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<SEC-DOCUMENT>0000315374-02-000010.txt : 20020530
<SEC-HEADER>0000315374-02-000010.hdr.sgml : 20020530
<ACCEPTANCE-DATETIME>20020530165611
ACCESSION NUMBER:		0000315374-02-000010
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20020430
FILED AS OF DATE:		20020530

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-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-09143
		FILM NUMBER:		02666560

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

	MAIL ADDRESS:	
		STREET 1:		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-Q
<SEQUENCE>1
<FILENAME>secondqtr_10q.txt
<DESCRIPTION>SECOND QTR 10Q
<TEXT>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q



(Mark One)

 X    Quarterly report pursuant to section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the quarterly period ended April 30, 2002 or
      Transition report pursuant to section 13 or 15(d) of the Securities
      Exchange Act of 1934 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
                                                                --------------





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 the past 90 days:
                                                         Yes  X   No
                                                         ---     ---




The number of shares of the Registrant's common stock outstanding as of May 30,
2002 was 5,583,158.


<PAGE>


                              HURCO COMPANIES, INC.
                      April 2002 Form 10-Q Quarterly Report


                                Table of Contents



                         Part I - Financial Information


Item 1.    Condensed Financial Statements

           Condensed Consolidated Statement of Operations -
               Three months and six months ended April 30, 2002 and 2001...... 3

           Condensed Consolidated Balance Sheet -
               As of April 30, 2002 and October 31, 2001.......................4

           Condensed Consolidated Statement of Cash Flows -
               Three months and six months ended April 30, 2002 and 2001.......5

           Condensed Consolidated Statement of Changes in Shareholders' Equity -
               Six months ended April 30, 2002 and 2001........................6

           Notes to Condensed Consolidated Financial Statements................7


Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations................................11

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........15


                           Part II - Other Information



Item 1.    Legal Proceedings..................................................17

Item 4.    Submission of Matters to a Vote of Security Holders................17

Item 6.    Exhibits and Reports on Form 8-K...................................17


Signatures....................................................................18




<PAGE>
              PART I - FINANCIAL INFORMATION

Item 1.       Condensed Financial Statements

                              HURCO COMPANIES, INC.
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      (In thousands, except per share data)
<TABLE>
                                                         Three Months Ended                  Six Months Ended
                                                            April 30,                            April 30,
                                                    -----------------------                --------------------
                                                      2002             2001                2002             2001
- ----------------------------------------------------------------------------------------------------------------
                                                          (unaudited)                           (unaudited)
<S>                                               <C>             <C>                 <C>               <C>
Sales and service fees......................      $   14,995      $   23,432          $   33,515        $   49,365

Cost of sales and service...................          12,029          17,460              26,546            36,778

Cost of sales non-recurring.................           1,083              --               1,083                --
                                                  ----------      ----------          ----------         ---------

     Gross profit...........................           1,883           5,972               5,886            12,587

Selling, general and
administrative expenses.....................           4,535           5,959               9,749            12,045

Restructuring and
other expense (credit)......................           1,395            (328)              1,751              (328)
                                                  -----------       ----------          ---------         ---------

     Operating income (loss)................          (4,047)            341              (5,614)              870

License fee income, net.....................              --             175                 163               509

Interest expense............................             133             198                 310               379

Other income (expense), net.................              (2)            335                  37               423
                                                  -----------      ---------           -----------        ----------
     Income (loss) before taxes.............          (4,182)            653              (5,724)            1,423

Provision for income taxes..................              29             330                 128               533
                                                  -----------     -----------          -----------        ----------

Net income (loss)...........................      $   (4,211)     $      323           $  (5,852)       $      890
                                                  ===========     ==========          ===========       ===========
Earnings (loss) per common share
     Basic..................................       $    (.75)     $      .06           $   (1.05)        $     .15
                                                   ==========     ===========          ==========        ==========
     Diluted................................       $    (.75)     $      .06           $   (1.05)        $     .15
                                                   ==========     ===========          ==========        ==========
Weighted average common shares outstanding
     Basic..................................           5,583           5,651               5,583             5,761
                                                   ==========     ===========          ==========        ========-
     Diluted................................           5,583           5,693               5,583             5,801
                                                   ==========     ===========          ==========        ==========

The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                              HURCO COMPANIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                             (Dollars in thousands)
                                                                                     April 30,       October 31,
                                                                                         2002              2001
<S>                                                                                <C>                 <C>
ASSETS                                                                              (unaudited)         (audited)
Current assets:
     Cash and cash equivalents...........................................          $    3,218          $   3,523
     Accounts receivable.................................................              10,849             14,436
     Inventories.........................................................              24,453             30,319
     Other...............................................................               1,567              1,232
                                                                                   ----------          ---------
         Total current assets............................................              40,087             49,510
                                                                                   ----------          ---------
Property and equipment:
     Land    ............................................................                 761                761
     Building............................................................               7,196              7,187
     Machinery and equipment.............................................              11,487             11,410
     Leasehold improvements..............................................               1,170              1,059
         Less accumulated depreciation and amortization..................             (11,893)           (11,653)
                                                                                   ----------          ----------
                                                                                        8,721              8,764
                                                                                   ----------          ---------
Software development costs, less amortization............................               1,992              3,066
Investments and other assets.............................................               3,765              4,877
                                                                                   ----------          ---------
                                                                                   $   54,565          $  66,217
                                                                                   ==========          =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable....................................................          $    8,085          $   9,936
     Accrued expenses....................................................               7,445              8,081
     Current portion of long-term debt..................................                  294                200
                                                                                   ----------          ---------
         Total current liabilities.......................................              15,824             18,217
                                                                                   ----------          ---------
Non-current liabilities:
     Long-term debt......................................................               8,206             11,800
     Deferred credits and other obligations..............................                 452                732
                                                                                   ----------          ---------
        Total non-current liabilities....................................               8,658             12,532
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; 5,583,158 and
         5,580,658 shares issued and outstanding, respectively ..........                 558                558
     Additional paid-in capital..........................................              44,717             44,714
     Accumulated deficit.................................................              (7,762)            (1,910)
     Other comprehensive income..........................................              (7,430)            (7,894)
                                                                                   ----------          ---------
         Total shareholders' equity......................................              30,083             35,468
                                                                                   ----------          ---------
                                                                                      $54,565            $66,217
                                                                                   ==========          =========
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                              HURCO COMPANIES, INC.
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                             (Dollars in thousands)

                                                                      Three Months Ended        Six Months Ended
                                                                         April 30,                     April 30,
                                                                ------------------------        ---------------------
                                                                   2002           2001         2002              2001
- ---------------------------------------------------------------------------------------------------------------------
                                                                        (unaudited)                 (unaudited)
<S>                                                             <C>          <C>             <C>           <C>
Cash flows from operating activities:
   Net income (loss)..........................................  $   (4,211)    $    323         $(5,852)     $    890
   Adjustments to reconcile net income (loss) to net
   cash provided by (used for) operating activities:
     Restructuring and other expense..........................       2,219         (328)          2,519          (328)
     Equity in (income) loss of affiliates....................         (33)        (312)             11          (312)
     Depreciation and amortization............................         477          572             990         1,111
     Change in assets and liabilities:
     (Increase) decrease in accounts receivable...............       2,191          185           3,569        (2,871)
     (Increase) decrease in inventories.......................       1,933       (4,340)          4,753        (5,781)
     Increase (decrease) in accounts payable..................         637        1,195          (1,834)        3,015
     Increase (decrease) in accrued expenses..................      (1,085)         162          (1,015)        1,222
     Other....................................................        (241)         (81)             34          (592)
                                                                  ---------   -----------        ------     ----------
       Net cash provided by (used for) operating activities...       1,887       (2,624)          3,175        (3,646)
                                                                  ---------   ----------       ---------       -------
Cash flows from investing activities:
   Proceeds from sale of equipment............................          --           15              45            15
   Purchase of property and equipment.........................        (324)        (244)           (616)         (451)
   Software development costs.................................        (128)        (134)           (285)         (262)
   Other investments..........................................         912           86             891             8
                                                                  ---------   ----------       ---------    ---------
     Net cash provided by (used for) investing activities.....         460         (277)             35          (690)
                                                                  ---------   ----------       ---------    ----------
Cash flows from financing activities:
   Advances on bank credit facilities.........................       5,600       10,000          12,575        24,650
   Repayment on bank credit facilities .......................     (12,300)      (8,400)        (20,575)      (16,700)
   Proceeds from first mortgage...............................       4,500           --           4,500            --
   Repayment of term debt ....................................          --           --              --        (1,786)
   Proceeds from exercise of common stock options.............          --           --               4            35
   Purchase of common stock...................................          --         (485)             --        (1,706)
                                                                    -------   ----------       ---------    ----------
     Net cash provided by (used for) financing activities.....      (2,200)       1,115          (3,496)        4,493
                                                                  ---------   ----------       ---------    ---------
Effect of exchange rate changes on cash.......................         110         (151)            (19)         (286)
                                                                  ---------   ----------       ---------    ----------
     Net increase (decrease) in cash and
     Cash equivalents.........................................         257       (1,937)           (305)         (129)

Cash and cash equivalents
     at beginning of period...................................       2,961        5,192           3,523         3,384
                                                                   --------   ----------       ---------    ----------
Cash and cash equivalents at end of period....................   $   3,218    $   3,255        $  3,218     $   3,255
                                                                 ==========   ==========       =========    ==========
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>


                              HURCO COMPANIES, INC.
          CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                For the Six Months Ended April 30, 2002 and 2001

<TABLE>

                                                   Common Stock
                                            --------------------------
                                                                                                       Accumulated
                                          Shares                     Additional                           Other
                                         Issued &                     Paid-In        Accumulated      Comprehensive
                                        Outstanding      Amount       Capital           Deficit       Income (loss)       Total
                                       -------------    ---------    ------------    -------------    ---------------   -----------
                                                                            (Dollars in thousands)
<S>                                      <C>              <C>          <C>             <C>                <C>               <C>
Balances, October 31, 2000               5,955,359        $596         $46,347         $ (313)            $(7,739)         $38,891
- -------------------------------------  =============    =========    ============    ============       ===========     ===========
- -------------------------------------  =============    =========    ============    ============       ===========     ===========

Net income..........................         --           --              --              890                  --              890
Translation of foreign currency
   financial statements.............         --           --              --              --                  150              150
Unrealized loss on derivative
instruments.........                         --           --              --              --                 ( 56)            ( 56)
                                                                                                                        -----------
Comprehensive income (loss).........         --           --              --              --                   --              984
Exercise of Common Stock Options....     16,400             1               34            --                   --               35
Repurchase of Common Stock..........   (391,101)          (39)          (1,667)           --                   --           (1,706)
                                       ------------    ---------    ------------    ------------         ------------   -----------
                                       ------------    ---------    ------------    ------------         ------------   -----------

Balances, April 30, 2001                 5,580,658        $558         $44,714           $577              $(7,645)        $38,204
- -------------------------------------  =============    =========    ============    ============        ============   ===========
- -------------------------------------  =============    =========    ============    ============        ============   ===========

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

Net loss............................            --           --              --        (5,852)                  --          (5,852)
Translation of foreign currency
   financial statements.............            --           --              --             --                 461             461
Unrealized gain on derivative
instruments.........................            --           --              --             --                   3               3
                                                                                                                        -----------
Comprehensive income (loss).........            --           --              --             --                  --          (5,388)
Exercise of Common Stock Options....         2,500           --               3             --                  --               3
                                       -------------    ---------    ------------    ------------         ------------  -----------
                                       -------------    ---------    ------------    ------------         ------------  -----------

Balances, April 30, 2002                 5,583,158         $558         $44,717        $(7,762)            $(7,430)        $30,083
- ------------------------------------    =============    =========    ============    ============        ============  ===========

The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   GENERAL

The unaudited Condensed Consolidated Financial Statements include the accounts
of Hurco Companies, Inc. and its consolidated subsidiaries. We design and
produce interactive, personal computer (PC) based, computer control systems and
software and computerized machine systems for sale through a world wide sales,
service and distribution network.

The condensed financial information as of April 30, 2002 and 2001 is unaudited
but includes all adjustments which we consider necessary for a fair presentation
of our financial position at those dates and our results of operations and cash
flows for the three and six months then ended. We suggest that you read these
condensed financial statements in conjunction with the financial statements and
the notes thereto included in our Annual Report on Form 10-K for the year ended
October 31, 2001.

2.   LICENSE FEE INCOME, NET

From time to time, our wholly owned subsidiary, IMS Technology, Inc., has
entered into agreements for the licensing of its interactive computer numerical
control patents. License fees received or receivable under a fully paid-up
license, for which there are no future performance requirements or
contingencies, are recognized in income, net of legal fees and expenses, at the
time the license agreement is executed. License fees receivable in periodic
installments that are contingent upon the continuing validity of a licensed
patent are recognized in income, net of legal fees and expenses, over the life
of the licensed patent. The licensed patent expired in October 2001 and, as a
result, we have no deferred license fee income at April 30, 2002.

3.   HEDGING

We enter into foreign currency forward exchange contracts periodically to hedge
certain forecast inter-company sales and forecast inter-company and third-party
purchases denominated in foreign currencies (primarily 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 the 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 Condensed Consolidated Balance
Sheet at fair value in Other Current Assets and Accrued Liabilities. 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 Accumulated Other Comprehensive Income to Cost of Sales in the
quarter ended April 30, 2002 were $7,000.

At April 30, 2002, we had $9,000 of unrealized losses related to cash flow
hedges deferred in Accumulated 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 August 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 the Statement of Financial Accounting Standards No.
133, "Accounting Standards for Derivative Instruments and Hedging Activities"
(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 denominated receivable
or payable. Such net transaction gains and (losses) were $(77,000) and $3,000
for the quarters ended April 30, 2002 and 2001, respectively.

4.   EARNINGS PER SHARE

Basic and diluted earnings per common share are based on the weighted average
number of our shares of common stock outstanding. Diluted earnings per common
share give effect to outstanding stock options using the treasury method. For
the quarter and six months ended April 30, 2002, no effect was given to
outstanding options because of their anti-dilutive effect.

5.   ACCOUNTS RECEIVABLE

The allowance for doubtful accounts was $806,000 as of April 30, 2002 and
$907,000 as of October 31, 2001.

6.   INVENTORIES

Inventories, priced at the lower of cost (first-in, first-out method) or market,
are summarized below (in thousands):

                                       April 30, 2002          October 31, 2001
                                       --------------          ----------------
   Purchased parts and sub-assemblies   $    6,957                 $   7,853
   Work-in-process                           1,269                     1,256
   Finished goods                           16,227                    21,210
                                          ---------                  --------
                                        $   24,453                 $  30,319
                                          =========                  ========

7.   SEGMENT INFORMATION

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

The second quarter of fiscal 2002 includes special charges aggregating $2.5
million related principally to the write-down of assets related to the
repositioning of product lines and severance costs associated with cost
reduction programs, in response to market changes and the current recession
impacting the machine tool industry. These actions are intended to improve our
profitability and long-term shareholder return.

The special charges include (in thousands):
<TABLE>
<S>                                                                                                            <C>
Cost of sales non-recurring:
Inventory write-down related to under-performing product lines which are being
 discontinued                                                                                                  $1,083
Restructuring and other expense:
Write-off of capitalized software development cost resulting from
termination of development project due to product line repositioning                                            1,036
Severance cost                                                                                                    471
Foreign lease termination liability (Note 11)                                                                     165
Termination of software development agreement (Note 9)                                                          (277)
                                                                                                          ------------
                                                                                                                1,395
                                                                                                          ------------
                                                                                                          ------------
     Total                                                                                                     $2,478
                                                                                                          ============
                                                                                                          ============
</TABLE>
<TABLE>

The balance of the reserve for Restructuring and Other Expense at April 30, 2002 is as follows:
                                                           Balance        Provision                         Balance
(in thousands)                                             1/31/02         (Credit)          Used           4/30/02
                                                         ------------    -------------    ------------    ------------
                                                         ------------    -------------    ------------    ------------
<S>                                                             <C>             <C>           <C>                 <C>
Cost of sales non-recurring:
Inventory write-down                                              --            1,083         (1,083)              --
                                                         ------------    -------------    ------------    ------------
                                                         ------------    -------------    ------------    ------------
Restructuring and other expense:
Capitalized software development cost write-off                   --            1,036         (1,036)              --
Severance costs                                                  358              471           (296)             533
Foreign lease termination liability                               60              165             --              225
Termination of software development agreement                     --             (277)           277               --
                                                         ------------    -------------    ------------    ------------
                                                         ------------    -------------    ------------    ------------
                                                                                1,395         (1,055)             758
                                                                 418
                                                         ------------    -------------    ------------    ------------
                                                         ------------    -------------    ------------    ------------
     Total                                                      $418           $2,478        $(2,138)            $758
                                                         ============    =============    ============    ============
                                                         ============    =============    ============    ============
</TABLE>
<PAGE>
The balance of $758,000 at April 30, 2002 represents severance costs related to
employees that will be paid in future periods and the estimated liability for a
foreign lease obligation. The severance provision recorded in the second quarter
of fiscal 2002 represents 46 domestic positions that have been or will be
eliminated in fiscal 2002. At April 30, 2002, 29 employees had been paid the
full amount of their severance while the remaining employees will be paid at
different times through the second quarter of fiscal 2003.

9.  TERMINATION OF AGREEMENTS

During the second quarter of fiscal 2002, we terminated certain software
development and loan agreements previously entered into in fiscal 2001. In
connection therewith, we received early repayment of our investment in a secured
loan and warrants totaling $1.0 million. We were also reimbursed for software
development fees previously paid and expensed, resulting in a credit of $277,000
which is reflected in Restructuring and Other Expense in the second quarter of
fiscal 2002. Neither party has any future obligations to the other under the
termination agreement.

