2.14
- -------------------------------- -------------------- --------------------------
Balance October 31, 2001                   765,260                         4.63
================================ ==================== ==========================
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Stock options outstanding and exercisable on October 31, 2001 are as follows:
<TABLE>

                                                       Weighted average     Weighted average remaining
Range of exercise prices         Shares under  exercise price per share      contractual life in years
per share                              option
- --------------------------- ------------------ ------------------------- ------------------------------
<S>                                   <C>                         <C>                             <C>
Outstanding
  $2.125-5.125                        453,760                     $3.58                            5.4
   5.813-8.250                        311,500                      6.16                            6.2
- --------------------------- ------------------ ------------------------- ------------------------------
  $2.125-8.250                        765,260                     $4.63                            5.7
=========================== ================== ========================= ==============================
=========================== ================== ========================= ==============================
Exercisable
  $2.125-5.125                        272,947                     $3.47                              -
    5.813-8.250                       154,200                      6.40                              -
- --------------------------- ------------------ ------------------------- ------------------------------
  $2.125-8.250                        427,147                     $4.53                              -
=========================== ================== ========================= ==============================
=========================== ================== ========================= ==============================
</TABLE>

We apply Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" (APB25), and related interpretations in accounting for the plans,
and, therefore, no compensation expense has been recognized for stock options
issued under the plans. For companies electing to continue the use of APB25,
SFAS No. 123 "Accounting for Stock-Based Compensation", requires pro forma
disclosures determined through the use of an option-pricing model as if the
provisions of SFAS No. 123 had been adopted.

The weighted average fair value at date of grant for options granted during
fiscal 2001, 2000, and 1999 was $2.07, $2.72, and $3.85 per share, respectively.
The fair value of each option grant was estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:

                                      2001        2000        1999
- ---------------------------------- ----------- ----------- -----------
Expected dividend yield                 0.00%       0.00%       0.00%
Expected volatility                    56.00%      56.33%      55.09%
Risk-free interest rate                 5.18%       6.20%       4.69%
Expected term in years                   10          10          10
- ---------------------------------- ----------- ----------- -----------

If we had adopted the provisions of SFAS No. 123, net income (loss) and earnings
(loss) per share would have been as follows:

                                                2001         2000        1999
- ----------------------------------------- ------------- ------------ -----------
Net income (loss) (in thousands)              ($1,928)       $4,726      $1,484
Earnings (loss) per share:
  Basic                                         ($.34)         $.79        $.25
  Diluted                                       ($.34)         $.79        $.24
- ----------------------------------------- ------------- ------------ -----------
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

As of October 31, 2001, there were outstanding non-qualified options that had
been granted outside of the 1990 and 1997 plans to current and former outside
members of the Board of Directors to purchase 50,000 and 75,000 shares at $5.13
and $5.81 per share, respectively. These shares are exercisable as of October
31, 2001. The options expire at various dates between 2002 and 2004.

9.  RELATED PARTY TRANSACTIONS

We own approximately 24% of one of our Taiwanese-based contract manufacturers.
This investment of $538,000 is accounted for using the equity method and is
included in Other Assets on the Consolidated Balance Sheet. Purchases of product
from this contract manufacturer are negotiated on an arms length basis and
totaled $12.2 million, $8.6 million and $7.8 million for the years ended October
31, 2001, 2000 and 1999, respectively. Trade payables to this contract
manufacturer were $2.2 million at October 31, 2001 and 2000.

As of October 31, 2000, we own 35% of Hurco Automation, Ltd. (HAL), a Taiwan
based company. HAL's scope of activities includes the design, manufacture, sales
and distribution of industrial automation products, software systems and related
components, including control systems and components manufactured under contract
for sale exclusively to us. We are accounting for this investment using the
equity method. The investment of $1.1 million at October 31, 2001 is included in
Other Assets on the Consolidated Balance Sheet. Purchases of product from this
supplier are negotiated on an arms length basis and amounted to $1.5 million,
$4.2 million and $3.6 million in 2001, 2000 and 1999, respectively. Trade
payables to HAL were $200,000 and $542,000 at October 31, 2001 and 2000,
respectively. Trade receivables from HAL were $173,000 and $461,000 at October
31, 2001 and 2000, respectively.

Summary financial information for the two affiliates accounted for using the
equity method of accounting are as follows:
<TABLE>
    ($000)                                   2001             2000             1999
                                          -------------    -------------    -------------
     <S>                                       <C>              <C>              <C>
     Net Sales                                 $42,691          $33,850          $22,732
     Gross Profit                                7,305            6,303            4,466
     Operating Income                            2,047            2,179            1,091
     Net Income                                  1,609            1,005              542

     Current Assets                            $14,345          $16,025          $11,977
     Non-current Assets                          1,535            1,490            1,778
     Current Liabilities                        11,335           14,249            9,043
</TABLE>

10.  LITIGATION AND CONTINGENCIES

Hurco and its subsidiary IMS Technology, Inc. (IMS) have been parties to a
number of legal proceedings which involved alleged infringement of a United
States interactive machining patent (the Patent) owned by IMS. All actions have
been settled through licensing arrangements or litigation settlements. On August
8, 2000, Hurco and IMS agreed to a settlement with Haas Automation Inc. and Gene
Haas (Haas). Under the settlement, IMS licensed the Patent to Haas and Haas made
a one-time payment to IMS. We reported license fee income and litigation
settlement fees, net of expenses, of approximately $5.4 million in the fourth
quarter of fiscal 2000 primarily resulting from this settlement.
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

A German tax examiner had contested our transfer of net operating losses between
two of our German subsidiaries that merged in fiscal 1996. The contingent tax
liability resulting from this issue was approximately $1.4 million. In the
fourth quarter of fiscal 2000, this matter was settled and paid for
approximately $275,000

We are involved in various claims and lawsuits arising in the normal course of
business. We believe that none of these claims are likely to have a material
adverse effect on our consolidated financial position or results of operations.

11.  OPERATING LEASES

We lease facilities and vehicles under operating leases that expire at various
dates through 2006. Future payments, exclusive of amounts reflected in the
balance sheet, required under operating leases as of October 31, 2001, are
summarized as follows (in thousands):


         2002....................................................       $1,431
         2003....................................................          814
         2004....................................................          432
         2005....................................................          200
         2006....................................................           38
                                                                       --------
            Total................................................     $  2,915
                                                                       ========

Rent expense for the years ended October 31, 2001, 2000, and 1999 was $1.6
million, $1.7 million and $1.7 million, respectively.

12.  LICENSE FEE INCOME AND LITIGATION SETTLEMENT FEES, NET

License fee income and litigation settlement fees, net for fiscal 2001, 2000 and
1999 were attributable to agreements entered into by IMS, pursuant to which IMS
granted fully paid-up licenses of its interactive patents in exchange for cash
and other consideration. License fee payments received that were contingent upon
the continued validity of the patent were deferred and recognized over the life
of the patent which expired in October 2001. As a result, we have no deferred
license fee income at October 31, 2001.


<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

13.  QUARTERLY HIGHLIGHTS (Unaudited)
<TABLE>

2001 (In thousands, except per share data)
                                                     First Quarter     Second Quarter      Third Quarter    Fourth Quarter

<S>                                                    <C>                <C>                <C>                 <C>
Sales and service fees...............................  $  25,933          $  23,432          $ 21,678            $ 21,224

Gross profit.........................................      6,615              5,972             5,287               5,388

Gross profit margin percentage.......................      25.5%              25.5%             24.4%               25.4%

Restructuring charge (credit) (Note 15)..............         --              (328)               395                  76

Selling, general and administrative expenses.........      6,086              5,959             5,896               6,099(a)

Operating income (loss)..............................        529                341           (1,004)                (787)

Net income (loss)....................................        567                323           (1,329)              (1,158)

Earnings (loss) per common share - basic.............  $     .10          $     .06          $  (.24)           $    (.21)

Earnings (loss) per common share - diluted...........  $     .10          $     .06          $  (.24)           $    (.21)

2000 (In thousands, except per share data)
                                                     First Quarter     Second Quarter      Third Quarter    Fourth Quarter

Sales and service fees...............................$    24,524         $   24,197         $  22,676         $    24,807

Gross profit.........................................      6,721              6,732             6,115               5,809

Gross profit margin percentage.......................      27.4%              27.8%             27.0%               23.4%(b)

Restructuring charge (Note 15).......................         --                 --                --                 300

Selling, general and administrative expenses.........      5,820              5,623             5,768               6,327(c)

Operating income (loss)..............................        901              1,109               347                (818)

Net income ..........................................        459                602               407               3,567(d)

Earnings per common share - basic....................$       .08         $      .10         $     .07         $       .60

Earnings per common share - diluted..................$       .08         $      .10         $     .07         $       .59

</TABLE>
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

(a)  Includes $550,000 of fourth quarter adjustments related to write down of
     product development assets no longer being used, increased provisions for
     un-collectable accounts, reserves for termination of a European sales
     agent, vacating a leased facility and a health insurance claim.
(b)  Gross profit margin was negatively impacted in the fourth quarter of fiscal
     2000 because of a decrease in the Euro exchange rate. The Euro averaged
     $.978 for the first three quarters but declined to an average of $.873 in
     the fourth quarter. The fourth quarter margin was also negatively impacted
     by an accrual for $300,000 assessment received in November 2000 from the
     United States Customs Department for duties due related to imports during
     the period 1994-1997.
(c)  Selling, general and administrative expenses increased in the fourth
     quarter primarily due to expenses related to our participation in the
     bi-annual International Machine and Technology Show (IMTS) that occurred in
     September 2000.
(d)  As disclosed in the MD&A and footnote 10, net income was favorably
     impacted in the fourth quarter by license fee income.

14.      SEGMENT INFORMATION

We operate in a single segment: industrial automation systems. We design and
produce interactive computer control systems and software and computerized
machine systems for sale through our own distribution network to the worldwide
metal working market. We also provide software options, control upgrades,
accessories and replacement parts for our products, as well as customer service
and training support.

Substantially all of our machine systems and control systems are manufactured to
our specifications by contract manufacturing companies in Taiwan and Europe. Our
executive offices and principal design, engineering, and manufacturing
management operations are headquartered in Indianapolis, Indiana. We sell our
products through approximately 258 independent agents and distributors in 39
countries throughout North America, Europe and Asia. We also have our own direct
sales and service organizations in the United States, England, France, Germany,
Italy and Singapore, which are considered to be among the world's principal
computerized machine system consuming countries. During fiscal 2001, no customer
accounted for more than 5% of our sales and service fees.

The following table sets forth the contribution of each of our product groups to
our total sales and service fees during each of the past three fiscal years (in
thousands):
<TABLE>

      Year Ended October 31,
                                                                       2001              2000             1999
                                                                    -------           -------          -------
         <S>                                                     <C>                  <C>              <C>
         Computerized Machine Systems.........................   $   73,286           $71,708          $63,793
         Computer Control Systems and Software*...............        5,716             9,605           10,623
         Service Parts........................................        9,516            10,649            9,574
         Services Fees........................................        3,749             4,242            4,248
                                                                  ---------         ---------        ---------
                                                                    $92,267           $96,204          $88,238
                                                                    =======           =======          =======
*Amounts shown do not include CNC systems sold as an integrated component of computerized machine systems.
</TABLE>
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
<TABLE>

Revenues by geographic area, based on customer location, for each of the past three fiscal years were (in thousands):

                                                                                    Year Ended October 31,
                                                                               -------------------------------
                                                                       2001              2000             1999
                                                                    -------           -------          -------
         <S>                                                     <C>                  <C>              <C>
         United States.........................................  $   32,935           $40,920          $36,730
                                                                 ----------           -------          -------
         Germany..............................................       28,452            23,654           25,388
         United Kingdom.......................................        8,814            10,128            9,567
         Other Europe.........................................       17,847            12,932           12,087
                                                                     ------           -------           ------
           Total Europe.......................................       55,113            46,714           47,042

         Asia and Other.......................................        4,219             8,570            4,466
                                                                     -------           -------         -------
           Total Foreign......................................       59,332            55,284           51,508
                                                                    ------             ------           ------
                                                                 $   92,267           $96,204          $88,238
                                                                 ==========           =======          =======
</TABLE>
<TABLE>

Long-lived assets by geographic area were (in thousands):
                                                                                                 October 31,
                                                                                         -------------------------
                                                                                               2001           2000
                                                                                         ----------     ----------
               <S>                                                                       <C>            <C>
               United States........................................................     $   14,725     $   14,257
               Foreign Countries....................................................          1,556          1,064
                                                                                         ----------     ----------
                                                                                           $ 16,281        $15,321
                                                                                           ========        =======
</TABLE>

15.      RESTRUCTURING CHARGE

At October 31, 1998, we had a reserve for anticipated costs associated with the
restructuring of a subsidiary to convert its operations from manufacturing
computer controls to sales and service of computerized machine systems. The
components of the reserve were excess building capacity and an equipment lease
related to equipment that will no longer be utilized. In fiscal 1999, the excess
building space was sublet and the reserve was adjusted to reflect the terms of
the sublease. The remainder of the excess building capacity reserve was for the
final year of the lease, which had not been sublet.

In the fourth quarter of fiscal 2000, we recorded a charge of $300,000 for
severance costs related to the termination of employees at this subsidiary in
connection with the completion of the consolidation of this operation into our
North American sales and service business. Fourteen employees received notice on
October 31, 2000 that their positions were being eliminated in fiscal 2001. All
employee severance related to the October 31, 2000 reserve has been paid with
the exception of one employee who is being paid through May 2002.
<PAGE>

Restructuring expense in fiscal 2001 included a reversal of a of $328,000
reserve for sub-letting the final year of the excess building space and finding
alternative uses for a previously reserved asset. Also, in fiscal 2001, a
provision of $471,000 was recorded for severance costs related to a domestic
cost reduction program in which 59 positions were eliminated. Forty-two of the
employees were paid severance in fiscal 2001 while the remaining 15 employees
will be paid in fiscal 2002.
<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

<TABLE>

                                        Balance        Provision        Charges to          Balance
Description                             10/31/98        (Credit)          Accrual           10/31/99
- -----------                             --------        --------          -------           --------
<S>                                          <C>           <C>               <C>                 <C>
Excess Building Capacity                     $ 500         ($ 103)           ($ 111)             $ 286
Equipment Leases                               101              --              (24)                77

Severance Costs                                 90              --              (90)                --
                                      -------------   -------------    --------------     -------------
                                      -------------   -------------    --------------     -------------
                                             $ 691         ($ 103)           ($ 225)             $ 363
                                      =============   =============    ==============     =============
                                      =============   =============    ==============     =============

                                        Balance        Provision        Charges to          Balance
Description                             10/31/99        (Credit)          Accrual           10/31/00
- -----------                             --------        --------          -------           --------
Excess Building Capacity                     $ 286              --                --             $ 286
Equipment Leases                                77              --              (23)                54
Severance Costs                                 --             300                --               300
                                      -------------   -------------    --------------     -------------
                                      -------------   -------------    --------------     -------------
                                             $ 363           $ 300            ($ 23)             $ 640
                                      =============   =============    ==============     =============
                                      =============   =============    ==============     =============


                                        Balance        Provision        Charges to          Balance
Description                             10/31/00        (Credit)          Accrual           10/31/01
- -----------                             --------        --------          -------           --------
Excess Building Capacity                     $ 286         ($ 286)                --                --
Equipment Leases                                54            (42)              (12)                --
Severance Costs                                300             471             (637)               133
                                      -------------   -------------    --------------     -------------
                                      -------------   -------------    --------------     -------------
                                             $ 640            $143           ($ 649)             $ 133
                                      =============   =============    ==============     =============
</TABLE>

16. STOCK REPURCHASE

In fiscal 2001, we repurchased 391,101 shares of our common stock for
approximately $1.7 million of which 278,001 were purchased from a related party
for $1.2 million. The repurchase of shares is reflected as a reduction in common
stock.
<PAGE>

17.      SOFTWARE DEVELOPMENT AGREEMENTS AND LOAN AGREEMENT

During fiscal 2001, we entered into agreements with a private software company
to fund development costs related to the integration of patented, open
architecture technology into our computer control products. We agreed to fund an
aggregate of $405,000, over a fifteen-month period ending in July 2002 of which
$180,000 was paid and recorded as a research and development expense in fiscal
2001. We also agreed to fund a secured term loan payable in installments through
February 2002, of $1.0 million which is due April 1, 2003. In addition, the
company granted us warrants to purchase an equity interest, which are
exercisable on or before December 31, 2002, and 2003. As of October 31, 2001,
our combined investment in the secured loan and warrants is $672,000, and is
reflected in Investments and Other Assets in the accompanying consolidated
balance sheet.

<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

We have an agreement with another private software company to fund software
development costs related to an advanced computer control technology. The
agreement term is February 1, 2001 through March 31, 2002 and requires us to
fund $400,000 of development costs, of which $300,000 was paid and recorded as a
research and development expense in fiscal 2001. At the completion of this
agreement, we have the option to enter into a new development agreement, buy
core technology owned by the software company for $1.9 million or pay twelve
installments of $16,666 for furture services.

18.      NEW ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. (SAB) 101, "Revenue Recognition." This bulletin
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition. We adopted SAB 101 in Fiscal 2001 and the impact on our
financial statements was immaterial.

In June 2001, the Financial Accounting Standards Board issued statement No. 141,
Business Combinations (FAS 141) and statement No. 142, Goodwill and Other
Intangible Assets (FAS 142). FAS 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting. Under FAS 142, amortization of goodwill will cease and the goodwill
carrying values will be tested periodically for impairment. We are required to
adopt FAS 142 effective November 1, 2002 for goodwill and intangible assets
acquired prior to July 1, 2001. Good will and intangible assets acquired after
June 30, 2001 will be subject immediately to the goodwill non-amortization and
intangible provisions of this statement. The impact on our financial statements
will be immaterial.

In August 2001, the Financial Accounting Standards Board issued Statement No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144),
which is effective for the fiscal year beginning November 1, 2002. FAS 144
establishes a single model to account for impairment of assets to be held or
disposed, incorporating guidelines for accounting and disclosure of discontinued
operations. We believe the impact on our financial statements will be
immaterial.

19.      SUBSEQUENT EVENTS

On November 14, 2001, Brian McLaughlin resigned as President and Chief Executive
Officer. We will record a provision for separation costs of approximately
$325,000 in the first quarter of Fiscal 2002 related to his resignation.

On January 8, 2002, our German subsidiary obtained a 3.0 million Euro unsecured
working capital credit facility that is available through December 31, 2002. As
a result, our credit facility was reduced by $2.7 million to $19.8 million.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosures

Not applicable.


<PAGE>
                                    PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

The information required this item is hereby incorporated by reference from our
definitive proxy statement for our 2002 annual meeting of shareholders except
that the information required by Item 10 regarding Executive Officers is
included herein under a separate caption at the end of Part I.

Item 11.  EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2002 annual meeting of shareholders.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2002 annual meeting of shareholders.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2002 annual meeting of shareholders.


<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  1.  Financial  Statements.  The following  consolidated  financial
         statements of Registrant  are included  herein under Item 8 of Part II:
<TABLE>
        <S>                                                                                       <C>
                                                                                                  Page
         Reports of Independent Accountants.............................................           20
         Consolidated Statements of Operations - years
           ended October 31, 2001, 2000, and 1999 ......................................           21
         Consolidated Balance Sheets - as of October 31, 2001 and 2000..................           22
         Consolidated Statements of Cash Flows - years
           ended October 31, 2001, 2000, and 1999.......................................           23
         Consolidated Statements of Changes in Shareholders' Equity -
           years ended October 31, 2001, 2000, and 1999.................................           24
         Notes to Consolidated Financial Statements.....................................           25

     2.  Financial Statement Schedules.
         The following financial statement schedule is included in this Item.
         -----------------------------
                                                                                                   Page
         Schedule II - Valuation and Qualifying
           Accounts and Reserves........................................................           43
</TABLE>

     All other financial statement schedules are omitted because they are not
     applicable or the required information is included in the consolidated
     financial statements or notes thereto.

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the three months ended October 31,
     2001.

(c)  Exhibits

     Exhibits are filed with this Form 10-K or incorporated herein by reference
     as listed on pages 44 and 45.




<PAGE>


          Schedule II - Valuation and Qualifying Accounts and Reserves
              for the years ended October 31, 2001, 2000, and 1999
                             (Dollars in thousands)
<TABLE>


                                        Balance at     Charged to      Charged                       Balance
                                        Beginning       Costs and      to Other                      at End
Description                             of Period       Expenses       Accounts       Deductions     of Period
- -----------                             ----------     ---------       --------       ----------     ---------
Allowance for doubtful accounts for the year ended:

   <S>                                  <C>            <C>              <C>            <C>          <C>
   October 31, 2001                     $     741      $     547        $    --        $   3811     $   907
                                         ========       ========         ======         ======       ======

   October 31, 2000                     $     687      $     185        $    --        $   1312     $   741
                                         ========       ========         ======         ======       ======

   October 31, 1999                     $     769      $     231        $    --        $   3133     $   687
                                         ========       ========         ======         ======       ======


Accrued warranty expenses for the year ended:

  October 31, 2001                      $     831      $      661       $     --       $    700      $   792
                                         ========       =========        =======        =======       ======

  October 31, 2000                      $     968      $      430       $     --       $    567      $   831
                                         ========       =========        =======        =======       ======

  October 31, 1999                      $   1,060      $      533       $     --       $    625      $   968
                                         ========       =========        =======        =======       ======


</TABLE>



1 Receivable write-offs of $384,000, net of cash recoveries on accounts
  previously written off of $4,000.
2 Receivable write-offs of $140,000, net of cash recoveries on accounts
  previously written off of $9,000.
3 Receivable write-offs of $337,000, net of cash recoveries on accounts
  previously written off of $24,000.


<PAGE>

EXHIBITS INDEX

Exhibits Filed.  The following exhibits are filed with this report:
- --------------

10.1     The Second Amended and Restated Credit Agreement and Amendment to
         Reimbursement  Agreement dated October 31, 2001 between the
         Registrant and Bank One, Indiana, N.A.

10.2     Fourth Amendment to European Facility dated October 31, 2001 between
         the Registrant and Bank One, N.A.

3.2      Amended and Restated By-Laws of the Registrant dated November 14, 2001.

11       Statement re: computation of per share earnings

21       Subsidiaries of the Registrant

23       Consent of Arthur Andersen LLP


Exhibits Incorporated by Reference.  The following exhibits are incorporated
into this report:
- ----------------------------------

3.1       Amended  and  Restated  Articles  of  Incorporation of the Registrant,
          incorporated  by  reference  to  Exhibit  3.2 to the Registrant's
          Report on Form 10-Q for the quarter ended January 31, 2000.

10.3      The Underlease between Dikappa (Number 220) Limited and Northern &
          London Investment Trust Limited dated December 2, 1982, incorporated
          by reference to Exhibit 10.13 to the Registrant's Registration
          Statement on Form S-1, No.2-82804 dated April 1, 1983.

10.4*     Non-qualified Stock Option Agreement between the Registrant and O.
          Curtis Noel effective, March 3, 1993, incorporated by reference to
          Exhibit 10.44 to the Registrant's Report on Form 10-K for the year
          ended October 31, 1993.

10.5*     Employment Agreement between the Registrant and Roger J. Wolf dated
          January 8, 1993, incorporated by reference to Exhibit 10.45 to the
          Registrant's Report on Form 10-K for the year ended October 31, 1993.

10.6*     Form of Director  Non-qualified  Stock  Option  Agreement between the
          Registrant and Richard T. Niner, O.Curtis Noel and Charles E. Mitchell
          Rentschler, incorporated by reference as Exhibit 10.2 to the
          Registrant's  Form 10-K for the year ended October 31, 1999.

10.7*     Non-qualified  Stock Option  Agreement  between the Registrant and
          Richard T. Niner,  effective July 8, 1996  incorporated by reference
          to Exhibit 10.49 to the Registrant's Report on Form 10-K for the
          year ended October 31, 1996.
<PAGE>
10.8*     Non-qualified Stock Option Agreement between the Registrant and O.
          Curtis Noel, effective July 8, 1996 incorporated by reference to
          Exhibit 10.50 to the Registrant's Report on Form 10-K for the year
          ended October 31, 1996.

10.9*     Non-qualified Stock Option Agreement between the Registrant and
          Charles E. Mitchell Rentschler, effective July 8, 1996 incorporated by
          reference to Exhibit 10.51 to the Registrant's Report on Form 10-K for
          the year ended October 31, 1996.

10.10*    Amended 1997 Stock Option and Incentive Plan, incorporated by
          reference as Exhibit 10.1 to the  Registrant's  Report on Form
          10-Q for the quarter ended July 31, 2000.

10.11     Employment agreement between the Registrant and James D. Fabris dated
          November 18, 1997, incorporated by reference as Exhibit 10.15 to the
          Registrant's Report on Form 10-Q for the quarter ended January 31,
          1998.

10.12     Sublease between Autocon Technologies,  Inc. and Robert Bosch
          Corporation dated April 30, 1999,  incorporated by reference as
          Exhibit 10.1 to the Registrant's Report on Form 10-Q for the quarter
          ended April 30, 1999.

10.13*    Employment agreement between the Registrant and Bernard C. Faulkner
          dated February 4, 2000, incorporated by reference as Exhibit 10.1 to
          the Registrant's Report of Form 10-Q for the quarter ended April 30,
          2000.

10.14     Third amendment to European facility between the Registrant and The
          First National Bank of Chicago dated August 17, 1999, incorporated by
          reference as Exhibit 10.2 to the Registrant's Report on Form 10-K for
          the year ended October 31, 1999.

- -------------------------------
         *    The indicated exhibit is a management contract, compensatory plan,
              or arrangement required to be listed by Item 601 of Regulation S-K



<PAGE>


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 28th day of January,
2002.

                                      HURCO COMPANIES, INC.


                                      By: /s/ ROGER J. WOLF
                                         ---------------------
                                         Roger J. Wolf
                                         Senior Vice-President,
                                         Secretary, Treasurer and
                                         Chief Financial Officer




Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:


Signature and Title(s)                                        Date


/s/ Michael Doar                                              January 28, 2002
- ---------------------------------------
Michael Doar, Director,
Chief Executive Officer
of Hurco Companies, Inc.
(Principal Executive Officer)


/s/ ROGER J. WOLF                                             January 28, 2002
- -------------------------------------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
of Hurco Companies, Inc.
(Principal Financial Officer)


/s/ STEPHEN J. ALESIA                                         January 28, 2002
- ------------------------------------
Stephen J. Alesia
Corporate Controller
of Hurco Companies, Inc.
(Principal Accounting Officer)

<PAGE>

/s/ ROBERT W. CRUICKSHANK                                     January 28, 2002
- ---------------------------
Robert W. Cruickshank, Director


/s/ MICHAEL DOAR                                              January 28, 2002
- ------------------------------------
Michael Doar, Director


/s/ RICHARD T. NINER                                          January 28, 2002
- ------------------------------------
Richard T. Niner, Director


/s/ O. CURTIS NOEL                                            January 28, 2002
- --------------------------------------------
O. Curtis Noel, Director


/s/ CHARLES E. M. RENTSCHLER                                  January 28, 2002
- ------------------------------------
Charles E. M. Rentschler, Director


/s/ GERALD V. ROCH                                            January 28, 2002
- ------------------------------------
Gerald V. Roch, Director

<PAGE>














                                   Exhibit 11

                        COMPUTATION OF PER SHARE EARNINGS


<PAGE>



                                   Exhibit 11
                        Statement Re: Computation of Per Share Earnings
<TABLE>


                                                           Three Months Ended                       Twelve Months Ended
                                                               October 31,                              October 31,
                                                 ----------------------------------------------------------------------------------
                                                        2001                2000                 2001                 2000
                                                 ----------------------------------------------------------------------------------
(in thousands, except per share amount)
                                                   Basic    Diluted    Basic   Diluted     Basic     Diluted     Basic   Diluted
                                                 ----------------------------------------------------------------------------------

<S>                                                <C>      <C>        <C>       <C>      <C>        <C>         <C>     <C>
Net income (loss)                                  ($1,158) ($1,158)   $ 3,567   $ 3,567  ($ 1,597)  ($ 1,597)   $ 5,035 $ 5,035

Weighted average shares

  outstanding                                        5,581    5,581      5,954     5,954     5,670      5,670      5,952   5,952

Assumed issuances under

  stock options plans                                   --       --         --        62        --         --         --      67
                                                 ----------------------------------------------------------------------------------
                                                     5,581    5,581      5,954     6,016     5,670      5,670      5,952   6,020


Earnings (loss) per common share                   ($  .21) ($  .21)    $ 0.60    $ 0.59   ($  .28)   ($  .28)   $  0.85  $ 0.84
                                                 ==================================================================================
</TABLE>



<PAGE>



                                   Exhibit 21




                         SUBSIDIARIES OF THE REGISTRANT



<PAGE>


                                 Exhibit 21




                           SUBSIDIARIES OF HURCO COMPANIES, INC.


