SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (this "Agreement"),  is entered into as of December
12, 2000, between  Starcraft  Corporation and Starcraft  Automotive Group, Inc.,
an  Indiana  corporation  (collectively  "Company"),  with a place  of  business
located at 2703 College Avenue,  Goshen,  Indiana 46526 and Kelly L. Rose and G.
Ray Stults (collectively "Lender"), 2703 College Avenue, Goshen, Indiana 46526.

     The parties agree as follows:

I.   DEFINITIONS AND CONSTRUCTION.

     A.   Definitions.

     As used in this  Agreement,  the  following  terms shall have the following
definitions:

     "Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account.

     "Accounts"  means all currently  existing and hereafter  arising  accounts,
contract rights, and all other forms of obligations owing to Company arising out
of the  sale or  lease  of  goods  or the  rendition  of  services  by  Company,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.

     "Agreement" has the meaning set forth in the preamble hereto.

     "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.ss. 101
et seq.), as amended, and any successor statute.

     "Company" has the meaning set forth in the preamble to this Agreement.

     "Company's  Books"  means all of  Company's  books and  records  including:
ledgers; records indicating,  summarizing, or evidencing Company's properties or
assets  (including the Collateral) or liabilities;  all information  relating to
Company's business operations or financial condition; and all computer programs,
disk or tape files, printouts, runs, or other computer prepared information.

     "Code" means the Indiana Uniform Commercial Code.

     "Collateral" means each of the following:

          a)   the Accounts,

          b)   Company's Books,

          c)   the Equipment,

          d)   the General Intangibles,

          e)   the Inventory,

          f)   the Negotiable Collateral,



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          g)   any money,  or other assets of Company that now or hereafter come
               into the possession, custody, or control of Lender, and

          h)   the proceeds and products, whether tangible or intangible, of any
               of the foregoing, including proceeds of insurance covering any or
               all of the Collateral, and any and all Accounts, Company's Books,
               Equipment, General Intangibles, Inventory, Negotiable Collateral,
               money, deposit accounts, or other tangible or intangible property
               resulting  from  the  sale,   exchange,   collection,   or  other
               disposition  of any of the foregoing,  or any portion  thereof or
               interest therein, and the proceeds thereof.

     "deems  itself  insecure"  means that the Person deems  itself  insecure in
accordance with the provisions of Section 1208 of the Code.

     "Default"  means an event,  condition,  or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.

     "Equipment"  means  all  of  Company's   present  and  hereafter   acquired
machinery, machine tools, motors, equipment, furniture,  furnishings,  fixtures,
vehicles  (including motor vehicles and trailers),  tools,  parts,  goods (other
than consumer goods, farm products, or Inventory),  wherever located,  including
any  interest  of  Company  in  any  of  the  foregoing,  and  all  attachments,
accessories,   accessions,   replacements,    substitutions,    additions,   and
improvements to any of the foregoing.

     "Event of Default" has the meaning set forth in Section 6.

     "FEIN" means Federal Employer Identification Number.

     "General  Intangibles"  means all of Company's  present and future  general
intangibles  and other personal  property  (including  contract  rights,  rights
arising under common law, statutes, or regulations, chooses or things in action,
goodwill,   patents,   trade  names,   trademarks,   servicemarks,   copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension  funds,  route lists,  rights to payment and other rights under any
royalty  or  licensing  agreements,   infringement  claims,  computer  programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit  accounts,  insurance  premium  rebates,  tax  refunds,  and tax  refund
claims), other than goods, Accounts, and Negotiable Collateral.

     "Insolvency  Proceeding"  means any proceeding  commenced by or against any
Person under any provision of the Bankruptcy Code or under any other  bankruptcy
or insolvency law, assignments for the benefit of creditors,  formal or informal
moratoria,  compositions,  extensions  generally with creditors,  or proceedings
seeking reorganization, arrangement, or other similar relief.

     "Inventory" means all present and future inventory in which Company has any
interest,  including  goods  held for sale or lease or to be  furnished  under a
contract of service and all of Company's present and future raw materials,  work
in  process,  finished  goods,  and  packing and  shipping  materials,  wherever
located.