10. DEBT AGREEMENTS

On April 30, 2002, we obtained a $4.5 million first mortgage loan on our
Indianapolis corporate headquarters. The loan bears an interest rate of 7?% per
annum and matures in April 2009, with partial prepayments in periodic
installments during the preceding seven years, based on a twenty-year
amortization schedule.

Effective April 30, 2002, our bank credit agreement was amended, extending the
maturity date to June 30, 2003, reducing the bank's commitment to $15.0 million
at April 30, 2002 and to $10.0 million at June 30, 2002. Interest rate margins
for borrowings under Libor or the prime rate option are as follows:

                                                    Libor        Prime
                                                    Margin       Margin
                                                ------------    ----------
                                                ------------    ----------
May 1, 2002 - October 31, 2002                       2.5%          0.5%
November 1, 2002 - January 31, 2003                  3.0%          1.0%
February 1, 2003 - June 30, 2003                     3.5%          1.5%


The net worth covenant was amended to require tangible net worth, exclusive of
Accumulated Other Comprehensive Income, to be not less than $32.5 million at
July 31, 2002, which reduces to $32.3 million thereafter. The amended minimum
EBITDA (earnings before interest, taxes, depreciation and amortization)
requirements as of the end of the twelve consecutive months then ending cannot
be less than negative $2.75 million on July 31, 2002, increasing to negative
$2.15 million on October 31, 2002, negative $750,000 at January 31, 2003 and
positive $1.0 million at April 30, 2003. Other financial covenants have been
extended to June 30, 2003 as well. A facility fee previously payable August 1,
2002 has been reduced to $50,000 from $100,000 and is payable March 31, 2003, if
we have not obtained a new financing arrangement by that time.

We were in compliance with all loan covenants at April 30, 2002, and had
additional credit availability of $13.4 million, including $2.7 million under a
European bank facility.
<PAGE>
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 credit facilities will be sufficient to meet our anticipated cash
requirements in the foreseeable future. We believe that the assumptions
underlying our 2002 business plan and financial projections 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 from planned inventory reductions, that
could cause our actual results to differ from our business plan and financial
projections.

11.  LEASEHOLD REPAIRS CONTINGENCY

The lease for our facility located in England expired in April 2002 and required
that we make certain repairs to the facility at the conclusion of the lease
resulting from dilapidation of the facility that occurred during the lease term.
The extent of repairs to be completed are being negotiated and, as a result, the
cost of these repairs cannot be estimated. Our maximum liability for the repairs
and fees is believed to be approximately $800,000. However, this amount could be
reduced by statutory limitations or by a negotiated settlement. We believe our
minimum liability is approximately $225,000, which we have accrued at April 30,
2002. We have engaged a firm that specializes in these types of claims and
intend to vigorously contest this matter during the third quarter.

12.  NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" (SFAS 141) and Statement No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting. Under SFAS 142, amortization of goodwill will cease and the goodwill
carrying values will be tested periodically for impairment. We are required to
adopt SFAS 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" (SFAS
144), which is effective for the fiscal year beginning November 1, 2002. SFAS
144 establishes a single model to account for impairment of assets to be held or
disposed of, incorporating guidelines for accounting and disclosure of
discontinued operations. We believe the impact on our financial statements will
be immaterial.

<PAGE>
Item 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS
- -------       -----------------------------------------------------------------

The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto appearing elsewhere herein.
Certain statements made in this report may constitute "forward-looking
statements". 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, the success of our
plans to reduce inventory and operating costs, adverse currency movements,
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

Three Months Ended April 30, 2002 Compared to Three Months Ended April 30, 2001
- -------------------------------------------------------------------------------

The net loss was attributed to substantially lower sales and special charges
aggregating $2.5 million.

The special charges consisted of: (a) non cash write downs of inventories of
approximately $1.1 million and capitalized software development costs of
approximately $1.0 million related to under-performing product lines that are
being discontinued and (b) severance costs of $471,000 related to additional
personnel reductions. Also included in the restructuring and other expense is
$165,000 for a contingency related to termination of a foreign lease and a
credit of $277,000 due to a refund of software development fees related to the
termination of a software development agreement during the quarter.

Sales and service fees for the second quarter were $15.0 million, approximately
$8.4 million, or 36%, lower than those recorded in the corresponding 2001
period. Second quarter sales and service fees in the U.S. market declined 35% to
$5.8 million reflecting the continuing weakness in industrial equipment spending
and reduced consumption of machine tools. In Europe, sales and service fees
declined 37% to $9.0 million due to an 18% decline in new orders, along with a
$1.5 million increase in backlog in the 2002 period, while shipments in the
corresponding prior year period benefited from a reduction in backlog during
that period. Sales of computerized machine systems declined 38%. Non-machine
revenues, principally parts and service fees, declined 28% and represented 24%
of total sales and service fees. International sales were 62% of total sales and
service fees in the second fiscal quarter, approximately the same as in the
prior year period.
<PAGE>
New order bookings for the second quarter of fiscal 2002 were $16.5 million,
approximately the same as in the first quarter but down 22% from the $21.1
million recorded in the corresponding prior year period. New orders for
computerized machine tool systems declined 20% in U.S. dollars worldwide
compared to the second quarter of fiscal 2001. In the U.S. market, machine tool
orders declined 29% in dollars compared to the same period in the prior year
reflecting a sharp decrease in orders for vertical machining centers, our
primary product line. This decline was partially offset by increased unit sales
of under-performing models which are being discounted. New orders in Europe were
18% lower than the comparable prior year period reflecting weaker demand in
fiscal 2002 in those markets. Backlog was $7.8 million at April 30, 2002
compared to $6.1 million at January 31, 2002 and $9.1 million at October 31,
2001.

Gross profit margin for the second quarter of fiscal 2002, exclusive of the
non-recurring inventory write-down, declined to 19.8%, from 25.5% in the same
period a year ago, due to the decline in sales and service fees along with
discounted selling prices of under-performing products, which more than offset
the benefit of reductions in operating costs related to cost of sales which had
been initiated during the past ten months.

Selling, general and administrative expenses for the second quarter of fiscal
2002 of $4.5 million were $1.4 million, or 24%, lower than those of the
corresponding 2001 period due to previously announced cost reduction programs,
including reductions initiated in the most recent quarter. During the second
quarter of 2002, we recorded a severance provision related to the elimination of
46 domestic positions. The annual savings from this is approximately $3.5
million, of which approximately $2.0 million will be reflected as a reduction in
selling, general and administrative expenses, the full benefits of which will
not be realized until the end of the fiscal year.

The decrease in other income for the second quarter of 2002 is the result of a
decrease in earnings of foreign affiliates accounted for using the equity
method.

The decrease in income tax expense is the result of a decline in earnings of a
wholly-owned foreign subsidiary.


Six Months Ended April 30, 2002 Compared to Six Months Ended April 30, 2001
- ---------------------------------------------------------------------------

Sales and service fees for the first half of fiscal 2002 were $33.5 million,
approximately $15.9 million, or 32%, lower than those recorded in the
corresponding 2001 period. During this period, our sales and service fees in the
U.S. market declined 45%, reflecting the continuing weakness in industrial
equipment spending and reduced consumption of machine tools. In Europe, sales
and service fees declined 23% due to a 26% decline in new orders. Sales of
computerized machine systems declined 33%. Non-machine revenues, principally
parts and service fees, declined 29% and represented 21% of total sales and
service fees. International sales were 69% of total sales and service fees in
the first half of fiscal 2002 compared to 59% in the same prior year period.
<PAGE>
New order bookings for the first half of fiscal 2002 were $33.0 million compared
to $49.2 million in the prior year, a 33% decline. New orders for computerized
machine tool systems declined 34% in U.S. dollars worldwide. In the U.S. market,
machine tool orders declined 49% in dollars reflecting a sharp decrease in
orders for vertical machining centers, our primary product line, offset
partially by increased unit sales of under-performing models which are being
discounted. New orders in Europe were 26% lower than the comparable prior year
period reflecting weaker demand in fiscal 2002 in those markets.

Gross profit margin for the first half of fiscal 2002, exclusive of the
non-recurring inventory write-down, declined to 20.8%, from 25.5% in the same
period a year ago, due to the decline in sales and service fees along with
discounted selling prices of under-performing products, which more than offset
the benefit of reductions in operating costs related to cost of sales which had
been initiated during the past ten months.

Selling, general and administrative expenses for the first half of fiscal 2002
of $9.7 million were $2.3 million, or 19%, lower than those of the corresponding
2001 period due to previously announced cost reduction programs, the full
benefits of which will not be realized until the end of the fiscal year.

Foreign Currency Risk Management

We manage our foreign currency exposure through the use of foreign currency
forward exchange contracts. 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 potential adverse effect of currency
fluctuations on the costs of purchased products. See Item 3 below and Note 3 to
the Condensed Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2002, we had cash and cash equivalents of $3.2 million compared to
$3.5 million at October 31, 2001. Cash provided by operations totaled $3.2
million for the six months ended April 30, 2002 compared to cash used for
operations of $3.6 million in the prior year. The net loss in fiscal 2002,
exclusive of non-cash charges, was more than offset by a reduction in working
capital in fiscal 2002.

Net working capital, excluding short-term debt, was $24.6 million at April 30,
2002 compared to $31.5 million at October 31, 2001. The decrease in working
capital was the result of a $3.6 million reduction in accounts receivable, due
to lower sales and improved collections, and a $4.8 million planned reduction in
inventory, offset by a $2.8 million reduction in accounts payable and accrued
expenses.

Capital investments for the six months ended April 30, 2002 consisted
principally of expenditures for software development projects and purchases of
equipment. During the second quarter, we terminated certain agreements resulting
in an early repayment of our investment in a secured loan and warrants totaling
$1.0 million. The early repayment provided net cash from investment activities
in fiscal 2002.
<PAGE>
On April 30, 2002, we obtained a $4.5 million first mortgage loan on our
Indianapolis corporate headquarters. The loan bears an interest rate of 7?% and
matures in April 2009, with partial prepayments in periodic installments during
the preceding seven years, based on a twenty-year amortization schedule. The
proceeds from the first mortgage loan, together with other available cash, were
used to repay bank debt. After giving effect to the repayment, our bank debt
was $3.2 million at April 30,2002 compared to $11.2 million at October 31, 2001.

Effective April 30, 2002, our bank credit agreement was amended, extending the
maturity date to June 30, 2003, reducing the bank's commitment to $15.0 million
at April 30, 2002, and to $10.0 million at June 30, 2002. The amendment reduced
interest rates through January 31, 2003 by one-half to one percentage point
below those called for by the previous agreement. The net worth covenant was
amended to require tangible net worth, exclusive of Accumulated Other
Comprehensive Income, to be not less than $32.5 million at July 31, 2002, which
reduces to $32.3 million thereafter. The amended minimum EBITDA (earnings before
interest, taxes, depreciation and amortization) requirements as of the end of
the twelve consecutive months then ending cannot be less than negative $2.75
million on July 31, 2002, increasing to negative $2.15 million on October 31,
2002, negative $750,000 at January 31, 2003 and positive $1.0 million at April
30, 2003. Other financial covenants have been extended to June 30, 2003 as well.
A facility fee previously payable August 1, 2002 was reduced to $50,000 from
$100,000 and is payable March 31, 2003, if we have not obtained a new financing
arrangement by then. We were in compliance with all loan covenants at April 30,
2002, and had an additional credit availability of $13.4 million, including the
European facility.

Our cash flow from operations for the first half of fiscal 2002 was consistent
with our fiscal 2002 business plan. Our business plan for fiscal 2002 includes
planned reductions of operating expenses and working capital. We believe that
the assumptions underlying our 2002 business plan and financial projections 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 and financial projections. Market demand and sales in the U.S. and
Europe declined during the first half of fiscal 2002 causing operating results
to differ unfavorably from our business plan. As a result, we implemented
additional cost reduction actions in the second quarter, which involved a 20%
reduction in our domestic workforce, and which we expect will generate an annual
cost savings of approximately $2.5 million, substantially all of which will be
realized beginning in our third fiscal quarter of 2002. Our plans call for
additional reduction in working capital invested in inventory to improve cash
flow from operations over the remainder of fiscal 2002, due in part to the sale
of discounted products related to the product line repositioning. We believe
that cash flow generated from operations and borrowings available to us under
our credit facilities will be sufficient to meet our anticipated cash
requirements in the foreseeable future.

<PAGE>
Item 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              -----------------------------------------------------

Interest Rate Risk

Interest on our bank borrowings is affected by changes in prevailing U.S. and
European interest rates and/or Libor. At April 30, 2002, outstanding borrowings
under our bank credit facilities were $3.2 million and our total indebtedness
was $8.5 million. The interest rate on the Libor portion of our bank debt was
Libor plus 2%, which increases to 2.5% effective May 1, 2002.

Foreign Currency Exchange Risk

In fiscal 2002, approximately 69% of our sales and service fees, including
export sales, were derived from foreign markets. All of our computerized machine
systems and computer numerical 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 forward foreign exchange contracts from time to time to hedge the
cash flow risk related to forecast inter-company sales, and forecast
inter-company and third-party purchases denominated in, or based on, foreign
currencies. We also enter into foreign currency forward exchange contracts to
provide a natural hedge 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.

Forward contracts for the sale or purchase of foreign currencies as of April 30,
2002 which are designated as cash flow hedges under SFAS No. 133 were as
follows:
<TABLE>
                                                                     Contract Amount at
                                                                      Forward Rates in
                                                     Weighted          U.S. Dollars
                                 Notional Amount       Avg.         -------------------
                                   in Foreign        Forward         Contract       April 30,
         Forward Contracts          Currency           Rate            Date           2002        Maturity Dates
         -----------------      ----------------    --------        ----------      ----------    --------------
       <S>                            <C>                 <C>       <C>               <C>            <C>
       Sale Contracts:
       Euro                            5,500,000          .8893     $4,891,150        $4,944,362     May - August 2002

       Purchase Contracts:
       New Taiwan Dollar              75,000,000          34.85     $2,161,875        $2,151,081     May - July 2002

</TABLE>
<PAGE>
Forward contracts for the sale of foreign currencies as of April 30, 2002, 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>

                                                                     Contract Amount at
                                                                      Forward Rates in
                                                     Weighted          U.S. Dollars
                                 Notional Amount       Avg.         -------------------
                                   in Foreign        Forward         Contract       April 30,
         Forward Contracts          Currency           Rate            Date           2002        Maturity Dates
         -----------------      ----------------    --------        ----------      ----------    --------------
       <S>                           <C>             <C>             <C>            <C>             <C>
       Sale Contracts:
       Euro                          6,079,877        .8830          $5,368,531     $5,468,313      May - July 2002
       Singapore Dollar              1,853,914       1.8331          $1,011,355     $1,022,258      May - July 2002

       Purchase Contracts:
       New Taiwan Dollar            96,000,000       34.85           $2,754,449     $2,765,958      May - July 2002
       Sterling                        575,000       1.4374            $826,505       $837,135      May 2002
</TABLE>

<PAGE>
                           PART II - OTHER INFORMATION

Item 1.       LEGAL PROCEEDINGS

We are involved in various claims and lawsuits arising in the ordinary course of
business, none of which, in the opinion of management, is expected 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
- -------       ---------------------------------------------------

At our Annual Meeting of Shareholders held on April 3, 2002, the following
individuals were elected to the Board of Directors by the following votes cast
at the meeting:

                                                                     Abstentions
                                                                     and Broker
                                                     For             Non-Votes
Robert W. Cruickshank                            5,120,520              58,780
Michael Doar                                     5,021,320             157,980
Richard T. Niner                                 5,117,513              61,787
O. Curtis Noel                                   5,115,541              63,759
Charles E. M. Rentschler                         5,119,932              59,368
Gerald V. Roch                                   5,114,573              64,727

Item 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

10.1     Second Amendment to Second Amended and Restated Credit Agreement and
         Amendment to Reimbursement Agreement dated April 30, 2002 between the
         registrant and Bank One.

10.2     First mortgage on Hurco corporate headquarters dated April 30, 2002
         between the registrant and American
         Equity Investment Life Insurance Company.

11       Statement re: Computation of Per Share Earnings


(b)      Reports on Form 8-K:       None

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                             HURCO COMPANIES, INC.


                                             By:    /s/ Roger J. Wolf
                                                    --------------------------
                                                    Roger J. Wolf
                                                    Senior Vice President and
                                                    Chief Financial Officer


                                             By:    /s/ Stephen J. Alesia
                                                    --------------------------
                                                    Stephen J. Alesia
                                                    Corporate Controller and
                                                    Principal Accounting Officer




May 30, 2002

<PAGE>

<TABLE>


                                                                Exhibit 11
                                             Statement Re: Computation of Per Share Earnings


                                                       Three Months Ended                                Six Months Ended
                                                           April 30,                                         April 30,
                                    ----------------------------------------------------------------------------------------------
                                             2002                     2001                     2002                    2001
                                    ------------------------------------------------------------------------------------------------
                                                            (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)                   $(4,211)     $(4,211)       $ 323       $ 323      (5,852)     (5,852)       $890        $ 890

Weighted average shares
  outstanding                         5,583        5,583        5,651       5,651       5,583       5,583       5,761        5,761


Dilutive effect of stock options         --           --           --          42          --          --          --           40
                                     -----------------------------------------------------------------------------------------------
                                      5,583        5,583        5,651       5,693        5,583      5,583       5,761        5,801


Earnings (loss) per common share    $ (0.75)      $(0,75)      $ 0.06      $ 0.06       $(1.05)    $(1.05)      $0.15        $0.15
                                    ================================================================================================



</TABLE>



























</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>creditagreement.txt
<DESCRIPTION>CREDIT AGREEMENT AMENDMENT
<TEXT>
                               SECOND AMENDMENT TO
                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT
                    AND AMENDMENT TO REIMBURSEMENT AGREEMENT


         THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AND AMENDMENT TO REIMBURSEMENT AGREEMENT, dated as of April 30, 2002 (this
"Amendment"), between HURCO COMPANIES, INC., an Indiana corporation (the
"Company"), and BANK ONE, INDIANA, NA, a national banking association (the
"Bank").