                                                     Jurisdiction
Name                                                 of Incorporation

Autocon Technologies, Inc.                           Indiana
Hurco B.V.                                           the Netherlands
Hurco Europe Limited                                 United Kingdom
Hurco GmbH                                           Federal Republic of Germany
Hurco Manufacturing Ltd.                             Taiwan R.O.C.
Hurco S.a.r.l.                                       France
Hurco S.r.l.                                         Italy
Hurco (S.E. Asia) Pte Ltd.                           Singapore
IMS Technologies, Inc.                               Virginia


<PAGE>



                                   Exhibit 23




                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
                               Arthur Andersen LLP


<PAGE>



                                   Exhibit 23




                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS




As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-48204.  It should be noted that we have not
audited any financial statements of the Company subsequent to October 31, 2001
or performed any audit procedures subsequent to the date of our report.




                                                           ARTHUR ANDERSEN LLP




Indianapolis, Indiana,
January 28, 2002.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>credit_agreement.txt
<TEXT>









                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT

                                       AND

                      AMENDMENT TO REIMBURSEMENT AGREEMENT

                          DATED AS OF OCTOBER 31, 2001

                                     BETWEEN

                              HURCO COMPANIES, INC.

                                       AND

                              BANK ONE, INDIANA, NA






<PAGE>
<TABLE>

                                                     TABLE OF CONTENTS

<S>     <C>  <C>                                                                                                       <C>

ARTICLE I.   DEFINITIONS 2
         1.1.         Certain Definitions...............................................................................2
                      -------------------
         1.2.     Other Definitions; Rules of Construction.............................................................16
                  ----------------------------------------


ARTICLE II.   THE CREDITS..............................................................................................16
         2.1.         Commitment.......................................................................................16
                      ----------
         2.2.     Required Payments; Termination.......................................................................16
                  ------------------------------
         2.3.     Reserved.............................................................................................17
                  --------
         2.4.     Types of Advances....................................................................................17
                  -----------------
         2.5.     Fees; Reductions in Commitment.......................................................................17
                  ------------------------------
         2.6.     Minimum Amount of Each Advance.......................................................................18
                  ------------------------------
         2.7.     Optional Principal Payments..........................................................................18
                  ---------------------------
         2.8.     Method of Selecting Types and Interest Periods for New Advances......................................18
                  ---------------------------------------------------------------
         2.9.     Conversion and Continuation of Outstanding Advances..................................................19
                  ---------------------------------------------------
         2.10.    Changes in Interest Rate, etc........................................................................19
                  ------------------------------
         2.11.    Rates Applicable After Default.......................................................................19
                  ------------------------------
         2.12.    Method of Payment....................................................................................20
                  -----------------
         2.13.    Noteless Agreement; Evidence of Indebtedness.........................................................20
                  --------------------------------------------
         2.14.    Telephonic Notices...................................................................................20
                  ------------------
         2.15.    Interest Payment Dates; Interest and Fee Basis.......................................................21
                  ----------------------------------------------
         2.16.    Lending Installations................................................................................21
                  ---------------------
         2.17.    Reserved.............................................................................................21
                  --------
         2.18.    Facility LCs.........................................................................................21
                  ------------
                  2.18.1.  Issuance....................................................................................21
                           --------
                  2.18.2.  Notice......................................................................................21
                           ------
</TABLE>

<PAGE>

<TABLE>
<S>      <C>      <C>                                                                                                  <C>
                  2.18.3.  Administration; Reimbursement by the Bank...................................................22
                           -----------------------------------------
                  2.18.4.  Reimbursement by the Borrower...............................................................22
                           -----------------------------
                  2.18.5.  Obligations Absolute........................................................................22
                           --------------------
                  2.18.6.  Actions of the Bank.........................................................................22
                           -------------------
                  2.18.7.  Indemnification.............................................................................23
                           ---------------
                  2.18.8.  Facility LC Collateral Account..............................................................23
                           ------------------------------
         2.19.    Borrowing Base Adjustments...........................................................................23
                  --------------------------
         2.20.    Security and Collateral..............................................................................24
                  -----------------------


ARTICLE III.   YIELD PROTECTION; TAXES.................................................................................24
         3.1.         Yield Protection.................................................................................24
                      ----------------
         3.2.     Changes in Capital Adequacy Regulations..............................................................25
                  ---------------------------------------
         3.3.     Availability of Types of Advances....................................................................25
                  ---------------------------------
         3.4.     Funding Indemnification..............................................................................25
                  -----------------------
         3.5.     Taxes................................................................................................26
                  -----
         3.6.     Bank Statements; Survival of Indemnity...............................................................26
                  --------------------------------------


ARTICLE IV.   CONDITIONS PRECEDENT.....................................................................................27
         4.1.         Initial Credit Extension.........................................................................27
                      ------------------------
         4.2.     Each Credit Extension................................................................................28
                  ---------------------

</TABLE>
<PAGE>
<TABLE>
<S>     <C>  <C>                                                                                                      <C>

ARTICLE V.   REPRESENTATIONS AND WARRANTIES............................................................................28
         5.1.         Existence and Standing...........................................................................28
                      ----------------------
         5.2.     Authorization and Validity...........................................................................29
                  --------------------------
         5.3.     No Conflict; Government Consent......................................................................29
                  -------------------------------
         5.4.     Financial Statements.................................................................................29
                  --------------------
         5.5.     Material Adverse Change..............................................................................29
                  -----------------------
         5.6.     Taxes................................................................................................29
                  -----
         5.7.     Litigation and Contingent Obligations................................................................30
                  -------------------------------------
         5.8.     Subsidiaries.........................................................................................30
                  ------------
         5.9.     ERISA................................................................................................30
                  -----
         5.10.    Accuracy of Information..............................................................................30
                  -----------------------
         5.11.    Regulation U.........................................................................................30
                  ------------
         5.12.    Material Agreements..................................................................................30
                  -------------------
         5.13.    Compliance With Laws.................................................................................30
                  --------------------
         5.14.    Ownership of Properties..............................................................................31
                  -----------------------
         5.15.    Plan Assets; Prohibited Transactions.................................................................31
                  ------------------------------------
         5.16.    Environmental Matters................................................................................31
                  ---------------------
         5.17.    Investment Company Act...............................................................................31
                  ----------------------
         5.18.    Public Utility Holding Company Act...................................................................31
                  ----------------------------------
         5.19.    Insurance............................................................................................31
                  ---------
         5.20.    Borrowing Base.......................................................................................31
                  --------------
         5.21.    Disclosure...........................................................................................31
                  ----------
         5.22.    Intellectual Property................................................................................32
                  ---------------------
</TABLE>
<PAGE>
<TABLE>
<S>     <C>   <C>                                                                                                      <C>
ARTICLE VI.   COVENANTS  32
         6.1.         Financial Reporting..............................................................................32
         6.2.     Use of Proceeds......................................................................................34
                  ---------------
         6.3.     Notice of Default....................................................................................34
                  -----------------
         6.4.     Conduct of Business..................................................................................34
                  -------------------
         6.5.     Taxes................................................................................................34
                  -----
         6.6.     Insurance............................................................................................34
                  ---------
         6.7.     Compliance with Laws.................................................................................34
                  --------------------
         6.8.     Maintenance of Properties............................................................................34
                  -------------------------
         6.9.     Inspection...........................................................................................34
                  ----------
         6.10.    Dividends............................................................................................34
                  ---------
         6.11.    Indebtedness.........................................................................................35
                  ------------
         6.12.    Merger...............................................................................................35
                  ------
         6.13.    Sale of Assets.......................................................................................35
                  --------------
         6.14.    Investments and Acquisitions.........................................................................35
                  ----------------------------
         6.15.    Liens................................................................................................36
                  -----
         6.16.    Affiliates...........................................................................................37
                  ----------
         6.17.    Sale and Leaseback Transactions......................................................................37
                  -------------------------------
         6.18.    Contingent Obligations...............................................................................37
                  ----------------------
         6.19.    Reserved.............................................................................................37
                  --------
         6.20.    Financial Covenants..................................................................................37
                  -------------------
                  6.20.1.     Minimum Consolidated EBITDA..............................................................37
                              ---------------------------
                  6.20.2.     Minimum Consolidated Tangible Net Worth..................................................37
                              ---------------------------------------
                  6.20.3.     Maximum   Consolidated   Total   Indebtedness   to   Consolidated   Total
                              ----------------------------------------------------------------------------
                        Capitalization.................................................................................37
         6.21.    Capital Expenditures.................................................................................38
                  --------------------
         6.22.    Collateral Documents.................................................................................38
                  --------------------
         6.23.    Further Assurances...................................................................................38
                  ------------------
         6.24.    Accounting Changes...................................................................................39
                  ------------------
         6.25.    Inconsistent Agreements..............................................................................39
</TABLE>
<PAGE>
<TABLE>

ARTICLE VII.   DEFAULTS  39

<S>     <C>    <C>                                                                                                     <C>
ARTICLE VIIA.   AMENDMENTS TO REIMBURSEMENT  AGREEMENT.................................................................42
         7A.1.    Administration of Outstanding Facilities.............................................................42
                  ----------------------------------------
         7A.2.    Amendments to Reimbursement Agreement................................................................42
                  -------------------------------------


ARTICLE VIII.   ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES.........................................................42
         8.1.         Acceleration; Facility LC Collateral Account.....................................................42
                      --------------------------------------------
         8.2.     Amendments...........................................................................................43
                  ----------
         8.3.     Preservation of Rights...............................................................................43
                  ----------------------


ARTICLE IX.  GENERAL PROVISIONS........................................................................................43
         9.1.         Survival of Representations......................................................................43
                      ---------------------------
         9.2.     Governmental Regulation..............................................................................43
                  -----------------------
         9.3.     Headings.............................................................................................43
                  --------
         9.4.     Entire Agreement.....................................................................................44
                  ----------------
         9.5.     Benefits of this Agreement...........................................................................44
                  --------------------------
         9.6.     Expenses; Indemnification............................................................................44
                  -------------------------
         9.8.     Accounting...........................................................................................44
                  ----------
         9.9.     Severability of Provisions...........................................................................44
                  --------------------------
         9.10.    Nonliability of the Bank.............................................................................45
                  ------------------------
         9.11.    Confidentiality......................................................................................45
                  ---------------
         9.11.    Disclosure...........................................................................................45
                  ----------
         9.12.    Construction of Certain Provisions...................................................................45
                  ----------------------------------
         9.13.    Independence of Covenants............................................................................45
                  -------------------------
         9.14.    Interest Rate Limitation.............................................................................45
                  ------------------------


ARTICLE X.  SETOFF       46
</TABLE>
<PAGE>
<TABLE>
<S>     <C>   <C>                                                                                                      <C>
ARTICLE XI.   BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS........................................................46
         11.1.    Successors and Assigns...............................................................................46
                  ----------------------
         11.2.    Participations.......................................................................................46
                  --------------
                  11.2.1.     Permitted Participants; Effect...........................................................46
                              ------------------------------
                  11.2.2.     Voting Rights............................................................................46
                              -------------
                  11.2.3.     Benefit of Setoff........................................................................47
                              -----------------
         11.3.    Dissemination of Information.........................................................................47
                  ----------------------------


ARTICLE XII.   NOTICES   47
         12.1.    Notices..............................................................................................47
                  -------
         12.2.    Change of Address....................................................................................47
                  -----------------


ARTICLE XIII.  COUNTERPARTS............................................................................................47


ARTICLE XIV.   CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL............................................48
         14.1.    CHOICE OF LAW........................................................................................48
                  -------------
         14.2.    CONSENT TO JURISDICTION..............................................................................48
                  -----------------------
         14.3.    WAIVER OF JURY TRIAL.................................................................................48
                  --------------------

</TABLE>





<PAGE>


Other schedules and exhibits (omitted) supplementary are available to The
Commission upon request.


SCHEDULES
SCHEDULE 1.       OTHER INVESTMENTS
SCHEDULE 2.             LENDING INSTALLATIONS
SCHEDULE 4.4.           SUBSIDIARIES AND AFFILIATES OF THE BORROWER
SCHEDULE 5.7.           LITIGATION
SCHEDULE 5.22.    INTELLECTUAL PROPERTY OF THE BORROWER AND ITS SUBSIDIARIES

EXHIBITS
Exhibit A        - Form of Note
Exhibit B        - Borrowing Base Certificate
Exhibit C        - Compliance Certificate
Exhibit D        - Form of Mortgage
Exhibit E        - Form of Pledge and Security Agreement
Exhibit F        - Confirmation of Guaranty
Exhibit G        - Confirmation of Hurco Guaranty
Exhibit H        - Hurco Fiscal Year 2002 Outlook
Exhibit I        - Wire Transfer Instructions
Exhibit J        - Form of Opinion




<PAGE>




                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT
                                       AND
                      AMENDMENT TO REIMBURSEMENT AGREEMENT

         This Second Amended and Restated Credit Agreement and Amendment to
Reimbursement Agreement, dated as of October 31, 2001, is between Hurco
Companies, Inc., an Indiana corporation, and Bank One, Indiana, NA, a national
banking association having its principal office in Indianapolis, Indiana. The
parties hereto agree as follows:


                                  INTRODUCTION


         A.       Hurco  Companies,  Inc.  (defined below as the Borrower) and
the Bank are parties to that certain Amended and Restated Credit  Agreement and
Amendment to  Reimbursement  Agreement dated as of September 8, 1997, as
amended by the First Amendment to Amended and Restated Credit  Agreement and
Amendment to  Reimbursement  Agreement dated as of September  29, 1998,
the Second  Amendment to Amended and Restated  Credit  Agreement and Amendment
to Reimbursement  Agreement  dated as of December  19, 1998 and the Third
Amendment  to Amended and  Restated  Credit Agreement and Amendment to
Reimbursement  Agreement dated as of August 17, 1999 (as amended,  the
"Existing Credit Agreement"),  pursuant to which the Bank has provided to the
Borrower  (or certain of the  Borrower's  Subsidiaries as further described
therein) a $25,000,000  revolving credit facility,  including letters of credit
(the "Existing Revolving Credit"), all for the purposes and on the terms
therein set forth.

         B.       Pursuant to a Letter  Agreement  dated as of August 17,  1999,
as amended,  among Hurco  Europe, Hurco GmbH,  Hurco B.V.,  Hurco S.A.R.L.
(each as defined below),  Bank One, NA, London Branch  (formerly known as
The First  National Bank of Chicago,  London  Branch) and Bank One, NA,
Frankfurt  Branch  (formerly  known as The First National Bank of Chicago,
Frankfurt Branch), Bank One, NA, London Branch and Bank One, NA, Frankfurt
Branch have  extended a credit  facility in the amount of $5,000,000  to Hurco
Europe,  Hurco GmbH,  Hurco B.V. and Hurco S.A.R.L. (the "European Facility").

         C. The Borrower and Bank One, Michigan (formerly known as NBD Bank,
Michigan) are parties to a Reimbursement Agreement (as defined below), pursuant
to which Bank One, Michigan has issued the IRB L/C (as defined below). The
Borrower wishes to amend the Reimbursement Agreement to coordinate its
provisions with those of this Agreement. Pursuant to a Participation Agreement
dated as of September 8, 1997 (the "Participation Agreement"), the Bank
purchased a 100% participation in Bank One, Michigan's rights and obligations
under the Reimbursement Agreement and the IRB L/C.

         D. The Borrower desires to replace the Existing Revolving Credit and
refinance the indebtedness outstanding thereunder, to be used for working
capital and general corporate purposes, to modify the terms of the Existing
Credit Agreement in certain other respects, and therefor to amend and restate
the Existing Credit Agreement, and the Bank is willing to do so on the terms
herein set forth.
<PAGE>

         E. In connection with amending and restating the Existing Credit
Agreement, the European Facility will also be amended and extended, the amount
of which will be limited by the facilities outstanding hereunder.

         The Bank is willing to undertake these additional matters and amend the
Reimbursement Agreement, all on the terms set forth below.

         In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:


                                    ARTICLE I

                                   DEFINITIONS


         1.1      Certain  Definitions.  As  used  herein,  the  following
terms  have  the  following  respective meanings::

         "Active Subsidiary" means a Subsidiary of the Borrower which is not an
Inactive Subsidiary.

         "Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or limited liability
company, or division thereof, whether through purchase of assets, merger or
otherwise or (ii) directly or indirectly acquires (in one transaction or as the
most recent transaction in a series of transactions) at least a majority (in
number of votes) of the securities of a corporation which have ordinary voting
power for the election of directors (other than securities having such power
only by reason of the happening of a contingency) or a majority (by percentage
or voting power) of the outstanding ownership interests of a partnership or
limited liability company.

         "Advance" means a borrowing hereunder, (i) made by the Bank on the same
Borrowing Date, or (ii) converted or continued by the Bank on the same date of
conversion or continuation, consisting, in either case, of the aggregate amount
of the several Credit Extensions of the same Type and, in the case of Eurodollar
Advances, for the same Interest Period.

         "Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.

         "Agreement" means this Second Amended and Restated Credit Agreement and
Amendment to Reimbursement Agreement, as it may be amended or modified and in
effect from time to time.

         "Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
<PAGE>

         "Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Prime Rate for such day and (ii) the sum of the
Federal Funds Effective Rate for such day plus 1% per annum.

         "Applicable Margin" means, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type:

         (a) from and including the Effective Date through October 31, 2001:

                  Eurodollar Advances:  1.0%
                  Floating Rate Advances:  0.0%

         (b) from and including November 1, 2001 and thereafter, as follows:
<TABLE>

Date                                           Eurodollar Advances                   Floating Rate Advances
- ---------------------------------------------- ------------------------------------- ----------------------------------
<S>                                            <C>                                   <C>
From and  including  November 1, 2001 through  2.0% per annum                        0% per annum
April 30, 2002
- ---------------------------------------------- ------------------------------------- ----------------------------------
- ---------------------------------------------- ------------------------------------- ----------------------------------
From and  including  May 1, 2002 through July  3.0% per annum                        1.0% per annum
31, 2002
- ---------------------------------------------- ------------------------------------- ----------------------------------
- ---------------------------------------------- ------------------------------------- ----------------------------------
From  and   including   August  1,  2002  and  3.5% per annum                        1.5% per annum
thereafter
- ---------------------------------------------- ------------------------------------- ----------------------------------
</TABLE>

         "Article" means an article of this Agreement unless another document is
specifically referenced.

         "Authorized Officer" means any of the Chief Executive Officer, Chief
Financial Officer, Executive Vice President, or Corporate Controller of the
Borrower, acting singly.
<PAGE>

         "Autocon" means Autocon  Technologies,  Inc., an Indiana  corporation
and  wholly-owned  Subsidiary of the Borrower.

         "Bank" means Bank One, Indiana, NA, a national banking association
having its principal office in Indianapolis, Indiana, any of its Lending
Installations listed on Schedule 2 attached hereto, and any of their respective
successors and assigns.

         "Bond Default", as used in the Reimbursement Agreement, means the
occurrence of an Event of Default under Section 610(h) of the Trust Indenture or
under Section 201(d)(5) of the Trust Indenture, or any corresponding default
under the Loan Agreement referred to in the Trust Indenture.

         "Borrower" means Hurco Companies, Inc., an Indiana corporation, and its
successors and assigns.

         "Borrowing Base" means, as of any date, an amount equal to the sum,
without duplication, of:

                  (i)      90% of the book value of cash on  deposit  with the
                           Bank or Bank One,  Michigan,  on the
                           date of calculating the Borrowing Base, plus

                  (ii)     55% of the book value of Eligible Finished Goods
                           Inventory as of such date, plus

                  (iii)    40% of the book value of Eligible Inventory as of
                           such date, plus

                  (iv)     80% of the book value of Eligible Receivables as of
                           such date, plus

                  (v)      So long as the Eligible Real Estate is subject to the
                           Mortgage, the appraised  value of Eligible Real
                           Estate, not to exceed $4,000,000, plus

                  (vi)     40% of the book value of Eligible  Foreign  Finished
                           Goods Inventory  as of such date, plus

                  (vii)    40% of the book value of Eligible Foreign Receivables
                           as of such date.

         Notwithstanding the foregoing, assets which are subject to any
Permitted Lien described in subsections (vii), (viii), or (ix) of Section 6.15
shall not be included in calculating the Borrowing Base.

         "Borrowing Base Certificate" for any date means an appropriately
completed report as of such date in substantially the form of Exhibit B,
certified as true and correct by an Authorized Officer.

         "Borrowing Date" means a date on which an Advance is made hereunder.

         "Borrowing Notice" is defined in Section 2.8.
<PAGE>

         "Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities, interbank wire
transfers can be made on the Fedwire system and dealings in Dollars are carried
on in the London interbank market and (ii) for all other purposes, a day (other
than a Saturday or Sunday) on which banks generally are open in Chicago for the
conduct of substantially all of their commercial lending activities and
interbank wire transfers can be made on the Fedwire system.

         "Business Plan" means the Fiscal Year 2002 Outlook prepared by the
Borrower and attached as Exhibit H.

         "Capital Expenditures" means, without duplication, any expenditures for
any purchase or other acquisition of any asset which would be classified as a
fixed or capital asset on a consolidated balance sheet of the Borrower and its
Subsidiaries prepared in accordance with Agreement Accounting Principles.

         "Capital Stock" of any person means any equity securities, any
securities exchangeable for or convertible into equity securities, and any
warrants, rights, or other options to purchase or otherwise acquire such
securities.

         "Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.

         "Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.

         "Cash Equivalent Investments" means (i) short-term obligations of, or
fully guaranteed by, the United States of America, (ii) commercial paper rated
A-1 or better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts
maintained in the ordinary course of business, (iv) certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000, and (v) deposits in the
Commodities Futures Account maintained by the Borrower with Prudential
Securities, Inc.; provided in each case that the same provides for payment of
both principal and interest (and not principal alone or interest alone) and is
not subject to any contingency (other than the passage of time or notice)
regarding the payment of principal or interest.

         "CIMPlus Option" means the option held by the Borrower to purchase core
technology and all license agreements related to such core technology from
CIMPlus, Inc. for an amount not to exceed $1,850,000, including but not limited
to, all software, formulas, patents, and intellectual property owned by CIMPlus,
Inc. and all enhancements created by CIMPlus, Inc. pursuant to a certain
development agreement.

         "Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.

         "Collateral" means the "Collateral" under and as defined in the
Collateral Documents.
<PAGE>

         "Collateral Documents" means, collectively, the Pledge Agreements, the
Mortgage, the Guaranty, the Hurco Guaranty, the Confirmation of Guaranty
substantially in the form of Exhibit F, the Confirmation of Hurco Guaranty
substantially in the form of Exhibit G, and all other agreements granting a Lien
in favor of the Bank securing the Secured Obligations, as any of the foregoing
may be amended or modified from time to time, including any and all other
security agreements, mortgages and pledge agreements delivered hereafter.

         "Collateral Shortfall Amount" is defined in Section 8.1.

         "Commitment" means, the obligation of the Bank to make Loans to, and
issue Facility LCs upon the application of, the Borrower in an aggregate amount
not exceeding $22,500,000, reduced by (i) $2,500,000 from and including May 1,
2002 and thereafter, and (ii) the amount as required pursuant to Section 2.5(d)
and Section 2.5(e).

         "Consolidated Assets" as of any date means the aggregate book value of
the total assets of the Borrower and its Subsidiaries determined on a
consolidated basis in accordance with Agreement Accounting Principles.

         "Consolidated Capital Expenditures" means, with reference to any
period, the Capital Expenditures of the Borrower and its Subsidiaries calculated
on a consolidated basis for such period.

         "Consolidated EBITDA" means Consolidated Net Income determined in
accordance with Agreement Accounting Principles plus, to the extent deducted in
determining Consolidated Net Income, (i) Consolidated Interest Expense, (ii)
expense for taxes, (iii) depreciation, (iv) amortization, (v) extraordinary
losses incurred other than in the ordinary course of business, (vi) severance
costs, (vii) non-cash asset write downs, (viii) non-cash loss on equity interest
of Affiliates, minus, to the extent included in Consolidated Net Income,
extraordinary gains realized other than in the ordinary course of business
(including without limitation non-cash gains on equity interest of Affiliates
recorded after July 31, 2001), all calculated for the Borrower and its
Subsidiaries on a consolidated basis.

         "Consolidated Interest Expense" means, with reference to any period,
the interest expense of the Borrower and its Subsidiaries (including the
interest component of Rentals under Capitalized Leases and capitalized interest)
calculated on a consolidated basis for such period.

         "Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Borrower and its Subsidiaries calculated on a
consolidated basis for such period.

         "Consolidated Tangible Net Worth" means, as of any date, (a) the amount
of any Capital Stock, paid-in-capital, and similar equity accounts of the
Borrower and its Subsidiaries calculated on a consolidated basis as of such
time, plus (or minus in the case of a deficit) the capital surplus and retained
earnings of the Borrower and its Subsidiaries calculated on a consolidated basis
as of such time and excluding the amount of "Other Comprehensive Income" of the
Borrower and its Subsidiaries calculated on a consolidated basis as of such
time, plus (b) the amount of any Subordinated Debt of the Borrower and its
Subsidiaries calculated on a consolidated basis as of such time, less (c) any
treasury stock of the Borrower and its Subsidiaries calculated on a consolidated
basis as of such time, and less (d) the Intangible Assets of the Borrower and
its Subsidiaries calculated on a consolidated basis as of such time.
<PAGE>

         "Consolidated Total Capitalization" means at any time the sum of
Consolidated Total Indebtedness and Consolidated Tangible Net Worth, each
calculated at such time.

         "Consolidated Total Indebtedness" means, as of any date, the
Indebtedness of the Borrower and its Subsidiaries, determined on a consolidated
basis in accordance with Agreement Accounting Principles, which, without
duplication, either (a) is interest-bearing and, in accordance with Agreement
Accounting Principles, should be reflected on a consolidated balance sheet of
the Borrower and its Subsidiaries as of such date or (b) consists of Letters of
Credit, valued at the undrawn face amount thereof.

         "Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or the obligations of any such Person as general
partner of a partnership with respect to the liabilities of the partnership.

         "Conversion/Continuation Notice" is defined in Section 2.9.

         "Controlled Group" means all members of a controlled group of
corporations or other business entities and all trades or businesses (whether or
not incorporated) under common control which, together with the Borrower or any
of its Subsidiaries, are treated as a single employer under Section 414 of the
Code.

         "Credit Extension" means the making of an Advance or the issuance of a
Facility LC hereunder.

         "Credit Extension Date" means the Borrowing Date for an Advance or the
issuance date for a Facility LC.

         "Credit Obligations" means all present and future obligations and other
liabilities of the Borrower and its Subsidiaries (without duplication) arising
under or included within the Outstanding Facilities, as amended from time to
time, including without limitation any interest, premium, fees, expenses, and
charges relating thereto and any renewals, extensions, and refundings of the
foregoing. The principal amount of the Credit Obligations shall be the aggregate
of the outstanding principal amount of all loans outstanding under the
Outstanding Facilities plus the undrawn face amount of the IRB L/C and the
Facility LCs plus, the unreimbursed portions of any amounts drawn under the IRB
L/C.

         "Default" means an event described in Article VII.

         "Dollars" and "$" shall mean the lawful currency of the United States
of America.

         "Domestic Subsidiaries" means all Subsidiaries of the Borrower which
are organized under the laws of one of the states of the United States.

         "Effective Date" means the date on which the Borrower satisfies the
conditions set forth in Section 4.1.
<PAGE>

         "Eligible Finished Goods Inventory" means, as of any date, all
inventory that is located within or is in transit to the United States (which
shall not be deemed to include any territories of the United States) and that
constitutes finished goods included in the consolidated financial statements of
the Borrower and its Subsidiaries, determined in accordance with Agreement
Accounting Principles.