     "Lien" means any interest in property  securing an obligation owed to, or a
claim by, any Person other than the owner of the property, whether such interest
shall be based on the common law,  statute,  or contract,  whether such interest
shall be recorded or perfected,  and whether such  interest  shall be contingent
upon the  occurrence  of some future  event or events or the  existence  of some
future  circumstance or  circumstances,  including the lien or security interest
arising  from a mortgage,  deed of trust,  encumbrance,  pledge,  hypothecation,
assignment,  deposit arrangement,  security agreement,  adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment, or bailment for
security purposes and also including  reservations,  exceptions,  encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Real Property.

     "Loan  Documents"  means this  Agreement  and the  Reimbursement  Agreement
issued by Company to Lender and any other agreement  entered into, now or in the
future, in connection with this Agreement.

     "Negotiable  Collateral"  means all of Company's present and future letters
of  credit,   notes,  drafts,   instruments,   investment   property,   security
entitlements,  securities  (including  the  shares of stock of  subsidiaries  of
Company),  documents,  personal property leases (wherein Company is the lessor),
chattel paper, and Company's Books relating to any of the foregoing.

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     "Obligations"  means all loans, debts,  principal,  interest (including any
interest  that,  but for the  provisions  of the  Bankruptcy  Code,  would  have
accrued), liabilities, obligations, fees, charges, costs, guaranties, covenants,
and duties owing by Company to Starcraft  of any kind and  description  (whether
pursuant to or evidenced by the Loan Documents and  irrespective  of whether for
the payment of money), whether direct or indirect,  absolute or contingent,  due
or to become due, now existing or hereafter arising.

     "Permitted Liens" means Liens set forth on Schedule P-1.

     "Person"  means  and  includes  natural  persons,   corporations,   limited
liability  companies,  limited  partnerships,   general  partnerships,   limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other  organizations,  irrespective  of  whether  they are legal  entities,  and
governments and agencies and political subdivisions thereof.

     "Voidable Transfer" has the meaning set forth in Section 13.8.

     B.   Code.

     Any terms  used in this  Agreement  that are  defined  in the Code shall be
construed and defined as set forth in the Code unless otherwise defined herein.

     C.   Construction.

     Unless the context of this Agreement clearly requires otherwise, references
to the plural  include the  singular,  references  to the  singular  include the
plural,  the term  "including"  is not limiting,  and the term "or" has,  except
where  otherwise  indicated,  the inclusive  meaning  represented  by the phrase
"and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms
in this  Agreement  refer to this Agreement as a whole and not to any particular
provision  of this  Agreement.  An  Event  of  Default  shall  "continue"  or be
"continuing"  until such Event of Default  has been waived in writing by Lender.
Section,  subsection,  clause,  schedule,  and  exhibit  references  are to this
Agreement unless otherwise specified.  Any reference in this Agreement or in the
Loan Documents to this Agreement or any of the Loan Documents  shall include all
alterations,   amendments,   changes,   extensions,   modifications,   renewals,
replacements,   substitutions,   and  supplements,   thereto  and  thereof,   as
applicable.

     D.   Schedules.

     All  of  the  schedules   attached  to  this  Agreement   shall  be  deemed
incorporated herein by reference.


II.  GRANT OF SECURITY INTEREST.

     A.   Grant of Security Interest.

     Company  hereby  grants to Lender a  continuing  security  interest  in all
currently  existing and  hereafter  acquired or arising  Collateral  in order to
secure prompt repayment of any and all Obligations and in order to secure prompt
performance  by  Company  of each of its  covenants  and  duties  under the Loan
Documents.  Lender's  security  interests in the Collateral  shall attach to all
Collateral  without  further  act on the part of  Lender  or  Company.  Anything
contained  in  this  Agreement  or any  other  Loan  Document  to  the  contrary
notwithstanding,  except  for the sale of  Inventory  to buyers in the  ordinary
course of business, Company has no authority,  express or implied, to dispose of
any item or portion of the Collateral.