                                    RECITALS

         A. The parties hereto have entered into a Second Amended and Restated
Credit Agreement and Amendment to Reimbursement Agreement dated as of October
31, 2001 (as amended or modified from time to time, the "Credit Agreement"),
which is in full force and effect.

         B. The Company  desires to further amend the Credit  Agreement as
herein  provided,  and the Bank is willing to so amend the Credit Agreement on
the terms set forth herein.

                                    AGREEMENT

         Based upon these recitals, the parties agree as follows:

         1.       Amendment.  Upon the Company  satisfying  the  condition  set
forth in paragraph 4 (the date that this occurs being called the
"Effective Date"), the Credit Agreement shall be amended as follows:
                              --------------

         (a)      The definition of the term "Applicable Margin" is amended and
                  restated, to read as follows:


                  "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%


<PAGE>

                  (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,                 2.0% per annum                        0% per annum
         2001, through April 30, 2002

- ------------------------------------------  ------------------------------------  ----------------------------------
- ------------------------------------------  ------------------------------------  ----------------------------------
         From and including May 1, 2002,                2.5% per annum                        0.5% per annum
         through October 30, 2002

- ------------------------------------------  ------------------------------------  ----------------------------------
- ------------------------------------------  ------------------------------------  ----------------------------------
         From and including November 1,                 3.0% per annum                        1.0% per annum
         2002, through January 31, 2003

- ------------------------------------------  ------------------------------------  ----------------------------------
- ------------------------------------------  ------------------------------------  ----------------------------------
         From and including February 1,                 3.5% per annum                        1.5% per annum
         2003, and thereafter
- ------------------------------------------  ------------------------------------  ----------------------------------
</TABLE>


         (b)      The  definition of the term "Automatic  Termination  Date" is
                  amended and  restated,  to read as follows:

                  "Automatic Termination Date" means June 30, 2003.


         (c)      The definition of the term "Commitment" is amended and
                  restated, to read as follows:


                  "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 $15,000,000, reduced by (i) $5,000,000
         from and including June 30, 2002, and (ii) the amount required pursuant
         to Section 2.5(d) and Section 2.5(e) (other than Sections 2.5(e)(iii)
         and 2.5(e)(iv), which have already occurred).

         (d)      The definition of the term "European Facility" is amended and
         restated, to read as follows:

                  "European Facility" means a facility under which Bank One, NA,
         London Branch, in its sole discretion, may make revolving credit loans
         in favor of any of the European Subsidiaries not to exceed $5,000,000
         or its Dollar Equivalent (subject to Section 2.1(a)) pursuant to a
         letter agreement dated as of August 17, 1999, as amended from time to
         time, provided, however, that, after the New Hurco GmbH Facility has
         been issued, no borrower under that facility may obtain loans under the
         European Facility.
<PAGE>

         (e)      The definition of the term "Intangible Assets" is amended and
         restated, to read as follows:


                  "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,
         provided, however, that, for purposes of calculating the Consolidated
         Tangible Net Worth, the net book value of any intangible assets
         acquired under the CIMPlus Option shall be excluded from this
         definition.

         (f)      Section 2.1(a) is amended and restated, to read as follows:

                  (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 the amount of the
         Commitment, and, provided, further, that the aggregate principal amount
         of Advances and Facility LCs outstanding at any time, together with the
         aggregate principal amount of Loans (as defined in the European
         Facility) outstanding at such time under the European Facility, shall
         not exceed 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 such date
         and (B) the amount of the Commitment as of that date. 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.

         (g)      Section 2.5(b) is amended and restated, to read as follows:

                  (b) Facility Fee. The Borrower agrees to pay to the Bank a
         facility fee on March 31, 2003, equal to $50,000, provided that, if all
         Obligations are repaid and the Commitment is terminated on or before
         March 31, 2003, the facility fee shall be forgiven, and provided
         further, if a Default occurs, the entire facility fee shall be earned
         as of the Default occurring and be payable by the Borrower to the Bank
         on March 31, 2003.
<PAGE>

         (h)      Section 2.18.1 is amended and restated, to read as follows:

                  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 the amount of the Commitment, 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.

         (i)      Section 6.11(iv) is amended and restated, to read as follows:

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

         (j)      Section 6.14(iv) is amended and restated, to read as follows:

                  (iv) The exercise of the CIMPlus Option, provided that, if the
         Borrower does not exercise the CIMPlus Option on or before June 14,
         2002, the Borrower shall have provided to the Bank a certificate of the
         chief financial officer of the Borrower (attaching computations to
         demonstrate compliance with all financial covenants hereunder), stating
         that, following the exercise of the CIMPlus Option, the Company will be
         in compliance with Article VI of this Agreement.

         (k)      Section 6.15(vii) is amended and restated, to read as follows:

                  (vii) Liens on the assets of Hurco GmbH to secure the New
         Hurco GmbH Facility, and, if Hurco BV is a borrower or guarantor under
         the New Hurco GmbH Facility, on the assets of Hurco BV to secure the
         New Hurco GmbH Facility.

         (l)      Section 6.20 is amended and restated, to read as follows:

                  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
         $2,750,000, (v) on October 31, 2002, negative $2,150,000, (vi) on
         January 31, 2003, negative $750,000, and (vii) on April 30, 2003,
         positive $1,000,000.
<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, (v) on
         October 31, 2002, $32,300,000, (vi) on January 31, 2003, $32,300,000,
         and (vii) on April 30, 2003, $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.

         (m)      Section 6.21 is amended and restated, to read as follows:

                  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. For
         clarification, any acquisition of intangible assets under the CIMPlus
         Option shall not be considered an acquisition of a fixed or capital
         asset and such acquisition shall not be governed by this covenant.

         2. References to Credit Agreement. From and after the effective date of
this Amendment, references to the Credit Agreement in the Credit Agreement and
all other documents issued under or with respect thereto (as each of the
foregoing is amended hereby or pursuant hereto) shall be deemed to be references
to the Credit Agreement as amended hereby.

         3.       Representations and Warranties.  The Company represents and
warrants to the Bank that:

                  (a) (i) The execution, delivery and performance of this
Amendment and all agreements and documents delivered pursuant hereto by the
Company have been duly authorized by all necessary corporate action and do not
and will not violate any provision of any law, rule, regulation, order,
judgment, injunction, or award presently in effect applying to it, or of its
articles of incorporation or bylaws, or result in a breach of or constitute a
default under any material agreement, lease or instrument to which the Company
is a party or by which it or its properties may be bound or affected (including
without limitation any credit facility with Principal Mutual Life Insurance
Company); (ii) no authorization, consent, approval, license, exemption or filing
of a registration with any court or governmental department, agency or
instrumentality is or will be necessary to the valid execution, delivery or
performance by the Company of this Amendment and all agreements and documents
delivered pursuant hereto; and (iii) this Amendment and all agreements and
documents delivered pursuant hereto by the Company are the legal, valid and
binding obligations of the Company, enforceable against it in accordance with
the terms thereof.
<PAGE>

                  (b) After giving effect to the amendments contained herein,
the representations and warranties contained in Article V of the Credit
Agreement (with the exception of Section 5.5) are true and correct on and as of
the effective date hereof with the same force and effect as if made on and as of
the effective date. Since March 31, 2002, 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.

                  (c) As of the date hereof, there are no loans or other
obligations outstanding under the European Facility. Prior to the date a letter
agreement regarding the Fifth Amendment to European Facility is executed among
the European Subsidiaries and the Bank, in form and substance satisfactory to
the Bank, the Borrower shall cause the European Subsidiaries to not utilize the
credit facilities provided under the European Facility.

                  (d) No Event of Default has occurred and is continuing or will
exist under the Credit Agreement as of the effective date hereof.

         4.       Conditions  to  Effectiveness.  This  Amendment  shall not
become  effective  until the Bank has received the following  documents and the
following  conditions  have been  satisfied,  each in form and substance
satisfactory to the Bank:

                  (a) Copies, certified as of the effective date hereof, of such
corporate documents of the Company and the Guarantors as the Bank may request,
including articles of incorporation, bylaws (or certifying as to the continued
accuracy of the articles of incorporation and by-laws previously delivered to
the Bank), and incumbency certificates, and such documents evidencing necessary
corporate action by the Company and the Guarantors with respect to this
Amendment and all other agreements or documents delivered pursuant hereto as the
Bank may request;

                  (b)      A Confirmation of Subsidiary  Guaranty of even date
herewith  executed by the Guarantors in favor of the Bank, in form and substance
satisfactory to the Bank;

                  (c)      Such  additional  agreements  and  documents,  fully
executed  by the  Company,  as are reasonably requested by the Bank; and

                  (d)      The Company has paid the Bank on or prior to the
Effective  Date an  arrangement  fee in the amount of $15,000.

         5. Miscellaneous. The terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement. Except as
expressly amended, the Credit Agreement and all other documents issued under or
with respect thereto are ratified and confirmed by the Banks and the Company and
shall remain in full force and effect, and the Company hereby acknowledges that
it has no defense, offset or counterclaim with respect thereto.

         6.       Counterparts.  This Amendment may be executed in any number of
counterparts,  all of which taken together shall  constitute one and the same
instrument and any of the parties hereto may execute this Amendment by
signing any such counterpart.
<PAGE>

         7. Expenses. The Company agrees to pay and save the Bank harmless from
liability for all costs and expenses of the Bank arising in respect of this
Amendment, including the reasonable fees and expenses of Dickinson Wright PLLC,
counsel to the Bank, in connection with preparing and reviewing this Amendment
and any related agreements and documents.

         8. Governing Law. This Amendment is a contract made under, and shall be
governed by and construed in accordance with, the laws of the State of Indiana
applicable to contracts made and to be performed entirely within such state and
without giving effect to the choice law principles of such state.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.


HURCO COMPANIES, INC.                            BANK ONE, INDIANA, NA


By:  /s/ Roger J. Wolf                           By:  /s/ Joanna W. Anderson

Its: Senior Vice President                       Its: Assistant Vice President
     and Chief Financial Officer




DETROIT  15275-5  660867


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>promissorynote.txt
<DESCRIPTION>PROMISSORY NOTE
<TEXT>
                                 PROMISSORY NOTE

$4,500,000.00     Note Date: April 30, 2002
                  Maturity Date: April 30, 2009

         FOR VALUE RECEIVED, the undersigned, HURCO COMPANIES, INC., an Indiana
corporation, ("Maker"), hereby unconditionally promises to pay to the order of
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY ("Payee"), at P. O. Box 71216,
Des Moines, Iowa 50325, or such other address as the holder hereof may, from
time to time designate in writing, the principal sum of Four Million Five
Hundred Thousand Dollars ($4,500,000), in lawful money of the United States of
America, together with interest on the unpaid principal balance from day-to-day
remaining computed from the date of advance until maturity at a rate per annum
equal to seven and three-eights percent (7.375%) (the "Fixed Rate").

         For purposes of calculating interest accrued hereon at the Fixed Rate,
interest on this Note shall be calculated on the basis of the actual days
elapsed over a 360-day year and monthly payments of principal and interest shall
be calculated on the basis of a twenty-year amortization schedule.

         Principal and accrued interest on this Note, computed as aforesaid,
shall be due and payable as follows: (i) in equal monthly installments, each in
the amount of Thirty-five Thousand Nine Hundred Eight and 52/100 Dollars
($35,908.52), commencing on June 1, 2002 (the "Initial Payment Date"), and
continuing thereafter on the first day of each succeeding calendar month, and
(ii) in one final installment on April __, 2009, (the "Maturity Date"). MAKER
ACKNOWLEDGES THAT THE MONTHLY INSTALLMENTS REFERRED TO ABOVE WILL NOT AMORTIZE
ALL OF THE PRINCIPAL SUM OF THE INDEBTEDNESS BY THE MATURITY DATE, RESULTING IN
A "BALLOON PAYMENT" ON SAID MATURITY DATE OF THE ENTIRE UNPAID PRINCIPAL BALANCE
OF THIS NOTE AND ACCRUED UNPAID INTEREST. Maker shall pay to Payee at the time
of execution hereof interest from and including the date of advance until, but
not including the day which is one calendar month preceding the date of the
Initial Payment Date. Monthly payments shall also be made on the Initial Payment
Date and each subsequent payment date by Maker to the reserve fund created by
Payee for the payment of all ground rentals, insurance premiums, taxes and
assessments, as required in the Mortgage, as hereinafter defined.

         All payments on account of the indebtedness evidenced by this Note
shall be applied: (i) first, to further advances, if any, made by the holder
hereof as provided in the Mortgage (as hereinafter defined); (ii) next, to any
Late Charge (as hereinafter defined); (iii) next, to interest at the Default
Rate (as hereinafter defined), if applicable; (iv) next, to the Prepayment
Premium (as hereinafter defined), if applicable; (v) next, to interest at the
Fixed Rate on the unpaid principal balance of this Note unless interest at the
Default Rate is applicable; and (vi) lastly, any remainder to reduce the unpaid
principal of this Note.

         In addition to the foregoing required monthly payments, Maker shall pay
to the Payee a late charge equal to the lesser of (a) One Thousand Dollars
($1,000), or (b) five percent (5%) of any payment required to be made hereunder
or under the Mortgage (as hereinafter defined) with respect to any payment which
is not received in full by the Payee within five (5) days after it becomes due
("Late Charge").

         Should the final payment of principal of this Note become due and
payable on any day other than a business day, the maturity thereof shall be
extended to the next succeeding business day and interest shall be payable with
respect to such extension. All payments of principal of and interest upon this
Note shall be made by Maker to Payee in immediately available funds.
<PAGE>
         After an Event of Default (as hereinafter defined), all past due
principal and, to the extent permitted by applicable law, interest upon this
Note shall bear interest at the lesser of (i) the Maximum Rate (as hereinafter
defined), or (ii) the rate per annum which shall from day-to-day be equal to
three percent (3%) in excess of the Fixed Rate ("Default Rate"). Such Default
Rate shall apply to any period before or after any judgment on this Note.

         The term "Maximum Rate," as used herein, shall mean, with respect to
the holder hereof, the maximum nonusurious interest rate, if any, that at any
time, or from time to time, may be contracted for, taken, reserved, charged, or
received on the indebtedness evidenced by this Note under the laws which are
presently in effect of the United States and the State of Indiana applicable to
such holder and such indebtedness or, to the extent permitted by applicable law,
under such applicable laws of the United States and the State of Indiana which
may hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow.

         Maker and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive demand for payment, presentment, protest, notice of protest and
non-payment, or other notice of default, notice of acceleration and intention to
accelerate, and agree that their liability under this Note shall not be affected
by any renewal or extension in the time of payment hereof, or by any
indulgences, or by any release or change in any security for the payment of this
Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes, regardless of the number of such renewals, extensions,
indulgences, releases or changes.

         This Note is secured by, among other things, a Mortgage, Security
Agreement, Financing Statement and Assignment of Rents (the "Mortgage") dated of
even date herewith from Maker to Payee, covering certain real property located
in Marion County, Indiana ("Premises"), as more fully described therein.

         No waiver by Payee of any of its rights or remedies hereunder or under
any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other subsequent right or remedy of Payee; no delay
or omission in the exercise or enforcement by Payee of any rights or remedies
shall ever be construed as a waiver of any right or remedy of Payee; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Payee.
         An "Event of Default" shall exist hereunder if any one or more of the
following events shall occur and be continuing:

                  (a) Maker  shall  fail or refuse to pay within five (5)
         days  after the date when due any principal of, or interest upon,
         this Note;

                  (b) any  statement,  representation  or warranty made by
         Maker to Payee  shall prove to be untrue or inaccurate in any material
         respect when made;

                  (c) default shall occur in the performance of any of the
         covenants or agreements of Maker contained herein or in any instrument
         securing this Note or any other document executed or delivered to Payee
         in connection herewith and such default shall continue uncured to the
         reasonable satisfaction of Payee for a period of fifteen (15) days
         after written notice thereof from Payee to Maker;
<PAGE>
                  (d) Maker or any guarantor of this Note (a "Guarantor") shall
         (i) apply for or consent to the appointment of a receiver, trustee,
         custodian, intervenor or liquidator of such Maker or such Guarantor or
         of all or a substantial part of the assets of such Maker or such
         Guarantor, (ii) file a voluntary petition in bankruptcy, admit in
         writing that such Maker or such Guarantor is unable to pay the debts of
         such Maker or such Guarantor as they become due or generally not pay
         such Person's debts as they become due, (iii) make a general assignment
         for the benefit of creditors, (iv) file a petition or answer seeking
         reorganization or an arrangement with creditors or to take advantage of
         any bankruptcy or insolvency laws, (v) file an answer admitting the
         material allegations of, or consent to, or default in answering, a
         petition filed against such Maker or such Guarantor in any bankruptcy,
         reorganization or insolvency proceeding, or (vi) take corporate action
         for the purpose of effecting any of the foregoing;

                  (e) An involuntary petition or complaint shall be filed
         against Maker or any Guarantor seeking bankruptcy or reorganization of
         such Maker or such Guarantor or the appointment of a receiver,
         custodian, trustee, intervenor or liquidator of such Maker or such
         Guarantor, or of all or substantially all of the assets of such Maker
         or such Guarantor, and such petition or complaint shall not have been
         dismissed within forty-five (45) days of the filing thereof; or an
         order, order for relief, judgment or decree shall be entered by any
         court of competent jurisdiction or other competent authority approving
         a petition or complaint seeking reorganization of such Maker or such
         Guarantor or appointing a receiver, custodian, trustee, intervenor or
         liquidator of such Maker or such Guarantor, or of all or substantially
         all of the assets of the Maker or such Guarantor;

                  (f) the failure of Maker or any Guarantor to pay any uninsured
         money judgment against such Maker or such Guarantor within thirty (30)
         days after such judgment becomes final and no longer appealable;

                  (g) the failure of Maker or any Guarantor to have discharged
         within a period of thirty (30) days after the commencement thereof any
         attachment, sequestration, or similar proceedings against any of
         Maker's or any Guarantor's assets; or

                  (h) Payee's liens, mortgages or security interests in any of
         the collateral for this Note should become unenforceable, or cease to
         be first priority liens, mortgages or security interests, except for
         liens of real estate taxes which are due, but not delinquent, provided
         Maker is not in default in the payment of real estate tax reserve
         deposits to Payee.