         "Eligible Foreign Finished Goods Inventory" means, as of any date, all
inventory that constitutes finished goods included in the consolidated financial
statements of the Borrower and its Subsidiaries, determined in accordance with
Agreement Accounting Principles, that is not Eligible Finished Goods Inventory.

         "Eligible Foreign Receivables" means, as of any date, all accounts
receivable that are payable by any person located outside of the United States
(which shall not be deemed to include any territories of the United States) and
Canada and included in the consolidated financial statements of the Borrower and
its Subsidiaries, before reserves for bad debts, all determined in accordance
with Agreement Accounting Principles, other than any such accounts receivable
which are more than 90 days past due or are due from any Affiliate or Subsidiary
of the Borrower.

         "Eligible Inventory" means, as of any date, all inventory, including
without limitation raw materials and work in process but excluding finished
goods, included in the consolidated financial statements of the Borrower and its
Subsidiaries, determined in accordance with Agreement Accounting Principles.

         "Eligible Real Estate" shall mean, as of any date, that real property
owned by the Borrower or any Subsidiary in which the Bank holds a first priority
perfected lien pursuant to the Mortgage.

         "Eligible Receivables" means, as of any date, all accounts receivable
included in the consolidated financial statements of the Borrower and its
Subsidiaries, before reserves for bad debts, all determined in accordance with
Agreement Accounting Principles, other than any such accounts receivable which
are more than 90 days past due, are due from any Affiliate or Subsidiary of the
Borrower, or are payable by any person located outside the United States (which
shall not be deemed to include any territories of the United States) and Canada.

         "Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
(i) the protection of the environment, (ii) the effect of the environment on
human health, (iii) emissions, discharges or releases of pollutants,
contaminants, hazardous substances or wastes into surface water, ground water or
land, or (iv) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, hazardous
substances or wastes or the clean-up or other remediation thereof.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.

         "Equivalent Amount" of any currency with respect to any amount of
Dollars at any date shall mean the equivalent in such currency of such amount of
Dollars, calculated on the basis of the arithmetical mean of the buy and sell
spot rates of exchange of the Bank for such other currency at 11:00 a.m., London
time, on the date on or as of which such amount is to be determined.
<PAGE>

         "Eurodollar Advance" means an Advance which, except as otherwise
provided in Section 2.11, bears interest at the applicable Eurodollar Rate.

         "Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) the Applicable Margin.

         "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for
the relevant Interest Period, the applicable British Bankers' Association
Interest Settlement Rate for deposits in Dollars appearing on Reuters Screen
FRBD as of 11:00 a.m. (London time) two Business Days prior to the first day of
such Interest Period, and having a maturity equal to such Interest Period,
provided that, (i) if Reuters Screen FRBD is not available to the Bank for any
reason, the applicable Eurodollar Base Rate for the relevant Interest Period
shall instead be the applicable British Bankers' Association Interest Settlement
Rate for deposits Dollars as reported by any other generally recognized
financial information service as of 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period, and having a maturity equal to
such Interest Period, and (ii) if no such British Bankers' Association Interest
Settlement Rate is available to the Bank, the applicable Eurodollar Base Rate
for the relevant Interest Period shall instead be the rate determined by the
Bank to be the rate at which the Bank or one of its Affiliate banks offers to
place deposits in Dollars with first-class banks in the London interbank market
at approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period, in the approximate amount of the relevant
Eurodollar Advances and having a maturity equal to such Interest Period.

         "European Facility" is defined in the Introduction to this Agreement.

         "European Subsidiaries" means, collectively, Hurco Europe, Hurco GmbH,
Hurco B.V., and Hurco S.A.R.L.

         "Excluded Taxes" means, in the case of the Bank or applicable Lending
Installation, taxes imposed on its overall net income, and franchise taxes
imposed on it, by (i) the jurisdiction under the laws of which the Bank is
incorporated or organized or (ii) the jurisdiction in which the Bank's principal
executive office or the Bank's applicable Lending Installation is located.

         "Exhibit" refers to an exhibit to this Agreement, unless another
document is specifically referenced.

         "Existing Credit Agreement" is defined in the Introduction to this
Agreement.

         "Existing Revolving Credit" is defined in the Introduction to this
Agreement.

         "Facility LC" is defined in Section 2.18.1.

         "Facility LC Application" is defined in Section 2.18.3.

         "Facility LC Collateral Account" is defined in Section 2.18.8.

         "Facility Termination Date" means December 31, 2002.
<PAGE>

         "Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Bank from three Federal
funds brokers of recognized standing selected by the Bank in its sole
discretion.

         "Floating Rate" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case
changing when and as the Alternate Base Rate changes.

         "Floating Rate Advance" means an Advance which, except as otherwise
provided in Section 2.11, bears interest at the Floating Rate.

         "Foreign Subsidiaries" means all Subsidiaries of the Borrower which are
organized under the laws of any jurisdiction other than one of the states of the
United States.

         "Guarantors" means Autocon and IMS as signatories to the Guaranty and
any other Person who guaranties to the Bank the Borrower's payment and
performance of its obligations under this Agreement and the other Loan
Documents, including without limitation each other Subsidiary which becomes a
party to the Guaranty after the date of this Agreement and their respective
successors and assigns.

         "Guaranty" means that certain Guaranty dated as of September 8, 1997
executed by the Guarantors in favor of the Bank, as it may be amended, modified
or confirmed and in effect from time to time.

         "Hurco B.V." means Hurco B.V., a limited  liability  company  organized
under the laws of the Netherlands, and an indirect wholly-owned subsidiary of
the Borrower.

         "Hurco Deferred Compensation Plan" means the unfunded plan adopted by
the Borrower for the purpose of providing deferred compensation for a select
group of management personnel or other employees of the Borrower, as evidenced
by the CORPORATEplan for Retirement Select Plan and Basic Plan Document
effective as of July 1, 1996, as amended, and the related Hurco Deferred
Compensation Plan Trust Agreement.

         "Hurco Deferred Compensation Plan Trust Agreement" means the Trust
Agreement dated as of April 11, 1996, between the Borrower and Fidelity
Management Trust Company, as amended.

         "Hurco Europe" means Hurco Europe Limited, a corporation organized
under the laws of England and Wales, and an indirect wholly-owned subsidiary of
the Borrower.

         "Hurco GmbH" means Hurco GmbH Werkzeugmaschinen CIM-Bausteine Vertreib
und Service, a corporation organized under the laws of the Federal Republic of
Germany, and an indirect wholly-owned subsidiary of the Borrower.
<PAGE>

         "Hurco Guaranty" means the Hurco Guaranty dated as of September 8,
1997, executed by the Borrower in favor of the Bank, by which the Borrower has
guaranteed to the Bank the obligations of the European Subsidiaries under the
European Facility, as it may be amended, modified or confirmed and in effect
from time to time.

         "Hurco S.A.R.L." means Hurco S.A.R.L.,  a limited  liability  company
organized under the laws of France, and an indirect wholly-owned subsidiary of
the Borrower.

         "IMS" means IMS Technology, Inc., a Virginia corporation and
wholly-owned subsidiary of the Borrower.

         "Inactive Subsidiary" means a Subsidiary of the Borrower not actively
engaged in business, and which has assets with a book value less than or equal
to $10,000. Schedule 4.4 lists all Inactive Subsidiaries existing on the
Effective Date.

         "Indebtedness" of a Person means, without duplication, such Person's
(i) obligations for borrowed money (including without limitation, with respect
to the Borrower, all Reimbursement Obligations, all Credit Obligations and all
Rate Management Transactions), (ii) obligations representing the deferred
purchase price of Property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (iii) obligations, whether or not assumed, secured by Liens or payable
out of the proceeds or production from Property now or hereafter owned or
acquired by such Person, (iv) obligations which are evidenced by notes,
acceptances, or other instruments, (v) obligations of such Person to purchase
securities or other Property arising out of or in connection with the sale of
the same or substantially similar securities or Property, (vi) Capitalized Lease
Obligations, (vii) all obligations of such Person to purchase goods, property,
or services where payment therefor is required, regardless of whether delivery
of such goods or property or the performance of such services is ever made or
tendered (generally referred to as "take or pay contracts"), (viii) all
liabilities of such person in respect of Unfunded Liabilities under any Plan of
such Person or of any ERISA Affiliate and (ix) any other obligation for borrowed
money or other financial accommodation which in accordance with Agreement
Accounting Principles would be shown as a liability on the consolidated balance
sheet of such Person, including without limitation all obligations of others
similar in character to those described in clauses (i) through (viii) of this
definition for which such Person is contingently liable, as guarantor, surety,
accommodation party, partner or in any other capacity, or in respect of which
obligations such person assures a creditor against loss or agrees to take any
action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including
without limitation all reimbursement obligations of such Person in respect of
letters of credit, surety bonds, or similar obligations, and all obligations of
such Person to advance funds to, or to purchase assets, property or services
from, any other Person in order to maintain the financial condition of such
other Person.
<PAGE>

         "Intangible Assets" means, for the Borrower or any of its Subsidiaries,
the net book value, calculated in accordance with Agreement Accounting
Principles, of all items of the following character which are included in the
assets of such person: (i) goodwill, including without limitation the excess of
cost over book value of any asset, (ii) organization or experimental expenses,
(iii) unamortized debt discount and expense, (iv) patents, trademarks, trade
names and copyrights, (v) deferred taxes and deferred charges, (vi) franchises,
licenses and permits, and (vii) other assets which are deemed intangible assets
under Agreement Accounting Principles.

         "Intellectual Property" is defined in Section 5.26.

         "Interest Period" means, with respect to a Eurodollar Advance, a period
of one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on the day
which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.

         "Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade) or contribution of capital by such Person; stocks, bonds, mutual funds,
partnership interests, notes, debentures or other securities owned by such
Person; any deposit accounts and certificate of deposit owned by such Person;
and structured notes, derivative financial instruments and other similar
instruments or contracts owned by such Person.

         "IRB Bonds" means the $1,000,000 City of Indianapolis Economic
Development Revenue Bonds (Hurco Companies, Inc. Project), Series 1990, and the
related Loan Agreement dated as of September 1, 1990, between the City of
Indianapolis, Indiana, and the Borrower.

         "IRB L/C" means the Irrevocable Letter of Credit No. 252 issued by Bank
One, Michigan (formerly NBD Michigan) in favor of First of America
Bank-Indianapolis, in the original face amount of $1,060,274, pursuant to the
Reimbursement Agreement in support of the IRB Bonds, and any letter of credit
issued by the Bank in exchange or replacement therefor.

         "LC Fee" is defined in Section 2.18.4.

         "LC Obligations" means, at any time, the sum, without duplication, of
(i) the aggregate undrawn stated amount under all Facility LCs outstanding at
such time plus (ii) the aggregate unpaid amount at such time of all
Reimbursement Obligations.

         "LC Payment Date" is defined in Section 2.18.5.

         "Lending Installation" means, with respect to the Bank, the office,
branch, subsidiary or affiliate of the Bank listed on Schedule 2 or otherwise
selected by the Bank pursuant to Section 2.16.
<PAGE>

         "Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.

         "Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).

         "Loan" means the Bank's loan made pursuant to Article II (or any
conversion or continuation thereof).

         "Loan Documents" means this Agreement, the Facility LC Applications,
any Notes issued pursuant to Section 2.15, the Reimbursement Agreement, the
European Facility, the Collateral Documents, the Guaranty, the Hurco Guaranty,
the Mortgage, and all other agreements and documents executed or delivered in
connection with any of the foregoing at any time, as each may be amended or
modified from time to time.

         "Long Term Mortgage Financing" means a long term mortgage loan of the
Borrower from a third party lender secured by the Borrower's headquarters in the
maximum principal amount of $5,000,000.

         "MDS" means Manufacturing Data Systems Inc.

         "MDS Loan Agreement" means the Loan Agreement between the Borrower and
MDS dated as of March 29, 2001, pursuant to which the Borrower extends credit to
MDS in the principal amount of $1,000,000.

         "Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower or any Subsidiary to perform its obligations under the
Loan Documents to which it is a party, or (iii) the validity or enforceability
of any of the Loan Documents or the rights or remedies of the Bank thereunder.

         "Modify" and "Modification" are defined in Section 2.18.1.

         "Moody's" means Moody's Investors Service, Inc.

         "Mortgage" means a mortgage, deed of trust or similar document granting
a Lien on real estate entered into by the Borrower, any Subsidiary or any
Guarantor for the benefit of the Bank pursuant to this Agreement, substantially
in the form of Exhibit D, as amended or modified from time to time.

         "Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
<PAGE>

         "Net Cash Proceeds" means, without duplication (a) in connection with
any sale or other disposition of any asset or any settlement by, or receipt of
payment in respect of, any property insurance claim or condemnation award, the
cash proceeds (including any cash payments received by way of deferred payment
of principal pursuant to a note or installment receivable or purchase price
adjustment receivable or otherwise, but only as and when received) of such sale,
settlement or payment, net of reasonable and documented attorneys' fees,
accountants' fees, investment banking fees, amounts required to be applied to
the repayment of Indebtedness secured by a Lien expressly permitted hereunder on
any asset which is the subject of such sale, insurance claim or condemnation
award (other than any Lien in favor of the Bank) and other customary fees
actually incurred in connection therewith and net of taxes paid or reasonably
estimated to be payable as a result thereof and (b) in connection with any
issuance or sale of any equity securities or debt securities or instruments or
the incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of investment banking fees, reasonable and documented attorneys'
fees, accountants' fees, underwriting discounts and commissions and other
reasonable and customary fees and expenses actually incurred in connection
therewith.

         "New Hurco GmbH Facility" means a credit facility of Hurco GmbH and/or
Hurco B.V. in a maximum principal Equivalent Amount of $5,000,000 obtained from
a third party lender after the Effective Date, which may be secured by assets of
Hurco GmbH and/or Hurco B.V. without further consent from the Bank and an
unsecured guaranty of payment of the Borrower and any of its Subsidiaries.

         "Note" is defined in Section 2.15 and includes any and all notes
executed pursuant to this Agreement, each in the form of Exhibit A.

         "Obligations" means all Reimbursement Obligations, Credit Obligations,
and all accrued and unpaid fees and all expenses, reimbursements, indemnities
and other obligations of the Borrower to the Bank or any indemnified party
arising under the Loan Documents.

         "Operating Lease" of a Person means any lease of Property (other than a
Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals and any renewals effective at the option of the
lessor) of one year or more.

         "Other Taxes" is defined in Section 3.5(ii).

         "Outstanding Credit Exposure" means, as to the Bank at any time, the
sum of (i) the aggregate principal amount of its Advances outstanding at such
time, plus (ii) an amount equal to the LC Obligations at such time.

         "Outstanding Facilities" means, collectively and without duplication,
the Advances, the Reimbursement Agreement, the IRB L/C, the European Facility,
and the Facility LCs, each as existing following the Effective Date.

         "Participants" is defined in Section 11.2.1.

         "Participation Agreement" is defined in the Introduction to this
Agreement.

         "Payment Date" means the last day of each quarter.

         "PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
<PAGE>

         "Permitted Liens" means Liens permitted by Section 6.15.

         "Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.

         "Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.

         "Pledge Agreements" means, collectively, the Pledge and Security
Agreements dated of even date herewith executed by the Borrower and the
Guarantors in favor of the Bank substantially in the form of Exhibit E.

         "Pledgor" means, collectively, the Borrower and the Guarantors.

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

         "Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.

         "Rate Management Transaction" means any transaction (including an
agreement with respect thereto) now existing or hereafter entered into between
the Borrower and any Person which is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
forward transaction, currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar transaction (including any
option with respect to any of these transactions) or any combination thereof,
whether linked to one or more interest rates, foreign currencies, commodity
prices, equity prices or other financial measures.

         "Rate Management Obligations" of a Person means any and all obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Management Transactions, and (ii) any and all cancellations, buy backs,
reversals, terminations or assignments of any Rate Management Transactions.

         "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.

         "Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
<PAGE>

         "Reimbursement Agreement" means the Reimbursement Agreement dated as of
September 1, 1990, as amended, between the Borrower and Bank One, Michigan
(formerly known as NBD Michigan), pursuant to which the IRB L/C was issued.

         "Reimbursement Obligations" means, at any time, the aggregate of all
obligations of the Borrower then outstanding under Section 2.18 to reimburse the
Bank for amounts paid by the Bank in respect of any one or more drawings under
Facility LCs.

         "Rentals" of a Person means the aggregate fixed amounts payable by such
Person under any Operating Lease.

         "Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.

         "Reports" is defined in Section 9.6.

         "Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurodollar
liabilities.

         "S&P" means Standard and Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc.

         "Sale and Leaseback Transaction" means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.

         "SBT" means the so-called Single Business Tax imposed by the State of
Michigan.

         "Schedule" refers to a specific schedule to this Agreement, unless
another document is specifically referenced.

         "Section" means a numbered section of this Agreement, unless another
document is specifically referenced.

         "Secured Obligations" means, collectively, (i) the Obligations and (ii)
all Rate Management Obligations owing to the Bank or any of its Affiliates.

         "Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.

         "Subordinated Indebtedness" of a Person means any Indebtedness of such
Person the payment of which is subordinated to payment of the Secured
Obligations to the written satisfaction of the Bank.
<PAGE>

         "Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Borrower.

         "Substantial Portion" means, with respect to the Property of the
Borrower and its Subsidiaries, Property which (i) represents more than 10% of
the consolidated assets of the Borrower and its Subsidiaries as would be shown
in the consolidated financial statements of the Borrower and its Subsidiaries as
at the beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 10% of the
consolidated net sales or of the Consolidated Net Income of the Borrower and its
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.

         "Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.

         "Transferee" is defined in Section 11.3.

         "Trust Indenture" means the Trust Indenture dated as of September 1,
1990, between the City of Indianapolis, Indiana, and First of America
Bank-Indianapolis, as trustee, as amended from time to time, entered into in
conjunction with the IRB Bonds.

         "Type" means, with respect to any Advance, its nature as a Floating
Rate Advance or a Eurodollar Advance.

         "Unfunded Liabilities" means the amount (if any) by which the present
value of all vested and unvested accrued benefits under all Single Employer
Plans exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.

         "Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.

         "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (ii) any partnership, limited liability company,
association, joint venture or similar business organization 100% of the
ownership interests having ordinary voting power of which shall at the time be
so owned or controlled.
<PAGE>

         1.2 Other Definitions; Rules of Construction. The foregoing definitions
include both the singular and the plural forms thereof and shall be construed
accordingly. All computations required hereunder and all financial terms used
herein shall be made or construed in accordance with Agreement Accounting
Principles unless such principles are inconsistent with the express requirements
of this Agreement; provided that, if the Borrower notifies the Bank that the
Borrower wishes to amend any covenant in Article VI to eliminate the effect of
any change in Agreement Accounting Principles in the operation of such covenant
(or if the Bank notifies the Borrower that the Bank wishes to amend Article VI
for such purpose), then the Borrower's compliance with such covenant shall be
determined on the basis of Agreement Accounting Principles in effect immediately
before the relevant change in Agreement Accounting Principles became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Borrower and the Bank. Use of the terms "herein", "hereof",
and "hereunder" shall be deemed references to this entire Agreement and not to
the Section or clause in which the term appears. References to "Sections" and
"subsections" shall be to Sections and subsections, respectively, of this
Agreement unless otherwise specifically provided.
<PAGE>
                                   ARTICLE II

                                   THE CREDITS

         2.1. Commitment. (a) From and including the Effective Date and prior to
the Facility Termination Date, the Bank agrees, on the terms set forth in this
Agreement, to (i) make Advances to the Borrower and (ii) issue Facility LCs upon
the request of the Borrower not to exceed in the aggregate principal amount at
any time outstanding the lesser of (A) the amount of the Borrowing Base as of
the close of business on the last day of the month next preceding the date any
such Advance is made and (B) the amount of the Commitment as of the date any
such Advance is made, provided, however, that the aggregate principal amount of
Facility LCs outstanding at any time shall not exceed $15,000,000. Subject to
the terms of this Agreement, the Borrower may borrow, repay and reborrow at any
time prior to the Facility Termination Date. The Commitment to extend credit
hereunder shall expire on the Facility Termination Date. The Bank will issue
Facility LCs hereunder on the terms and conditions set forth in Section 2.18.

         (b) The Bank agrees that this Agreement consolidates, amends, restates,
and supersedes the Existing Credit Agreement, and the Borrower acknowledges,
accepts, and ratifies the Outstanding Facilities evidenced by this Agreement.
All amounts outstanding under the Existing Credit Agreement on the Effective
Date shall constitute Advances under Section 2.1(a), with each existing
Eurodollar Advance remaining outstanding under its existing Interest Period.
Each letter of credit, bankers acceptance, and bank guaranty issued by the Bank
for the Borrower's account which is outstanding under the Existing Credit
Agreement on the Effective Date (other than the IRB L/C) shall be treated for
all purposes as Facility LCs issued by the Bank under this Agreement.

         2.2.     Required  Payments;  Termination.  (a) The  Outstanding
Credit  Exposure  and all  other  unpaid Obligations shall be paid in full by
the Borrower on the Facility Termination Date.

         (b) The Borrower shall pay or cause to be paid when due (i) all
regularly scheduled principal payments on the Outstanding Facilities and (ii)
all payments of interest and fees (including without limitation amendment fees,
letter of credit fees, and facility fees) which are owing under the Outstanding
Facilities.

         2.3.     Reserved.
                  --------

         2.4.     Types of Advances.  The Advances  may be Floating  Rate
Advances or  Eurodollar  Advances,  or a combination thereof, selected by the
Borrower in accordance with Sections 2.8 and 2.9.

         2.5.     Fees;  Reductions in  Commitment.

        (a) Amendment  Fee. The Borrower  agrees to pay to the Bank on
or prior to the  Effective  Date an  amendment  fee in the  amount of  $22,500
or  one-thousandth  of one  percent (0.001%) of the Bank's Commitment Amount.
<PAGE>

         (b) Facility Fee. The Borrower agrees to pay to the Bank a facility fee
equal to (A) on May 1, 2002, $50,000 and (B) on August 1, 2002, $100,000,
provided that, (i) if all Obligations are repaid and the Commitment is
terminated on or before May 1, 2002, the entire facility fee in the amount of
$150,000 shall be forgiven, (ii) if the Commitment is reduced to not more than
$15,000,000 and no Default or Unmatured Default has occurred and is then
existing, the facility fee in the amount of $50,000 due on May 1, 2002 shall be
forgiven, and (iii) if all Obligations are repaid and the Commitment is
terminated on or before August 1, 2002, the facility fee in the amount of
$100,000 due on August 1, 2002 shall be forgiven, and provided further, if a
Default occurs, the entire facility fee not previously paid shall be earned as
of the Default occurring and be payable by the Borrower to the Bank in
accordance with subsections (A) and (B) above.

         (c) LC Fees. Without duplication for fees previously paid on Letters of
Credit issued under the Existing Credit Agreement and outstanding on the
Effective Date, the Borrower shall pay to the Bank (i) with respect to each
standby Facility LC, a letter of credit fee at a per annum rate equal to the
Applicable Margin for Eurodollar Advances in effect from time to time on the
average daily undrawn stated amount under such standby Facility LC, subject to
the Bank's standard minimum fee existing at the time of issuance, such fee to be
payable in advance on each Payment Date, and (ii) with respect to each
commercial Facility LC, a one-time letter of credit fee at times and in amounts
as the Borrower and the Bank may agree from time to time (each such fee
described in this sentence, an "LC Fee"). The Borrower shall also pay to the
Bank at the time each Facility LC is issued documentary and processing charges
in connection with the issuance or Modification of and draws under Facility LCs
in accordance with the Bank's standard schedule for such charges as in effect
from time to time.

         (d) Optional Reductions in Commitment. From time to time, the Borrower
may permanently reduce the Commitment in a minimum amount of $1,000,000 and in
integral multiples of $500,000, upon written notice to the Bank, which notice
shall specify the amount of any such reduction, provided, however, that the
amount of the Commitment may not be reduced below the Outstanding Credit
Exposure.

         (e)      Mandatory  Prepayments/Reductions  in Commitment.
Notwithstanding anything in this Agreement to the contrary:

                  (i) In addition to all other payments required hereunder, if
at any time the aggregate Outstanding Credit Exposure exceeds the lesser of the
Borrowing Base or the Commitment, and upon written notice from the Bank of such
occurrence, the Borrower shall immediately repay Advances in an aggregate
principal amount sufficient to eliminate any such excess, to be applied first to
amounts outstanding under the Loan, and then to the Facility LC Collateral
Account.

                  (ii) In addition to all other payments required hereunder, if
at any time the aggregate principal amount of the Outstanding Credit Exposure
plus the Equivalent Amount of loans made to the European Subsidiaries under the
European Facility outstanding at any one time exceeds the Commitment, upon
written notice from the Bank of such occurrence, the Borrower shall immediately
repay Advances in aggregate principal amount sufficient to eliminate any such
excess, to be applied first to amounts outstanding under the Loan, and then to
the Facility LC Collateral Account.
<PAGE>
                  (iii) The Commitment shall be reduced by the Equivalent Amount
of the New Hurco GmbH Facility when the New Hurco GmbH Facility is initially
closed.

                  (iv) The Commitment shall be reduced by the amount of the Long
Term Mortgage Financing when the Long Term Mortgage Financing is initially
closed.

                  (v) In addition to all other payments required hereunder, the
Borrower shall prepay the Loan by an amount equal to 100% of all of the Net Cash
Proceeds from any sale or other disposition or transfer of any assets (other
than the sale of inventory in the ordinary course of business) exceeding $10,000
in any single transaction and exceeding $100,000 in the aggregate in any fiscal
year beginning after October 31, 2001. Such mandatory prepayments shall be
applied first to amounts outstanding under the Loan, and then to the Facility LC
Collateral Account. The Commitment shall be reduced by the amount of such
payment(s) of proceeds to the Bank pursuant to this Section 2.5(e)(v), but not
to an amount less than an amount equal to the undrawn face amount of all
Facility LCs then outstanding. If the Commitment may not be fully reduced
following any such payment due to Facility LCs remaining outstanding and a
Facility LC shall later expire undrawn or the Bank is reimbursed following any
drawing under any Facility LC, the Commitment shall be further reduced to
reflect the full reduction required under the previous sentence.

                  (vi) In addition to all other payments required hereunder, the
Borrower shall prepay the Loan by an amount equal to 100% of the Net Cash
Proceeds from the issuance or other sale of any Capital Stock of the Borrower or
any of its Subsidiaries from and after October 31, 2001. Such mandatory
prepayments shall be applied first to amounts outstanding under the Loan, and
then to the Facility LC Collateral Account.. The Commitment shall be reduced by
the amount of such payment(s) of proceeds to the Bank pursuant to this Section
2.5(e)(vi), but not to an amount less than an amount equal to the undrawn face
amount of all Facility LCs then outstanding. If the Commitment may not be fully
reduced following any such payment due to Facility LCs remaining outstanding and
a Facility LC shall later expire undrawn or the Bank is reimbursed following any
drawing under any Facility LC, the Commitment shall be further reduced to
reflect the full reduction required under the previous sentence.

         2.6. Minimum Amount of Each Advance. Each Eurodollar Advance shall be
in the minimum amount of $1,000,000 and in multiples of $100,000 if in excess
thereof, and each Floating Rate Advance shall be in the minimum amount of
$100,000 and in multiples of $10,000 if in excess thereof, provided, however,
that any Floating Rate Advance may be in the amount of the Available Commitment.

         2.7. Optional Principal Payments. The Borrower may from time to time
pay, without penalty or premium, all outstanding Floating Rate Advances, or, in
a minimum aggregate amount of $100,000 or any integral multiple of $10,000 in
excess thereof, any portion of the outstanding Floating Rate Advances. The
Borrower may from time to time pay, subject to the payment of any funding
indemnification amounts required by Section 3.4 but without penalty or premium,
all outstanding Eurodollar Advances, or, in a minimum aggregate amount of
$1,000,000 or any integral multiple of $100,000 in excess thereof, any portion
of the outstanding Eurodollar Advances.
<PAGE>

         2.8. Method of Selecting Types and Interest Periods for New Advances.
The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable thereto from time to time.
The Borrower shall give the Bank irrevocable notice (a "Borrowing Notice") not
later than Noon (Chicago time) on the Borrowing Date of each Floating Rate
Advance and three Business Days before the Borrowing Date for each Eurodollar
Advance, specifying:

         (i)      the Borrowing Date, which shall be a Business Day, of such
                  Advance,

         (ii)     the aggregate amount of such Advance,

         (iii)    the Type of Advance selected, and

         (iv)     in the case of each Eurodollar Advance, the Interest Period
                  applicable thereto.