     B.   Negotiable Collateral.

     In the event that any Collateral,  including  proceeds,  is evidenced by or
consists of  Negotiable  Collateral,  Company,  immediately  upon the request of
Lender,  shall  endorse  and  deliver  physical  possession  of such  Negotiable
Collateral to Lender.

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     C.   Collection   of  Accounts,   General   Intangibles,   and   Negotiable
          Collateral.

     At any time,  Lender or  Lender's  designee  may (a)  notify  customers  or
Account Debtors of Company that the Accounts, General Intangibles, or Negotiable
Collateral  have been assigned to Lender or that Lender has a security  interest
therein,  and (b) collect the  Accounts,  General  Intangibles,  and  Negotiable
Collateral directly and apply the proceeds thereof to the Obligations.

     D.   Delivery of Additional Documentation Required.

     At any time upon the request of Lender,  Company  shall execute and deliver
to Lender all financing statements,  continuation financing statements,  fixture
filings, security agreements, pledges, assignments, endorsements of certificates
of title,  applications for title, affidavits,  reports,  notices,  schedules of
accounts,  letters of authority,  and all other documents that Lender reasonably
may request,  in form satisfactory to Lender, to perfect and continue  perfected
Lender's security interests in the Collateral,  and in order to fully consummate
all of the  transactions  contemplated  hereby  and  under  the  other  the Loan
Documents.

     E.   Power of Attorney.

     Company hereby irrevocably makes, constitutes, and appoints Lender (and any
of Lender's  officers,  employees,  or agents designated by Lender) as Company's
true and lawful  attorney,  with power to (a) if  Company  refuses  to, or fails
timely to execute and deliver any of the  documents  described  in Section  2.4,
sign the name of Company on any of the  documents  described in Section 2.4, (b)
at any time that an Event of Default has  occurred and is  continuing  or Lender
deems  itself  insecure,  sign  Company's  name on any invoice or bill of lading
relating  to  any  Account,  drafts  against  Account  Debtors,   schedules  and
assignments  of  Accounts,  verifications  of  Accounts,  and notices to Account
Debtors,  (c) send requests for verification of Accounts,  (d) endorse Company's
name on any collection item that may come into Lender's  possession,  (e) at any
time that an Event of Default has  occurred  and is  continuing  or Lender deems
itself  insecure,  notify the post office  authorities to change the address for
delivery of Company's  mail to an address  designated by Lender,  to receive and
open all mail  addressed  to  Company,  and to retain all mail  relating  to the
Collateral and forward all other mail to Company,  (f) at any time that an Event
of Default has occurred and is continuing or Lender deems itself insecure, make,
settle, and adjust all claims under Company's policies of insurance and make all
determinations and decisions with respect to such policies of insurance, and (g)
at any time that an Event of Default has  occurred and is  continuing  or Lender
deems itself  insecure,  settle and adjust  disputes and claims  respecting  the
Accounts  directly with Account Debtors,  for amounts and upon terms that Lender
determines to be  reasonable,  and Lender may cause to be executed and delivered
any  documents  and  releases  that  Lender  determines  to  be  necessary.  The
appointment of Lender as Company's attorney,  and each and every one of Lender's
rights and powers,  being coupled with an interest,  is irrevocable until all of
the  Obligations  have been fully and finally  repaid and performed and Lender's
obligation to extend credit hereunder is terminated.

     F.   Right to Inspect.

     Lender (through any of its officers,  employees,  or agents) shall have the
right,  from time to time  hereafter  to inspect  Company's  Books and to check,
test,  and  appraise  the  Collateral  in order to  verify  Company's  financial
condition  or the amount,  quality,  value,  condition  of, or any other  matter
relating to, the Collateral.

     In order to induce Lender to enter into this  Agreement,  Company makes the
following  representations  and warranties which shall be true, correct and such
representations  and warranties shall survive the execution and delivery of this
Agreement:

III. REPRESENTATIONS AND WARRANTIES.

     A.   No Encumbrances.

     Company has good and indefeasible  title to the Collateral,  free and clear
of Liens except for Permitted Liens.

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     B.   Location of Inventory and Equipment.