         Upon the occurrence of any Event of Default or other default under any
other agreement or instrument securing or assuring the payment of this Note or
executed in connection herewith, the holder hereof may, at its option, declare
the entire unpaid balance of principal and accrued interest on this Note to be
immediately due and payable, and foreclose all liens and security interests
securing payment hereof or any part hereof; provided, however, upon the
occurrence of any of the Events of Default described in items (a), (d) or (e)
above, the entire unpaid balance of principal and accrued interest upon this
Note shall, without any action by Payee, immediately become due and payable
without demand for payment, presentment, protest, notice of protest and
non-payment, or other notice of default, notice of acceleration and intention to
accelerate or any other notice, all of which are expressly waived by Maker.
<PAGE>
         Maker may prepay the outstanding principal balance of this Note, in
whole but not in part, upon giving thirty (30) days' prior written notice to
Payee if, and only if, contemporaneously with such prepayment Maker pays to
Payee a prepayment premium equal to the product of (i) the percentage set forth
below opposite the period in which prepayment occurs, multiplied by (ii) the
amount of principal prepaid on this Note ("Prepayment Premium").

         Period                                               Percentage

Date hereof through the day                                   Seven Percent (7%)
  preceding the First Anniversary
  of the date hereof

First Anniversary Date                                        Five Percent (5%)
  through the day preceding
  the Second Anniversary

Second Anniversary Date                                       Four Percent (4%)
  through the day preceding
  the Third Anniversary

Third Anniversary Date                                        Three Percent (3%)
  through the day preceding
  the Fourth Anniversary

Fourth Anniversary Date                                       Two Percent (2%)
  through the day preceding
  the Fifth Anniversary

On and after Fifth Anniversary                            No Prepayment Premium

         Maker hereby acknowledges and agrees that in the event Maker is in
default under this Note or the Mortgage or any other instrument by which this
Note is secured, thereby causing the Payee to accelerate the maturity of this
Note, then the Payee will sustain damage due to additional administrative
expenses and the loss of the investment represented hereby. Therefore, Maker
hereby agrees to pay the Payee damages in an amount which shall be equal to the
Prepayment Premium applicable on the date of such acceleration. Notwithstanding
the foregoing, Maker shall be permitted to prepay up to ten percent (10%) of the
then-existing Note balance each year without a Prepayment Penalty, provided that
(a) Payee is given not less than thirty (30) days advance written notice of
intent to prepay; (b) the prepayment occurs on an anniversary date, and (c) the
monthly payments required under this Note remain the same. The annual prepayment
right shall not be cumulative from one year to any subsequent year.
<PAGE>
         Notwithstanding anything in this Note to the contrary, there shall at
no time be any limitation on Maker's liability for the payment to Payee of:

                  (i) all loss, damage, costs, expense and liability (including
                  without limitation, reasonable attorneys' fees and costs)
                  directly or indirectly incurred by Payee (and its directors,
                  officers, employees and agents) arising out of or attributable
                  to the installation, use, generation, manufacture, production,
                  storage, release, threatened release, discharge, disposal or
                  presence of a Hazardous Substance (as defined in the
                  Mortgage), or from the presence of any underground storage
                  tanks, in, on, under or about the Premises, including without
                  limitation, (a) all foreseeable consequential damages, (b) the
                  cost of any required or necessary repair, cleanup or
                  detoxification of the Premises and (c) the preparation and
                  implementation of any closure, remedial or other required
                  plans, or damages arising from the presence of any toxic or
                  hazardous waste or substances, or underground storage tanks,
                  or any other pollutants in or on the Premises.

                  (ii) any loss (including any Prepayment Premium), cost or
                  expense resulting from acceleration of the maturity of the
                  Note due to application of the "due on sale" or "further
                  encumbrance" provisions contained in the Mortgage, or

                  (iii) any transfer or other taxes, costs and reasonable
                  attorneys' fees incurred by Payee in connection with the
                  enforcement of the Loan Documents.

         Notwithstanding anything contained in this Note to the contrary, Payee
shall never be deemed to have contracted for or be entitled to receive, collect
or apply as interest on this Note, any amount in excess of the amount permitted
and calculated at the Maximum Rate, and, in the event Payee ever receives,
collects or applies as interest any amount in excess of the amount permitted and
calculated at the Maximum Rate, such amount which would be excessive interest
shall be applied to the reduction of the unpaid principal balance of this Note,
and, if the principal balance of this Note is paid in full, any remaining excess
shall forthwith be paid to Maker. In determining whether or not the interest
paid or payable under any specific contingency exceeds the Maximum Rate, Maker
and Payee shall, to the maximum extent permitted under applicable law, (i)
characterize any non-principal payment (other than payments which are expressly
designated as interest payments hereunder) as an expense, fee, or premium,
rather than as interest, (ii) exclude voluntary prepayments and the effect
thereof, and (iii) spread the total amount of interest throughout the entire
contemplated term of this Note.

         This Note is being executed and delivered, and is intended to be
performed in the State of Indiana. Except to the extent that the laws of the
United States may apply to the terms hereof, the substantive laws of the State
of Indiana shall govern the validity, construction, enforcement and
interpretation of this Note. In the event of a dispute involving this Note or
any other instruments executed in connection herewith, the undersigned
irrevocably agrees that venue for such dispute shall lie in any court of
competent jurisdiction in Marion County, Indiana.
<PAGE>

         If this Note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceedings at law or in equity or in
bankruptcy, receivership or other court proceedings, Maker promises to pay all
costs and expenses of collection including, but not limited to, court costs and
the reasonable attorneys' fees of the holder hereof.

         Executed as of the day and year first above written.

                             HURCO COMPANIES, INC.,
                             an Indiana corporation



                                        By: /S/ Roger J. Wolf
                                            -----------------
                                            Roger J. Wolf, Senior Vice President
                                            and Chief Financial Officer




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>securityagreement.txt
<DESCRIPTION>SECURITY AGREEMENT
<TEXT>
              MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT AND
                               ASSIGNMENT OF RENTS

Secured Property Address:  Hurco Companies, Inc. International Headquarters
                                    One Technology Way
                                    Park 100 Business Park
                                    Indianapolis, Indiana 46268

         THIS MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT
OF RENTS ("Mortgage") is executed as of April 30, 2002, by and between HURCO
COMPANIES, INC., an Indiana corporation, whose address is One Technology Way, P.
O. Box 68180, Indianapolis, Indiana 46268-0180, ("Mortgagor") and AMERICAN
EQUITY INVESTMENT LIFE INSURANCE COMPANY, an Iowa corporation, whose mailing
address is P. O. Box 71216, Des Moines, Iowa 50325, (such party, together with
any holder or holders of all or any part of the "Secured Indebtedness" (as
hereinafter defined) shall be referred to herein as "Mortgagee").

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.1. As used in this Mortgage, the following terms shall have
the meanings indicated, unless the context otherwise requires:

                  "CERCLA" shall mean the Comprehensive Environmental Response,
         Compensation, and Liability Act of 1980(42 U.S.C. ss.ss. 9601 et seq.),
         as amended from time to time, including, without limitation, the
         Superfund Amendments and Reauthorization Act ("SARA").

                  "Code" shall mean the Uniform Commercial Code, as amended from
         time to time, in effect in the State where the Land is situated.

                  "Default" shall have the meaning assigned to such term in
Section 6.1.



<PAGE>


                  "Environmental Law" shall mean any federal, state or local
         law, statute, ordinance, or regulation pertaining to health, industrial
         hygiene, or the environmental conditions on, under or about the
         Mortgaged Property, including but not limited to, CERCLA, SARA and
         RCRA.

                  "Hazardous Substance" shall mean one or more of the following
         substances:

                           (i)  Those  substances  included within the
                  definitions of "hazardous substances," "hazardous  materials,"
                  "toxic  substances,"  or "solid  waste" in  CERCLA,  SARA,
                  RCRA,  Toxic Substances  Control  Act, as  amended,
                  15 U.S.C.ss. 2601 et seq.,  and the  Hazardous  Materials
                  Transportation  Act (49 U.S.C.ss. 1801 et seq.), and in the
                  regulations  promulgated  pursuant to said laws;
<PAGE>
                           (ii) Those substances listed in the United States
                  Department of Transportation Table (49 CFR 172.101 and
                  amendments thereto) or by the Environmental Protection Agency
                  (or any successor agency) as hazardous substances (40 CFR Part
                  302 and amendments thereto);

                           (iii) Such other substances, materials and wastes
                  which are or become regulated under applicable local, state or
                  federal law, or the United States government, or which are
                  classified as hazardous or toxic under federal, state, or
                  local laws or regulations; and

                           (iv)  Any material,  waste or substance which is:
                  (A) asbestos;  (B)  polychlorinated biphenyls; (C) designated
                  as a "hazardous  substance" pursuant to Section 311 of the
                  Clean Water Act, 33 U.S.C.  Sections 1251 et seq.
                  (33 U.S.C.ss.1321) or listed pursuant to Section 307 of the
                  Clean Water Act (33 U.S.C.ss.1317); (D) petroleum or petroleum
                  distillate;  (E) explosives;  or (F) radioactive materials.

                  "Improvements" shall mean all buildings, structures and
         improvements now or hereafter situated on the Land.

                  "Land" shall mean the tract of real property described upon
         Exhibit "A" attached hereto.

                  "Leases" shall mean all present and future leases and
         agreements, written or oral, for the use or occupancy of any portion of
         the Mortgaged Property, and any renewals, extensions or substitutions
         of said leases and agreements and any and all subleases thereunder.

                  "Lessee" shall mean the lessee, sublessee, tenant or other
         person having the right to occupy, use or manage the Mortgaged
         Property, or any part thereof, under a Lease.

                  "Lien" shall mean any lien, judgment lien, mortgage, deed of
         trust, mechanic's lien, materialmen's lien, pledge, conditional sale
         agreement, title retention agreement, financing lease, security
         interest or other encumbrance, whether arising by contract or under
         law.

                  "Loan Documents" shall mean the Note and this Mortgage,
         together with all documents, agreements, certificates, affidavits,
         guaranties, loan agreements, security agreements, deeds of trust,
         collateral pledge agreements, assignments and contracts representing,
         evidencing or securing any or all of the Secured Indebtedness or
         executed in connection therewith.

                  "Mortgage" shall have the meaning assigned to such term in the
         preamble hereof.

                  "Mortgaged Property" shall have the meaning assigned to such
         term in Section 2.1.

                  "Mortgagee" shall have the meaning assigned to such term in
         the preamble hereof.

                  "Mortgagor" shall have the meaning assigned to such term in
         the preamble to this Mortgage.
<PAGE>
                  "Mortgagor's Successors" shall mean each and all of the heirs,
         executors, administrators, legal representatives, successors and
         assigns of Mortgagor, both immediate and remote.

                  "Note" shall mean that certain Promissory Note, of even date
         herewith, in the original principal amount of Four Million Five Hundred
         Thousand Dollars ($4,500,000), executed by Mortgagor payable to the
         order of Mortgagee, and providing that the principal balance thereof
         shall be due and payable in 2009 on the date which is seven (7) years
         from the date of this Mortgage, which date is the Maturity Date, as
         defined in the Note.

                  "Obligated Party" shall mean any guarantor, surety, endorser
         or other party (other than Mortgagor) directly or indirectly obligated,
         primarily or secondarily, for any portion of the Secured Indebtedness.

                  "Permitted Exceptions" shall mean the exceptions, if any, to
         title described upon Exhibit "B" attached hereto.

                  "Person" shall mean any individual, corporation, partnership,
         limited liability company, joint venture, association, joint stock
         company, trust, unincorporated organization, government or any agency
         or political subdivision thereof, or any other form of entity.

                  "Personal Property" shall mean all of the following described
         properties and interests, now owned or hereafter acquired by Mortgagor,
         and all accessories, attachments and additions thereto and all
         replacements or substitutes therefor and all products and proceeds
         thereof, and accessions thereto:

                           (i) All of the fixtures, building materials,
                  inventory, furniture, appliances, furnishings, goods,
                  equipment, and machinery and all other tangible personal
                  property now or hereafter used primarily in connection with
                  the operation of the Real Estate, but excluding in all events
                  all production machinery and equipment, office furniture and
                  furnishings, computers, and other tangible personal property
                  intended for use in the business operations of Mortgagor;

                           (ii) All insurance proceeds, surveys, plans and
                  specifications, drawings, permits, licenses, warranties,
                  guaranties, deposits, prepaid expenses and contract rights
                  now, or hereafter arising from or related to the ownership of
                  any of the Real Estate;

                           (iii) All Rents and Leases;

                           (iv) All general intangibles relating to the
                  development or use of the Real Estate, including but not
                  limited to all governmental permits relating to construction
                  on the Real Estate, all names under or by which the Real
                  Estate may at any time be operated or known, and all rights to
                  carry on the business under any such names or any variant
                  thereof, and all trademarks and goodwill in any way relating
                  to the Real Estate;
<PAGE>
                           (v) All water rights and water stock relating to the
                  Real Estate that is owned by Mortgagor in common with others,
                  and all documents of membership in any owners' or members'
                  association or similar group having responsibility for
                  managing or operating any part of the Real Estate; and

                           (vi) All proceeds and claims arising on account of
                  any damage to or taking of the Real Estate or any part
                  thereof, and all causes of action and recoveries for any loss
                  or diminution in the value of the Real Estate and all rights
                  of the Mortgagor under any policy or policies of insurance
                  covering the Real Estate or any rents relating to the Real
                  Estate and all proceeds, loss payments and premium refunds
                  which may become payable with respect to such insurance
                  policies.

                  "RCRA" shall mean the Resource  Conservation  and Recovery Act
         of 1976 (42 U.S.C. Section 6901 et seq.), as amended from time to time.

                  "Real Estate" shall mean the Land and the Improvements.

                  "Rents" shall mean the rents, income, receipts, revenues,
         issues and profits now due or which may become due or to which
         Mortgagor may now or hereafter become entitled or may demand or claim,
         arising or issuing from or out of the Leases or from or out of the
         Mortgaged Property, or any part thereof, including, without limitation,
         minimum rents, additional rents, percentage rents, common area
         maintenance charges, parking charges (including monthly rental for
         parking spaces), tax and insurance premium contributions, and
         liquidated damages following default, premiums payable by any Lessee
         upon the exercise of any cancellation privilege provided for in any of
         the Leases, and all proceeds payable under any policy of insurance
         covering the loss of rent resulting from untenantability caused by
         destruction or damage of the Mortgaged Property, together with any and
         all rights and claims of any kind which Mortgagor may have against any
         Lessee or against any other occupants of the Mortgaged Property.

                  "Rights" shall mean rights, remedies, powers, benefits and
         privileges.

                  "Sale" shall mean any sale, transfer, lease or other
         disposition made pursuant to Subsection 6.2(h).

                  "Secured Indebtedness" shall have the meaning given such term
         in Section 3.1.

                                   ARTICLE II

                                      GRANT

         Section 2.1. Grant. For good and valuable consideration, including the
debt hereinafter described, the receipt and legal sufficiency of which is hereby
expressly acknowledged by all parties, Mortgagor does hereby MORTGAGE AND
WARRANT unto Mortgagee, and Mortgagee's successors and assigns, the following
described property, subject to the Permitted Exceptions:
<PAGE>
                  (i) The Land, together with (A) the Improvements; (B) all
         estates, easements, interests, licenses, Rights and titles of Mortgagor
         in and to the Land and all easements and rights-of-way used in
         connection with the Land or the Improvements or as a means of ingress
         to or egress from the Land or the Improvements; (C) all estates,
         easements, interests, licenses, Rights and titles, if any, of Mortgagor
         in and to the real estate lying in the streets, roads, alleys, ways,
         sidewalks, or avenues, open or proposed, in front of, or adjoining, the
         Land, and in and to any strips or gores of real estate adjoining the
         Land; (D) all passages, waters, water rights, water courses, riparian
         rights, other Rights appurtenant to the Land, as well as any
         after-acquired title, franchise or license, and the reversions and
         remainders thereof; and (E) all estates, easements, licenses,
         interests, Rights and titles appurtenant or incident to the foregoing;

                  (ii)  The Personal Property; and

                  (iii) All other estates, easements, licenses, interests,
         Rights and titles of every kind and character which Mortgagor now has,
         or at any time hereafter acquires, in and to the Land, the
         Improvements, the Personal Property, and all property which is used or
         useful in connection with the Land, the Improvements, and the Personal
         Property, including without limitation (A) all proceeds payable in lieu
         of or as compensation for the loss of or damage to any of the
         foregoing; (B) all awards made by any public body or decreed by any
         court of competent jurisdiction for a taking or for degradation of
         value in any eminent domain proceeding involving any of the foregoing;
         and (C) the proceeds of any and all insurance (including without
         limitation, title insurance) covering the Land, the Improvements, the
         Personal Property, and any of the foregoing.