         2.9. Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into Eurodollar Advances pursuant to this Section
2.9 or are repaid in accordance with Section 2.7. Each Eurodollar Advance shall
continue as a Eurodollar Advance until the end of the then applicable Interest
Period therefor, at which time such Eurodollar Advance shall be automatically
converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or
was repaid in accordance with Section 2.7 or (y) the Borrower shall have given
the Bank a Conversion/Continuation Notice (as defined below) requesting that, at
the end of such Interest Period, such Eurodollar Advance continue as a
Eurodollar Advance for the same or another Interest Period. Subject to the terms
of Section 2.6, the Borrower may elect from time to time to convert all or any
part of a Floating Rate Advance into a Eurodollar Advance. The Borrower shall
give the Bank irrevocable notice (a "Conversion/Continuation Notice") of each
conversion of a Floating Rate Advance into a Eurodollar Advance or continuation
of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least three
Business Days prior to the date of the requested conversion or continuation,
specifying:

         (i)      the requested date, which shall be a Business Day, of such
                  conversion or continuation,

         (ii)     the aggregate amount and Type of the Advance which is to be
                  converted or continued, and,
<PAGE>

         (iii)    the amount of such Advance which is to be converted into or
                  continued as a Eurodollar Advance and the duration of the
                  Interest Period applicable thereto.

         2.10. Changes in Interest Rate, etc. Each Floating Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a Eurodollar
Advance into a Floating Rate Advance pursuant to Section 2.9, to but excluding
the date it is paid or is converted into a Eurodollar Advance pursuant to
Section 2.9 hereof, at a rate per annum equal to the Floating Rate for such day.
Changes in the rate of interest on that portion of any Advance maintained as a
Floating Rate Advance will take effect simultaneously with each change in the
Alternate Base Rate. Each Eurodollar Advance shall bear interest on the
outstanding principal amount thereof from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined by the Bank as applicable to
such Eurodollar Advance based upon the Borrower's selections under Sections 2.8
and 2.9 and otherwise in accordance with the terms hereof. No Interest Period
may end after the Facility Termination Date.

         2.11. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.8 or 2.9, during the continuance of a Default or
Unmatured Default the Bank may, at its option, by notice to the Borrower,
declare that no Advance may be made as, converted into or continued as a
Eurodollar Advance. During the continuance of a Default the Bank may, at its
option, by notice to the Borrower, declare that (i) each Eurodollar Advance
shall bear interest for the remainder of the applicable Interest Period at the
rate otherwise applicable to such Interest Period plus 2% per annum, (ii) each
Floating Rate Advance shall bear interest at a rate per annum equal to the
Floating Rate in effect from time to time plus 2% per annum and (iii) the LC Fee
shall be increased by 2% per annum, provided that, during the continuance of a
Default under Section 7.6 or 7.7, the interest rates set forth in clauses (i)
and (ii) above and the increase in the LC Fee set forth in clause (iii) above
shall be applicable to all Credit Extensions without any election or action on
the part of the Bank.

         2.12. Method of Payment. All payments of the Obligations hereunder
shall be made, without setoff, deduction, or counterclaim, in immediately
available funds to the Bank at the Bank's address specified pursuant to Article
XII, or at any other Lending Installation of the Bank specified in writing by
the Bank to the Borrower, by noon (Chicago time) on the date when due and shall
(except in the case of Reimbursement Obligations for which the Bank has not been
fully indemnified, or as otherwise specifically required hereunder) be applied
by the Bank as it may determine in its sole discretion. The Bank is authorized
to charge any account of the Borrower maintained with the Bank or any of its
Affiliates for each payment of principal, interest, Reimbursement Obligations
and fees as it becomes due hereunder.

         2.13. Noteless Agreement; Evidence of Indebtedness. (i) The Bank shall
maintain in accordance with its usual practice an account or accounts evidencing
the indebtedness of the Borrower to the Bank resulting from each Advance made by
the Bank from time to time, including the amounts of principal and interest
payable and paid to the Bank from time to time hereunder.
<PAGE>

         (ii) The Bank shall also maintain accounts in which it will record (a)
the amount of each Advance made hereunder, the Type thereof and the Interest
Period with respect thereto, (b) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to the Bank hereunder,
(c) the original stated amount of each Facility LC and the amount of LC
Obligations outstanding at any time, and (d) the amount of any sum received by
the Bank hereunder from the Borrower.

         (iii) The entries maintained in the accounts maintained pursuant to
paragraphs (i) and (ii) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Bank to maintain such accounts or any error therein shall not in any
manner affect the obligation of the Borrower to repay the Obligations in
accordance with their terms.

         (iv) The Bank may request that its Loan be evidenced by a promissory
note (a "Note"). In such event, the Borrower shall prepare, execute and deliver
to the Bank a Note payable to the order of the Bank in a form supplied by the
Bank. Thereafter, the Advances evidenced by such Note and interest thereon shall
at all times (including after any assignment pursuant to Section 11.3) be
represented by one or more Notes payable to the order of the payee named therein
or any assignee pursuant to Section 11.3, except to the extent that the Bank or
assignee subsequently returns any such Note for cancellation and requests that
the Loan once again be evidenced as described in paragraphs (i) and (ii) above.

         2.14. Telephonic Notices. The Borrower authorizes the Bank to extend,
convert or continue Advances, effect selections of Types of Advances and to
transfer funds based on telephonic notices made by any person or persons the
Bank in good faith believes to be acting on behalf of the Borrower, it being
understood that the foregoing authorization is specifically intended to allow
Borrowing Notices and Conversion/Continuation Notices to be given
telephonically. The Borrower agrees to deliver promptly to the Bank a written
confirmation, if such confirmation is requested by the Bank, of each telephonic
notice signed by an Authorized Officer. If the written confirmation differs in
any material respect from the action taken by the Bank, the records of the Bank
shall govern absent manifest error.

         2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued
on each Floating Rate Advance shall be payable on each Payment Date, commencing
with the first such date to occur after the date hereof and at maturity.
Interest accrued on each Eurodollar Advance shall be payable on the last day of
its applicable Interest Period, on any date on which the Eurodollar Advance is
prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued
on each Eurodollar Advance having an Interest Period longer than three months
shall also be payable on the last day of each three-month interval during such
Interest Period. Interest and LC Fees shall be calculated for actual days
elapsed on the basis of a 360-day year. Interest shall be payable for the day an
Advance is made but not for the day of any payment on the amount paid if payment
is received prior to noon (local time) at the place of payment. If any payment
of principal of or interest on an Advance shall become due on a day which is not
a Business Day, such payment shall be made on the next succeeding Business Day
and, in the case of a principal payment, such extension of time shall be
included in computing interest in connection with such payment.
<PAGE>

         2.16. Lending Installations. The Bank may book its Loans and the
Facility LCs at the appropriate Lending Installation listed on Schedule 2 or
such other Lending Installation designated by the Bank in accordance with the
final sentence of this Section 2.16. All terms of this Agreement shall apply to
any such Lending Installation and the Loan, Facility LCs, and any Note issued
hereunder shall be deemed held by the Bank for the benefit of any such Lending
Installation. The Bank may, by written notice to the Borrower, designate
replacement or additional Lending Installations through which Advances will be
made by it or Facility LCs will be issued by it and for whose account Loan
payments or payments with respect to Facility LCs are to be made.

         2.17.    Reserved.
                  --------

         2.18.    Facility LCs.
                  ------------

                  2.18.1. Issuance. The Bank agrees, on the terms set forth in
         this Agreement, to issue standby and commercial letters of credit
         (each, a "Facility LC") and to renew, extend, increase, decrease or
         otherwise modify each Facility LC ("Modify," and each such action a
         "Modification"), from time to time from and including the date of this
         Agreement and prior to the Facility Termination Date upon the request
         of the Borrower; provided that immediately after each such Facility LC
         is issued or Modified, (i) the aggregate amount of the outstanding LC
         Obligations shall not exceed $15,000,000 and (ii) the Outstanding
         Credit Exposure shall not exceed the Commitment. No Facility LC shall
         have an expiry date later than the earlier of (x) the fifth Business
         Day prior to the Facility Termination Date and (y) one year after its
         issuance.

                  2.18.2. Notice. Subject to Section 2.18.1, the Borrower shall
         give the Bank notice prior to 10:00 a.m. (Chicago time) at least five
         Business Days prior to the proposed date of issuance or Modification of
         each Facility LC, specifying the beneficiary, the proposed date of
         issuance (or Modification) and the expiry date of such Facility LC, and
         describing the proposed terms of such Facility LC and the nature of the
         transactions proposed to be supported thereby. The issuance or
         Modification by the Bank of any Facility LC shall, in addition to the
         conditions precedent set forth in Article IV (the satisfaction of which
         the Bank shall have no duty to ascertain), be subject to the conditions
         precedent that such Facility LC shall be satisfactory to the Bank and
         that the Borrower shall have executed and delivered such application
         agreement and/or such other instruments and agreements relating to such
         Facility LC as the Bank shall have reasonably requested (each, a
         "Facility LC Application"). In the event of any conflict between the
         terms of this Agreement and the terms of any Facility LC Application,
         the terms of this Agreement shall control.
<PAGE>

                  2.18.3. Administration; Reimbursement by the Bank . Upon
         receipt from the beneficiary of any Facility LC of any demand for
         payment under such Facility LC, the Bank shall promptly notify the
         Borrower as to the amount to be paid by the Bank as a result of such
         demand and the proposed payment date (the "LC Payment Date"). The
         responsibility of the Bank to the Borrower shall be only to determine
         that the documents (including each demand for payment) delivered under
         each Facility LC in connection with such presentment shall be in
         conformity in all material respects with such Facility LC. The Bank
         shall endeavor to exercise the same care in the issuance and
         administration of the Facility LCs as it does with respect to letters
         of credit in which no participations are granted.

                  2.18.4. Reimbursement by the Borrower. The Borrower shall be
         irrevocably and unconditionally obligated to reimburse the Bank on or
         before the applicable LC Payment Date for any amounts to be paid by the
         Bank upon any drawing under any Facility LC, without presentment,
         demand, protest or other formalities of any kind; provided that the
         Borrower shall not be precluded from asserting any claim for direct
         (but not consequential) damages suffered by the Borrower to the extent,
         but only to the extent, caused by (i) the willful misconduct or gross
         negligence of the Bank in determining whether a request presented under
         any Facility LC issued by it complied with the terms of such Facility
         LC or (ii) the Bank's failure to pay under any Facility LC issued by it
         after the presentation to it of a request strictly complying with the
         terms and conditions of such Facility LC. All such amounts paid by the
         Bank and remaining unpaid by the Borrower shall bear interest, payable
         on demand, for each day until paid at a rate per annum equal to (x) the
         rate applicable to Floating Rate Advances for such day if such day
         falls on or before the applicable LC Payment Date and (y) the sum of 2%
         plus the rate applicable to Floating Rate Advances for such day if such
         day falls after such LC Payment Date. Subject to the terms of this
         Agreement (including without limitation the submission of a Borrowing
         Notice in compliance with Section 2.8 and the satisfaction of the
         applicable conditions precedent set forth in Article IV), the Borrower
         may request an Advance hereunder for the purpose of satisfying any
         Reimbursement Obligation.
<PAGE>

                  2.18.5. Obligations Absolute. The Borrower's obligations under
         this Section 2.18 shall be absolute and unconditional under any and all
         circumstances and irrespective of any setoff, counterclaim or defense
         to payment which the Borrower may have or have had against the Bank or
         any beneficiary of a Facility LC. The Borrower further agrees with the
         Bank that the Bank shall not be responsible for, and the Borrower's
         Reimbursement Obligation in respect of any Facility LC shall not be
         affected by, among other things, the validity or genuineness of
         documents or of any endorsements thereon, even if such documents should
         in fact prove to be in any or all respects invalid, fraudulent or
         forged, or any dispute between or among the Borrower, any of its
         Affiliates, the beneficiary of any Facility LC or any financing
         institution or other party to whom any Facility LC may be transferred
         or any claims or defenses whatsoever of the Borrower or of any of its
         Affiliates against the beneficiary of any Facility LC or any such
         transferee. The Bank shall not be liable for any error, omission,
         interruption or delay in transmission, dispatch or delivery of any
         message or advice, however transmitted, in connection with any Facility
         LC. The Borrower agrees that any action taken or omitted by the Bank
         under or in connection with each Facility LC and the related drafts and
         documents, if done without gross negligence or willful misconduct,
         shall be binding upon the Borrower and shall not put the Bank under any
         liability to the Borrower. Nothing in this Section 2.18.5 is intended
         to limit the right of the Borrower to make a claim against the Bank for
         damages as contemplated by the proviso to the first sentence of Section
         2.18.4.

                  2.18.6. Actions of the Bank. The Bank shall be entitled to
         rely, and shall be fully protected in relying, upon any Facility LC,
         draft, writing, resolution, notice, consent, certificate, affidavit,
         letter, cablegram, telegram, telecopy, telex or teletype message,
         statement, order or other document believed by it to be genuine and
         correct and to have been signed, sent or made by the proper Person or
         Persons, and upon advice and statements of legal counsel, independent
         accountants and other experts selected by the Bank. The Bank shall be
         fully justified in failing or refusing to take any action under this
         Agreement unless it shall first have received such advice as it
         reasonably deems appropriate or it shall first be indemnified to its
         reasonable satisfaction against any and all liability and expense which
         may be incurred by it by reason of taking or continuing to take any
         such action.
<PAGE>
                  2.18.7. Indemnification. The Borrower indemnifies and holds
         harmless the Bank, and its directors, officers, agents and employees
         from and against any and all claims and damages, losses, liabilities,
         costs or expenses which the Bank may incur (or which may be claimed
         against the Bank by any Person whatsoever) by reason of or in
         connection with the issuance, execution and delivery or transfer of or
         payment or failure to pay under any Facility LC or any actual or
         proposed use of any Facility LC, including, without limitation, any
         claims, damages, losses, liabilities, costs or expenses which the Bank
         may incur by reason of or in connection with, by reason of or on
         account of the Bank issuing any Facility LC which specifies that the
         term "Beneficiary" included therein includes any successor by operation
         of law of the named Beneficiary, but which Facility LC does not require
         that any drawing by any such successor Beneficiary be accompanied by a
         copy of a legal document, satisfactory to the Bank, evidencing the
         appointment of such successor Beneficiary; provided that the Borrower
         shall not be required to indemnify the Bank for any claims, damages,
         losses, liabilities, costs or expenses to the extent, but only to the
         extent, caused by (x) the willful misconduct or gross negligence of the
         Bank in determining whether a request presented under any Facility LC
         complied with the terms of such Facility LC or (y) the Bank's failure
         to pay under any Facility LC after the presentation to it of a request
         strictly complying with the terms and conditions of such Facility LC.
         Nothing in this Section 2.18.7 is intended to limit the obligations of
         the Borrower under any other provision of this Agreement.

                  2.18.8. Facility LC Collateral Account. The Borrower agrees
         that it will, upon the request of the Bank and until the final
         expiration date of any Facility LC and thereafter as long as any amount
         is payable to the Bank in respect of any Facility LC, maintain a
         special collateral account pursuant to arrangements satisfactory to the
         Bank (the "Facility LC Collateral Account") at the Bank's office at the
         address specified pursuant to Article XII, in the name of such Borrower
         but under the sole dominion and control of the Bank and in which such
         Borrower shall have no interest other than as set forth in Section 8.1.
         The Borrower pledges, assigns and grants to the Bank, a security
         interest in all of the Borrower's right, title and interest in and to
         all funds which may from time to time be on deposit in the Facility LC
         Collateral Account to secure the prompt and complete payment and
         performance of the Obligations. The Bank will invest any funds on
         deposit from time to time in the Facility LC Collateral Account in
         certificates of deposit of the Bank having a maturity not exceeding 30
         days. Nothing in this Section 2.18.8 shall either obligate the Bank to
         require the Borrower to deposit any funds in the Facility LC Collateral
         Account or limit the right of the Bank to release any funds held in the
         Facility LC Collateral Account in each case other than as required by
         Section 8.1.

         2.19 Borrowing Base Adjustments. The Borrower agrees that if at any
time any trade account receivable, any inventory, or any real property of the
Borrower fails to constitute Eligible Finished Goods Inventory, Eligible Foreign
Finished Goods Inventory, Eligible Receivables, Eligible Foreign Receivables,
Eligible Inventory or Eligible Real Estate, as the case may be, for any reason,
the Bank may, at any time and notwithstanding any prior classification of
eligibility, classify such asset as ineligible and exclude the same from the
computation of the Borrowing Base without in any way impairing the rights of the
Bank in and to the same under the Collateral Documents.
<PAGE>

         2.20 Security and Collateral. To secure the payment when due of any
Note and the other Obligations to the Bank, the Borrower and the Guarantors
shall each execute and deliver, or cause to be executed and delivered, to the
Bank on or before December 1, 2001, Collateral Documents granting the following:

                         (a)      Security  interests  in all present and future
accounts,  inventory,  equipment, general intangibles, investment property,
deposit accounts, fixtures, and all other personal property of the Borrower
other than property held in the trust existing pursuant to the Hurco Deferred
Compensation Plan Trust Agreement in connection with the Hurco Deferred
Compensation Plan.

                         (b)      A mortgage lien on the following  real
property of the Borrower:  the  Borrower's Indianapolis, Indiana headquarters,
located at One Technology Way, Indianapolis, Indiana  46268.

                         (c)      Pledges of 100% of the  Capital  Stock of all
Domestic  Subsidiaries  (excluding Inactive   Subsidiaries),   including
without  limitation  a  pledge  of  100%  of  the  Capital  Stock  of  Hurco
International, Inc., Hurco International Holdings, Inc. and IMS.

                         (d)      Guarantees  of the  Guarantors  under the
Guaranty and of the Borrower  under the Hurco Guaranty, and a Confirmation of
the Guaranty substantially in the form of Exhibit F and a Confirmation of the
Hurco Guaranty substantially in the form of Exhibit G.

                         (e)      Security  interests  in all present and future
accounts,  inventory,  equipment, general intangibles, investment property,
deposit accounts, fixtures, and all other personal property of the Guarantors.

                         (f)      All other security and collateral described
in the Collateral Documents.

<PAGE>
                                   ARTICLE III

                             YIELD PROTECTION; TAXES

         3.1. Yield Protection. In the event that any applicable law, treaty or
other international agreement, rule, or regulation (whether domestic or foreign)
now or hereafter in effect and whether or not presently applicable to the Bank,
or any interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by the
Bank with any guideline, request or directive of any such authority (whether or
not having the force of law), shall (a) affect the basis of taxation of payments
to the Bank of any amounts payable by the Borrower under this Agreement (other
than taxes imposed on the overall net income of the Bank, by the jurisdiction,
or by any political subdivision or taxing authority of any such jurisdiction, in
which the Bank has its principal office), or (b) shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by the Bank, or (c)
shall impose any other condition with respect to this Agreement, the Commitment,
any Note, or the Loan, or any Facility LC, and the result of any of the
foregoing is to increase the cost to the Bank of making, funding, or maintaining
any Eurodollar Advance or any Facility LC or to reduce the amount of any sum
receivable by the Bank thereon, then the Borrower shall pay to the Bank, from
time to time, upon its request, additional amounts sufficient to compensate the
Bank for such increased cost or reduced sum receivable to the extent, in the
case of any Eurodollar Advance, the Bank is not compensated therefor in
computing the interest rate applicable to such Eurodollar Advance. A statement
as to the amount of such increased cost or reduced sum receivable, prepared in
good faith and in reasonable detail by the Bank and submitted by the Bank to the
Borrower, shall be conclusive and binding for all purposes absent manifest error
in computation.

         3.2. Changes in Capital Adequacy Regulations. In the event that any
applicable law, treaty, or other international agreement, rule, or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to the Bank, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline, request or
directive of any such authority (whether or not having the force of law),
including any risk-based capital guidelines, affects or would affect the amount
of capital required or expected to be maintained by the Bank (or any corporation
controlling the Bank) and the Bank determines that the amount of such capital is
increased by or based upon the existence of the Bank's obligations hereunder and
such increase has the effect of reducing the rate of return on the Bank's (or
such controlling corporation's) capital as a consequence of such obligations
hereunder to a level below that which the Bank (or such controlling corporation)
could have achieved but for such circumstances (taking into consideration its
policies with respect to capital adequacy), then the Borrower shall pay to the
Bank from time to time, upon request by the Bank, additional amounts sufficient
to compensate such Bank (or such controlling corporation) for any increase in
the amount of capital and reduced rate of return which the Bank reasonably
determines to be allocable to the existence of the Bank's obligations hereunder.
A statement as to the amount of such compensation, prepared in good faith and in
reasonable detail by the Bank and submitted to the Borrower, shall be conclusive
and binding for all purposes absent manifest error in computation.
<PAGE>

         3.3. Availability of Types of Advances. In the event that any
applicable law, treaty, or other international agreement, rule, or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to the Bank, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline, request,
or directive of such authority (whether or not having the force of law),
including without limitation exchange controls, shall make it unlawful or
impossible for the Bank to maintain any Eurodollar Advance under this Agreement,
shall make it impracticable, unlawful or impossible for, or shall in any way
limit or impair ability of, the Borrower to make or the Bank to receive any
payment under this Agreement at the place specified for payment hereunder, the
Borrower shall, upon receiving notice thereof from the Bank, repay in full the
then-outstanding principal amount of each Eurodollar Advance so affected,
together with all accrued interest thereon to the date of payment and all
amounts owing to the Bank under Section 3.4, (a) on the last day of the
then-current Interest Period applicable to the Eurodollar Advance if the Bank
may lawfully continue to maintain the Eurodollar Advance to that day, or (b)
immediately if the Bank may not continue to maintain the Eurodollar Advance to
that day.

         3.4. Funding Indemnification. If the Borrower makes any payment of
principal with respect to any Eurodollar Advance on any other date than the last
day of an Interest Period applicable thereto (whether pursuant to Section 2.2,
Section 2.5, Section 2.7, Section 8.1, or otherwise), or if the Borrower fails
to borrow any Eurodollar Advance after notice has been given to the Bank in
accordance with Section 2.8, or if the Borrower fails to make any payment of
principal or interest in respect of a Eurodollar Advance when due, the Borrower
shall reimburse the Bank on demand for any resulting loss or expense incurred by
the Bank, including without limitation any loss incurred in obtaining,
liquidating, or employing deposits from third parties, whether or not the Bank
shall have funded or committed to fund the Eurodollar Advance. A statement as to
the amount of such loss or expense, prepared in good faith and in reasonable
detail by the Bank and submitted by the Bank to the Borrower, shall be
conclusive and binding for all purposes absent manifest error in computation.
Calculation of all amounts payable to the Bank under this Section 3.4 shall be
made as though the Bank shall have actually funded or committed to fund the
relevant Eurodollar Advance through the purchase of an underlying deposit in an
amount equal to the amount of the Eurodollar Advance in the relevant market and
having a maturity comparable to the related Interest Period and through the
transfer of such deposit to a domestic office of the Bank in the United States;
provided, however, that the Bank may fund any Eurodollar Advance in any manner
it sees fit and the foregoing assumption shall be utilized only for the purpose
of calculating amounts payable under this Section 3.4.

         3.5. Taxes. (i) All payments of principal of and interest on the Loan
and other amounts payable by the Borrower hereunder shall be made by the
Borrower without setoff or counterclaim, and, subject to the next succeeding
sentence, free and clear of, and without deduction or withholding for, or on
account of, any Taxes. If any Taxes are imposed, the Borrower will pay such
additional amounts as may be necessary so that payment of principal of and
interest on the Loan and other amounts payable hereunder, after withholding or
deduction for or on account thereof, will not be less than any amount provided
to be paid hereunder and, in any such case, the Borrower will furnish to the
Bank certified copies of all tax receipts evidencing the payment of such amounts
within 45 days after the date any such payment is due pursuant to applicable
law.
<PAGE>

         (ii) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under any Note or
Facility LC Application or from the execution or delivery of, or otherwise with
respect to, this Agreement or any Note or Facility LC Application ("Other
Taxes").

         (iii) The Borrower indemnifies the Bank for the full amount of Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on
amounts payable under this Section 3.5) paid by the Bank and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. Payments due under this indemnification shall be made within 30 days of
the date the Bank makes demand therefor pursuant to Section 3.6.

         3.6. Bank Statements; Survival of Indemnity. To the extent reasonably
possible, the Bank shall designate an alternate Lending Installation with
respect to its Eurodollar Advances to reduce any liability of the Borrower to
the Bank under Sections 3.1, 3.2 and 3.5 or to avoid the unavailability of
Eurodollar Advances under Section 3.3, so long as such designation is not, in
the judgment of the Bank, disadvantageous to it. The Bank shall deliver a
written statement to the Borrower as to the amount due, if any, under Section
3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable
detail the calculations upon which the Bank determined such amount and shall be
final, conclusive and binding on the Borrower in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a
Eurodollar Advances shall be calculated as though the Bank funded its Eurodollar
Advances through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Eurodollar
Rate applicable to such Credit Extension, whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in the written
statement of the Bank shall be payable on demand after receipt by the Borrower
of such written statement. The obligations of the Borrower under Sections 3.1,
3.2, 3.4, and 3.5 shall survive payment of the Obligations and termination of
this Agreement.
<PAGE>


                                   ARTICLE IV

                              CONDITIONS PRECEDENT


         4.1.     Initial Credit  Extension.  The Bank shall not be required to
make the initial  Credit  Extension hereunder  unless the Borrower has
furnished to the Bank and  completed  the  following  matters,  all in form and
substance satisfactory to the Bank:

      (i)         Copies of the articles or certificate of incorporation of the
                  Borrower and the Guarantors, together with all amendments, and
                  a certificate of good standing or existence for the Borrower
                  and each Guarantor, each certified by the appropriate
                  governmental officer in its jurisdiction of incorporation.

     (ii)         Copies, certified by the Secretary or Assistant Secretary of
                  the Borrower and the Guarantors, of each of their respective
                  by-laws and of each of their respective Board of Directors'
                  resolutions and of resolutions or actions of any other body
                  authorizing the execution of the Loan Documents to which the
                  Borrower and the Guarantors are a party.

    (iii)         An incumbency certificate, executed by the Secretary or
                  Assistant Secretary of the Borrower and the Guarantors, which
                  shall identify by name and title and bear the signatures of
                  the Authorized Officers and any other officers of the Borrower
                  and the Guarantors authorized to sign the Loan Documents to
                  which the Borrower and the Guarantors are a party, upon which
                  certificate the Bank shall be entitled to rely until informed
                  of any change in writing by the Borrower or the Guarantors, as
                  the case may be.

     (iv)         A certificate, signed by the chief financial officer of the
                  Borrower, stating that on the initial Credit Extension Date no
                  Default or Unmatured Default has occurred and is continuing.

      (v)         A written  opinion  of the  Borrower's  and the  Guarantors'
                  counsel,  addressed  to the Bank in substantially the form of
                  Exhibit J.

     (vi)         Any Notes requested by the Bank pursuant to Section 2.15
                  payable to the order of the Bank.

    (vii)         Written money transfer instructions, in substantially the form
                  of Exhibit I, addressed to the Bank and signed by an
                  Authorized Officer, together with such other related money
                  transfer authorizations as the Bank may have reasonably
                  requested.

   (viii)         If the initial Credit Extension will be the issuance of a
                  Facility LC, a properly completed Facility LC Application.
<PAGE>

     (ix)         The Confirmation of Guaranty in the form of Exhibit F and the
                  Confirmation of Hurco Guaranty in the form of Exhibit G, the
                  Mortgage, the Pledge Agreements and any other Collateral
                  Documents required by the Bank duly executed on behalf of the
                  Borrower or the Guarantors, as the case may be.

     (x)          The insurance certificate described in Section 5.19.

     (xi)         A duly completed Borrowing Base Certificate as of the close of
                  the fiscal month which precedes its delivery date.