     The Inventory and Equipment are not stored with a bailee, warehouseman,  or
similar party (without  Lender's prior written  consent) and are located only at
the locations identified on Schedule 3.2 or otherwise permitted by Section 4.3.

     C.   Location of Chief Executive Office.

     The chief executive  office of Company is located at the address  indicated
in the preamble to this Agreement.

IV.  AFFIRMATIVE COVENANTS.

     Company covenants and agrees that, so long as any credit hereunder shall be
available and until full and final payment of the Obligations, and unless Lender
shall otherwise consent in writing, Company shall do all of the following:

     A.   Taxes.

     Cause all assessments and taxes, whether real, personal, or otherwise,  due
or payable by, or imposed,  levied,  or assessed  against  Company or any of its
property to be paid in full, before  delinquency or before the expiration of any
extension  period.  Company shall make due and timely  payment or deposit of all
such federal, state, and local taxes, assessments,  or contributions required of
it by law,  and will  execute  and  deliver  to Lender,  on demand,  appropriate
certificates  attesting to the payment thereof or deposit with respect  thereto.
Company will make timely payment or deposit of all tax payments and  withholding
taxes  required  of it by  applicable  laws,  including  those  laws  concerning
F.I.C.A.,  F.U.T.A.,  state  disability,  and local,  state,  and federal income
taxes, and will, upon request,  furnish Lender with proof satisfactory to Lender
indicating that Company has made such payments or deposits.

     B.   Insurance.

          a.   At its  expense,  keep the  Collateral  insured  against  loss or
               damage  by fire,  theft,  explosion,  sprinklers,  and all  other
               hazards and risks, and in such amounts, as are ordinarily insured
               against by other owners in similar businesses. Company also shall
               maintain  business   interruption,   public  liability,   product
               liability,  and property damage  insurance  relating to Company's
               ownership and use of the Collateral, as well as insurance against
               larceny, embezzlement, and criminal misappropriation.

          b.   All such policies of insurance  shall be in such form,  with such
               companies,  and in such amounts as may be reasonably satisfactory
               to Lender.  All hazard  insurance  and such  other  insurance  as
               Lender shall specify,  shall contain a Form 438BFU (NS) mortgagee
               endorsement, or an equivalent endorsement satisfactory to Lender,
               showing  Lender as sole loss payee  thereof,  and shall contain a
               waiver of  warranties.  Every policy of insurance  referred to in
               this  Section 4.2 shall  contain an agreement by the insurer that
               it will not cancel such policy except after 30 days prior written
               notice to Lender and that any loss  payable  thereunder  shall be
               payable  notwithstanding  any act or  negligence  of  Company  or
               Lender which might, absent such agreement, result in a forfeiture
               of all or a part of such insurance payment. Company shall deliver
               to Lender  certified  copies of such  policies of  insurance  and
               evidence of the payment of all premiums therefor.

          c.   Original policies or certificates  thereof satisfactory to Lender
               evidencing  such insurance  shall be delivered to Lender at least
               30 days prior to the  expiration  of the  existing  or  preceding
               policies.  Company  shall give Lender  prompt  notice of any loss
               covered by such  insurance,  and  Lender  shall have the right to
               adjust any loss.  Lender shall have the exclusive right to adjust
               all losses payable under any such insurance  policies without any
               liability to Company  whatsoever in respect of such  adjustments.
               Any monies  received as payment for any loss under any  insurance
               policy including the insurance policies mentioned above, shall be
               paid over to Lender to be applied at the option of Lender  either
               to the prepayment of the  Obligations  without  premium,  in such
               order or manner as Lender may  elect,  or shall be  disbursed  to
               Company  under stage  payment  terms  satisfactory  to Lender for
               application   to  the   cost   of   repairs,   replacements,   or
               restorations. All repairs, replacements, or restorations shall be
               effected with  reasonable  promptness  and shall be of a value at
               least equal to the value of the items or property destroyed prior
               to such damage or destruction. Upon the occurrence of an Event of
               Default,  Lender  shall  have  the  right to  apply  all  prepaid
               premiums to the payment of the  Obligations in such order or form
               as Lender shall determine.