All property and interests described or referred to in Subsections (i), (ii),
and (iii) of this Section 2.1, together with any additional interest therein now
owned, or hereafter acquired, by Mortgagor, are sometimes hereinafter
collectively called the "Mortgaged Property".

TO HAVE AND TO HOLD the Mortgaged Property, together with all and singular the
rights, hereditaments, and appurtenances in anywise appertaining or belonging
thereto, unto Mortgagee and Mortgagee's successors and assigns forever,
PROVIDED, NEVERTHELESS, that these presents are upon the express condition that
if Mortgagor shall pay or cause to be paid the Secured Indebtedness, and if
Mortgagor shall duly and punctually perform and observe all of the terms,
covenants, agreements and conditions contained in this Mortgage, the Note, and
all the Loan Documents, then this Mortgage and the estate, right and interest of
Mortgagee in and to the Mortgaged Property shall cease and become void and of no
force and effect, and shall be satisfied at Mortgagor's expense; otherwise, this
Mortgage shall remain in full force and effect.

         Section 2.2. Warranty of Title. Mortgagor, for Mortgagor and
Mortgagor's Successors, hereby agrees to warrant and forever defend, all and
singular, good and marketable unencumbered fee simple title to the Mortgaged
Property unto Mortgagee, and Mortgagee's successors or assigns, forever, against
every person whomsoever lawfully claiming, or to claim, the same or any part
thereof, subject, however, to the Permitted Exceptions. The foregoing warranty
of title shall survive the foreclosure of this Mortgage and shall inure to the
benefit of and be enforceable by any person who may acquire title to the
Mortgaged Property pursuant to such foreclosure.
<PAGE>
                                   ARTICLE III

                              SECURED INDEBTEDNESS

         Section 3.1. Secured Indebtedness. This Mortgage, and all Rights, and
all titles, interests and Liens created hereby, or arising by virtue hereof, are
given to secure payment and performance of the following indebtedness,
liabilities, and obligations (herein collectively called the "Secured
Indebtedness"):

                  (i)   All loans, principal, interest, late charges, fees,
         premiums, expenses, obligations and liabilities owing by Mortgagor to
         Mortgagee arising pursuant to, evidenced by or represented by the Note;

                  (ii)  All indebtedness, liabilities, and obligations arising
         under this Mortgage or under any of the other Loan Documents; and

                  (iii) Any and all renewals, increases, extensions,
         modifications, rearrangements, or restatements of the Note or all or
         any part of the loans, advances, future advances, indebtedness,
         liabilities, and obligations described or referred to in Subsections
         3.1(i) through (ii), together with all costs, expenses, and reasonable
         attorneys' fees incurred in connection with the enforcement or
         collection thereof.


                                   ARTICLE IV

                           REPRESENTATIONS, WARRANTIES
                           AND COVENANTS OF MORTGAGOR

         Section 4.1.  Representations  and Warranties.  Mortgagor expressly
represents and warrants to Mortgagee as follows:

                  (a) Organization. Mortgagor (i) is an Indiana corporation duly
         organized, validly existing and in good standing under the laws of the
         state of its incorporation and is qualified to do business under the
         laws of the state where the Land is situated, (ii) has complied with
         all conditions prerequisite to its lawfully doing business in the state
         where the Land is situated, and (iii) has all requisite corporate power
         and all governmental certificates of authority, licenses, permits,
         qualifications, and documentation to own, lease and operate its
         properties and to conduct its business as now being, and as proposed to
         be, conducted.

                  (b) Authority. Mortgagor has full and lawful authority and
         power to execute, acknowledge, deliver, and perform this Mortgage and
         the other Loan Documents executed by Mortgagor and such Loan Documents
         constitute the legal, valid, and binding obligations of Mortgagor and
         any other party thereto, enforceable against Mortgagor and such other
         parties in accordance with their respective terms, except as limited by
         bankruptcy, insolvency, reorganization, moratorium or similar laws of
         general application affecting creditors' rights generally.

                  (c) Place of Business. Mortgagor's principal place of
         business, chief executive office, location of its account records,
         mailing address and address for notices hereunder is set forth in the
         preamble hereof.
<PAGE>
                  (d) Title. Mortgagor is the lawful record owner of good and
         marketable title to the Mortgaged Property, subject only to the
         Permitted Exceptions. No Liens exist in or against the Mortgaged
         Property, other than those Liens which have been identified in writing
         in the title insurance commitment delivered to Mortgagee, all of which
         will be satisfied and released contemporaneously with the closing under
         the Note and Loan Documents. All portions of the Mortgaged Property
         have full and free access to and from public streets and utilities'
         services and connections.

                  (e) Conflicts. Neither the execution and delivery of the Loan
         Documents, nor consummation of any of the transactions therein
         contemplated, nor compliance with the terms and provisions thereof,
         will contravene or conflict with any provision of law, statute or
         regulation to which Mortgagor is subject or any judgment, license,
         order or permit applicable to Mortgagor or any indenture, mortgage,
         deed of trust, agreement or other instrument to which Mortgagor is a
         party or by which Mortgagor or the Mortgaged Property may be bound, or
         to which Mortgagor or the Mortgaged Property may be subject, or violate
         or contravene any provision of the Articles of Incorporation or Bylaws
         of Mortgagor.

                  (f) Information Provided. All reports, statements, financial
         statements, cost estimates and other data, furnished by or on behalf of
         Mortgagor or any Obligated Party including, without limitation, any
         surveys, as-built plans and specifications, and commitments for title
         insurance are true and correct in all material respects.

                  (g) Defaults. No event has occurred and is continuing which
         constitutes a Default or would, with the lapse of time or giving of
         notice or both, constitute a Default.

                  (h) Taxes.  All taxes,  assessments and other charges
         levied against the Mortgaged  Property have been paid in full.

                  (i) Flood Hazards. Neither the Land nor any portion thereof is
         located within an area that has been designated or identified as an
         area having special flood hazards by the Secretary of Housing and Urban
         Development or by such other official as shall from time to time be
         authorized by federal or state law to make such designation pursuant to
         the National Flood Insurance Act of 1968, as such act may from time to
         time be amended, or pursuant to any other national, state, county or
         city program of flood control.

                  (j) Performance  of Covenants  Under  Leases.  Mortgagor has
         duly and  punctually  performed all and singular the terms, covenants,
         conditions and  warranties of the existing  Leases on Mortgagor's
         part to be kept, observed and performed up to the date hereof.

                  (k) Collection of Advance Rents. Any Rents due for occupancy
         for any period subsequent to the date hereof have not been collected
         for more than one (1) month in advance of accrual and payment of any
         Rents has not otherwise been anticipated, waived, released, discounted,
         set-off or otherwise discharged or compromised.

                  (l) No  Defaults.  No Lessee  under any  existing  Lease
         is in  default  of any of the terms  thereof.
<PAGE>
                  (m) Homestead.  No part of the  Mortgaged  Property
         constitutes a part of a business or residential homestead.

                  (n) Commercial Loan. The Secured Indebtedness constitutes a
         contract under which credit is extended for business, commercial,
         investment, or other similar purpose, and is not for personal, family,
         household, or agricultural use. Mortgagor represents and certifies that
         the extension of credit secured by this Mortgage is exempt from any and
         all provisions of the Federal Consumer Credit Protection Act
         (Truth-in-Lending Act) and Regulation "Z" of the Board of Governors of
         the Federal Reserve System.

         Section 4.2.      Covenants.  So long as this  Mortgage  shall remain
in effect,  Mortgagor  covenants and agrees with Mortgagee as follows:

                  (a) Taxes. To pay, or cause to be paid (not later than ten
         (10) days before the date upon which such items would become
         delinquent), all lawful taxes and assessments of every character in
         respect of any of the Mortgaged Property, and to furnish to Mortgagee
         (not later than ten (10) days prior to the date upon which such taxes
         or assessments would become delinquent) evidence satisfactory to
         Mortgagee of the timely payment of such taxes and assessments, provided
         that so long as Mortgagor has timely paid all taxes and assessments
         into the reserve fund required under Section 9.4, Mortgagor shall not
         be required to provide such evidence, and, provided further, Mortgagor
         shall not be required to pay any such tax or assessment if and so long
         as the amount, applicability or validity thereof is being contested in
         good faith by appropriate legal proceedings and appropriate cash
         reserves therefor have been deposited with Mortgagee in an amount equal
         to the amount being contested plus a reasonable additional sum to cover
         costs, legal fees and expenses, interest and penalties.

                  (b)      Insurance.
                           ----------

                           (i) Mortgaged Property. To carry insurance with
                  respect to the Mortgaged Property with such insurers, in such
                  amounts and covering such risks as shall be satisfactory to
                  Mortgagee, including, without limitation, insurance against
                  loss or damage by fire, extended coverage, lightning, hail,
                  windstorm, explosion, riot, hazards, casualties, and other
                  contingencies; provided, that in the absence of written
                  direction from Mortgagee, the insurance shall not be less than
                  the full replacement cost of the Improvements. Such insurance
                  shall be sufficient to prevent Mortgagor from being or
                  becoming a "co-insurer" of the Mortgaged Property and shall
                  include the standard non-contributory mortgage clause.

                           (ii) Public Liability. To carry liability insurance
                  covering occurrences that may arise in the Mortgaged Property
                  as a result of the operations thereon, with such insurers and
                  in such amounts as shall be acceptable to Mortgagee; and to
                  carry workers' compensation insurance sufficient to meet all
                  statutory requirements, as may be amended from time to time.

                           (iii) Loss of Rents. To carry insurance covering loss
                  of rents and/or business interruption with respect to the
                  Mortgaged Property for a period of not less than one year.
<PAGE>
                           (iv)  Delivery  of  Policies.  To deliver to
                  Mortgagee a true and  complete  copy of each policy of
                  insurance covering the Mortgaged Property.

                           (v) Mortgagee as Named Insured: Payment of Insurance
                  Proceeds. To cause all insurance carried by Mortgagor covering
                  the Mortgaged Property to name Mortgagee as an insured and to
                  be payable to Mortgagee as its interest may appear, and, in
                  the case of all policies of insurance carried by each Lessee
                  for the benefit of Mortgagor, to cause all such policies to be
                  payable to Mortgagee as its interest may appear.

                           (vi) Payment of Premiums; Proof. To cause to be paid,
                  pursuant to Section 9.4 hereof, all premiums for such
                  insurance before such premiums become due and to deliver all
                  renewal policies to Mortgagee at least fifteen (15) days
                  before the expiration date of each expiring policy and to
                  cause such policies to require the insurer to give written
                  notice to Mortgagee of any amendment or termination of any
                  such policy at least thirty (30) days before such termination
                  or amendment is to be effective.

                           (vii) Review of Values. Upon the written request of
                  Mortgagee, not more than once during each thirty-month period
                  following the date of this Mortgage, to increase the amount of
                  insurance covering the Mortgaged Property to its then full
                  insurable value.

                           (viii) Notice of Casualty. To immediately deliver
                  written notice to Mortgagee of any casualty loss affecting the
                  Mortgaged Property that would cost more than $10,000 to repair
                  or replace.

                  (c) Compliance with Laws. To comply with all valid
         governmental laws, ordinances, rules, and regulations applicable to the
         Mortgaged Property and its ownership, use, and operation, and to comply
         with all, and not violate any, easements, restrictions, agreements,
         covenants, and conditions with respect to or affecting the Mortgaged
         Property, or any part thereof; provided, however, Mortgagor shall not
         be required to comply with such items if and so long as the
         applicability or validity thereof is being contested diligently in good
         faith by appropriate legal proceedings and appropriate reserves have
         been set aside by Mortgagor.

                  (d) Condition of Mortgaged Property. To maintain, preserve,
         and keep the Mortgaged Property in good repair and condition at all
         times and, from time to time, to make all necessary and proper repairs,
         replacements, and renewals, to complete or repair any Improvements in a
         good and workmanlike manner, and not to abandon or commit or permit any
         waste on or of the Mortgaged Property, and not to do anything to the
         Mortgaged Property that may impair its value.
<PAGE>
                  (e) Payments for Labor and Materials. To pay promptly all
         bills for labor, materials and equipment incurred in connection with
         the Mortgaged Property and never to permit to be affixed against the
         Mortgaged Property, or any part thereof, any Lien, even though inferior
         to the liens and security interests hereof, for any such bill which may
         be legally due and payable; provided, however, Mortgagor shall not be
         required to pay any such bill if the amount, applicability or validity
         thereof is being contested in good faith by appropriate legal
         proceedings and Mortgagor has furnished to Mortgagee a bond in form and
         substance acceptable to Mortgagee with corporate surety satisfactory to
         Mortgagee or other security satisfactory to Mortgagee, in an amount
         equal to the amount being contested plus a reasonable additional sum to
         cover possible costs, legal fees and expenses, interest and penalties,
         and provided further that Mortgagor shall pay any amount adjudged by a
         court of competent jurisdiction to be due, with all costs, interest and
         penalties thereon, in order to release any such Lien on the Mortgaged
         Property, or any part thereof.

                  (f) Further Assurances. To execute and deliver forthwith to
         Mortgagee, at any time and from time to time upon request by Mortgagee,
         any and all additional instruments (including, without limitation,
         deeds of trust, mortgages, security agreements, assignments and
         financing statements) and further assurances, and to do all other acts
         and things at Mortgagor's expense, as may be necessary or proper, in
         Mortgagee's reasonable opinion, to effect the intent of these presents,
         to more fully evidence and to perfect, the rights, titles and Liens,
         herein created or intended to be created hereby and to protect the
         Rights of Mortgagee hereunder.

                  (g) Maintenance  of  Existence:   Authority  To  Do  Business.
         To  maintain   continuously Mortgagor's  existence and Mortgagor's
         right to do business in the state where the Real Estate is located
         under all applicable laws.

                  (h) Prohibition Against Liens. Without the prior written
         consent of Mortgagee, not to create, incur, permit or suffer to exist
         in respect of the Mortgaged Property, or any part thereof, any other or
         additional Lien on a parity with or superior or inferior to the liens
         and security interests hereof; provided, however, if any such Lien now
         or hereafter affects the Mortgaged Property or any part thereof,
         Mortgagor covenants to timely perform all covenants, agreements and
         obligations required to be performed under or pursuant to the terms of
         any instrument or agreement creating or giving rise to such Lien.
<PAGE>
                  (i)      Limitation on Dispositions.

                           (i) Prohibition on Sale or Transfer. Mortgagor
                  acknowledges that Mortgagee has examined both the
                  creditworthiness of Mortgagor and Mortgagor's experience in
                  owning and operating properties such as the Mortgaged Property
                  in determining whether or not to make the loan secured hereby,
                  that Mortgagee has relied on Mortgagor's creditworthiness and
                  experience in deciding to make the loan secured hereby, and
                  that Mortgagee will continue to rely on Mortgagor's ownership
                  of the Mortgaged Property as a means of maintaining the value
                  of the Mortgaged Property as security for repayment of the
                  Debt. Mortgagor acknowledges that Mortgagee has a valid
                  interest in maintaining the value of the Mortgaged Property so
                  as to ensure that, should Mortgagor default in the repayment
                  of the Note, Mortgagee can recover the balance of the Note by
                  a sale of the Mortgaged Property. Mortgagor shall not, without
                  the prior written consent of Mortgagee, (A) sell, trade,
                  transfer, assign, exchange, or otherwise dispose of the
                  Mortgaged Property, or any part thereof or any interest
                  therein (whether legal or equitable in nature), except items
                  of Personal Property which have become obsolete or worn beyond
                  practical use and which have been replaced by adequate
                  substitutes having a value equal to or greater than the
                  replaced items when new, or (B) permit the change in control
                  (by way of transfers of stock ownership, partnership interest,
                  or otherwise) in Mortgagor. In the event Mortgagor violates
                  the terms of this prohibition, the entire indebtedness owing
                  under the Note and any other Loan Document shall immediately
                  become due and payable at the option of Mortgagee.
                  Notwithstanding the foregoing, and provided that no Default
                  exists hereunder, Mortgagee agrees to permit one (1) transfer
                  of the Mortgaged Property to, and assumption of the Loan by,
                  another person or entity; provided, however, that no such
                  transfer shall be valid or permitted hereunder unless: (i)
                  Mortgagee receives prior written notice at least thirty (30)
                  days in advance of such proposed transfer, (ii) such proposed
                  transferee has been approved in writing by Mortgagee, which
                  approval shall be at Mortgagee's sole discretion, taking into
                  consideration such factors as, but not limited to,
                  transferee's creditworthiness, business experience, financial
                  condition and real estate experience, (iii) approval by
                  Mortgagee of the proposed new property management of the
                  Mortgaged Property, (iv) Mortgagee shall be paid a transfer
                  and assumption fee in the amount of one percent (1%) of the
                  then-outstanding principal balance and accrued interest of the
                  Note, (v) Mortgagor pays all fees and expenses incurred by
                  Mortgagee in connection with such transfer and assumption,
                  including without limitation, inspection and investigation
                  fees, title insurance charges and reasonable attorneys' fees,
                  and (vi) such proposed transferee and any guarantor required
                  by Mortgagee in connection therewith assumes all obligations
                  of Mortgagor and any Obligated Party under the Note, this
                  Mortgage and other Loan Documents with the same degree of
                  liability of Mortgagor and any such Obligated Party. This
                  one-time right of transfer and assumption shall apply only to
                  the Mortgagor named herein and not to any subsequent owner of
                  the Mortgaged Property.
<PAGE>
                           (ii) Operation. The provisions hereof shall be
                  operative with respect to, and be binding upon any persons
                  who, in accordance with the terms hereof or otherwise, shall
                  acquire any part or interest in or encumbrance upon the
                  Mortgaged Property. Any waiver by the Mortgagee of the
                  provisions hereof shall not be deemed to be a waiver of the
                  right of the Mortgagee in the future to insist upon strict
                  compliance with the provisions hereof.