     (xii)        Copies of all governmental and non-governmental consents,
                  approvals, authorizations, declarations, registrations or
                  filings, if any, required on the part of the Borrower or the
                  Guarantors in connection with the execution, delivery, and
                  performance of the Loan Documents, or the transactions
                  contemplated thereby or as a condition to the legality,
                  validity or enforceability of the Loan Documents, certified as
                  true and correct and in full force and effect as of the
                  Effective Date by a duly authorized officer of the Borrower or
                  the Guarantors, or, if none are required, a certificate of
                  such officer to that effect.

     (xiii)       The fees described in Section 2.5.

     (xiv)        A letter agreement, in form and substance satisfactory to the
                  Bank, evidencing an amendment to the European Facility, duly
                  executed by the European Subsidiaries, together with any
                  documents and certificates required to be delivered
                  thereunder.

     (xv)         Such other documents as the Bank or its counsel may have
                  reasonably requested.

         4.2.     Each Credit  Extension.  The Bank shall not be required  to
                  make any Credit  Extension  unless on the applicable Credit
                  Extension Date:

      (i)         There exists no Default or Unmatured Default.

     (ii)         The representations and warranties contained in Article V are
                  true and correct as of such Credit Extension Date except to
                  the extent any such representation or warranty is stated to
                  relate solely to an earlier date, in which case such
                  representation or warranty shall have been true and correct on
                  and as of such earlier date.

    (iii)         All legal matters incident to the making of such Credit
                  Extension shall be satisfactory to the Bank and its counsel.

     (iv)         The Bank shall have received a Borrowing Notice or, in the
                  case of any issuance of a Facility LC, a properly completed
                  Facility LC Application and such other documentation in
                  connection therewith as requested by the Bank.
<PAGE>

         Each Borrowing Notice or request for issuance of a Facility LC with
respect to each such Credit Extension shall constitute a representation and
warranty by the Borrower that the conditions contained in Sections 4.2(i) and
(ii) have been satisfied. The Bank may require a duly completed compliance
certificate in substantially the form of Exhibit C as a condition to making a
Credit Extension.

<PAGE>
                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants to the Bank that:

         5.1. Existence and Standing. Each of the Borrower and its Active
Subsidiaries is a corporation duly and properly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization and has all requisite authority to conduct its business in each
jurisdiction in which its business is conducted. The Borrower has all requisite
corporate power to own or lease the properties used in its business and to carry
on its business as now being conducted and as proposed to be conducted.

         5.2. Authorization and Validity. The Borrower and each Guarantor, as
the case may be, has the power and authority and legal right to execute and
deliver the Loan Documents to which it is a party and to perform its obligations
thereunder. The execution and delivery by the Borrower and each of the
Guarantors, as the case may be, of the Loan Documents to which it is a party and
the performance of its obligations thereunder have been duly authorized by
proper corporate proceedings, and the Loan Documents to which the Borrower and
each of the Guarantors is a party, as the case may be, constitute legal, valid
and binding obligations of the Borrower and each of the Guarantors, as the case
may be, enforceable against the Borrower or each Guarantor, as the case may be,
in accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally.

         5.3. No Conflict; Government Consent. Neither the execution and
delivery by the Borrower or the Guarantors of the Loan Documents to which it is
a party, nor the consummation of the transactions therein contemplated, nor
compliance with the provisions thereof will violate (i) any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on the
Borrower or any of its Subsidiaries or (ii) the Borrower's or any Subsidiary's
articles or certificate of incorporation, partnership agreement, certificate of
partnership, articles or certificate of organization, by-laws, or operating or
other management agreement, as the case may be, or (iii) the provisions of any
indenture, instrument or agreement to which the Borrower or any of its
Subsidiaries is a party or is subject, or by which it, or its Property, is
bound, or conflict with or constitute a default thereunder, or result in, or
require, the creation or imposition of any Lien in, of or on the Property of the
Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument
or agreement. No order, consent, adjudication, approval, license, authorization,
or validation of, or filing, recording or registration with, or exemption by, or
other action in respect of any governmental or public body or authority, or any
subdivision thereof, which has not been obtained by the Borrower or any of its
Subsidiaries, is required to be obtained by the Borrower or any of its
Subsidiaries in connection with the execution and delivery of the Loan
Documents, the borrowings under this Agreement, the payment and performance by
the Borrower of the Obligations or the legality, validity, binding effect or
enforceability of any of the Loan Documents.

         5.4. Financial Statements. The July 31, 2001, consolidated financial
statements of the Borrower and its Subsidiaries heretofore delivered to the Bank
were prepared in accordance with generally accepted accounting principles in
effect on the date such statements were prepared and fairly present the
consolidated financial condition and operations of the Borrower and its
Subsidiaries at such date and the consolidated results of their operations for
the period then ended.
<PAGE>
         5.5.     Material  Adverse  Change.  Since  July 31,  2001,  there  has
been no  change  in the  business, Property,  prospects,  condition (financial
or  otherwise) or results of operations of the Borrower and its  Subsidiaries
which could reasonably be expected to have a Material Adverse Effect.

         5.6. Taxes. The Borrower and its Subsidiaries have filed all United
States federal tax returns and all other tax returns which are required to be
filed and have paid all taxes due pursuant to said returns or pursuant to any
assessment received by the Borrower or any of its Subsidiaries, except such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided in accordance with Agreement Accounting Principles
and as to which no Lien exists. No tax liens have been filed and no claims are
being asserted with respect to any such taxes. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of any
taxes or other governmental charges are adequate.

         5.7. Litigation and Contingent Obligations. Except as set forth on
Schedule 5.7, there is no litigation, arbitration, governmental investigation,
proceeding or inquiry pending or, to the knowledge of any of their officers,
threatened against or affecting the Borrower or any of its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect or which seeks to
prevent, enjoin or delay the making of any Credit Extensions. Other than any
liability incident to any litigation, arbitration or proceeding which (i) could
not reasonably be expected to have a Material Adverse Effect or (ii) is set
forth on Schedule 5.7, the Borrower has no material contingent obligations not
provided for or disclosed in the financial statements referred to in Section
5.4.

         5.8. Subsidiaries. Schedule 4.4 contains an accurate list of all
Subsidiaries of the Borrower as of the date of this Agreement, setting forth
their respective jurisdictions of organization and the percentage of their
respective Capital Stock or other ownership interests owned by the Borrower or
other Subsidiaries. All of the issued and outstanding shares of Capital Stock or
other ownership interests of such Subsidiaries have been (to the extent such
concepts are relevant with respect to such ownership interests) duly authorized
and issued and are fully paid and non-assessable. Each Subsidiary of the
Borrower has and will have all requisite corporate power to own or lease the
properties used in its business and to carry on its business as now being
conducted and as proposed to be conducted.

         5.9. ERISA. There are no Unfunded Liabilities of any Single Employer
Plans. Neither the Borrower nor any other member of the Controlled Group has
incurred, or is reasonably expected to incur, any withdrawal liability to
Multiemployer Plans. Each Plan complies in all material respects with all
applicable requirements of law and regulations, no Reportable Event has occurred
with respect to any Plan, neither the Borrower nor any other member of the
Controlled Group has withdrawn from any Plan or initiated steps to do so, and no
steps have been taken to reorganize or terminate any Plan.

         5.10. Accuracy of Information. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to the Bank in connection
with the negotiation of, or compliance with, the Loan Documents contained any
material misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained therein not misleading.

         5.11. Regulation U. Margin stock (as defined in Regulation U)
constitutes less than 25% of the value of those assets of the Borrower and its
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder.
<PAGE>

         5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in (i) any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect or (ii) any
agreement or instrument evidencing or governing Indebtedness.

         5.13. Compliance With Laws. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property.

         5.14. Ownership of Properties. On the date of this Agreement, the
Borrower and its Subsidiaries will have good title, free of all Liens other than
those permitted by Section 6.15, to all of the Property and assets reflected in
the Borrower's most recent consolidated financial statements provided to the
Bank as owned by the Borrower and its Subsidiaries.

         5.15. Plan Assets; Prohibited Transactions. The Borrower is not an
entity deemed to hold "plan assets" within the meaning of 29 C.F.R. ss.
2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to Title I of ERISA or any plan (within the meaning of Section
4975 of the Code), and neither the execution of this Agreement nor the making of
Credit Extensions hereunder gives rise to a prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975 of the Code.

         5.16. Environmental Matters. In the ordinary course of its business,
the officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower and
each of its Subsidiaries has concluded that Environmental Laws cannot reasonably
be expected to have a Material Adverse Effect. Neither the Borrower nor any
Subsidiary has received any notice to the effect that its operations are not in
material compliance with any of the requirements of applicable Environmental
Laws or are the subject of any federal or state investigation evaluating whether
any remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment, which non-compliance or remedial action
could reasonably be expected to have a Material Adverse Effect.

         5.17.    Investment  Company Act.  Neither the Borrower nor any
Subsidiary is an  "investment  company" or a company  "controlled" by an
"investment  company",  within the meaning of the Investment  Company Act of
1940, as amended.

         5.18. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
<PAGE>
         5.19. Insurance. The certificate signed by the President or Chief
Financial Officer of the Borrower, that attests to the existence and adequacy
of, and summarizes, the property and casualty insurance program carried by the
Borrower with respect to itself and its Subsidiaries and that has been furnished
by the Borrower to the Bank, is complete and accurate. This summary includes the
insurer's or insurers' name(s), policy number(s), expiration date(s), amount(s)
of coverage, type(s) of coverage, exclusion(s), and deductibles. This summary
also includes similar information, and describes any reserves, relating to any
self-insurance program that is in effect.

         5.20 Borrowing Base. All accounts receivable, inventory, and fixed
assets of the Borrower represented or reported by the Borrower to be, or are
otherwise included in, Eligible Finished Goods Inventory, Eligible Foreign
Finished Goods Inventory, Eligible Foreign Receivables, Eligible Receivables,
Eligible Inventory and Eligible Real Estate comply in all respects as of the
date reported with the requirements therefor set forth in the definition
thereof, and the computation of the Borrowing Base set forth in each Borrowing
Base Certificate is true and correct.

         5.21 Disclosure. No report or other information furnished in writing or
on behalf of the Borrower or any Guarantor to the Bank in connection with the
negotiation or administration of this Agreement contains any material
misstatement of fact or omits to state any material fact or any fact necessary
to make the statements contained therein not misleading in light of the
circumstances in which they were made. Neither this Agreement, or the Notes, the
Collateral Documents nor any other document, certificate, or report or statement
or other information furnished to the Bank by or on behalf of the Borrower or
any Guarantor in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact in order to make the statements contained herein and therein not misleading
in light of the circumstances in which they were made. Except as reflected in
the Business Plan, there is no fact known to the Borrower or any Guarantor which
materially and adversely affects, or which in the future may (so far as the
Borrower or any Guarantor can now foresee) materially and adversely affect, the
business, properties, operations or condition, financial or otherwise, of the
Borrower, any Guarantor or any of their respective Subsidiaries, which has not
been set forth in this Agreement or in the other documents, certificates,
statements, reports and other information furnished in writing to the Bank by or
on behalf of the Borrower or any Guarantor in connection with the transactions
contemplated by this Agreement.
<PAGE>

         5.22 Intellectual Property. Set forth on Schedule 5.22 is a complete
and accurate list of all patents, trademarks, trade names, service marks and
copyrights, and all applications therefor and licenses thereof, of the Borrower
and each of its Subsidiaries showing the jurisdiction in which registered, the
registration number and the date of registration. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, trade names, service
marks, copyrights, technology, know-how and processes necessary for the conduct
of its business as currently conducted (the "Intellectual Property") except for
those the failure to own or license which could not reasonably be expected to
have a Material Adverse Effect. Except as set forth on Schedule 5.22, no claim
has been asserted and is pending by any Person challenging or questioning the
use of any such Intellectual Property or the validity or effectiveness of any
such Intellectual Property, nor does the Borrower or any of its Subsidiaries
know of any valid basis for any such claim, the use of such Intellectual
Property by the Borrower and each of its Subsidiaries does not infringe on the
rights of any Person, and, to the knowledge of the Borrower, no Intellectual
Property has been infringed, misappropriated or diluted by any other Person
except for such claims, infringements, misappropriation and dilutions that, in
the aggregate, could not have a Material Adverse Effect.
<PAGE>
                                   ARTICLE VI

                                    COVENANTS

During the term of this Agreement, unless the Bank shall otherwise
consent in writing:

         6.1.     Financial  Reporting.  The Borrower will maintain,  for itself
and each  Subsidiary,  a system of accounting  established and administered in
accordance with generally accepted accounting  principles, and furnish
to the Bank:

      (i)         Within  110 days  after  the close of each of its  fiscal
                  years,  an  unqualified  audit  report certified  by
                  independent  certified  public  accountants  acceptable to the
                  Bank,  prepared in accordance  with  Agreement  Accounting
                  Principles on a  consolidated  and  consolidating  basis
                  (except that  consolidated  balance  sheets and  statements of
                  operations  and retained  earnings need not be given for
                  Inactive  Subsidiaries  or Active  Subsidiaries  whose  only
                  asset is the Capital Stock of another  Subsidiary  of the
                  Borrower and  consolidating  statements  need not be certified
                  by such  accountants) for itself and its  Subsidiaries,
                  including balance sheets as of the end of such period,
                  related profit and loss and reconciliation of surplus
                  statements,  and a statement of cash flows,  accompanied by
                  (a) any management  letter prepared by said accountants,
                  (b) a certificate  of said  accountants  that, in the course
                  of their examination necessary for their certification of the
                  foregoing, they have obtained  no  knowledge  of any  Default
                  or Unmatured  Default,  or if, in the opinion of such
                  accountants,  any Default or Unmatured Default shall exist,
                  stating the nature and status thereof, and (d) a  certificate
                  of the  Borrower's chief financial officer or principal
                  accounting officer as required under Section 6.1(d)(ii).

         (ii)     Within  30 days  after  the  close of each  monthly  period,
                  for  itself  and its  Subsidiaries, consolidated and
                  consolidating  unaudited balance sheets as at the close of
                  each such period and consolidated and consolidating  profit
                  and loss and  reconciliation  of surplus  statements and a
                  statement  of cash flows for the period  from the  beginning
                  of such  fiscal  year to the end of such month (except that
                  consolidating  balance  sheets and statements of operations
                  and retained earnings need not be given for Inactive
                  Subsidiaries or Active  Subsidiaries whose only asset is
                  the Capital Stock of another Subsidiary of the Borrower), all
                  certified by its chief  financial officer  or  principal
                  accounting  officer  as  fairly  presenting  the  consolidated
                  financial position of the Borrower and its  Subsidiaries for
                  the periods contained  therein and as having been prepared in
                  accordance  with Agreement  Accounting  Principles,  together
                  with a certificate of such officer demonstrating compliance
                  with  all  financial  covenants  contained  in this
                  Agreement,  including  without  limitation  Section  6.13
                  and  Section  6.20  hereof,  and  such supporting  schedules
                  setting forth such information as the Bank may reasonably
                  request relating to such  covenants,  and  stating  whether
                  such  officer is aware of any Default or any event or

<PAGE>

                  condition  which,  with notice or lapse of time,  or both,
                  would  constitute a Default,  and, if such Default or such an
                  event or condition then exists and is continuing, a statement
                  setting forth the nature and status thereof.

    (iii)         As soon as possible and in any event within 10 days after the
                  Borrower knows that any Reportable Event has occurred with
                  respect to any Plan, a statement, signed by the chief
                  financial officer of the Borrower, describing said Reportable
                  Event and the action which the Borrower proposes to take with
                  respect thereto.

     (iv)         As soon as possible and in any event within 10 days after
                  receipt by the Borrower, a copy of (a) any notice or claim to
                  the effect that the Borrower or any of its Subsidiaries is or
                  may be liable to any Person as a result of the release by the
                  Borrower, any of its Subsidiaries, or any other Person of any
                  toxic or hazardous waste or substance into the environment,
                  and (b) any notice alleging any violation of any federal,
                  state or local environmental, health or safety law or
                  regulation by the Borrower or any of its Subsidiaries.

      (v)         Promptly upon the furnishing thereof to the shareholders of
                  the Borrower, copies of all financial statements, reports and
                  proxy statements so furnished.

     (vi)         Promptly upon the filing thereof, notice regarding the filing
                  of all registration statements and annual, quarterly, monthly
                  or other regular reports which the Borrower or any of its
                  Subsidiaries files with the Securities and Exchange
                  Commission.

     (vii)        As soon as available and in any event within 15 Business Days
                  after the end of each month, a Borrowing Base Certificate,
                  prepared for the Borrower as of the close of business on the
                  last day of each month, together with supporting schedules, in
                  form set forth on Exhibit B, each certified as true and
                  correct by a duly authorized officer of the Borrower.

   (viii)         Such other information (including non-financial information)
                  as the Bank may from time to time reasonably request.

         6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary
to, use the proceeds of the Credit Extension for general corporate purposes. The
Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds
of the Advances to purchase or carry any "margin stock" (as defined in
Regulation U).

         6.3. Notice of Default. The Borrower will, and will cause each
Subsidiary to, give prompt notice in writing to the Bank of the occurrence of
any Default or Unmatured Default and of any other development, financial or
otherwise, which could reasonably be expected to have a Material Adverse Effect.
<PAGE>

         6.4. Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated or organized,
validly existing and (to the extent such concept applies to such entity) in good
standing as a domestic corporation, partnership or limited liability company in
its jurisdiction of incorporation or organization, as the case may be, and
maintain all requisite authority to conduct its business in each jurisdiction in
which its business is conducted.

         6.5. Taxes. The Borrower will, and will cause each Subsidiary to,
timely file complete and correct United States federal and applicable foreign,
state and local tax returns required by law and pay when due all taxes,
assessments and governmental charges and levies upon it or its income, profits
or Property, except those which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside in
accordance with Agreement Accounting Principles.

         6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
all their Property in such amounts and covering such risks as is consistent with
sound business practice, and the Borrower will furnish to the Bank upon request
full information as to the insurance carried.

         6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject including,
without limitation, all Environmental Laws.

         6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, and make all necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.

         6.9. Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Bank, by its representatives and agents, to inspect any of the
Property, books and financial records of the Borrower and each Subsidiary, to
examine and make copies of the books of accounts and other financial records of
the Borrower and each Subsidiary, and to discuss the affairs, finances and
accounts of the Borrower and each Subsidiary with, and to be advised as to the
same by, their respective officers at such reasonable times and intervals as the
Bank may designate.

         6.10. Dividends. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends or make any distributions on its
Capital Stock (other than dividends payable in its own Capital Stock) or redeem,
repurchase or otherwise acquire or retire any of its Capital Stock at any time
outstanding, provided, however, that (i) any Subsidiary may declare and pay
dividends or make distributions to the Borrower or to a Wholly-Owned Subsidiary,
and (ii) after the MDS Loan Agreement has been paid in full and cancelled
without any amount owed thereunder having been converted to equity in MDS, the
Borrower may redeem, repurchase, or otherwise acquire or retire shares of its
Capital Stock, at a purchase price equivalent to the shares' then-current fair
market value, in an amount not to exceed $1,000,000 in the aggregate.
<PAGE>

         6.11.    Indebtedness.  The Borrower  will not, nor will it permit any
Subsidiary  to,  create,  incur or suffer to exist any Indebtedness, except:

      (i)         The Loan, the other Outstanding Facilities, and the
                  Reimbursement Obligations.

     (ii)         Indebtedness arising under Rate Management Transactions.

    (iii)         The IRB Bonds.

     (iv)         Indebtedness  of  any  Subsidiary   owing  to  the  Borrower
                  or to any other Subsidiary and Indebtedness of the Borrower
                  owing to any Subsidiary.

      (v)         The New Hurco GmbH Facility, the Long Term Mortgage Financing,
                  and an unsecured guaranty of payment of the New Hurco GmbH
                  Facility from the Borrower or any Subsidiary.

     (vi)         Product warranty obligations incurred in the ordinary course
                  of business.

    (vii)         Indebtedness (other than the Indebtedness permitted under
                  subsections (i) through (vi) above) which in the aggregate do
                  not exceed five percent (5%) of the Consolidated Tangible Net
                  Worth existing from time to time.

         6.12.    Merger.  The Borrower will not, nor will it permit any
Subsidiary  to, merge or consolidate  with or into any other Person, except that
a Subsidiary may merge into the Borrower or a Wholly-Owned Subsidiary.

         6.13.    Sale of Assets.  The Borrower will not, nor will it permit any
Subsidiary  to,  lease,  sell or otherwise dispose of its Property (other than
cash) to any other Person, except:

      (i)         Sales and leases of inventory in the ordinary course of
                  business, and licensing of software, patents, and other assets
                  in the ordinary course of business.

     (ii)         Leases, sales or other dispositions of its Property that,
                  together with all other Property of the Borrower and its
                  Subsidiaries previously leased, sold or disposed of (other
                  than inventory in the ordinary course of business) as
                  permitted by this Section during the twelve-month period
                  ending with the month in which any such lease, sale or other
                  disposition occurs, do not constitute a Substantial Portion of
                  the Property of the Borrower and its Subsidiaries, so long as
                  the proceeds are applied as required by Section 2.5(e)(v).

    (iii)         Sales of the  Borrower's  Capital  Stock,  so long as the
                  proceeds  are  applied as  required by Section 2.5(e)(vi).

         6.14. Investments and Acquisitions. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Investments (excluding
loans and advances to, and other Investments in, Subsidiaries permitted by
Section 6.11), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisition of any Person, except:
<PAGE>
      (i)         Cash  Equivalent  Investments  and Investments  under the
                  Hurco Deferred  Compensation  Plan made pursuant to the Hurco
                  Deferred Compensation Plan Trust Agreement.

     (ii)         Existing  Investments in Subsidiaries  and other  Investments
                  in existence on the date hereof and described in Schedule 1.

    (iii)         Advances not to exceed $1,000,000 in principal amount to MDS
                  pursuant to the MDS Loan Agreement, provided that, if the
                  Borrower is in compliance with Article VI and all other
                  provisions of this Agreement, the Borrower may convert some or
                  all of the amounts outstanding under the MDS Loan Agreement to
                  equity in MDS at a conversion price not to exceed $0.75 per
                  share of the MDS Preferred Class C stock (as may be equitably
                  adjusted from time to time for any stock splits or other
                  conversions of such stock).

     (iv)         The  exercise  of the CIMPlus  Option,  provided that (a) the
                  Borrower  is in  compliance  with Article VI and all other
                  provisions of this  Agreement,  (b) the Borrower shall have
                  provided to the Bank an opinion of counsel and a certificate
                  of the chief  financial  officer of the Borrower (attaching
                  computations to demonstrate compliance with all financial
                  covenants hereunder),  each stating that the  exercise of the
                  CIMPlus Option  complies with this Section and that any other
                  conditions  under this Agreement relating to such transaction
                  have been  satisfied,  (c) the grantor of the CIMPlus  Option
                  does not extend its  expiration  for at least 12 months,  and
                  (d) Consolidated  EBITDA as of the proposed  exercise date is
                  equal to or greater than that shown in the Business Plan as
                  of such date.

         6.15.    Liens.  The Borrower will not, nor will it permit any
Subsidiary to,  create,  incur,  or suffer to exist any Lien in, of or on the
Property of the Borrower or any of its Subsidiaries, except:

      (i)         Liens for taxes, assessments or governmental charges or levies
                  on its Property if the same shall not at the time be
                  delinquent or thereafter can be paid without penalty, or are
                  being contested in good faith and by appropriate proceedings
                  and for which adequate reserves in accordance with Agreement
                  Accounting Principles shall have been set aside on its books.

     (ii)         Liens imposed by law, such as carriers', warehousemen's and
                  mechanics' liens and other similar liens arising in the
                  ordinary course of business which secure payment of
                  obligations not more than 60 days past due.

    (iii)         Liens arising out of pledges or deposits under worker's
                  compensation laws, unemployment insurance, old age pensions,
                  or other social security or retirement benefits, or similar
                  legislation.

     (iv)         Utility easements, building restrictions and such other
                  encumbrances or charges against real property as are of a
                  nature generally existing with respect to properties of a
                  similar character and which do not in any material way affect
                  the marketability of the same or interfere with the use
                  thereof in the business of the Borrower or its Subsidiaries.
<PAGE>
      (v)         Liens in favor of the Bank granted pursuant to any Collateral
                  Document.

     (vi)         The interest or title of a lessor under any lease (including
                  without limitation Capitalized Leases) otherwise permitted
                  under this Agreement with respect to the property subject to
                  such lease.

    (vii)         Liens on the assets of Hurco GmbH to secure the New Hurco
                  GmbH Facility.

   (viii)         A mortgage lien on the Borrower's headquarters to secure the
                  Long Term Mortgage Financing.

     (ix)         Liens (other than the Liens permitted under subsections (i)
                  through (viii) above) as security for Indebtedness permitted
                  by Section 6.11(vii) on Property of the Borrower or any
                  Subsidiary, the book value less applicable depreciation and
                  amortization of which in the aggregate does not exceed five
                  percent (5%) of the Consolidated Tangible Net Worth existing
                  from time to time.

         6.16. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower or
such Subsidiary than the Borrower or such Subsidiary would obtain in a
comparable arms-length transaction.

         6.17.  Sale and  Leaseback  Transactions.  The Borrower  will not, nor
will it permit any  Subsidiary  to, enter into or suffer to exist any Sale and
Leaseback Transaction.

         6.18. Contingent Obligations. The Borrower will not, nor will it permit
any Subsidiary to, make or suffer to exist any Contingent Obligation (including,
without limitation, any Contingent Obligation with respect to the obligations of
a Subsidiary), except (i) by endorsement of instruments for deposit or
collection in the ordinary course of business, (ii) the Reimbursement
Obligations, (iii) the Credit Obligations, (iv) the Guaranty and the Hurco
Guaranty, (v) the guaranty of the New Hurco GmbH Facility by the Borrower or any
Subsidiary, and (vi) to the extent permitted by Sections 6.11(iv) and 6.11(vii).

         6.19.  Reserved.
                --------

         6.20.  Financial Covenants.
                -------------------

                  6.20.1. Minimum Consolidated EBITDA. The Borrower will not
         permit Consolidated EBITDA, determined as of the end of the twelve (12)
         consecutive months then ending, to be less than: (i) on October 31,
         2001, $2,000,000, (ii) on January 31, 2002, negative $620,000, (iii) on
         April 30, 2002, negative $2,750,000, (iv) on July 31, 2002, negative
         $2,335,000 and (vii) on October 31, 2002, negative $1,475,000.


<PAGE>
                 6.20.2. Minimum Consolidated Tangible Net Worth. The Borrower
         will maintain Consolidated Tangible Net Worth as of the last day of
         each fiscal quarter then ending of not less than, (i) on October 31,
         2001, $35,900,000, (ii) on January 31, 2002, $34,500,000, (iii) on
         April 30, 2002, $33,500,000, (iv) on July 31, 2002, $32,500,000 and (v)
         on October 31, 2002, $32,300,000.

                  6.20.3. Maximum Consolidated Total Indebtedness to
         Consolidated Total Capitalization. The Borrower will not permit the
         ratio, determined as of the end of each of its fiscal quarters, of (i)
         Consolidated Total Indebtedness to (ii) Consolidated Total
         Capitalization, to be greater than 0.4 to 1.0.

         6.21 Capital Expenditures. The Borrower will not, nor will it permit
any Subsidiary to, acquire or contract to acquire any fixed asset or make any
other Capital Expenditure if the aggregate purchase price and other acquisition
costs of all Consolidated Capital Expenditures made during any fiscal quarter,
together with the Consolidated Capital Expenditures made during the prior three
fiscal quarters, would exceed an amount equal to the lesser of (i) 125% of the
consolidated depreciation and amortization expense of the Borrower and its
Subsidiaries for the four fiscal quarters immediately preceding the date of the
proposed Capital Expenditure and (ii) $3,000,000.