                  (j) Financial Statements. To deliver to Mortgagee, within
         ninety (90) days after the end of each calendar year, a copy of
         Mortgagor's most recent federal income tax return and then-current
         audited annual financial statements of Mortgagor in form and substance
         acceptable to Mortgagee, certified by an independent certified public
         accountant. At a minimum, such financial statements shall include a
         balance sheet and income statement for Mortgagor, a report itemizing
         the income and expenses for the operation of Mortgaged Property, and a
         current rent roll, all in form and detail as shall be satisfactory to
         Mortgagee. Mortgagor shall also cause each Guarantor to deliver to
         Mortgagee, within ninety (90) days after the end of each calendar year,
         then-current financial statements of each such Guarantor, certified as
         true and correct by the Guarantor.

                  (k) Tax on Liens. At any time any law shall be enacted
         imposing or authorizing the imposition of any tax upon this Mortgage,
         or upon any rights, titles, liens, or security interests created
         hereby, or upon the Secured Indebtedness, or any part thereof, to pay
         immediately all such taxes to the extent permitted by law; provided
         that, if it is unlawful for Mortgagor to pay such taxes, then Mortgagor
         shall, if Mortgagee so requires, prepay the Secured Indebtedness in
         full within sixty (60) days after demand therefor by Mortgagee.

                  (l) Statement of Balance of Secured Indebtedness. At any time
         and from time to time, to furnish promptly upon request, a written
         statement or affidavit, in such form as shall be satisfactory to
         Mortgagee, stating the unpaid balance of the Secured Indebtedness and
         that there are no offsets or defenses against full payment of the
         Secured Indebtedness and the terms hereof, or, if there are any such
         offsets and defenses, specifically describing such offsets to the
         satisfaction of Mortgagee.

                  (m) Inspections; Books, Records. During all business hours to
         allow any representative of Mortgagee to inspect the Mortgaged Property
         and all books and records of Mortgagor, and to make and take away
         copies of such books and records. Mortgagor shall maintain complete and
         accurate books and records in accordance with good accounting
         practices.

                  (n) Removal of Personalty. Not to cause or permit any of the
         Personal Property to be removed from the Land, except items of Personal
         Property which have become obsolete or worn beyond practical use and
         which have been replaced by adequate substitutes having a value equal
         to, or greater than, the replaced items when new.
<PAGE>
                  (o) Warrant and Defend Title. To protect, warrant and forever
         defend title to the Mortgaged Property unto Mortgagee, its successors
         and assigns, against all persons whomsoever lawfully having or
         otherwise claiming an interest therein or a lien thereon, but Mortgagee
         shall have the right, at any time, to intervene in any suit affecting
         such title and to employ independent counsel in connection with any
         such suit to which it may be a party by intervention or otherwise; and
         upon demand Mortgagor agrees to pay Mortgagee all reasonable expenses
         paid or incurred by Mortgagee in respect of any such suit affecting
         title to any such property or affecting Mortgagee's lien or rights
         hereunder, including reasonable fees to Mortgagee's attorneys, and
         Mortgagor will indemnify and hold harmless Mortgagee from and against
         any and all costs and expenses, including, but not limited to, any and
         all cost, loss, damage or liability which Mortgagee may suffer or incur
         by reason of the failure of the title to all or any part of the
         Mortgaged Property or by reason of the failure or inability of
         Mortgagor, for any reason, to convey the rights, titles and interests
         which this Mortgage purports to mortgage or assign, and all amounts at
         any time so payable by Mortgagor hereunder shall be secured by the lien
         hereof and by the said assignment.

                  (p) Payment of Expenses. To promptly pay and hold Mortgagee
         harmless from all reasonable appraisal fees, survey fees, recording
         fees, abstract fees, title policy fees, escrow fees, attorneys' fees,
         brokers' fees and all other costs of every kind incurred by Mortgagee
         in connection with the Secured Indebtedness, the collection thereof and
         the exercise by Mortgagee of its rights and remedies hereunder and
         under the other Loan Documents.

                  (q) Obligations Under Personal Property. Mortgagor shall
         perform fully all obligations imposed upon it by the agreements and
         instruments constituting part of the Personal Property (including,
         without limitation, the Leases) and maintain in full force and effect
         all such agreements and instruments.

                  (r) Notice of Claims. Mortgagor shall promptly notify
         Mortgagee of any claim, action or proceeding affecting any Lease or
         title to the Mortgaged Property, or any part thereof, or the Liens
         herein granted.

                  (s)      Leases.
                           -------

                           (i) Defense of Actions Respecting Leases. Mortgagor
                  shall appear in and defend any action or proceeding arising
                  under, occurring out of, or in any manner connected with, the
                  Leases or the obligations, duties or liabilities of Mortgagor
                  and any Lessee thereunder, and, upon request by Mortgagee,
                  shall do so in the name and on behalf of Mortgagee but at the
                  expense of Mortgagor, and Mortgagor shall pay all costs and
                  expenses of Mortgagee, including reasonable attorneys' fees,
                  in any action or proceeding in which Mortgagee may appear.

                           (ii) Receipt of Future  Rents.  Mortgagor  shall not
                  receive  or collect  any Rents from any of the Leases for a
                  period of more than one (1) month in advance.
<PAGE>
                           (iii) Waivers, Releases of Lessees. Except in the
                  ordinary course of business, Mortgagor shall not waive,
                  discount, set-off, compromise, or in any manner release or
                  discharge any Lessee, of and from any obligations, covenants,
                  conditions and agreements by said Lessee to be kept, observed
                  and performed, including the obligation to pay rent in the
                  manner and at the place and time specified in any Lease, or in
                  any manner impair the value of the Mortgaged Property or the
                  security of this Mortgage.

                           (iv) Termination of Leases. Except in the ordinary
                  course of business, Mortgagor shall not terminate or consent
                  to any surrender of any Lease, or modify or in any way alter
                  the terms thereof, without the prior written consent of
                  Mortgagee, and shall use all reasonable efforts to maintain
                  each of the Leases in full force and effect during the term of
                  this Mortgage.

                           (v)  No  Subordination.  Mortgagor  shall not
                  subordinate any Lease to any mortgage or other encumbrance
                  (other  than the Lien of this  Mortgage),  or permit,
                  consent or agree to such subordination.

                           (vi) Form of Leases, Side Agreements. Unless
                  otherwise consented to in writing by Mortgagee, Mortgagor
                  shall, prior to the execution of any new leases, (A) obtain
                  Mortgagee's approval as to the form and substance of each
                  Lease or amendment thereto; (B) deliver to Mortgagee true and
                  complete copies of the Leases and any amendments thereto; (C)
                  not enter into any oral leases or any side agreements with
                  respect to a Lease with any Lessee, except upon notice to and
                  approval in writing by Mortgagee; (D) not execute any Lease
                  except for actual occupancy by the Lessee thereunder; (E) from
                  time to time upon request of Mortgagee, furnish to Mortgagee a
                  written certification signed by Mortgagor describing all then
                  existing Leases and the names of the tenants and Rents payable
                  thereunder, and (F) not enter into any Lease with Mortgagor or
                  an affiliate of Mortgagor.

                  (t) Alterations.  To make no  material  alterations  in the
                  Mortgaged  Property,  except as required by law or municipal
                  ordinance, without Mortgagee's prior written consent.

                  (u) Payment of Utilities. To pay promptly all charges for
                  utilities or services related to the Mortgaged Property,
                  including, without limitation, electricity, gas, sewer and
                  water.
<PAGE>
                                    ARTICLE V

                     PROVISIONS REGARDING ENVIRONMENTAL LAWS

         Section  5.1.  Covenants  Regarding  Environmental   Compliance.
Mortgagor  covenants  and  agrees  with Mortgagee as follows:

                  (a) Hazardous Substance Use, Manufacture. Mortgagor shall not
         use, generate, manufacture, produce, store, release, discharge, or
         dispose of on, under, or about the Mortgaged Property or transport to
         or from the Mortgaged Property any Hazardous Substance or allow any
         other person or entity to do so except under conditions permitted by
         applicable laws (including all Environmental Laws).

                  (b) Compliance  with  Environmental  Laws.  Mortgagor  shall
         keep and maintain the Mortgaged Property in compliance with, and shall
         not cause or permit the Mortgaged  Property to be in violation of,
         any Environmental Law.

                  (c) Notices.  Mortgagor shall give prompt written notice to
         Mortgagee of:

                           (i)  any  proceeding or inquiry by any  governmental
                  authority  with respect to the presence of any Hazardous
                  Substance on the Mortgaged  Property or the migration thereof
                  from or to other property;

                           (ii) all claims made or threatened by any third party
                  against Mortgagor or the Mortgaged Property relating to any
                  loss or injury resulting from any Hazardous Substance; and

                           (iii) Mortgagor's discovery of any occurrence or
                  condition on any real property adjoining or in the vicinity of
                  the Mortgaged Property that could cause the Mortgaged Property
                  or any part thereof to be subject to any restrictions on the
                  ownership, occupancy, transferability or use of the Mortgaged
                  Property under any Environmental Law, or to be otherwise
                  subject to any restrictions on the ownership, occupancy,
                  transferability or use of the Mortgaged Property under any
                  Environmental Law.

                  (d) Filings with Agencies. Mortgagor shall provide to
         Mortgagee copies, contemporaneously with filing same, of all reports,
         inventories, notices or other forms filed or submitted to the
         Environmental Protection Agency, or any state or local agency having
         responsibility for overseeing or enforcing any Environmental Laws.

                  (e) Legal Proceeding. Mortgagee shall have the right to join
         and participate in, as a party if it so elects, any legal proceedings
         or actions initiated with respect to the Mortgaged Property in
         connection with any Environmental Law and have Mortgagee's attorneys'
         fees in connection therewith paid by Mortgagor.
<PAGE>
                  (f) Indemnity. Mortgagor shall protect, indemnify and hold
         harmless Mortgagee, its directors, officers, employees, agents,
         successors and assigns from and against any and all loss, damage, cost,
         expense or liability (including attorneys' fees and costs) directly or
         indirectly arising out of or attributable to the use, generation,
         manufacture, production, storage, release, threatened release,
         discharge, disposal, or presence of a Hazardous Substance on, under or
         about the Mortgaged Property whether known or unknown, fixed or
         contingent, occurring prior to the termination of this Mortgage,
         including, but not limited to: (i) all foreseeable consequential
         damages; and (ii) the costs of any required or necessary repair,
         cleanup or detoxification of the Mortgaged Property and the preparation
         and implementation of any closure, remedial or other required plans.
         This indemnity shall survive the release of the lien of this Mortgage,
         or the extinguishment of the lien by foreclosure or action in lieu
         thereof, and this covenant shall survive such release or
         extinguishment.

                  (g) Remedial Work. In the event that any investigation, site
         monitoring, containment, cleanup, removal, restoration or other
         remedial work of any kind or nature (the "Remedial Work") is reasonably
         necessary under any applicable local, state or federal law or
         regulation, any judicial order, or by any governmental entity because
         of, or in connection with, the current or future presence or release of
         a Hazardous Substance in or into the air, soil, ground water, surface
         water or soil vapor at, on, about, under or within the Mortgaged
         Property (or any portion thereof), Mortgagor shall within such period
         of time as may be required under any applicable law, regulation, order
         or agreement, commence and thereafter diligently prosecute to
         completion, all such Remedial Work. All Remedial Work shall be
         performed by competent contractors. All costs and expenses of such
         Remedial Work shall be paid by Mortgagor including, but not limited to,
         Mortgagee's reasonable attorneys' fees and costs incurred in connection
         with such Remedial Work. In the event Mortgagor shall fail to timely
         commence, or cause to be commenced, or fail to diligently prosecute to
         completion, such Remedial Work, Mortgagee may, but shall not be
         required to, cause such Remedial Work to be performed and all costs and
         expenses thereof, or incurred in connection therewith, shall become
         part of the indebtedness secured hereby.

         Section 5.2.  Representations and Warranties Relating to Environmental
 Matters.  Mortgagor  represents and warrants to Mortgagee that:

                  (a) No Existing Violation.  Neither the Mortgaged Property nor
         the Mortgagor is in violation of or subject to any existing, pending or
         threatened investigation by any governmental authority under any
         Environmental Law.

                  (b) No Permits  Required.  Mortgagor  has not and is not
         required by any  Environmental  Law to obtain any permits or license to
         construct  or use any  improvements,  fixtures or equipment  forming a
         part of the Mortgaged Property.

                  (c) Previous Uses. Mortgagor or its environmental advisors has
         made diligent inquiry into previous uses and ownership of the Mortgaged
         Property, and, based on such inquiry, has determined that no Hazardous
         Substance has been disposed of or released on or to the Mortgaged
         Property.
<PAGE>
                  (d) Use by Mortgagor. Mortgagor's prior, current and intended
         future use of the Mortgaged Property will not result in the disposal or
         release of any Hazardous Substance on or to the Mortgaged Property
         except as permitted by applicable law.

                  (e)      Underground  Storage.  No underground storage tanks,
         whether or not  containing  any Hazardous Substances, are located on or
         under the Mortgaged Property.

         Section 5.3. Environmental Risk Assessment. At any time that Mortgagee
reasonably believes that Hazardous Substances have been disposed of on, or have
been released to or from the Mortgaged Property, or at any time after a Default
hereunder, within thirty (30) days after a written request therefor by
Mortgagee, Mortgagor shall deliver to Mortgagee an environmental audit prepared
at Mortgagor's cost and expense by an environmental consultant acceptable to
Mortgagee, detailing the results of an environmental investigation of the
Mortgaged Property, including an inspection of and results of soil and ground
water samples.

                                   ARTICLE VI

                  RESPECTING DEFAULTS AND REMEDIES OF MORTGAGEE

         Section 6.1.  Defaults.  The term  "Default,"  as used  herein,  shall
mean the  occurrence  of any one or more of the following events:

                  (a)  Defaults  in Loan  Documents.  A default or event of
         default as such terms are  defined in the Note or any of the other
         Loan Documents.

                  (b) Payment. The failure of Mortgagor to pay the Secured
         Indebtedness, or any part thereof, within five (5) days after the date
         it becomes due in accordance with the terms of the Note or any other
         Loan Documents or when accelerated pursuant to any power to accelerate
         contained in this Mortgage or any of the other Loan Documents.

                  (c) Covenants. The failure of Mortgagor or any Obligated Party
         to perform punctually and properly any covenant, agreement, obligation,
         or condition contained in any of the Loan Documents to which such
         Person is a party and the continuation of such failure for a period of
         fifteen (15) days after written notice thereof from Mortgagee to
         Mortgagor.

                  (d) Representations  and Warranties.  Any statement,
         representation,  or warranty in any of the Loan Documents is false,
         misleading, or erroneous in any material respect.

                  (e) Condemnation  or Eminent  Domain.  Condemnation or taking
         by  eminent  domain of all or any material part (as determined by
         Mortgagee in its sole discretion) of the Mortgaged Property.
<PAGE>
                  (f) Voluntary Bankruptcy. Mortgagor or any Obligated Party
         shall (i) apply for or consent to the appointment of a receiver,
         trustee, custodian, intervenor or liquidator of such Person or of all
         or a substantial part of such Person's assets, (ii) file a voluntary
         petition in bankruptcy, admit in writing that such Person is unable to
         pay such Person's debts as they become due or generally not pay such
         Person's debts as they become due, (iii) make a general assignment for
         the benefit of creditors, (iv) file a petition or answer seeking
         reorganization or an arrangement with creditors or to take advantage of
         any bankruptcy or insolvency laws, (v) file an answer admitting the
         material allegations of, or consent to, or default in answering, a
         petition filed against such Person in any bankruptcy, reorganization or
         insolvency proceeding, or (vi) take any action for the purpose of
         effecting any of the foregoing.

                  (g) Involuntary Bankruptcy. An involuntary petition or
         complaint shall be filed against Mortgagor or any Obligated Party
         seeking bankruptcy or reorganization of such Person or the appointment
         of a receiver, custodian, trustee, intervenor or liquidator of such
         Person, or of all or substantially all of such Person's assets, and
         such petition or complaint shall not have been dismissed within
         forty-five (45) days of the filing thereof; or an order, order for
         relief, judgment or decree shall be entered by any court of competent
         jurisdiction or other competent authority approving a petition or
         complaint seeking reorganization of such Person or appointing a
         receiver, custodian, trustee, intervenor or liquidator of such Person,
         or of all or substantially all of such Person's assets.

                  (h) Payment of Judgments. The failure of Mortgagor or any
         Obligated Party to pay any uninsured money judgment(s) against such
         Person at least thirty (30) days after such judgment becomes final and
         is no longer appealable.

                  (i) Attachment. The failure to have discharged within a period
         of thirty (30) days after the commencement thereof any attachment,
         sequestration, or similar proceedings against any of Mortgagor's or any
         Obligated Party's assets.

                  (j) Priority of Liens.  Mortgagee's  Liens created  hereby
         should become unenforceable, or cease to be first priority Liens,
         subject to Permitted Exceptions.

         Section 6.2. Remedies. Upon the occurrence of a Default, Mortgagee may,
at Mortgagee's  option,  do any one or more of the following:

                  (a) Acceleration. Mortgagee may, without notice, demand,
         presentment, notice of intention to accelerate or acceleration, protest
         or notice of protest, all of which are hereby waived by Mortgagor and
         all Obligated Parties, declare the entire unpaid balance of the Secured
         Indebtedness immediately due and payable, and upon such declaration the
         entire unpaid balance of the Secured Indebtedness shall be immediately
         due and payable.
<PAGE>
                  (b) Legal Proceedings. Mortgagee may proceed by suit or suits,
         at law or in equity, to enforce the payment and performance of the
         Secured Indebtedness in accordance with the terms hereof or of the
         other Loan Documents, to foreclose or otherwise enforce the
         assignments, liens, and security interests created or evidenced by the
         other Loan Documents, or this Mortgage as against all, or any part of,
         the Mortgaged Property, and to have all or any part of the Mortgaged
         Property sold under the judgment or decree of a court of competent
         jurisdiction.