         6.22. Collateral Documents. The Borrower will, and will cause each
Guarantor to, promptly (i) execute and deliver additional Collateral Documents,
within 10 days after request therefor by the Bank, sufficient to grant to the
Bank liens and security interests, securing the Secured Obligations, in any
present or after acquired Collateral (including without limitation pledging the
Capital Stock of any Domestic Subsidiary which ceases to be an Inactive
Subsidiary after the date hereof), and (ii) cause each Person becoming a
Domestic Subsidiary from time to time after the date hereof (other than an
Inactive Subsidiary) to execute and deliver to the Bank, within 10 days after
such Person becomes such a Subsidiary, a Guaranty and other Collateral
Documents, together with other related documents described in Article IV
sufficient to grant to the Bank liens and security interests in all Collateral
securing the Secured Obligations. The Borrower shall notify the Bank, within 10
days after the occurrence thereof, of the acquisition of any Collateral that is
not subject to the existing Collateral Documents, any Person becoming a
Subsidiary and any other event or condition, other than the passage of time,
that may require additional action of any nature in order to preserve the
effectiveness and perfected status of the liens and security interests of the
Bank with respect to all Collateral pursuant to the Collateral Documents,
including without limitation delivering the originals of all promissory notes
and other instruments to the Bank and delivering the originals of all stock
certificates or other certificates evidencing any Capital Stock which is
Collateral at any time.

         6.23. Further Assurances. The Borrower will, and will cause each
Guarantor to, execute and deliver within 30 days after request therefor by the
Bank, all further instruments and documents and take all further action that may
be necessary or desirable, or that the Bank may request, in order to give effect
to, and to aid in the exercise and enforcement of the rights and remedies of the
Bank under, this Agreement, the Notes and the Collateral Documents, including
without limitation causing each lessor of real property to the Borrower, any
Guarantor or any of their respective Subsidiaries to execute and deliver to the
Bank, prior to or upon the commencement of any tenancy, an agreement in form and
substance acceptable to the Bank duly executed on behalf of such lessor waiving
any distraint, lien and similar rights with respect to any property subject to
the Collateral Documents and agreeing to permit the Bank to enter such premises
<PAGE>

in connection therewith. In addition, each of the Borrower and each Guarantor
agrees to deliver to the Bank from time to time upon the acquisition or creation
of any Subsidiary not listed in Schedule 4.4 hereto, supplements to Schedule 4.4
such that such Schedule, together with such supplements, shall at all times
accurately reflect the information provided for thereon. Each of the Borrower
and each Guarantor further agrees to deliver to the Bank, on or before each
anniversary date of the Effective Date, a certificate of the chief financial
officer of the Borrower or each Guarantor, as the case may be, stating that such
officer has reviewed the Collateral Documents and that each party thereto is in
compliance with the terms thereof. The Borrower and each Guarantor shall take,
or cause to be taken, all action necessary to permit such an opinion to be
rendered, including filing such financing statements and continuation statements
and executing and delivering such supplements to the Collateral Documents and
other instruments as may be necessary or desirable in connection with such
opinion.

         6.24. Accounting Changes. Until the Facility Termination Date and
thereafter until payment in full of accrued interest on the Notes and the
performance of all other Obligations, the Borrower agrees that, unless the Bank
shall otherwise consent in writing it shall not, and shall not permit any of its
Subsidiaries to, change their respective fiscal years or make any significant
changes (i) in accounting treatment and reporting practices except as permitted
by Agreement Accounting Principles and disclosed to the Bank, or (ii) in tax
reporting treatment except as permitted by law and disclosed to the Bank.

         6.25. Inconsistent Agreements. Until the Facility Termination Date and
thereafter until payment in full of accrued interest on the Notes and the
performance of all other Obligations, the Borrower agrees that, unless the Bank
shall otherwise consent in writing it shall not, and shall not permit any of its
Subsidiaries to, enter into any agreement containing any provision which would
be violated or breached by this Agreement or any of the transactions
contemplated hereby or by performance by the Borrower or any of its Subsidiaries
of the obligations in connection therewith.


                                   ARTICLE VII

                                    DEFAULTS


         The occurrence of any one or more of the following events shall
constitute a Default:

         7.1. Any representation or warranty made or deemed made by or on behalf
of the Borrower or any of its Subsidiaries to the Bank under or in connection
with this Agreement, any Credit Extension, or any certificate or information
delivered in connection with this Agreement or any other Loan Document shall be
materially false on the date as of which made or deemed made and such failure
continues for more than five days following written notice thereof to the
Borrower.

         7.2. Nonpayment of principal of any Credit Obligation when due,
nonpayment of any Reimbursement Obligation when due, or nonpayment of interest
upon any Credit Extension or of any amendment fee, LC Fee, facility fee or other
obligations under any of the Loan Documents when due, which nonpayment continues
for a period of three days following written notice thereof to the Borrower by
the Bank.
<PAGE>

         7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.10 through Section 6.25, and such breach continues for more than ten
days following written notice thereof to the Borrower.

         7.4. The breach by the Borrower (other than a breach which constitutes
a Default under another Section of this Article VII) of any of the terms or
provisions of this Agreement which is not remedied within thirty days after
written notice from the Bank.

         7.5. Failure of the Borrower or any of its Active Subsidiaries or any
Guarantor or any Pledgor to pay when due any Indebtedness (other than
Indebtedness hereunder but including the European Facility); or the default by
the Borrower or any of its Subsidiaries or any Guarantor or any Pledgor in the
performance (beyond the applicable grace period with respect thereto, if any) of
any term, provision or condition contained in any agreement under which any such
Indebtedness was created or is governed, including without limitation any Bond
Default or any other event shall occur or condition exist, the effect of which
default or event is to cause, or to permit the holder or holders of such
Indebtedness to cause, such Indebtedness to become due prior to its stated
maturity; or any Indebtedness of the Borrower or any of its Subsidiaries or any
Guarantor or any Pledgor shall be declared to be due and payable or required to
be prepaid or repurchased (other than by a regularly scheduled payment) prior to
the stated maturity thereof; or the Borrower or any of its Subsidiaries or any
Guarantor or any Pledgor shall not pay, or admit in writing its inability to
pay, its debts generally as they become due.

         7.6. The Borrower or any of its Subsidiaries or any Guarantor or any
Pledgor shall (i) have an order for relief entered with respect to it under the
Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment
for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce
in, the appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any Substantial Portion of its Property, (iv)
institute any proceeding seeking an order for relief under the Federal
bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (v) take any corporate or
partnership action to authorize or effect any of the foregoing actions set forth
in this Section 7.6 or (vi) fail to contest in good faith any appointment or
proceeding described in Section 7.7.

         7.7. Without the application, approval or consent of the Borrower or
any of its Active Subsidiaries, a receiver, trustee, examiner, liquidator or
similar official shall be appointed for the Borrower or any of its Subsidiaries
or any Substantial Portion of its Property, or a proceeding described in Section
7.6(iv) shall be instituted against the Borrower or any of its Active
Subsidiaries and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 30 consecutive days.

         7.8. Any court, government or governmental agency shall condemn, seize
or otherwise appropriate, or take custody or control of, all or any portion of
the Property of the Borrower and its Active Subsidiaries which, when taken
together with all other Property of the Borrower and its Active Subsidiaries so
condemned, seized, appropriated, or taken custody or control of, during the
twelve-month period ending with the month in which any such action occurs,
constitutes a Substantial Portion.
<PAGE>

         7.9. The Borrower or any of its Subsidiaries shall fail within 30 days
to pay, bond or otherwise discharge one or more (i) judgments or orders for the
payment of money in excess of $100,000 (or the equivalent thereof in currencies
other than U.S. Dollars) in the aggregate, or (ii) nonmonetary judgments or
orders which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, which judgment(s), in any such case, is/are not
stayed on appeal or otherwise being appropriately contested in good faith.

         7.10. There are any Unfunded Liabilities of any Single Employer Plans
or any Reportable Event shall occur in connection with any Plan.

         7.11. The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan.

         7.12. The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, if as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and the other
members of the Controlled Group (taken as a whole) to all Multiemployer Plans
which are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the
respective plan years of each such Multiemployer Plan immediately preceding the
plan year in which the reorganization or termination occurs.

         7.13. The Borrower or any of its Subsidiaries shall (i) be the subject
of any proceeding or, to its knowledge, investigation pertaining to the release
by the Borrower, any of its Subsidiaries or any other Person of any toxic or
hazardous waste or substance into the environment, or (ii) violate any
Environmental Law, which, in the case of an event described in clause (i) or
clause (ii), could reasonably be expected to have a Material Adverse Effect.

         7.14. The occurrence of any "default", as defined in any Loan Document
(other than this Agreement) or the breach of any of the terms or provisions of
any Loan Document (other than this Agreement), which default or breach continues
beyond any period of grace therein provided.

         7.15. Nonpayment by the Borrower or any Subsidiary of any Rate
Management Obligation when due or the breach by the Borrower or any Subsidiary
of any term, provision or condition contained in any Rate Management
Transaction.

         7.16. Any Guaranty shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of any Guaranty, or any Guarantor shall fail to comply with any
of the terms or provisions of any Guaranty to which it is a party, or any
Guarantor shall deny that it has any further liability under any Guaranty to
which it is a party, or shall give notice to such effect.
<PAGE>

         7.17. Any Collateral Document shall fail to create a valid security
interest in the property identified therein as collateral to be covered thereby,
except as permitted by the terms of the Collateral Documents, and, to the extent
such failure is curable, the Borrower fails to execute an amendment to such
Collateral Document to remedy such failure within ten days after written request
from the Bank and submission to the Borrower of such amendment; or any
Collateral Document shall fail to remain in full force and effect (other than by
reason of any release or termination thereof to which the Bank has agreed) and,
to the extent such failure is curable, the Borrower fails to execute and deliver
to the Bank such documents as are reasonably required by the Bank to reinstate
or replace such Collateral Document within ten days after written request by the
Bank. The Borrower's violation of this Section 7.17 shall not constitute an
Unmatured Default, provided however, the Bank may declare a Default following
any violation of this Section 7.17.

         7.18.  The  representations  and  warranties  set forth in Section
5.15 shall at any time not be true and correct.




<PAGE>


                                  ARTICLE VIIA

                      AMENDMENT TO REIMBURSEMENT AGREEMENT


         7A.1. Administration of Outstanding Facilities. The Borrower will pay
or cause to be paid all amounts required to be paid on the Reimbursement
Agreement under Article 3 and perform or cause to be performed all other
obligations contained in the Outstanding Facilities, except to the extent any
such performance would be inconsistent with the requirements of this Agreement.
The Reimbursement Agreement and the IRB L/C shall continue to be governed by the
documents under which they were originally issued, as amended through the
Effective Date, and as further amended under this Agreement below.

         7A.2.    Amendments to  Reimbursement  Agreement.  After the Effective
Date, the  Reimbursement  Agreement is amended as follows:

         The first two sentences of Section 4.02(b) of the Reimbursement
Agreement are amended to read as follows: "Permit or suffer the breach of any
covenant or agreement contained in Article VI of the Second Amended and Restated
Credit Agreement and Amendment to Reimbursement Agreement among the Company and
Bank One, Indiana, NA, dated as of October 31, 2001 (as amended or modified from
time to time, the "Credit Agreement"). All such provisions of Article VI,
including definitions of defined terms used therein and exhibits referred to
therein, are incorporated by reference and made a part of this Agreement to the
same extent as if set forth fully herein, except that all cross references shall
refer to the relevant provision or provisions as incorporated herein."


                                  ARTICLE VIII

                 ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES


         8.1. Acceleration; Facility LC Collateral Account. (i) If any Default
described in Section 7.6 or 7.7 occurs with respect to the Borrower, the
obligations of the Bank to make Advances hereunder and the obligation and power
of the Bank to issue Facility LCs shall automatically terminate and the
Obligations shall immediately become due and payable without any election or
action on the part of the Bank and the Borrower will be and become thereby
unconditionally obligated, without any further notice, act or demand, to pay to
the Bank an amount in immediately available funds, which funds shall be held in
the Facility LC Collateral Account, equal to the difference of (x) the amount of
LC Obligations at such time, less (y) the amount on deposit in the Facility LC
Collateral Account at such time which is free and clear of all rights and claims
of third parties and has not been applied against the Obligations (such
difference, the "Collateral Shortfall Amount"). If any other Default occurs, the
Bank may (a) terminate or suspend its obligations to make Advances hereunder and
its obligation and power to issue Facility LCs, or declare the Obligations to be
due and payable, or both, whereupon the Obligations shall become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which the Borrower expressly waives, and (b) upon notice to the Borrower and in
addition to the continuing right to demand payment of all amounts payable under
this Agreement, make demand on the Borrower to pay, and the Borrower will,
forthwith upon such demand and without any further notice or act, pay to the
Bank the Collateral Shortfall Amount, which funds shall be deposited in the
Facility LC Account.
<PAGE>

         (ii) If at any time while any Default is continuing, the Bank
determines that the Collateral Shortfall Amount at such time is greater than
zero, the Bank may make demand on the Borrower to pay, and the Borrower will,
forthwith upon such demand and without any further notice or act, pay to the
Bank the Collateral Shortfall Amount, which funds shall be deposited in the
Facility LC Collateral Account.

         (iii) The Bank may at any time or from time to time after funds are
deposited in the Facility LC Collateral Account, apply such funds to the payment
of the Obligations and any other amounts as shall from time to time have become
due and payable by the Borrower to the Bank under the Loan Documents.

         (iv) At any time while any Default is continuing, neither the Borrower
nor any Person claiming on behalf of or through the Borrower shall have any
right to withdraw any of the funds held in the Facility LC Collateral Account.
After all of the Obligations have been indefeasibly paid in full and the
Commitment has been terminated, any funds remaining in the Facility LC
Collateral Account shall be returned by the Bank to the Borrower or paid to
whomever may be legally entitled thereto at such time.

         8.2.     Amendments.  The Bank and the  Borrower  may enter into
agreements  supplemental  hereto for the purpose of adding or modifying  any
provisions  to the Loan  Documents or changing in any manner the rights of the
Borrower hereunder or waiving any Default hereunder.

         8.3. Preservation of Rights. No delay or omission of the Bank to
exercise any right under the Loan Documents shall impair such right or be
construed to be a waiver of any Default or an acquiescence therein, and the
making of a Credit Extension notwithstanding the existence of a Default or the
inability of the Borrower to satisfy the conditions precedent to such Credit
Extension shall not constitute any waiver or acquiescence. Any single or partial
exercise of any such right shall not preclude other or further exercise thereof
or the exercise of any other right, and no waiver, amendment or other variation
of the terms, conditions or provisions of the Loan Documents whatsoever shall be
valid unless in writing signed by the Bank, and then only to the extent in such
writing specifically set forth. All remedies contained in the Loan Documents or
by law afforded shall be cumulative and all shall be available to the Bank until
the Obligations have been paid in full.

<PAGE>
                                   ARTICLE IX

                               GENERAL PROVISIONS


         9.1.     Survival of  Representations.  All  representations  and
warranties of the Borrower  contained in this Agreement shall survive the making
of the Credit Extensions herein contemplated.

         9.2.     Governmental  Regulation.  Anything contained in this
Agreement to the contrary  notwithstanding, the Bank shall not be obligated to
extend  credit to the Borrower in  violation of any  limitation  or  prohibition
provided by any applicable statute or regulation.

         9.3.     Headings.  Section  headings in the Loan  Documents are for
convenience  of reference  only, and shall not govern the interpretation of any
of the provisions of the Loan Documents.

         9.4.     Entire  Agreement.  The Loan Documents  embody the entire
agreement and  understanding  among the Borrower  and the Bank and  supersede
all prior  agreements  and  understandings  among the  Borrower and the Bank
relating to the subject matter thereof.

         9.5. Benefits of this Agreement. This Agreement shall not be construed
so as to confer any right or benefit upon any Person other than the parties to
this Agreement and their respective successors and assigns.

         9.6. Expenses; Indemnification. (i) The Borrower shall reimburse the
Bank for any costs, internal charges and out-of-pocket expenses (including
reasonable attorneys' fees and reasonable time charges of attorneys for the
Bank, which attorneys may be employees of the Bank) paid or incurred by the Bank
in connection with the preparation, negotiation, execution, delivery,
distribution (including, without limitation, via the internet), review,
amendment, modification, and administration of the Loan Documents. The Borrower
also agrees to reimburse the Bank for any costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and reasonable time
charges of attorneys for the Bank, which attorneys may be employees of the Bank)
paid or incurred by the Bank in connection with the collection and enforcement
of the Loan Documents. Expenses being reimbursed by the Borrower under this
Section include, without limitation, the cost and expense of obtaining an
appraisal of each parcel of real property or interest in real property described
in the Mortgage, which appraisal shall be in conformity with the applicable
requirements of any law or any governmental rule, regulation, policy, guideline
or directive (whether or not having the force of law), or any interpretation
thereof, including, without limitation, the provisions of Title XI of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended,
reformed or otherwise modified from time to time, and any rules promulgated to
implement such provisions and costs and expenses incurred in connection with the
Reports described in the following sentence. The Borrower acknowledges that from
time to time the Bank may prepare (but shall have no obligation or duty to
prepare) certain audit reports (the "Reports") pertaining to the Borrower's
assets for internal use by the Bank from information furnished to it by or on
behalf of the Borrower, after the Bank has exercised its rights of inspection
pursuant to this Agreement.
<PAGE>

         (ii) The Borrower further agrees to indemnify the Bank, its affiliates,
and each of its directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or not
the Bank or any Affiliate is a party thereto) which any of them may pay or incur
arising out of or relating to this Agreement, the other Loan Documents, the
transactions contemplated hereby or the direct or indirect application or
proposed application of the proceeds of any Credit Extension hereunder except to
the extent that they are determined in a final non-appealable judgment by a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of the party seeking indemnification. The obligations of the
Borrower under this Section 9.6 shall survive the termination of this Agreement.

         9.7. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles, except that any calculation or determination which is to be made on
a consolidated basis shall be made for the Borrower and all its Subsidiaries,
including those Subsidiaries, if any, which are unconsolidated on the Borrower's
audited financial statements.

         9.8. Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.

         9.9. Nonliability of the Bank. The relationship between the Borrower on
the one hand and the Bank on the other hand shall be solely that of borrower and
lender. The Bank shall not have any fiduciary responsibilities to the Borrower.
The Bank does not undertake any responsibility to the Borrower to review or
inform the Borrower of any matter in connection with any phase of the Borrower's
business or operations. The Borrower agrees that the Bank shall not have
liability to the Borrower (whether sounding in tort, contract or otherwise) for
losses suffered by the Borrower in connection with, arising out of, or in any
way related to, the transactions contemplated and the relationship established
by the Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined in a final non-appealable judgment by a court
of competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. The Bank shall
not have any liability with respect to, and the Borrower waives, releases and
agrees not to sue for, any special, indirect, consequential or punitive damages
suffered by the Borrower in connection with, arising out of, or in any way
related to the Loan Documents or the transactions contemplated thereby.

         9.10. Confidentiality. The Bank agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to its Affiliates, (ii) to legal counsel,
accountants, and other professional advisors to such Affiliate or to a
Transferee, (iii) to regulatory officials, (iv) to any Person as requested
pursuant to or as required by law, regulation, or legal process, (v) to any
Person in connection with any legal proceeding to which such Affiliate is a
party, (vi) to such Affiliate's direct or indirect contractual counterparties in
swap agreements or to legal counsel, accountants and other professional advisors
to such counterparties, and (vii) permitted by Section 11.4.
<PAGE>

         9.11.    Disclosure.       The Borrower  acknowledges  and agrees that
the Bank and/or its Affiliates from time to time may hold  investments  in,
make other loans to or have other  relationships  with the Borrower and its
Affiliates.

         9.12. Construction of Certain Provisions.If any provision of this
Agreement refers to any action to be taken by any person, or which such person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such person, whether or not expressly
specified in such provision.

         9.13. Independence of Covenants.All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that it would be permitted by an exception to, or
would be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or such condition exists.

         9.14. Interest Rate Limitation. Notwithstanding any provisions of this
Agreement or the Notes, in no event shall the amount of interest paid or agreed
to be paid by the Borrower exceed an amount computed at the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this Agreement or the Notes at the
time performance of such provision shall be due shall involve exceeding the
interest rate limitation validly prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be
fulfilled shall be reduced to an amount computed at the highest rate of interest
permissible under applicable law. If for any reason whatsoever the Bank shall
ever receive as interest an amount which would be deemed unlawful under such
applicable law, the amount shall be automatically applied to the payment of
principal of the Advances outstanding hereunder (whether or not then due and
payable) and not to the payment of interest, or shall be refunded to the
Borrower if such principal and all other obligations of the Borrower to the Bank
have been paid in full.
<PAGE>
                                    ARTICLE X

                                     SETOFF


         In addition to, and without limitation of, any rights of the Bank under
applicable law, if the Borrower becomes insolvent, however evidenced, or any
Default occurs, any and all deposits (including all account balances, whether
provisional or final and whether or not collected or available) and any other
Indebtedness at any time held or owing by the Bank or any Affiliate of the Bank
to or for the credit or account of the Borrower may be offset and applied toward
the payment of the Secured Obligations owing to the Bank, whether or not the
Secured Obligations, or any part thereof, shall then be due.

<PAGE>

                                   ARTICLE XI

                BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS



         11.1. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provided that the Borrower may not, without the prior written consent
of the Bank, assign its rights or obligations hereunder or under any Notes and
the Bank shall not be obligated to make any Advance hereunder to any entity
other than the Borrower.

         11.2.    Participations.
                  --------------

                  11.2.1. Permitted Participants; Effect. The Bank may, in the
         ordinary course of its business and in accordance with applicable law,
         at any time sell to one or more banks or other entities
         ("Participants") participating interests in any Outstanding Credit
         Exposure of the Bank, any Note held by the Bank, any Commitment of the
         Bank or any other interest of the Bank under the Loan Documents. In the
         event of any such sale by the Bank of participating interests to a
         Participant, the Bank's obligations under the Loan Documents shall
         remain unchanged, the Bank shall remain solely responsible to the
         Borrower for the performance of such obligations, the Bank shall remain
         the owner of its Outstanding Credit Exposure and the holder of any Note
         issued to it in evidence thereof for all purposes under the Loan
         Documents, all amounts payable by the Borrower under this Agreement
         shall be determined as if the Bank had not sold such participating
         interests, and the Borrower shall continue to deal solely and directly
         with the Bank in connection with the Bank's rights and obligations
         under the Loan Documents.

                  11.2.2.  Voting Rights.  Unless otherwise  agreed between the
Bank and any Participant,  the Bank shall  retain  the  sole  right to  approve,
without  the  consent  of any  Participant,  any  amendment, modification or
waiver of any provision of the Loan Documents.

                  11.2.3. Benefit of Setoff. The Borrower agrees that each
         Participant shall be deemed to have the right of setoff provided in
         Article 10 in respect of its participating interest in amounts owing
         under the Loan Documents to the same extent as if the amount of its
         participating interest were owing directly to it as the Bank under the
         Loan Documents, provided that the Bank shall retain the right of setoff
         provided in Article 10 with respect to the amount of participating
         interests sold to each Participant. The Bank agrees to share with each
         Participant, and each Participant, by exercising the right of setoff
         provided in Article 10, agrees to share with the Bank, any amount
         received pursuant to the exercise of its right of setoff, such amounts
         to be shared in accordance with their respective pro rata shares of the
         Commitment or, if the Commitment is no longer available, in accordance
         with their respective pro rata shares of the Outstanding Credit
         Exposure.
<PAGE>

         11.3. Dissemination of Information. The Borrower authorizes the Bank to
disclose to any Participant or any other Person acquiring an interest in the
Loan Documents by operation of law or otherwise (each a "Transferee") and any
prospective Transferee any and all information in the Bank's possession
concerning the creditworthiness of the Borrower and its Subsidiaries, including
without limitation any information contained in any Reports; provided that each
Transferee and prospective Transferee agrees to be bound by Section 9.10 of this
Agreement.
<PAGE>
                                   ARTICLE XII

                                     NOTICES


         12.1. Notices. Except as otherwise permitted by Section 2.8 with
respect to borrowing notices, all notices, requests and other communications to
any party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party: in
the case of the Borrower or the Bank, at its address or facsimile number set
forth on the signature pages hereof, or in the case of any future party, at such
other address or facsimile number as such future party may hereafter specify for
the purpose by notice to the Bank and the Borrower in accordance with the
provisions of this Section 12.1. Each such notice, request or other
communication shall be effective (i) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid, or (iii) if given by any other means, when delivered (or, in the case
of electronic transmission, received) at the address specified in this Section;
provided that notices to the Bank under Article II shall not be effective until
received.

         12.2.    Change of Address.  The  Borrower  and the Bank may each
change the address for service of notice upon it by a notice in writing to the
other party hereto.

<PAGE>
                                  ARTICLE XIII

                                  COUNTERPARTS

         This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and either party hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower and the Bank and the
Borrower has notified the Bank by facsimile transmission or telephone that it
has taken such action.

<PAGE>

                                   ARTICLE XIV

        CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL

         14.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS
PROVISIONS) OF THE STATE OF INDIANA, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.

         14.2. CONSENT TO JURISDICTION. THE BORROWER IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR INDIANA STATE COURT
SITTING IN INDIANAPOLIS, INDIANA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE
AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT
OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE
RIGHT OF THE BANK TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY
OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE BANK OR
ANY AFFILIATE OF THE BANK INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE
BROUGHT ONLY IN A COURT IN INDIANAPOLIS, INDIANA.

         14.3. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK WAIVE TRIAL BY
JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED
THEREUNDER.

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


<PAGE>


         IN WITNESS WHEREOF, the Borrower and the Bank have executed this
Agreement as of the date first above written.


HURCO COMPANIES, INC.


                                         By:      /s/ Roger J. Wolf
                                         -------------------------------
                                                  Roger J. Wolf
                                         Title:   Senior Vice President and CFO
                                                  One Technology Way
                                                  Indianapolis, Indiana  46268
                                                  Attention:  CFO
                                                  Telephone:     (317) 293-5309
                                                  FAX:           (317) 328-2811


                                         BANK ONE, INDIANA, NA

                                         By:      /s/ Joanna W. Anderson
                                         --------------------------------------

                                         Title:   Corporate Banking Officer
                                                ----------------------------
                                                  One Bank One Plaza
                                                  Chicago, Illinois  60670
                                                  Attention:  Joanna Anderson
                                                  Telephone:     (312) 732-6456
                                                  FAX:           (312) 732-1775



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>europeancredit.txt
<TEXT>

                           BANK ONE, NA, London Branch
          (formerly known as The First National Bank of Chicago, London Branch)
                         BANK ONE, NA, Frankfurt Branch
       (formerly known as The First National Bank of Chicago, Frankfurt Branch)
                          90 Long Acre, Convent Garden
                                 London WC2E 9RB
                                     England


                          Dated as of October 31, 2001


Hurco Europe Limited
Hurco GmbH Werkzeugmaschinen
           CIM-Bausteine Vertrieb und Service
Hurco B.V.
Hurco S.a.r.L.

                    Re: Fourth Amendment to European Facility

Ladies and Gentlemen:

         This letter amends the letter agreement with you dated September 8,
1997 (as amended, the "European Facility"), and is being entered into in
conjunction with the Second Amended and Restated Credit Agreement and Amendment
to Reimbursement Agreement of even date herewith with your parent, Hurco
Companies, Inc. (the "Credit Agreement").

         (a)      The first paragraph of the European Facility is amended and
                  restated to read as follows:

         Concurrently herewith, Hurco Companies, Inc., an Indiana corporation
which directly or indirectly owns 100% of you ("Hurco Companies"), and Bank One,
Indiana, National Association, a national banking association (successor in
interest by merger to NBD Bank, N.A.) ("Bank One, Indiana") have entered into
that certain Second Amended and Restated Credit Agreement and Amendment to
Reimbursement Agreement, dated as of even date herewith (as amended, the "Credit
Agreement"). This letter sets forth our agreement with respect to the working
capital credit facility which Bank One, NA, London Branch (formerly known as The
First National Bank of Chicago, London Branch), and Bank One, NA, Frankfurt
Branch (formerly known as The First National Bank of Chicago, Frankfurt Branch)
(collectively, "Bank One"), are willing to establish for you (the "Facility").
(References to "you" and "your" in this agreement mean, individually and not
collectively, Hurco Europe Limited, a corporation organized and existing under
the laws of England and Wales ("Hurco Europe"), Hurco GmbH Werkzeugmaschinen CIM
- - Bausteine Vertrieb und Service ("Hurco GmbH"), Hurco B.V. ("Hurco BV"), a
limited liability company organized under the laws of the Netherlands, and Hurco
S.A.R.L. ("Hurco S.a.r.L."), a limited liability company organized under the
laws of France.