                  (c) Appointment of Receiver. To the extent permitted by law,
         Mortgagee shall be entitled to the appointment of a receiver or
         receivers of the Mortgaged Property, or any part thereof, and of the
         income, rents, issues, and profits thereof, and Mortgagor hereby
         expressly consents to any such appointment.

                  (d) Possession. To the extent permitted by law, Mortgagee may
         enter upon the Land, take possession of the Mortgaged Property and
         remove the Personal Property or any part thereof, with or without
         judicial process, and, in connection therewith, without any
         responsibility or liability, including, without limitation, liability
         for consequential damages of any kind on the part of Mortgagee, and
         Mortgagee may take possession of any property located on or in the Real
         Estate which is not a part of the Mortgaged Property and hold or store
         such property at Mortgagor's expense.

                  (e) Performance of Covenants. If Mortgagor has failed to keep
         or perform any covenant whatsoever contained in the Loan Documents or
         in the Leases, Mortgagee may, but shall not be obligated to, perform or
         attempt to perform said covenant, and any payment made or expense
         incurred in the performance or attempted performance of any such
         covenant shall be a part of the Secured Indebtedness, and Mortgagor
         promises, upon demand, to pay to Mortgagee all sums so advanced by
         Mortgagee, with interest at the default rate set forth in the Note from
         the date when paid by Mortgagee. No such payment by Mortgagee shall
         constitute a waiver of any Default. In addition to the liens and
         security interests hereof, Mortgagee shall be subrogated to all Liens
         securing the payment of any debt, claim, tax, or assessment which
         Mortgagee may pay.
<PAGE>
                  (f) Right to Make Repairs, Improvements. Should any part of
         the Mortgaged Property come into the possession of Mortgagee, whether
         before or after Default, Mortgagee may use, operate, and/or make
         repairs, alterations, additions and improvements to the Mortgaged
         Property for the purpose of preserving it or its value. Mortgagor
         covenants to promptly reimburse and pay to Mortgagee, at the place
         where the Note is payable, or at such other place as may be designated
         by Mortgagee in writing, the amount of all reasonable expenses
         (including the cost of any insurance, taxes, or other charges) incurred
         by Mortgagee in connection with its custody, preservation, use or
         operation of the Mortgaged Property, together with interest thereon
         from the date incurred by Mortgagee at the then current rate of
         interest applicable to the principal balance of the Note, and all such
         expenses, cost, taxes, interest, and other charges shall be a part of
         the Secured Indebtedness. It is agreed, however, that the risk of
         accidental loss or damage to the Mortgaged Property is undertaken by
         Mortgagor, and, except for Mortgagee's willful misconduct or gross
         negligence, Mortgagee shall have no liability whatsoever for decline in
         value of the Mortgaged Property, for failure to obtain or maintain
         insurance, or for failure to determine whether any insurance ever in
         force is adequate as to amount or as to the risks insured.

                  (g) Surrender of Insurance. Mortgagee may surrender the
         insurance policies maintained pursuant to the terms hereof, or any part
         thereof, and receive and apply the unearned premiums as a credit on the
         Secured Indebtedness, and, in connection therewith, Mortgagor hereby
         appoints Mortgagee (or any officer of Mortgagee), as the true and
         lawful agent and attorney-in-fact for Mortgagor (with full powers of
         substitution), which power of attorney shall be deemed to be a power
         coupled with an interest and therefore irrevocable, to collect such
         premiums.

                  (h) Sale of Personalty. After notification, if any, hereafter
         provided in this Subsection, Mortgagee may sell, lease, or otherwise
         dispose of (herein a "Sale") all or any part of the Personal Property
         in conjunction with or separately from any sale of the Real Estate. The
         Personal Property may be sold in its then condition, or following any
         commercially reasonable preparation or processing, and each Sale may be
         as a unit or in parcels, by public or private proceedings, and by way
         of one or more contracts, and, at any Sale, it shall not be necessary
         to exhibit the Personal Property being sold. In order to dispose of the
         Personal Property Mortgagee may advertise the Personal Property for
         sale under any and all trade names or service names attached to, fixed
         upon or made part of, any of the Personal Property. The Sale of any
         part of the Personal Property shall not exhaust Mortgagee's power of
         Sale, but Sales may be made, from time to time, until the Secured
         Indebtedness is paid and performed in full. Reasonable notification of
         the time and place of any public Sale pursuant to this Subsection, or
         reasonable notification of the time after which any private Sale is to
         be made pursuant to this Subsection, shall be sent to Mortgagor and to
         any other person entitled to notice under the Code; provided, that if
         the Personal Property being sold is perishable, or threatens to decline
         speedily in value, or is of a type customarily sold on a recognized
         market, Mortgagee may sell, lease, or otherwise dispose of such
         Personal Property without notification, advertisement or other notice
         of any kind. It is agreed that notice sent or given not less than ten
         (10) calendar days prior to the taking of the action to which the
         notice relates, is reasonable notice for the purposes of this
         Subsection.
<PAGE>
                  (i) Assemble  Personal  Property.  Mortgagee may require
         Mortgagor to assemble the Personal Property,  or any part  thereof,
         and make it  available  to  Mortgagee  at a place to be designated  by
         Mortgagee which is reasonably convenient to Mortgagee.

                  (j) Retention of Personalty. Mortgagee may at its option
         retain the Personal Property in satisfaction of the Secured
         Indebtedness whenever the circumstances are such that Mortgagee is
         entitled to do so under the Code.

                  (k) Collection of Personal Property. Mortgagee may, in its own
         name or the name of Mortgagor, notify any or all parties obligated on
         any of the Personal Property to make all payments due or to become due
         thereon directly to Mortgagee, whereupon the power and authority of
         Mortgagor to collect the same in the ordinary course of its business
         shall be deemed to be immediately revoked and terminated. With or
         without such general notification, Mortgagee may take or bring in
         Mortgagor's name or that of Mortgagee all steps, actions, suits or
         proceedings deemed by Mortgagee necessary or desirable to effect
         possession or collection of the Personal Property, including sums due
         or paid thereon, may complete any contract or agreement of Mortgagor in
         any way related to any of the Personal Property, may make allowances or
         adjustments related to the Personal Property, may compromise any claims
         related to the Personal Property, may issue credit in its own name or
         the name of Mortgagor, may remove from Mortgagor's premises all
         documents, instruments, records, files or other items relating to the
         Personal Property, and Mortgagee may, without cost or expense to
         Mortgagee, use Mortgagor's personnel, supplies and space to take
         possession of, administer, collect and dispose of the Personal
         Property. Regardless of any provision hereof, however, Mortgagee shall
         never be liable for its failure to collect or for its failure to
         exercise diligence in the collection, possession, or any transaction
         concerning, all or part of the Personal Property or sums due or paid
         thereon, nor shall it be under any obligation whatsoever to anyone by
         virtue of this Mortgage, except to account for the funds that it shall
         actually receive hereunder.

                  (l) Issuance of Receipts; Endorsements; Power of Attorney.
         Issuance by Mortgagee of a receipt to any person, firm, corporation or
         other entity obligated to pay any amounts to Mortgagor shall be a full
         and complete release, discharge and acquittance to such person, firm,
         corporation or other entity to the extent of any amount so paid to
         Mortgagee. Mortgagee is hereby authorized and empowered on behalf of
         Mortgagor to endorse the name of Mortgagor upon any check, draft,
         instrument, receipt, instruction or other document or items, including,
         but not limited to, all items evidencing payment upon any indebtedness
         of any person, firm, corporation or other entity to Mortgagor coming
         into Mortgagee's possession, and to receive and apply the proceeds
         therefrom in accordance with the terms hereof. Mortgagee is hereby
         granted an irrevocable power of attorney, which is coupled with an
         interest, to execute all checks, drafts, receipts, instruments,
         instructions or other documents, agreements or items on behalf of
         Mortgagor, after Default, as shall be deemed by Mortgagee to be
         necessary or advisable, in the sole discretion of Mortgagee, to protect
         its security interest in the Personal Property or the repayment of the
         Secured Indebtedness, and Mortgagee shall not incur any liability in
         connection with or arising from its exercise of such power of attorney.
<PAGE>
                  (m) Purchase of Personal Property By Mortgagee. Mortgagee may
         buy the Personal Property, or any part thereof, at any public sale or
         judicial sale and, if the Personal Property being sold is of a type
         customarily sold in a recognized market or a type which is the subject
         of widely distributed standard price quotations, Mortgagee may also buy
         the Personal Property, or any part thereof, at any private sale.

                  (n) Foreclosure of Personal Property with Real Property.
         Notwithstanding anything contained herein to the contrary, pursuant to
         applicable provisions of Article 9.1 of the Code dealing with default
         procedures when a security agreement covers both real and personal
         property, Mortgagee may proceed under the Code as to all personal
         property covered hereby or, at Mortgagee's election, Mortgagee may
         proceed as to both the real and personal property covered hereby in
         accordance with Mortgagee's rights and remedies in respect of real
         property, in which case the provisions of the Code (and Subsection
         6.2(h) hereof) shall not apply.

                  (o) Other  Rights.  Mortgagee  shall have and may  exercise
         the rights of a secured party under the Code and any and all other
         rights and remedies which Mortgagee may have at law or in equity.

                  (p) Collect Rents. Mortgagee may terminate the license granted
         to Mortgagor in Section 7.1 hereof to collect the Rents, and, without
         taking possession, in Mortgagee's own name, Mortgagee may demand,
         collect, receive, sue for, attach and levy the Rents, and give proper
         receipts, releases and acquittances therefor.

                  (q) Manage Leases. From and after the occurrence of a Default,
         Mortgagee may make, modify, enforce, cancel or accept the surrender of
         any Lease, remove or evict any Lessee, increase or reduce rents,
         decorate, clean and make repairs, and otherwise do any act or incur any
         costs or expenses that Mortgagee shall deem proper to protect the
         security hereof, as fully and to the same extent as Mortgagor could do
         if in possession of the Mortgaged Property.

         Section 6.3. Effect of Foreclosure on Leases; Possession; Tenant at
Sufferance. Following foreclosure, any lease of the Mortgaged Property or a
portion thereof shall remain in effect, the purchaser thereby being subrogated
to the lessor's interest therein, unless the purchaser elects to treat such
lease as terminated by virtue of the sale under Mortgagee's prior lien. If the
assignments, liens, or security interests hereof shall be foreclosed by any
judicial or non-judicial action, then the purchaser at any such sale shall
receive, as an incident to his ownership, immediate possession of that portion
of the Mortgaged Property purchased, and if Mortgagor or Mortgagor's Successors
or Lessees shall hold possession of any of said portion of the Mortgaged
Property subsequent to such foreclosure, Mortgagor and Mortgagor's Successors or
Lessees in possession shall be considered as tenants at sufferance of the
purchaser at such foreclosure sale, and anyone occupying the Mortgaged Property
(or any part thereof) after demand made for possession thereof shall be guilty
of forcible detainer and shall be subject to eviction and removal, with or
without process of law, and all damages by reason thereof are hereby expressly
waived.
<PAGE>
         Section 6.4. Application of Proceeds. Except as may be otherwise
required by law, all amounts received by Mortgagee hereunder shall be applied as
follows: FIRST, to the payment of all expenses arising out of or in connection
with the Mortgaged Property, the foreclosure thereof, and the collection of the
Secured Indebtedness including, without limitation, the commissions, reasonable
fees and expenses of Mortgagee's attorneys, accountants, real estate brokers,
property managers and receivers; SECOND, to accrued or unpaid interest on the
Secured Indebtedness; THIRD, to principal on the matured portion of the Secured
Indebtedness; FOURTH, to prepayment of the unmatured portion, if any, of the
Secured Indebtedness applied to installments of principal in inverse order of
maturity; and FIFTH, the balance, if any, remaining after the full and final
payment and performance of the Secured Indebtedness, to Mortgagor or to such
other party entitled thereto.

                                   ARTICLE VII

                         ASSIGNMENT OF LEASES AND RENTS

         Section 7.1. Assignment. Mortgagor does hereby grant, transfer and
assign unto Mortgagee (i) the Leases; (ii) any and all guaranties of payment or
performance of the obligations of any Lessee; and (iii) the Rents; provided,
however, that Mortgagee hereby grants to Mortgagor a license to collect and
receive all Rents. Such license shall be revocable by notice from Mortgagee to
Mortgagor at any time after the occurrence and during the continuation of a
Default.

         Section 7.2. No Liability on Mortgagee. Mortgagee shall not be liable
for any loss sustained by Mortgagor resulting from Mortgagee's failure to let
the Mortgaged Property, or any part thereof, after Default or from any other act
or omission of Mortgagee in managing the Mortgaged Property, or any part
thereof. Mortgagee shall not be obligated to perform or discharge, any
obligation, duty or liability under the Leases or under or by reason of this
Mortgage, and Mortgagor shall indemnify Mortgagee for, and hold Mortgagee
harmless from, any and all liability, loss or damage which may or might be
incurred under the Leases or under or by reason of this Mortgage, and from any
and all claims and demands whatsoever which may be asserted against Mortgagee by
reason of any alleged obligations or undertakings on its part to perform or
discharge any of the terms, covenants or agreements contained in the Leases.
Should Mortgagee incur any such liability under the Leases or under or by reason
of this Mortgage or in defense of any such claims or demands, the amount
thereof, including costs, expenses and reasonable attorneys' fees shall be
secured hereby and Mortgagor shall reimburse Mortgagee therefor immediately upon
demand, and upon the failure of Mortgagor to do so Mortgagee may, at its option,
declare the Secured Indebtedness immediately due and payable. It is further
understood that this Mortgage shall not operate to place responsibility for the
control, care, management or repair of the Mortgaged Property upon Mortgagee, or
for the carrying out of any of the terms and conditions of the Leases; nor shall
it operate to make Mortgagee responsible or liable for any waste committed on
the Mortgaged Property by the Lessees or any other parties, or for any dangerous
or defective condition of the Mortgaged Property, or for any negligence in the
management, upkeep, repair or control of the Mortgaged Property, resulting in
loss, injury or death to any Lessee, licensee, employee or stranger.
<PAGE>
                                  ARTICLE VIII

                               SECURITY AGREEMENT

         Section 8.1. Grant of Security Interest. Mortgagor hereby transfers,
assigns, delivers and grants to Mortgagee a security interest in and right of
set-off against the Personal Property as security for payment of the Secured
Indebtedness.

         Section 8.2. Assignment of Non-Code Personal Property. To the extent
that any of the Personal Property is not subject to the Code, Mortgagor hereby
assigns to Mortgagee all of Mortgagor's right, title, and interest in and to the
Personal Property to secure the Secured Indebtedness, together with the right of
set-off with regard to such Personal Property (or any part hereof). Release of
the lien of this Mortgage shall automatically terminate this assignment.

                                   ARTICLE IX

                                  MISCELLANEOUS

         Section 9.1. Release of this Mortgage. If the Secured Indebtedness is
paid and performed in full in accordance with the terms of the instruments
evidencing the Secured Indebtedness, and if Mortgagor shall well and truly
perform all of Mortgagor's covenants contained herein, then this conveyance
shall become null and void and be released at Mortgagor's request, and, to the
extent permitted by law, at Mortgagor's expense; otherwise, it shall remain in
full force and effect, provided that no release hereof shall impair Mortgagor's
warranties and indemnities contained herein.

         Section 9.2. Successors. If Mortgagor, or any of Mortgagor's
Successors, conveys its interest in any of the Mortgaged Property to any other
party, then Mortgagee may, without notice to Mortgagor, or its successors and
assigns, deal with any owner of any part of the Mortgaged Property with
reference to this Mortgage and the Secured Indebtedness, either by way of
forbearance on the part of Mortgagee, or extension of time of payment of the
Secured Indebtedness, or release of all or any part of the Mortgaged Property,
or any other property securing payment of the Secured Indebtedness, without in
any way modifying or affecting Mortgagee's Rights and Liens hereunder or the
liability of Mortgagor, or any other party liable for payment of the Secured
Indebtedness, in whole or in part. This Subsection shall not be interpreted as
giving any rights to Mortgagor or Mortgagor's Successors to convey the Mortgaged
Property.

         Section 9.3. Marshaling.  Mortgagor  hereby  waives  all  Rights  of
marshaling  in the event of any foreclosure of the Liens hereby created.
<PAGE>
         Section 9.4. Reserve for Taxes, Insurance and Other Expenses. Mortgagor
shall pay to Mortgagee, together with and in addition to the monthly payments of
principal and interest payable under the terms of the Note secured hereby, on
the date set forth therein for the making of monthly payments, until the Note is
fully paid, a sum as estimated by Mortgagee, equal to all ground rentals,
insurance premiums, taxes and assessments next due against the Mortgaged
Property, less all sums already paid therefor, divided by the number of months
to elapse before two (2) months prior to the date when each such ground rental,
insurance premium, tax and assessment will become due. Such sums shall be held
by Mortgagee to pay said ground rentals, insurance premiums, taxes and
assessments. Such payments received by Mortgagee from Mortgagor are to be held
without any allowance of interest or dividend to Mortgagor and need not be kept
separate and apart from other funds of Mortgagee. Mortgagor shall initially fund
the reserve on the date of the execution of this Mortgage by depositing such
sums as are necessary, as reasonably determined by Mortgagee, so that the amount
of the initial funding, plus the additional monthly payments contemplated
herein, will be sufficient to pay all ground rentals, insurance premiums, taxes
and assessments sixty (60) days prior to their respective due dates. For
purposes of this Subsection, if taxes and assessments are payable in
installments with a six-month interval between due dates, then the due date for
such taxes and assessments is that date upon which each installment would first
become delinquent and a penalty and/or interest would be assessed if such
installment of taxes or assessments were not paid. After the occurrence and
during the continuation of a Default, Mortgagee may, in its sole discretion,
apply such sums to the payment of such expenses or to the Secured Indebtedness.
Any excess reserve shall, at the discretion of Mortgagee, be credited by
Mortgagee on subsequent payments to be made on the Secured Indebtedness by
Mortgagor, and any deficiency shall be paid by Mortgagor to Mortgagee on or
before the date when such ground rentals, premiums, taxes, and assessments,
shall have become due. Mortgagee may, from time to time, require an increase in
the monthly payments to be made under this Subsection, so that such payments in
the aggregate will be sufficient in amount for the payment of all ground
rentals, premiums, taxes and assessments sixty (60) days before they are due.