         (b)      Section 1(b) of the European Facility is amended and restated
                  to read as follows:
<PAGE>

                  (b)      In no event shall the aggregate Dollar Equivalent of
                           the principal amounts of the Loans outstanding at any
                           time exceed the lesser of (i) Five Million Dollars
                           ($5,000,000) and (ii) the difference of (x) the
                           Commitment (as defined in the Credit Agreement) minus
                           (y) the Outstanding Credit Exposure (as defined in
                           the Credit Agreement.

         (c)      The definition of "Eurocurrency Rate Margin" contained in
                  Section 7 of the European Facility is amended and restated to
                  read as follows:

                  "Eurocurrency Rate Margin" means, as of any date, the
                  Applicable Margin which is applicable to Eurodollar Advances
                  then in effect under the Credit Agreement.

         (d)      The definition of "Expiration Date" contained in Section 7 of
                  the European Facility is amended and restated to read as
                  follows:

                  "Expiration Date" means the earlier to occur of (a) December
                  31, 2002, and (b) the date on which the Authorization shall be
                  terminated pursuant to Paragraph 12.

         (e)      The definition of "Floating Rate" contained in Section 7 of
                  the European Facility is amended and restated to read as
                  follows:

                  "Floating Rate" means, for any day, a rate per annum equal to
                  (i) the Alternate Base Rate (as defined in the Credit
                  Agreement) for such day plus (ii) the Applicable Margin (as
                  defined in the Credit Agreement), in each case changing when
                  and as the Alternative Base Rate changes.

         (f)      All references in the European Facility to "FCNBD" are
                  replaced with "Bank One."

         (g)      All  references  in the European  Facility to "Bank One,
                  Michigan"  are replaced with "Bank One, Indiana."

         Should the foregoing be agreeable to you, as it is to us, please
indicate your agreement and acceptance by executing and returning the enclosed
copy of this letter, whereupon the European Facility shall be amended as herein
provided, and references to the European Facility shall be to the European
Facility as so amended. Except as amended hereby, the European Facility shall
remain in full force and effect.

                                                 Very truly yours,

                                                 BANK ONE, NA, London Branch

                                                 By:      _____________________

                                                 Its:  Vice President

                                                 BANK ONE, NA, Frankfurt Branch

                                                 By:      _____________________
<PAGE>

Its:  Vice President

Agreed and accepted:

HURCO EUROPE LIMITED


By:      /s/ Roger J. Wolf
        ________________________
         Roger J. Wolf
         Its:     Director

Dated as of October 31, 2001


HURCO GmbH WERKZEUGMASCHINEN
CIM-BAUSTEINE VERTRIEB UND
SERVICE


By:      /s/ Gerhard Kohlbacher
        ________________________
         Gerhard Kohlbacher
         Its:  General Manager

Dated as of October 31, 2001


HURCO B. V.


By:      /s/ Roger J. Wolf
        ________________________
         Roger J. Wolf
         Its:  Managing Director


And :    /s/ Gerhard Kohlbacher
         ______________________
         Gerhard Kohlbacher
         Its:  Managing Director

Dated as of October 31, 2001


HURCO S.a.r.L.

By:      /s/ Gerhard Kohlbacher
        _______________________
         Gerhard Kohlbacher
         Its:  General Manager

Dated as of October 31, 2001



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(II)
<SEQUENCE>5
<FILENAME>bylaws.txt
<TEXT>



                              AMENDED AND RESTATED


                                     BY-LAWS


                                       OF


                              HURCO COMPANIES, INC.

                      AS AMENDED THROUGH NOVEMBER 14, 2001



<PAGE>
<TABLE>
<S><C>         <C>                                                                                              <C>


                                TABLE OF CONTENTS
ARTICLE I  Identification.........................................................................................1
- -------------------------
   Section 1.  Name...............................................................................................1
   ---------   ----
   Section 2.  Registered Office and Registered Agent.............................................................1
   ---------   --------------------------------------
   Section 3.  Principal Office...................................................................................1
   ---------   ----------------
   Section 4.  Other Offices......................................................................................1
   ---------   -------------
   Section 5.  Seal...............................................................................................1
   ---------   ----
   Section 6.  Fiscal Year........................................................................................1
   ---------   -----------
ARTICLE II  Shareholders..........................................................................................2
- ------------------------
   Section 1.  Place of Meeting...................................................................................2
   ---------   ----------------
   Section 2.  Annual Meetings....................................................................................2
   ---------   ---------------
   Section 3.  Special Meetings...................................................................................2
   ---------   ----------------
   Section 4.  Notice of Meeting..................................................................................2
   ---------   -----------------
   Section 5.  Waiver of Notice...................................................................................2
   ---------   ----------------
   Section 6.  Voting at Meetings.................................................................................2
   ---------   ------------------
     (a)     Voting Rights........................................................................................2
             -------------
     (b)     Record Date..........................................................................................2
             -----------
     (c)     Proxies..............................................................................................2
             -------
     (d)     Quorum...............................................................................................3
             ------
     (e)     Adjournments.........................................................................................3
             ------------
   Section 7.  List of Shareholders...............................................................................3
   ---------   --------------------
   Section 8.  Notice of Shareholder Business.....................................................................3
   ---------   ------------------------------
   Section 9.  Notice of Shareholder Nominees.....................................................................4
   ---------   ------------------------------
</TABLE>
<PAGE>
<TABLE>
<S><C>         <C>                                                                                              <C>


ARTICLE III  Directors............................................................................................5
- ----------------------
   Section 1.  Duties.............................................................................................5
   ---------   ------
   Section 2.  Number of Directors................................................................................5
   ---------   -------------------
   Section 3.  Election and Term..................................................................................5
   ---------   -----------------
   Section 4.  Resignation........................................................................................5
   ---------   -----------
   Section 5.  Vacancies..........................................................................................5
   ---------   ---------
   Section 6.  Annual Meetings....................................................................................5
   ---------   ---------------
   Section 7.  Regular Meetings...................................................................................5
   ---------   ----------------
   Section 8.  Special Meetings...................................................................................5
   ---------   ----------------
   Section 9.  Notice.............................................................................................5
   ---------   ------
   Section 10.  Waiver of Notice..................................................................................6
   ----------   ----------------
   Section 11.  Business to be Transacted.........................................................................6
   ----------   -------------------------
   Section 12.  Quorum-- Adjournment if Quorum is Not Present.....................................................6
   ----------   ---------------------------------------------
   Section 13.  Presumption of Assent.............................................................................6
   ----------   ---------------------
   Section 14.  Action by Written Consent.........................................................................6
   ----------   -------------------------
   Section 15.  Committees........................................................................................6
   ----------   ----------
   Section 16.  Meeting by Telephone or Similar Communication Equipment...........................................7
   ----------   -------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S><C>         <C>                                                                                               <C>


ARTICLE IV  Officers..............................................................................................7
- --------------------
   Section 1.  Principal Officers.................................................................................7
   ---------   ------------------
   Section 2.  Election and Terms.................................................................................7
   ---------   ------------------
   Section 3.  Resignation and Removal............................................................................7
   ---------   -----------------------
   Section 4.  Vacancies..........................................................................................7
   ---------   ---------
   Section 5.  Powers and Duties of Officers......................................................................7
   ---------   -----------------------------
   Section 6.  Chairman of the Board..............................................................................7
   ---------   ---------------------
   Section 7.  The President......................................................................................8
   ---------   -------------
   Section 8.  Vice Presidents....................................................................................8
   ---------   ---------------
   Section 9.  Secretary..........................................................................................8
   ---------   ---------
   Section 10.  Treasurer.........................................................................................8
   ----------   ---------
   Section 11.  The Controller....................................................................................9
   ----------   --------------
   Section 12.  Assistant Secretaries.............................................................................9
   ----------   ---------------------
   Section 13.  Assistant Treasurers..............................................................................9
   ----------   --------------------
   Section 14.  Delegation of Authority...........................................................................9
   ----------   -----------------------
   Section 15.  Securities of Other Corporations..................................................................9
   ----------   --------------------------------
ARTICLE V  Directors' Services, Limitation of Liability and Reliance on Corporate Records, and Interest of
- -----------------------------------------------------------------------------------------------------------
Directors in Contracts............................................................................................9
- ----------------------
   Section 1.  Services...........................................................................................9
   ---------   --------
   Section 2.  General Limitation of Liability....................................................................9
   ---------   -------------------------------
   Section 3.  Reliance on Corporate Records and Other Information...............................................10
   ---------   ---------------------------------------------------
   Section 4.  Interest of Directors in Contracts................................................................10
   ---------   ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S><C>         <C>                                                                                              <C>
   ARTICLE VI  Indemnification...................................................................................11
   ---------------------------
   Section 1.  Indemnification Against Underlying Liability......................................................11
   ---------   --------------------------------------------
   Section 2.  Successful Defense................................................................................11
   ---------   ------------------
   Section 3.  Determination of Conduct..........................................................................11
   ---------   ------------------------
   Section 4.  Definition of Good Faith..........................................................................11
   ---------   ------------------------
   Section 5.  Payment of Expenses in Advance....................................................................12
   ---------   ------------------------------
   Section 6.  Indemnity Not Exclusive...........................................................................12
   ---------   -----------------------
   Section 7.  Vested Right to Indemnification...................................................................12
   ---------   -------------------------------
   Section 8.  Insurance.........................................................................................12
   ---------   ---------
   Section 9.  Additional Definitions............................................................................12
   ---------   ----------------------
   Section 10.  Payments a Business Expense......................................................................13
   ----------   ---------------------------
ARTICLE VII  Shares..............................................................................................13
- -------------------
   Section 1.  Share Certificates................................................................................13
   ---------   ------------------
   Section 2.  Transfer of Shares................................................................................13
   ---------   ------------------
   Section 3.  Transfer Agent....................................................................................13
   ---------   --------------
   Section 4.  Registered Holders................................................................................13
   ---------   ------------------
   Section 5.  Lost, Destroyed and Mutilated Certificates........................................................13
   ---------   ------------------------------------------
   Section 6.  Consideration for Shares..........................................................................13
   ---------   ------------------------
   Section 7.  Payment for Shares................................................................................14
   ---------   ------------------
   Section 8.  Distributions to Shareholders.....................................................................14
   ---------   -----------------------------
   Section 9.  Regulations.......................................................................................14
   ---------   -----------
ARTICLE VIII  Corporate Books and Reports........................................................................14
- -----------------------------------------
   Section 1.  Place of Keeping Corporate Books and Records......................................................14
   ---------   --------------------------------------------
   Section 2.  Place of Keeping Certain Corporate Books and Records..............................................14
   ---------   ----------------------------------------------------
   Section 3.  Permanent Records.................................................................................14
   ---------   -----------------
   Section 4.  Shareholder Records...............................................................................15
   ---------   -------------------
   Section 5.  Shareholder Rights of Inspection..................................................................15
   ---------   --------------------------------
   Section 6.  Additional Rights of Inspection...................................................................15
</TABLE>
<PAGE>
<TABLE>
<S><C>         <C>                                                                                              <C>

ARTICLE IX  Miscellaneous........................................................................................15
- -------------------------
   Section 1.  Notice and Waiver of Notice.......................................................................15
   ---------   ---------------------------
   Section 2.  Depositories......................................................................................15
   ---------   ------------
   Section 3.  Signing of Checks, Notes, etc.....................................................................16
   ---------   ------------------------------
   Section 4.  Gender and Number.................................................................................16
   ---------   -----------------
   Section 5.  Laws..............................................................................................16
   ---------   ----
   Section 6.  Headings..........................................................................................16
   ---------   --------
ARTICLE X  Amendments............................................................................................16
- ---------------------
ARTICLE XI  The Indiana Business Corporation Law.................................................................16
- ------------------------------------------------

</TABLE>
<PAGE>





                                     BY-LAWS

                                       OF

                              HURCO COMPANIES, INC.

                             ARTICLE I Identification


                Section 1.  Name . The name of the Corporation is HURCO
COMPANIES,  INC.  (hereinafter  referred to as the "Corporation").


                Section  2.  Registered  Office and  Registered  Agent .
The street address of the  Registered Office of the  Corporation is One
Technology  Way, Indianapolis,  Indiana 46268;  and the name of its Registered
Agent located at such office is Roger J. Wolf.

                Section 3.  Principal  Office.  The address of the  Principal
Office of the Corporation  is One Technology Way, Indianapolis, Indiana 46268.
The Principal Office of the Corporation shall be the principal executive offices
of the Corporation, and such Principal Office may be changed from time to time
by the Board of Directors in the manner provided by law and need not be the same
as the Registered Office of the Corporation.

                  Section 4. Other Offices. The Corporation may also have
offices at such other places or locations, within or without the State of
Indiana, as the Board of Directors may determine or the business of the
Corporation may require.

                Section  5. Seal . The  Corporation  need not use a seal.
If one is used,  it shall be  circular in form and mounted upon a metal die
suitable for impressing the same upon paper. About the upper periphery of the
seal shall appear the words "HURCO COMPANIES, INC." and about the lower
periphery thereof the word "Indiana". In the center of the seal shall appear
the word "Seal". The seal may be altered by the Board of Directors at its
pleasure and may be used by causing it or a facsimile thereof to be impressed,
affixed, printed or otherwise reproduced.

                Section 6. Fiscal  Year . The fiscal year of the  Corporation
shall  begin at the  beginning  of the first day of November in each year and
end at the close of the last day of October next succeeding.



<PAGE>


                             ARTICLE II Shareholders


                Section 1. Place of Meeting . All  meetings  of  shareholders
of the  Corporation  shall be held at such place, within or without the State
of Indiana, as may be determined by the President or Board of Directors and
specified in the notices or waivers of notice thereof or proxies to represent
shareholders at such meetings.

                Section  2.  Annual  Meetings  . An annual  meeting  of
shareholders  shall be held each year on such date and at such time as may be
determined by the President or Board of Directors. The failure to hold an
annual meeting at the designated time shall not affect the validity of any
corporate action. Any and all business of any nature or character may be
transacted, and action may be taken thereon, at any annual meeting, except as
otherwise provided by law or by these By-laws.

                Section 3.  Special  Meetings . A special  meeting of
shareholders  shall be held:  (a) on  call of the Board of Directors or the
President; or (b) if the holders of a majority of all the votes entitled to be
cast on any issue proposed to be considered at the proposed special meeting
sign, date and deliver to the Secretary one (1) or more written demands for
the meeting describing the purpose or purposes for which it is to be held.
At any special meeting of the shareholders, only business within the purpose or
purposes described in the notice of the meeting may be conducted.

                Section 4.  Notice of Meeting .
Written or printed  notice  stating  the date,  time and place of
a meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered or mailed by the Secretary, or by the
officers or persons calling the meeting, to each shareholder of record of the
Corporation entitled to vote at the meeting, at such address as appears upon the
records of the Corporation, no fewer than ten (10) days nor more than sixty (60)
days, before the meeting date. If mailed, such notice shall be effective when
mailed if correctly addressed to the shareholder's address shown in the
Corporation's current record of shareholders.

                Section  5.  Waiver  of  Notice .
A  shareholder  may  waive  any  notice  required  by law,  the
Articles of Incorporation or these By-laws before or after the date and time
stated in the notice. The waiver by the shareholder entitled to the notice must
be in writing and be delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance at a meeting,
in person or by proxy: (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting; and (b)
waives objection to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.

                Section 6.  Voting at Meetings .
                (a)......Voting Rights . At each meeting of the shareholders,
each outstanding share, regardless of class, is entitled to one (1) vote on each
matter voted on at such meeting, except to the extent cumulative voting is
allowed by the Articles of Incorporation. Only shares are entitled to vote.
<PAGE>

                (b)......Record Date . The record date for purposes of
determining shareholders entitled to vote at any meeting shall be ten (10) days
prior to the date of such meeting or such different date not more than seventy
(70) days prior to such meeting as may be fixed by the Board of Directors.

                (c)......Proxies .

                           (1)      A shareholder may vote the shareholder's
                  shares in person or by proxy.

                           (2) A shareholder may appoint a proxy to vote or
                  otherwise act for the shareholder by executing in writing an
                  appointment form, either personally or by the shareholder's
                  attorney-in-fact. For purposes of this Section, a proxy
                  appointed by telegram, telex, telecopy or other document
                  transmitted electronically for or by a shareholder shall be
                  deemed "executed in writing" by the shareholder.

                           (3) An appointment of a proxy is effective when
                  received by the Secretary or other officer or agent authorized
                  to tabulate votes. An appointment is valid for eleven (11)
                  months, unless a longer period is expressly provided in the
                  appointment form.

                           (4) An appointment of a proxy is revocable by the
                  shareholder, unless the appointment form conspicuously states
                  that is irrevocable and the appointment is coupled with an
                  interest.

                (d)......Quorum . At all meetings of shareholders, a majority
of the votes entitled to be cast on a particular matter constitutes a quorum on
that matter. If a quorum exists, action on a matter (other than the election of
directors) is approved if the votes cast favoring the action exceed the votes
cast opposing the action, unless the Articles of Incorporation or law require a
greater number of affirmative votes.

                (e)......Adjournments . Any meeting of shareholders, including
both annual and special meetings and any adjournments thereof, may be adjourned
to a different date, time or place. Notice need not be given of the new date,
time or place if the new date, time or place is announced at the meeting before
adjournment, even though less than a quorum is present. At any such adjourned
meeting at which a quorum is present, in person or by proxy, any business may be
transacted which might have been transacted at the meeting as originally
notified or called.

                Section 7.  List of Shareholders .

                (a)......After a record date has been fixed for a meeting of
shareholders, the Secretary shall prepare or cause to be prepared an
alphabetical list of the names of the shareholders of the Corporation who are
entitled to vote at such meeting. The list shall show the address of and number
of shares held by each shareholder.
<PAGE>

                (b)......The shareholders' list must be available for
inspection by any shareholder entitled to vote at the meeting, beginning five
(5) business days before the date of the meeting for which the list was prepared
and continuing through the meeting, at the Corporation's principal office or at
a place identified in the meeting notice in the city where the meeting will be
held. Subject to the restrictions of applicable law, a shareholder, or the
shareholder's agent or attorney authorized in writing, is entitled on written
demand to inspect and to copy the list during regular business hours and at the
shareholder's expense, during the period it is available for inspection.

                (c)......The Corporation shall make the shareholders' list
available at the meeting, and any shareholder, or the shareholder's agent or
attorney authorized in writing, is entitled to inspect the list at any time
during the meeting or any adjournment.

                Section 8. Notice of Shareholder Business . At an annual
meeting of the shareholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have the legal right and authority to make the
proposal for consideration at the meeting and the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than 60 days prior
to the meeting; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
record address of the shareholder(s) proposing such business, (c) the class and
shares of number of the Corporation's capital stock which are beneficially owned
by such shareholder(s), and (d) any material interest of such shareholder(s) in
such business. Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 8. The Chairman of an annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section 8, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted. At any special meeting of the shareholders, only such business
shall be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
<PAGE>

                Section 9. Notice of Shareholder Nominees . Only persons who
are nominated in accordance with the procedures set forth in this Section 9
shall be eligible for election as Directors. Nominations of persons for election
to the Board of Directors may be made at a meeting of shareholders by or at the
direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any shareholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Section 9. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60 days prior
to the meeting; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholders to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of such person; (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by such
person, and (iv) any other information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange act of 1934, as amended (including without limitation such person's
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); and (b) as to the shareholder giving the
notice (i) the name and record address of such shareholder and (ii) the class
and number of shares of capital stock of the Corporation which are beneficially
owned by such shareholder. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the procedures
set forth in this Section 9. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not so
declared in accordance with the procedures prescribed by these By-Laws, and if
he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.



<PAGE>
                              ARTICLE III Directors

                Section 1.  Duties . The  business,  property  and  affairs of
the  Corporation  shall be managed and controlled by the Board of Directors and,
subject to such restrictions, if any, as may be imposed by law, the Articles
of Incorporation or by these By-laws, the Board of Directors may, and are fully
authorized to, do all such lawful acts and things as may be done by the
Corporation which are not directed or required to be exercised or done by the
shareholders. Directors need not be residents of the State of Indiana or
shareholders of the Corporation.

                Section 2.  Number of  Directors  .
The Board of  Directors  shall  consist  of six (6)  members.
The number of directors may be increased or decreased from time to time by
amendment to the By-laws of the Corporation, provided that no decrease shall
have the effect of shortening the term of an incumbent director.

                Section 3.  Election and Term .
Except as otherwise  provided in Section 5 of this  Article,  the
directors shall be elected each year at the annual meeting of the shareholders,
or at any special meeting of the shareholders. Each such director shall hold
office, unless he is removed in accordance with the provisions of these By-laws
or he resigns or dies or becomes so incapacitated he can no longer perform any
of his duties as a director, for the term for which he is elected and until his
successor shall have been elected and qualified. Each director shall qualify by
accepting his election to office either expressly or by acting as a director.
The shareholders or directors may remove any director, with or without cause,
and elect a successor at a meeting called expressly for such purpose.

                Section 4.  Resignation  .
Any director may resign at any time by  delivering  written  notice to
the Board of Directors, the President, or the Secretary of the Corporation. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.

                Section 5.  Vacancies .
Vacancies  occurring in the  membership of the Board of Directors  caused
by resignation, death or other incapacity, or increase in the number of
directors shall be filled by a majority vote of the remaining members of the
Board, and each director so elected shall serve until the next meeting of the
shareholders, or until a successor shall have been duly elected and qualified.

                Section  6.  Annual  Meetings. The Board of Directors shall meet
annually,  without  notice, immediately following, and at the same place as,
the annual meeting of the shareholders.

                Section 7. Regular  Meetings .
Regular  meetings  shall be held at such times and places,  either
within or without the State of Indiana, as may be determined by the Chairman of
the Board, the President or the Board of Directors.

                Section 8. Special  Meetings.  Special  meetings of the Board of
Directors  may be called by the President or by two (2) or more members of the
Board of Directors, at any place within or without the State of Indiana, upon
twenty-four (24) hours' notice, specifying the time, place and general purposes
of the meeting, given to each director personally, by telephone, telegraph,
teletype, or other form of wire or wireless communication; or notice may be
given by mail if mailed at least three (3) days before such meeting.
<PAGE>

                Section 9. Notice .
The  Secretary  or an Assistant  Secretary  shall give notice of each special
meeting, and of the date, time and place of the particular meeting, in person or
by mail, or by telephone, telegraph, teletype, or other form of wire or wireless
communication, and in the event of the absence of the Secretary or an Assistant
Secretary or the failure, inability, refusal or omission on the part of the
Secretary or an Assistant Secretary so to do, any other officer of the
Corporation may give said notice.

                Section 10.  Waiver of Notice .
A director  may waive any notice  required by law,  the  Articles
of Incorporation, or these By-laws before or after the date and time stated in
the notice. Except as otherwise provided in this Section, the waiver by the
director must be in writing, signed by the director entitled to the notice, and
included in the minutes or filed with the corporate records. A director's
attendance at or participation in a meeting waives any required notice to the
director of the meeting unless the director at the beginning of the meeting (or
promptly upon the director's arrival) objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.

                Section  11.  Business to be  Transacted  .
Neither the  business  to be  transacted  at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or any waiver of notice of such meeting. Any and all
business of any nature or character whatsoever may be transacted and action may
be taken thereon at any meeting, regular or special, of the Board of Directors.

                Section 12. Quorum -- Adjournment if Quorum is Not Present . A
majority of the number of directors fixed by, or in the manner provided in, the
Articles of Incorporation or these By-laws shall constitute a quorum for the
transaction of any and all business, unless a greater number is required by law
or Articles of Incorporation or these By-laws. At any meeting, regular or
special, of the Board of Directors, if there be less than a quorum present, a
majority of those present, or if only one director be present, then such
director, may adjourn the meeting from time to time without notice until the
transaction of any and all business submitted or proposed to be submitted to
such meeting or any adjournment thereof shall have been completed. In the event
of such adjournment, written, telegraphic or telephonic announcement of the time
and place at which the meeting will reconvene must be provided to all directors.
The act of the majority of the directors present at any meeting of the Board of
Directors at which a quorum is present shall constitute the act of the Board of
Directors, unless the act of a greater number is required by law or the Articles
of Incorporation or these By-laws.

                Section 13.  Presumption  of Assent .
A director of the  Corporation  who is present at a meeting
of the Board of Directors at which action on any corporate matter is taken shall
be presumed to have assented to the action taken unless his dissent or
abstention shall be entered in the minutes of the meeting or unless he shall
file his written dissent or abstention to such action with the presiding officer
of the meeting before the adjournment thereof or to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent or abstain shall not apply to a director who voted in favor of such
action.
<PAGE>

              Section  14.  Action by  Written  Consent .
Any action  required  or  permitted  to be taken at a
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if the action is taken by all the members of the Board of Directors or
committee, as the case may be. The action must be evidenced by one or more
written consents describing the action taken, signed by each director or
committee member, and included in the minutes or filed with the corporate
records reflecting the action taken. Such action is effective when the last
director or committee member signs the consent, unless the consent specifies a
different prior or subsequent effective date. Such consent shall have the same
force and effect as a unanimous vote at a meeting, and may be described as such
in any document or instrument.

                Section 15.  Committees  .
The Board of  Directors,  by  resolution  adopted by a majority of the
Board of Directors, may designate from among its members an executive committee
and one or more other committees, each of which, to the extent provided in such
resolution or in the Articles of Incorporation or in these By-laws of the
Corporation, shall have and may exercise such authority of the Board of
Directors as shall be expressly delegated by the Board from time to time; except
that no such committee shall have the authority of the Board of Directors in
reference to (a) amending the Articles of Incorporation; (b) approving a plan of
merger even if the plan does not require shareholder approval; (c) authorizing
dividends or distributions, except a committee may authorize or approve a
reacquisition of shares, if done according to a formula or method prescribed by
the Board of Directors; (d) approving or proposing to shareholders action that
requires shareholder approval; (e) amending, altering or repealing the By-laws
of the Corporation or adopting new By-laws for the Corporation; (f) filling
vacancies in the Board of Directors or in any of its committees; or (g) electing
or removing officers or members of any such committee. A majority of all the
members of any such committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
The Board of Directors shall have power at any time to change the number and
members of any such committee, to fill vacancies and to discharge any such
committee. The designation of such committee and the delegation thereto of
authority shall not alone constitute compliance by the Board of Directors, or
any member thereof, with the standard of conduct imposed upon it or him by the
Indiana Business Corporation Law, as the same may, from time to time, be
amended.

                Section 16. Meeting by Telephone or Similar Communication
Equipment . Any or all directors may participate in and hold a regular or
special meeting of the Board of Directors or any committee thereof by, or
through the use of, any means of conference telephone or other similar
communications equipment by which all directors participating in the meeting may
simultaneously hear each other during the meeting. Participation in a meeting
pursuant to this Section shall constitute presence in person at such meeting,
except where a director participates in the meeting for the express purpose of
objecting to holding the meeting or transacting business at the meeting on the
ground that the meeting is not lawfully called or convened.
<PAGE>

                               ARTICLE IV Officers

                Section 1.  Principal  Officers .
The  officers of the  Corporation  shall be chosen by the Board
of Directors and shall consist of a Chairman of the Board, a President, a
Treasurer and a Secretary. There may also be one or more Vice Presidents, a
Controller, and such other officers or assistant officers as the Board shall
from time to time create and so elect. Any two (2) or more offices may be held
by the same person.

                Section 2.  Election  and Terms .
Each  officer  shall be elected  by the Board of  Directors  at
the annual meeting thereof and shall hold office until the next annual meeting
of the Board or until his or her successor shall have been elected and qualified
or until his or her death, resignation or removal. The election of an officer
shall not of itself create contract rights.

                Section 3.  Resignation  and  Removal .
An officer  may resign at any time by  delivering  notice
to the Board of Directors, its Chairman, or the Secretary of the Corporation. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. If an officer's resignation is made effective
at a later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date, if the
Board of Directors provides that the successor does not take office until the
effective date. The acceptance of a resignation shall not be necessary to make
it effective, unless expressly provided in the resignation. An officer's
resignation does not affect the Corporation's contract rights, if any, with the
officer. Any officer may be removed at any time, with or without cause, by vote
of a majority of the whole Board. Such removal shall not affect the contract
rights, if any, of the officer so removed.