         Section 9.5. Condemnation and Eminent Domain. Mortgagee shall be
entitled to receive any and all sums which may be awarded or become payable to
Mortgagor for the condemnation of, or taking upon exercise of the right of
Eminent Domain with respect to, any of the Mortgaged Property for public or
quasi-public use, or by virtue of private sale in lieu thereof, and any sums
which may be awarded or become payable to Mortgagor for damages caused by public
works or construction on or near the Mortgaged Property. Mortgagor shall give
immediate written notice to Mortgagee of any such proceedings affecting the
Mortgaged Property, and shall afford Mortgagee an opportunity to participate in
any proceeding or settlement of awards with respect thereto. All such sums are
hereby assigned to Mortgagee, and Mortgagor shall, upon request of Mortgagee,
make, execute, acknowledge, and deliver any and all additional assignments and
documents as may be necessary from time to time to enable Mortgagee to collect
and receipt for any such sums. Mortgagee shall not be, under any circumstances,
liable or responsible for failure to collect, or exercise diligence in the
collection of, any of such sums. Any sums so collected shall be applied by
Mortgagee, first, to the expenses, if any, of collection, in accordance with
Section 6.4 hereof. Notwithstanding the foregoing, if, after such proceedings or
private sale in lieu thereof, Mortgagee determines in its reasonable judgment
that the remainder of the Mortgaged Property can be restored in such a manner as
to preserve substantially the economic value thereof and Mortgagor is not then
otherwise in Default, upon request of Mortgagor such sums so held by Mortgagee
shall be made available for such restoration and disbursed by Mortgagee during
the course of such restoration under safeguards reasonably satisfactory to
<PAGE>
Mortgagee. Any sums remaining after completion of restoration shall be applied
in accordance with Section 6.4. In the event of any partial taking of the
Mortgaged Property under this Subsection, Mortgagee may, at its sole discretion,
apply the funds received first to the expenses, if any, of collection; second,
to any unpaid interest which is due and delinquent and, third, to principal of
the Secured Indebtedness, in lieu of applying Section 6.4.

         Section 9.6. Insurance Proceeds. Mortgagee is authorized and empowered
to collect and receive the proceeds of any and all insurance that may become
payable with respect to any of the Mortgaged Property. So long as no Default has
occurred and is continuing, such proceeds (together with any other amounts
deposited by Mortgagor with Mortgagee) are sufficient to rebuild and restore the
Improvements, such rebuilding and restoration can be completed within six months
and prior to the maturity of the Note, and the value of the Mortgaged Property
after restoration will be the same as or greater than the value of the Mortgaged
Property on the date hereof, Mortgagee shall make such proceeds available to
rebuild or restore the Improvements in accordance with disbursement procedures
established by Mortgagee or, if such conditions are not met, Mortgagee may apply
the same to the Secured Indebtedness in the order and manner set forth in
Section 6.4 hereof, whether then matured or to mature in the future, or at
Mortgagee's option, first to unpaid interest which is due and delinquent, and
second, to principal of the Secured Indebtedness, and prior to such application,
may deduct therefrom any expenses incurred in connection with the collection or
handling of such proceeds, it being understood that Mortgagee shall not be,
under any circumstances, liable, or responsible for failure to collect, or
exercise diligence in the collection of, any of such proceeds.
         Section 9.7. Subrogation. It is understood and agreed that the proceeds
of the Note, to the extent that the same are utilized to pay or renew or extend
any indebtedness of Mortgagor, or any other indebtedness, or take up or release
any outstanding Liens against the Mortgaged Property, or any portion thereof,
have been advanced by Mortgagee at Mortgagor's request and at the request of the
obligors thereof and upon their representation that such amounts are due and
payable. Mortgagee shall be subrogated to any and all Rights and Liens owned or
claimed by any owner or mortgagee of said outstanding Rights and Liens, however
remote, regardless of whether said Rights and Liens are acquired by assignment
or are released by the beneficiary thereof upon payment.

         Section 9.8. Illegality. If any provision of this Mortgage is held to
be illegal, invalid, or unenforceable under present or future laws effective
during the term of this Mortgage, the legality, validity, and enforceability of
the remaining provisions of this Mortgage shall not be affected thereby, and in
lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of this Mortgage a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable. If the Rights and Liens created by this Mortgage
shall be invalid or unenforceable as to any part of the Secured Indebtedness,
then the unsecured portion of the Secured Indebtedness shall be completely paid
prior to the payment of the remaining and secured portion of the Secured
Indebtedness, and all payments made on the Secured Indebtedness shall be
considered to have been paid on and applied first to the complete payment of the
unsecured portion of the Secured Indebtedness.
<PAGE>
         Section 9.9. Maximum Interest Rate. Notwithstanding anything contained
in this Mortgage or in any of the Loan Documents to the contrary, Mortgagee
shall never be deemed to have contracted for or be entitled to receive, collect
or apply as interest on the Secured Indebtedness, any amount in excess of the
amount permitted and calculated at the highest lawful nonusurious rate, and, in
the event Mortgagee ever receives, collects or applies as interest any amount in
excess of the amount permitted and calculated at the highest lawful nonusurious
rate, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance of the Secured Indebtedness, and, if
the principal balance of the Secured Indebtedness is paid in full, any remaining
excess shall forthwith be paid to Mortgagor. In determining whether or not the
interest paid or payable under any specific contingency exceeds the amount of
interest permitted and calculated at the highest lawful nonusurious rate,
Mortgagor and Mortgagee shall, to the maximum extent permitted under applicable
law, (i) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense, fee, or
premium, rather than as interest, (ii) exclude voluntary prepayments and the
effect thereof, and (iii) spread the total amount of interest throughout the
entire contemplated term of the Secured Indebtedness.

         Section 9.10. Obligations Binding Upon Mortgagor's Successors. This
Mortgage is binding upon Mortgagor and Mortgagor's Successors, and shall inure
to the benefit of Mortgagee, and its successors and assigns, and the provisions
hereof shall likewise be covenants running with the land. The duties, covenants,
conditions, obligations, and warranties of Mortgagor in this Mortgage shall be
joint and several obligations of Mortgagor and Mortgagor's Successors.

         Section 9.11.  Counterparts.  If this Mortgage has  simultaneously
been executed in a number of identical counterparts, each of which, for all
purposes, shall be deemed an original.

         Section  9.12.  Exhibits.  All exhibits  attached  hereto are by this
reference made a part hereof.  The term "Mortgage" shall include all such
exhibits.

         Section 9.13. Indemnity. Mortgagor hereby assumes all liability to any
third party for the Mortgaged Property and for any development, use, possession,
maintenance, and management of, and construction upon, the Mortgaged Property,
or any part thereof, and agrees to assume liability to any third party for, and
to indemnify and hold Mortgagee harmless from and against, any and all losses,
damages, claims, costs, penalties, causes of action, liabilities and expenses,
including court costs and attorneys' fees, howsoever arising (including, without
limitation, for injuries to or deaths of persons and damage to property), from
or incident to such ownership of the Mortgaged Property and development, use,
possession, maintenance, management, and construction.

         Section 9.14. Vendor's Lien. If all or any portion of the proceeds of
the loan evidenced by the Note has been advanced for the purpose of paying the
purchase price for all or a part of the Mortgaged Property, then: (i) Mortgagee
shall have, and is hereby granted, a vendor's lien on the Mortgaged Property to
further secure the Secured Indebtedness; and (ii) Mortgagee shall be subrogated
to all rights, titles, interests, liens, and security interests owned or claimed
by the holder of any indebtedness which has been directly or indirectly
discharged or paid from the proceeds of the loan evidenced by the Note.

         Section 9.15. Section References. All references to "Article,"
"Articles," "Section," "Sections," "Subsection," or "Subsections" contained
herein are, unless specifically indicated otherwise, references to articles,
sections, and subsections of this Mortgage.
<PAGE>
         Section 9.16. Singular; Plural. Whenever herein the singular number is
used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.

         Section  9.17.  Headings.  The  captions,  headings,  and  arrangements
used  in  this  Mortgage  are for convenience only and do not in any way affect,
limit, amplify, or modify the terms and provisions hereof.

         Section 9.18. Notices. Whenever this Mortgage requires or permits any
consent, approval, notice (except for notices of a foreclosure which, if any
such notices are required by law, shall be in accordance with such law),
request, or demand from one party to another, the consent, approval, notice,
request, or demand shall be effective only if it is in writing, referring to
this Mortgage, signed by the party giving such notice, and delivered either
personally to such other party, or sent by nationally recognized overnight
courier delivery service or by certified mail of the United States Postal
Service, postage prepaid, return receipt requested, addressed to the other party
as follows (or to such other address or person as either party or person
entitled to notice may by written notice to the other party specify):

         To Mortgagor:     Hurco Companies, Inc.
                                    One Technology Way
                                    P. O. Box 68180
                                    Indianapolis, Indiana 46268-0180
                                    Attention: Roger J. Wolf

         To Mortgagee:     American Equity Investment Life Insurance Company
                                    Mailing address: P. O. Box 71216
                                    Des Moines, IA 50325
                                    Attention: Mortgage Loan Department

         Delivery address:          5000 Westown Parkway, Suite 440
                                    West Des Moines, IA 50266
                                    Attention:  Mortgage Loan Department

Unless otherwise specified, notices shall be deemed given as follows: (i) if
delivered personally, when delivered; (ii) if delivered by nationally recognized
overnight courier delivery service, on the next business day following the day
such material is sent, and (iii) if by certified mail, three (3) days after such
material is deposited in the United States Mail.

         Section 9.19. Governing Laws. The substantive laws of the State of
Indiana shall govern the validity, construction, enforcement, and interpretation
of this Mortgage, and the other Loan Documents, unless otherwise specified
therein.

         Section 9.20. Time of Essence. Time is of the essence of this Mortgage.

         Section 9.21. Fixture Filing. This Mortgage shall also constitute a
security agreement with respect to the Personal Property and a "fixture filing"
for purposes of the Code. Portions of the Personal Property are or may become
fixtures. Information concerning the security interests herein granted may be
obtained at the addresses stated in the preamble hereof.
<PAGE>
         Section 9.22. Financing Statement. Mortgagee shall have the right at
any time to file this Mortgage as a financing statement, or one or more Uniform
Commercial Code financing statements, but the failure to do so shall not impair
the validity and enforceability of this Mortgage in any respect whatsoever. A
carbon, photographic, or other reproduction of this Mortgage, or any financing
statement relating to this Mortgage, shall be sufficient as a financing
statement.

         Section 9.23. Entire Agreements; Amendments. This Mortgage, the Note
and the other documents executed in connection herewith represent the final
agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties. This Mortgage cannot be amended
except by agreement in writing by the party against whom enforcement of the
amendment is sought.

         Section 9.24. Remedies Cumulative and Non-Waiver. No remedy or right of
the Mortgagee hereunder or under the Note, or any of the Loan Documents, or
otherwise, or available under applicable law, shall be exclusive of any other
right or remedy, but each such remedy or right shall be in addition to every
other remedy or right now or hereafter existing under any such document or under
applicable law. No delay in the exercise of, or omission to exercise, any remedy
or right accruing on any Default shall impair any such remedy or right or be
construed to be a waiver of any such Default or an acquiescence therein, nor
shall it affect any subsequent Default of the same or a different nature, nor
shall it extend or affect any grace period. Every such remedy or right may be
exercised concurrently or independently, when and as often as may be deemed
expedient by the Mortgagee. All obligations of the Mortgagor and all rights,
powers, and remedies of the Mortgagee expressed herein shall be in addition to,
and not in limitation of, those provided by law or in the Note or any of the
Loan Documents or any other written agreement or instrument relating to any of
the Secured Indebtedness or any security therefor.

         Section 9.25. No Right of Setoff. No setoff or claim that Mortgagor may
now or in the future have against Mortgagee shall relieve or excuse Mortgagor
from paying the installments under the Note or performing any other obligation
secured hereby when the same is due.

         Section 9.26. Right to Modify. Without affecting the obligation of
Mortgagor to pay and perform as herein required, without affecting the personal
liability of any person for payment of the Secured Indebtedness, and without
affecting the lien or priority of the lien hereof on the Mortgaged Property,
Mortgagee may, at its option, extend the time for payment of the Secured
Indebtedness or any portion thereof, reduce the payments thereon, release any
person liable on any portion of the Secured Indebtedness, accept a renewal note
or notes therefor, modify the terms of the Secured Indebtedness, release or
reconvey any part of the Mortgaged Property, take or release other or additional
security, consent to the making of any map or plat thereof, join in granting any
easement thereon, or join in any extension agreement or agreement subordinating
the lien hereof. Any such action by Mortgagee may be taken without Mortgagor's
consent and without the consent of any subordinate lienholder, and shall not
affect the priority of this Mortgage over any subordinate lien.
<PAGE>

         Section 9.27. Additional Security. The taking or acceptance of this
Mortgage by Mortgagee shall in no event be considered as a waiver of, or in any
way affecting or impairing any other security which Mortgagee may have or
acquire simultaneously herewith or may hereafter acquire for the payment of the
Secured Indebtedness, nor shall the taking at any time by Mortgagee of any such
additional security be construed as a waiver of, or in any way affecting or
impairing the security of this Mortgage; and Mortgagee may resort, for the
payment of the Secured Indebtedness, to any security therefor in such order and
manner as it may deem fit.

         Section 9.28. Expenses of Recording. Mortgagor agrees to pay all
mortgage recording taxes, revenue stamps, charges and filing, registration and
recording fees imposed upon this Mortgage, the recording or filing thereof, or
upon the Mortgagee by reason of its ownership of this Mortgage, or its
enforcement thereof, or imposed upon any security instrument with respect to any
fixture or personal property owned by Mortgagor at the Mortgaged Property, or
imposed upon any instrument of further assurance.



                             MORTGAGOR:
                             HURCO COMPANIES, INC.,
                             an Indiana corporation


                             By:/S/ Roger J. Wolf
                             --------------------
                             Roger J. Wolf, Senior Vice President
                             and Chief Financial Officer

STATE OF INDIANA, COUNTY OF MARION, ss:

         On this 29th day of April, 2002, before me, the undersigned, a Notary
Public in and for said county and state, personally appeared Roger J. Wolf, to
me personally known, who being by me duly sworn or affirmed did say that he is
the Senior Vice President and Chief Financial Officer of Hurco Companies, Inc.;
that said instrument was signed on behalf of said corporation by authority of
its Board of Directors; and that the said Roger J. Wolf, as such officer,
acknowledged the execution of said instrument to be the voluntary act and deed
of said corporation, by it and by said officer voluntarily executed.

                                            /s/Sharon M. Korn
                                            ------------------------------------
                                            Notary Public in and for said county
                                            and state Printed Name:
                                            Sharon M. Korn I am a
                                            resident of Morgan County,
                                            Indiana My commission expires:
                                            11-24-2008

Exhibit A - Description of Land
Exhibit B - Permitted Exceptions to Title

Prepared by and when recorded, return to:
William L. Fairbank
Whitfield & Eddy, P.L.C.
317 Sixth Avenue, Suite 1200
Des Moines, IA 50309-4195
<PAGE>



                                   EXHIBIT "A"

                                Legal Description


A part of the Southwest Quarter and part of the Southeast Quarter of Section 25,
Township 17 North, Range 2 East in Marion County, Indiana, more particularly
described as follows:

Commencing at the Southeast corner of said Southwest Quarter of Section; thence
South 88 degrees 18 minutes 08 seconds West, along the South line of said
Quarter Section, 76.45 feet; thence North 01 degree 41 minutes 52 seconds West,
700.49 feet to the Point of Beginning; thence North 01 degree 29 minutes 20
seconds West, 506.20 feet; thence South 89 degrees 53 minutes 46 seconds East,
825.20 feet; thence South 00 degrees 06 minutes 14 seconds West, 477.67 feet, to
a point on a tangent curve to the right having a chord bearing and distance of
South 03 degrees 06 minutes 57 seconds West, 28.37 feet; thence along said curve
a distance of 28.39 feet; thence along a line non-tangent to said curve, North
89 degrees 53 minutes 46 seconds West, 809.64 feet to the Point of Beginning.

Also, non-exclusive easements for ingress and egress as set out in declarations
recorded November 15, 1988 as Instrument No. 88-116201 and September 27, 1990 as
Instrument Nos. 90-110745 and 90-110748 in the Office of the Recorder of Marion
County, Indiana.


<PAGE>


                                   EXHIBIT "B"

                              Permitted Exceptions


Those exceptions contained in Schedule B of the Policy of Title Insurance issued
by Chicago Title Insurance Company in favor of American Equity Investment Life
Insurance Company covering the Mortgaged Property.





<PAGE>




The following loan schedules or exhibits are omitted from this filing but are
available as supplemental information to the Commission upon request.

o        Assignment of Leases and Rents
o        Affidavit of Borrower
o        Environmental Compliance Indemnification Agreement
o        UCC Financing Statement



</TEXT>
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