                Section 4.  Vacancies .
Whenever  any  vacancy  shall occur in any office by death,  resignation,
increase in the number of officers of the Corporation, or otherwise, the same
shall be filled by the Board of Directors, and the officer so elected shall hold
office until the next annual meeting of the Board or until his or her successor
shall have been elected and qualified.

                Section 5.  Powers and Duties of  Officers .
The  officers  so chosen  shall  perform  the duties
and exercise the powers expressly conferred or provided for in these By-laws, as
well as the usual duties and powers incident to such office, respectively, and
such other duties and powers as may be assigned to them by the Board of
Directors or by the President.
<PAGE>

                Section  6.  Chairman  of the  Board .
The  Chairman  of the Board  shall be the Chief  Executive
Officer of the Corporation and shall have charge of and supervision and
authority over all of the affairs, business and operations of the Corporation in
the ordinary course of its business, with all such duties, powers and authority
with respect to such affairs, business and operations as may be reasonably
incident to such responsibilities. He shall have general supervision of and
direct all officers, agents and employees of the Corporation and shall see that
all orders and resolutions of the Board are carried into effect. He shall have
the authority to sign all deeds, bonds, mortgages, contracts, notes and other
instruments on behalf of the Corporation (except in cases where the signing and
execution thereof shall be expressly delegated by the Board or by these By-laws,
or by law to some other officer or agent of the Corporation). He shall preside
at meetings of the shareholders and of the Board of Directors. He shall also
perform such other duties and have such additional authority and powers as are
incident to his office or as may be delegated to him from time to time by the
Board of Directors."

                Section  7.  The  President  .
The  President  shall  be  the  Chief  Operating  Officer  of the
Corporation and shall supervise the day-to-day operations of the Corporation
subject to the supervision of the Chairman of the Board and the Board of
Directors. He shall have the authority to sign all deeds, mortgages, bonds,
contracts, notes and other instruments on behalf of the Corporation (except in
cases where the signing and execution thereof shall be expressly delegated by
the Board or by these By-laws or by law to some other officer or agent of the
Corporation). In the absence of the Chairman of the Board, he shall preside at
meetings of the shareholders. He shall also perform such other duties and have
such additional authority and powers as are incident to his office or as may be
delegated to him from time to time by the Chairman of the Board or the Board of
Directors.

                Section 8. Vice  Presidents .
The Vice  Presidents  shall assist the  President and shall perform
such duties as may be assigned to them by the Board of Directors or the
President. Unless otherwise provided by the Board, in the absence or disability
of the President, the Vice President (or, if there be more than one, the Vice
President first named as such by the Board of Directors at its most recent
meeting at which Vice Presidents were elected) shall execute the powers and
perform the duties of the President. Any action taken by a Vice President in the
performance of the duties of the President shall be conclusive evidence of the
absence or inability to act of the President at the time such action was taken.

                Section 9.  Secretary .
The  Secretary  (a) shall  keep the minutes of all  meetings of the Board
of Directors and the minutes of all meetings of the shareholders in books
provided for that purpose; (b) shall attend to the giving and serving of all
notices; (c) when required, may sign with the President or a Vice President in
the name of the Corporation, and may attest the signature of any other officers
of the Corporation to all contracts, conveyances, transfers, assignments,
encumbrances, authorizations and all other instruments, documents and papers, of
any and every description whatsoever, of or executed for or on behalf of the
Corporation and affix the seal of the Corporation thereto; (d) may sign with the
President or a Vice President all certificates for shares of the capital stock
of the Corporation and affix the corporate seal of the Corporation thereto; (e)
shall have charge of and maintain and keep or supervise and control the
maintenance and keeping of the stock certificate books, transfer books and stock
<PAGE>
ledgers and such other books and papers as the Board of Directors may authorize,
direct or provide for, all of which shall at all reasonable times be open to the
inspection of any director, upon request, at the office of the Corporation
during business hours; (f) shall, in general, perform all the duties incident to
the office of Secretary; and (g) shall have such other powers and duties as may
be conferred upon or assigned to him by the Board of Directors.

                Section 10.  Treasurer .
The  Treasurer  shall have  custody of all the funds and  securities  of
the Corporation which come into his hands. When necessary or proper, he may
endorse on behalf of the Corporation, for collection, checks, notes and other
obligations, and shall deposit the same to the credit of the Corporation in such
banks or depositories as shall be selected or designated by or in the manner
prescribed by the Board of Directors. He may sign all receipts and vouchers for
payments made to the Corporation, either alone or jointly with such officer as
may be designated by the Board of Directors. Whenever required by the Board of
Directors, he shall render a statement of his cash account. He shall enter or
cause to be entered, punctually and regularly, on the books of the Corporation,
to be kept by him or under his supervision or direction for that purpose, full
and accurate accounts of all moneys received and paid out by, for or on account
of the Corporation. He shall at all reasonable times exhibit his books and
accounts and other financial records to any director of the Corporation during
business hours. He shall have such other powers and duties as may be conferred
upon or assigned to him by the Board of Directors. The Treasurer shall perform
all acts incident to the position of Treasurer, subject always to the control of
the Board of Directors. He shall, if required by the Board of Directors, give
such bond for the faithful discharge of his duties in such form and amount as
the Board of Directors may require.

                Section  11.  The  Controller  .
The  Controller  shall be the chief  accounting  officer  of the
Corporation and in such capacity shall keep full and accurate accounts of all
assets, liabilities, commitments, receipts, disbursements, and other financial
transactions of the Corporation and its subsidiaries in books belonging to the
Corporation; shall cause audits of such books and records to be made at regular
intervals as required by law and in accordance with guidelines established by
the Audit Committee of the Board of Directors; shall see that all expenditures
are made in accordance with procedures duly established, from time to time by
the Corporation; shall prepare financial statements for the Corporation and its
subsidiaries at regular intervals as required by law or at the request of the
Board of Directors, the Chairman, the President or the Vice President, Finance;
and, in general shall perform all the duties ordinarily connected with the
office of Controller and such other duties as, from time to time, may be
assigned to him by the Board of Directors, the Chairman, the President or the
Vice President, Finance.

                Section 12.  Assistant  Secretaries  .
The  Assistant  Secretaries  shall assist the Secretary in
the performance of his or her duties. In the absence of the Secretary, any
Assistant Secretary shall exercise the powers and perform the duties of the
Secretary. The Assistant Secretaries shall exercise such other powers and
perform such other duties as may from time to time be assigned to them by the
Board, the President, or the Secretary.
<PAGE>

                Section 13.  Assistant  Treasurers .
The Assistant  Treasurers  shall assist the Treasurer in the
performance of his or her duties. Any Assistant Treasurer shall, in the absence
or disability of the Treasurer, exercise the powers and perform the duties of
the Treasurer. The Assistant Treasurers shall exercise such other duties as may
from time to time be assigned to them by the Board, the President, or the
Treasurer.

                Section  14.  Delegation  of  Authority  .
In  case  of  the  absence  of  any  officer  of  the
Corporation, or for any reason that the Board may deem sufficient, a majority of
the entire Board may transfer or delegate the powers or duties of any officer to
any other officer or officers for such length of time as the Board may
determine.

                Section  15.  Securities  of  Other  Corporations  .
The  President  or  any  Vice  President  or
Secretary or Treasurer of the Corporation shall have power and authority to
transfer, endorse for transfer, vote, consent or take any other action with
respect to any securities of another issuer which may be held or owned by the
Corporation and to make, execute and deliver any waiver, proxy or consent with
respect to any such securities.

<PAGE>

                ARTICLE V Directors' Services, Limitation of Liability and
                 Reliance on Corporate Records, andInterest of Directors
                                   in Contracts

                Section 1.  Services .
No  director  of this  Corporation  who is not an officer or  employee  of
this Corporation shall be required to devote his time or any particular portion
of his time or render services or any particular services exclusively to this
Corporation. Every director of this Corporation shall be entirely free to
engage, participate and invest in any and all such businesses, enterprises and
activities, either similar or dissimilar to the business, enterprise and
activities of this Corporation, without breach of duty to this Corporation or to
its shareholders and without accountability or liability to this Corporation or
to its shareholders.

                Every director of this Corporation shall be entirely free to
act for, serve and represent any other corporation, any entity or any person, in
any capacity, and be or become a director or officer, or both, of any other
corporation or any entity, irrespective of whether or not the business,
purposes, enterprises and activities, or any of them thereof, be similar or
dissimilar to the business, purposes, enterprises and activities, or any of
them, of this Corporation, without breach of duty to this Corporation or to its
shareholders and without accountability or liability of any character or
description to this Corporation or to its shareholders.

                Section 2.  General  Limitation  of  Liability .
A director  shall,  based on facts then known to
the director, discharge the duties as a director, including the director's
duties as a member of a committee, in good faith, with the care an ordinarily
prudent person in a like position would exercise under similar circumstances,
and in a manner the director reasonably believes to be in the best interests of
the Corporation. A director is not liable to the Corporation for any action
taken as a director, or any failure to take any action, unless: (a) the director
has breached or failed to perform the duties of the director's office in
accordance with the standard of care set forth above; and (b) the breach or
failure to perform constitutes willful misconduct or recklessness.

                Section 3. Reliance on Corporate Records and Other Information.
Any  person  acting as a
director of the Corporation shall be fully protected, and shall be deemed to
have complied with the standard of care set forth in Section 2 of this Article,
in relying in good faith upon any information, opinions, reports or statements,
including financial statements and other financial data, if prepared or
presented by (a) one or more officers or employees of the Corporation whom such
person reasonably believes to be reliable and competent in the matters
presented; (b) legal counsel, public accountants, or other persons as to matters
such person reasonably believes are within the person's professional or expert
competence; or (c) a committee of the Board of Directors of which such person is
not a member, if such person reasonably believes the committee merits
confidence; provided, however, that such person shall not be considered to be
acting in good faith if such person has knowledge concerning the matter in
question that would cause such reliance to be unwarranted.
<PAGE>

                Section 4.  Interest of Directors in  Contracts .
Any contract or other  transaction  between the
Corporation and (a) any director, or (b) any corporation, unincorporated
association, business trust, estate, partnership, trust, joint venture,
individual or other legal entity (1) in which any director has a material
financial interest or is a general partner, or (2) of which any director is a
director, officer, or trustee, shall be valid for all purposes, if the material
facts of the contract or transaction and the director's interest were disclosed
or known to the Board of Directors, a committee of the Board of Directors with
authority to act thereon, or the shareholders entitled to vote thereon, and the
Board of Directors, such committee or such shareholders authorized, approved or
ratified the contract or transaction. Such a contract or transaction is
authorized, approved or ratified:

(i) by the Board of Directors or such
committee, if it receives the affirmative vote of a majority of the directors
who have no interest in the contract or transaction, notwithstanding the fact
that such majority may not constitute a quorum or a majority of the directors
present at the meeting, and notwithstanding the presence or vote of any director
who does have such an interest; provided, however,  that no such contract or
transaction may be authorized,  approved or ratified by a single  director;  and

(ii) by such shareholders, if it receives the vote of a majority of the shares
entitled to be counted, in which vote shares owned by or voted under the control
of any director who, or of any corporation, unincorporated association, business
trust, estate, partnership, trust, joint venture, individual or other legal
entity that, has an interest in the contract or transaction may be counted;
provided, however, that a majority of such shares,whether or not present, shall
constitute a quorum for the purpose of authorizing, approving or ratifying such
a contract or transaction. This Section shall not be construed to require
authorization, ratification or approval by the shareholder of any such contract
or transaction, or to invalidate any such contract or transaction that is
fair to the Corporation or would otherwise be valid under the common and
statutory law applicable thereto.
<PAGE>
                           ARTICLE VI Indemnification

                Section 1. Indemnification Against Underlying Liability . The
Corporation shall, to the fullest extent to which it is empowered to do so by
the Corporation Law, or any other applicable law, as from time to time in
effect, indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative and whether formal or
informal, by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or who, while serving as such director, officer,
employee or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(collectively, "Agent") against expenses (including attorneys' fees), judgments,
fines, penalties, court costs and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement (whether with or without court approval), conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Agent did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. If several claims,
issues or matters are involved, an Agent may be entitled to indemnification as
to some matters even though he is not entitled as to other matters.

                Section 2. Successful Defense. To the extent that an Agent of
the  Corporation  has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 1 of this Article VI, or
in defense of any claim, issue or matter therein, the Corporation shall
indemnify such person against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.

                Section 3. Determination of Conduct . Subject to any rights
under any contract between the Corporation and any Agent, any indemnification
against underlying liability provided for in Section 1 of this Article VI
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the Agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in said Section. Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors not at
the time parties to such action, suit or proceeding; (2) if such an independent
quorum cannot be obtained, by majority vote of a committee duly designated by
the full Board of Directors (in which designation directors who are parties may
participate), consisting solely of one or more directors not at the time parties
to the action, suit or proceeding; (3) by special legal counsel (A) selected by
the independent quorum of the Board of Directors (or the independent committee
thereof if no such quorum can be obtained), or (B) if no such independent quorum
or committee thereof can be obtained, selected by majority vote of the full
Board of Directors (in which selection directors who are parties may
participate); or (4) by the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to such action, suit or
proceeding may not be voted on the determination. Notwithstanding the foregoing,
an Agent shall be able to contest any determination that the Agent has not met
the applicable standard of conduct by petitioning a court of appropriate
jurisdiction.
<PAGE>

                Section 4.  Definition  of Good Faith .
For  purposes of any  determination  under  Section 1  of
this Article VI, a person shall be deemed to have acted in good faith and to
have otherwise met the applicable standard of conduct set forth in Section 1 if
his action is based on information, opinions, reports, or statements, including
financial statements and other financial data, if prepared or presented by (1)
one or more officers or employees of the Corporation or another enterprise whom
he reasonably believes to be reliable and competent in the matters presented;
(2) legal counsel, public accountants, appraisers or other persons as to matters
he reasonably believes are within the person's professional or expert
competence; or (3) a committee of the Board of Directors of the Corporation or
another enterprise of which the person is not a member if he reasonably believes
the committee merits confidence. The provisions of this Section 4 shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standards of conduct set forth
in Section 1 of this Article VI.

                Section 5. Payment of Expenses in Advance . Expenses incurred
in connection with any civil, criminal, administrative or investigative action,
suit or proceeding by an Agent who may be entitled to indemnification pursuant
to Section 1 of this Article VI shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of a
written affirmation by the Agent of his good faith belief that he has met the
applicable standard of conduct set forth in Section 1 of this Article VI and
upon receipt of a written undertaking by or on behalf of the Agent to repay such
amount if it is ultimately determined that he is not entitled to be indemnified
by the Corporation as authorized in this Article VI. Notwithstanding the
foregoing, such expenses shall not be advanced if the Corporation conducts the
determination of conduct procedure referred to in Section 3 of this Article VI
and it is determined from the facts then known that the Agent will be precluded
from indemnification against underlying liability because he has failed to meet
the applicable standard of conduct set forth in Section 1 of this Article VI.
The full Board of Directors (including directors who are parties) may authorize
the Corporation to implement the determination of conduct procedure, but such
procedure is not required for the advancement of expenses. The full Board of
Directors (including directors who are parties) may authorize the Corporation to
assume the Agent's defense where appropriate, rather than to advance expenses
for such defense.

                Section 6.  Indemnity Not  Exclusive .
The  indemnification  against  underlying  liability,  and
advancement of expenses provided by, or granted pursuant to, this Article VI
shall not be deemed exclusive of, and shall be subject to, any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under the Corporation's Articles of Incorporation, these Bylaws, any resolution
of the Board of Directors or shareholders, any other authorization, whenever
adopted, after notice, by a majority vote of all voting shares then outstanding,
or any contract, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be an Agent, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
<PAGE>

                Section 7. Vested Right to Indemnification . The right of any
individual to indemnification under this Article shall vest at the time of
occurrence or performance of any event, act or omission giving rise to any
action, suit or proceeding of the nature referred to in Section 1 of this
Article VI and, once vested, shall not later be impaired as a result of any
amendment, repeal, alteration or other modification of any or all of these
provisions. Notwithstanding the foregoing, the indemnification afforded under
this Article shall be applicable to all alleged prior acts or omissions of any
individual seeking indemnification hereunder, regardless of the fact that such
alleged acts or omissions may have occurred prior to the adoption of this
Article. To the extent such prior acts or omissions cannot be deemed to be
covered by this Article VI, the right of any individual to indemnification shall
be governed by the indemnification provisions in effect at the time of such
prior acts or omissions.

                Section  8.  Insurance  .
The  Corporation  shall  have  the  power  to  purchase  and  maintain
insurance on behalf of any person who is or was an Agent of the Corporation
against any liability asserted against him or incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article VI.

                Section 9. Additional Definitions . For purposes of this
Article VI references to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries. A person who acted in
good faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VI.

                Section  10.  Payments a Business  Expense .
Any  payments  made to any  indemnified  party under
this Article or under any other right to indemnification shall be deemed to be
an ordinary and necessary business expense of the Corporation, and payment
thereof shall not subject any person responsible for the payment, or the Board
of Directors, to any action for corporate waste or to any similar action.
<PAGE>


                                ARTICLE VII Shares

                Section  1. Share  Certificates  .
The  certificate  for  shares of the  Corporation  shall be in
such form as shall be approved by the Board of Directors. Each share certificate
shall state on its face the name and state of organization of the Corporation,
the name of the person to whom the certificate is issued, and the number and
class of shares the certificate represents. Share certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued. Every certificate for shares of the Corporation shall be signed
(either manually or in facsimile) by, or in the name of, the Corporation by the
President or a Vice President and either the Secretary or an Assistant Secretary
of the Corporation, with the seal of the Corporation, if any, or a facsimile
thereof impressed or printed thereon. If the person who signed (either manually
or in facsimile) a share certificate no longer holds office when the certificate
is issued, the certificate is nevertheless valid.

                Section 2.  Transfer  of Shares .
Except as  otherwise  provided by law,  transfers  of shares of
the capital stock of the Corporation, whether part paid or fully paid, shall be
made only on the books of the Corporation by the owner thereof in person or by
duly authorized attorney, on payment of all taxes thereon and surrender for
cancellation of the certificate or certificates for such shares (except as
hereinafter provided in the case of loss, destruction or mutilation of
certificate) properly endorsed by the holder thereof or accompanied by the
proper evidence of succession, assignment or authority to transfer, and
delivered to the Secretary or an Assistant Secretary. All such transfers shall
be made in accordance with the relevant provisions of Indiana
Codess.ss.26-1-8-101 et seq.

                Section 3.  Transfer  Agent .
The Board of  Directors  shall  have  power to appoint  one or more
transfer agents and registrars for the transfer and registration of certificates
of stock of the Corporation, and may require that such certificates shall be
countersigned and registered by one or more of such transfer agents and
registrars.

                Section  4.  Registered  Holders .
The  Corporation  shall be  entitled  to treat  the  person in
whose name any share of stock or any warrant, right or option is registered as
the owner thereof for all purposes and shall not be bound to recognize any
equitable or other claim to, or interest in, such share, warrant, right or
option on the part of any other person, whether or not the Corporation shall
have notice thereof, save as may be expressly provided otherwise by the laws of
the State of Indiana, the Articles of Incorporation of the Corporation or these
By-laws. In no event shall any transferee of shares of the Corporation become a
shareholder of the Corporation until express notice of the transfer shall have
been received by the Corporation.
<PAGE>

                Section 5. Lost, Destroyed and Mutilated Certificates . The
holder of any share certificate of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate, and the
Board may, in its discretion, cause to be issued to such holder of shares a new
certificate or certificates of shares of capital stock, upon the surrender of
the mutilated certificate, or, in case of loss or destruction, upon the
furnishing of an affidavit or satisfactory proof of such loss or destruction.
The Board may, in its discretion, require the owner of the lost or destroyed
certificate or such owner's legal representative to give the Corporation a bond
in such sum and in such form, and with such surety or sureties as it may direct,
to indemnify the Corporation, its transfer agents and registrars, if any,
against any claim that may be made against them or any of them with respect to
the certificate or certificates alleged to have been lost or destroyed, but the
Board may, in its discretion, refuse to issue a new certificate or new
certificates, save upon the order of a court having jurisdiction in such
matters.

                Section 6.  Consideration  for Shares .
The Corporation  may issue shares for such  consideration
received or to be received as the Board of Directors determines to be adequate.
That determination by the Board of Directors is conclusive insofar as the
adequacy of consideration for the issuance of shares relates to whether the
shares are validly issued, fully paid and nonassessable. When the Corporation
receives the consideration for which the Board of Directors authorized the
issuance of shares, the shares issued therefor are fully paid and nonassessable.

                Section 7.  Payment for Shares .
The Board of  Directors  may  authorize  shares to be issued for
consideration consisting of any tangible or intangible property or benefit to
the Corporation, including cash, promissory notes, services performed, contracts
for services to be performed, or other securities of the Corporation. If shares
are authorized to be issued for promissory notes or for promises to render
services in the future, the Corporation must report in writing to the
shareholders the number of shares authorized to be so issued before or with the
notice of the next shareholders' meeting.

                Section  8.  Distributions  to  Shareholders  .
The  Board of  Directors  may  authorize  and the
Corporation may make distributions to the shareholders subject to any
restrictions set forth in the Articles of Incorporation of the Corporation and
any limitations in the Indiana Business Corporation Law, as amended.

                Section 9.  Regulations  .
The Board of  Directors  shall have  power and  authority  to make all
such rules and regulations as they may deem expedient concerning the issue,
transfer and registration or the replacement of certificates for shares of the
Corporation.
<PAGE>
                     ARTICLE VIII Corporate Books and Reports

                Section  1.  Place of  Keeping  Corporate  Books  and  Records .
Except  as  expressly  provided otherwise in this Article, the books of account,
records, documents and papers of the Corporation shall be kept at any place or
places, within or without the State of Indiana, as directed by the Board of
Directors. In the absence of a direction, the books of account, records,
documents and papers shall be kept at the principal office of the Corporation.

                Section 2. Place of Keeping Certain Corporate Books and Records.
The Corporation shall keep a copy of the following records at its principal
office:

                (1)......Its  Articles  or  restated  Articles of Incorporation
and  all  amendments  to  them currently in effect;

                (2)......Its By-laws or restated By-laws and all amendments to
them currently in effect;

                (3)......Resolutions adopted by the Board of Directors with
respect to one or more classes or series of shares and fixing their relative
rights, preferences and limitations, if shares issued pursuant to those
resolutions are outstanding;

                (4)......The minutes of all shareholders' meetings and records
of all action taken by shareholders without a meeting, for the past three (3)
years;

                (5)......All written communications to shareholders generally
within the past three (3) years, including financial statements furnished to
shareholders;

                (6)......A list of the names and business addresses of its
current directors and officers; and

                (7)......The Corporation's most recent annual report.

                Section 3. Permanent  Records . The  Corporation  shall keep as
permanent  records minutes of all meetings of its shareholders and Board of
Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee
of the Board of Directors in place of the Board of Directors on behalf of the
Corporation. The Corporation shall also maintain appropriate accounting records.

                Section 4.  Shareholder  Records . The Corporation
shall maintain a record of its  shareholders, in a form that permits preparation
of a list of the names and addresses of all shareholders, in alphabetical order
by class of shares showing the number and class of shares held by each.

                Section 5.  Shareholder  Rights of  Inspection  .
The records  designated  in  Section 2  of this
Article may be inspected and copied by shareholders of record, during regular
business hours at the Corporation's principal office, provided that the
shareholder gives the Corporation written notice of the shareholder's demand at
least five (5) business days before the date on which the shareholder wishes to
inspect and copy. A shareholder's agent or attorney, if authorized in writing,
has the same inspection and copying rights as the shareholder represented. The
Corporation may impose a reasonable charge, covering the costs of labor and
material, for copies of any documents provided to the shareholder.
<PAGE>

                Section 6.  Additional  Rights of  Inspection .
Shareholder  rights  enumerated  in Section 5 of
this Article may also apply to the following corporate records, provided that
the notice requirements of Section 5 are met, the shareholder's demand is made
in good faith and for a proper purpose, the shareholder describes with
reasonable particularity the shareholder's purpose and the records the
shareholder desires to inspect, and the records are directly connected with the
shareholder's purpose: excerpts from minutes of any meeting of the Board of
Directors, records of any action of a committee of the Board of Directors while
acting in place of the Board of Directors on behalf of the Corporation, minutes
of any meeting of the shareholders, and records of action taken by the
shareholders or Board of Directors without a meeting, to the extent not subject
to inspection under Section 5 of this Article, as well as accounting records of
the Corporation and the record of shareholders. Such inspection and copying is
to be done during regular business hours at a reasonable location specified by
the Corporation. The Corporation may impose a reasonable charge, covering the
costs of labor and material, for copies of any documents provided to the
shareholder.
<PAGE>
                             ARTICLE IX Miscellaneous

                Section  1.  Notice  and  Waiver  of  Notice  .
Subject  to  the  specific  and  express  notice
requirements set forth in other provisions of these By-laws, the Articles of
Incorporation, and the Indiana Business Corporation Law, as the same may, from
time to time, be amended, notice may be communicated to any shareholder or
director in person, by telephone, telegraph, teletype, or other form of wire or
wireless communication, or by mail. If the foregoing forms of personal notice
are deemed to be impracticable, notice may be communicated in a newspaper of
general circulation in the area where published or by radio, television, or
other form of public broadcast communication. Subject to Section 4 of ARTICLE II
of these By-laws, written notice is effective at the earliest of the following:
(a) when received; (b) if correctly addressed to the address listed in the most
current records of the Corporation, five days after its mailing, as evidenced by
the postmark or private carrier receipt; or (c) if sent by registered or
certified United States mail, return receipt requested, on the date shown on the
return receipt which is signed by or on behalf of the addressee. Oral notice is
effective when communicated. A written waiver of notice, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be equivalent to the giving of such notice.

                Section 2.  Depositories  .
Funds of the  Corporation  not otherwise  employed shall be deposited
in such banks or other depositories as the Board of Directors, the President or
the Treasurer may select or approve.

                Section 3.  Signing of Checks,  Notes,  etc.
In  addition  to and  cumulative  of, but in no way
limiting or restricting, any other provision of these By-laws which confers any
authority relative thereto, all checks, drafts and other orders for the payment
of money out of funds of the Corporation and all notes and other evidence of
indebtedness of the Corporation may be signed on behalf of the Corporation, in
such manner, and by such officer or person as shall be determined or designated
by the Board of Directors; provided, however, that if, when, after and as
authorized or provided for by the Board of Directors, the signature of any such
officer or person may be a facsimile or engraved or printed, and shall have the
same force and effect and bind the Corporation as though such officer or person
had signed the same personally; and, in the event of the death, disability,
removal or resignation of any such officer or person, if the Board of Directors
shall so determine or provide, as though and with the same effect as if such
death, disability, removal or resignation had not occurred.

                Section 4. Gender and Number .
Wherever  used or  appearing  in these  By-laws,  pronouns of the
masculine gender shall include the female gender and the neuter gender, and the
singular shall include the plural wherever appropriate.

                Section  5. Laws .
Wherever  used or  appearing  in these  By-laws,  the  words  "law" or "laws"
shall mean and refer to laws of the State of Indiana, to the extent only that
such are expressly applicable, except where otherwise expressly stated or the
context requires that such words not be so limited.

                Section 6.  Headings .
The headings of the  Articles  and Sections of these  By-laws are inserted
for convenience of reference only and shall not be deemed to be a part thereof
or used in the construction or interpretation thereof.
<PAGE>

                               ARTICLE X Amendments

                These By-laws may, from time to time, be added to, changed,
altered, amended or repealed or new By-laws may be made or adopted by a majority
vote of the whole Board of Directors at any meeting of the Board of Directors,
if the notice or waiver of notice of such meeting shall have stated that the
By-laws are to be amended, altered or repealed at such meeting, or if all
directors at the time are present at such meeting, have waived notice of such
meeting, or have consented to such action in writing.


                 ARTICLE XI The Indiana Business Corporation Law

                The provisions of the Indiana Business Corporation Law, as the
same may, from time to time, be amended, applicable to any of the matters not
herein specifically covered by these By-laws, are hereby incorporated by
reference in and made a part of these By-laws.



















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