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<PAGE>

          d.   Company shall not take out separate insurance  concurrent in form
               or  contributing  in the event of loss with that  required  to be
               maintained  under this  Section  4.2,  unless  Lender is included
               thereon as named  insured with the loss payable to Lender under a
               standard  438BFU  (NS)  Mortgagee   endorsement,   or  its  local
               equivalent. Company immediately shall notify Lender whenever such
               separate   insurance  is  taken  out,   specifying   the  insurer
               thereunder and full particulars as to the policies evidencing the
               same,  and  originals  of  such  policies  immediately  shall  be
               provided to Lender.

     C.   Location of Inventory and Equipment.

     Keep the  Inventory  and  Equipment  only at the  locations  identified  on
Schedule 3.2;  provided,  however,  that Company may amend Schedule 3.2 to add a
new location so long as such  amendment  occurs by written  notice to Lender not
less than 30 days prior to the date on which the Inventory or Equipment is moved
to such new  location,  so long as such new  location is within the  continental
United States, and so long as, at the time of such written notification, Company
provides any financing  statements or fixture  filings  necessary to perfect and
continue perfected Lender's security interests in such assets.

V.   NEGATIVE COVENANTS.

     Company covenants and agrees that, so long as any credit hereunder shall be
available and until full and final payment of the Obligations,  Company will not
do any of the following without Lender's prior written consent:

     A.   Liens.

     Create, incur, assume, or permit to exist, directly or indirectly, any Lien
on or with  respect to any of its property or assets,  of any kind,  whether now
owned or  hereafter  acquired,  or any income or profits  therefrom,  except for
Permitted Liens.

     B.   Restrictions on Fundamental Changes.

     Enter into any merger, consolidation,  reorganization, or recapitalization,
or reclassify its capital stock,  or liquidate,  wind up, or dissolve itself (or
suffer  any  liquidation  or  dissolution),  or  convey,  sell,  assign,  lease,
transfer,   or  otherwise  dispose  of,  in  one  transaction  or  a  series  of
transactions, all or any substantial part of its property or assets.

     C.   Disposal of Assets.

     Sell,  lease,  assign,  transfer,  or otherwise dispose of any of Company's
properties  or assets  other than sales of  Inventory  to buyers in the ordinary
course of Company's  business as currently  conducted  (including  so long as no
Event of  Default  exists  or would be  caused  thereby,  obsolete  or  unuseful
Equipment in the aggregate amount not to exceed $50,000 in any fiscal year).

     D.   Change Name.

     Change Company's name,  FEIN,  corporate  structure  (within the meaning of
Section 9402(7) of the Code), or identity, or add any new fictitious name.

     E.   Change in Location of Chief Executive Office;  Inventory and Equipment
          with Bailees.

     Relocate its chief executive office to a new location without  providing 30
days prior written notification thereof to Lender and so long as, at the time of
such written notification,  Company provides any financing statements or fixture
filings necessary to perfect and continue perfected Lender's security interests.
The  Inventory  and  Equipment  shall not at any time now or hereafter be stored
with a bailee,  warehouseman,  or similar party without  Lender's  prior written
consent.

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VI.  EVENTS OF DEFAULT.

     Any one or more of the  following  events  shall  constitute  an  event  of
default (each, an "Event of Default") under this Agreement:

          A. If Company  fails to pay when due and payable or when  declared due
     and payable, any portion of the Obligations (whether of principal, interest
     (including  any interest  which,  but for the  provisions of the Bankruptcy
     Code,  would have accrued on such amounts),  fees and charges due Lender or
     other amounts constituting Obligations;

          B. If Company fails to perform,  keep, or observe any term, provision,
     condition,  covenant,  or agreement contained in this Agreement,  in any of
     the other  Loan  Documents,  or in any other  present  or future  agreement
     between Company and Lender;

          C. If an Insolvency Proceeding is commenced by Company;

          D. If an Insolvency Proceeding is commenced against Company and any of
     the following  events occur: (a) Company consents to the institution of the
     Insolvency   Proceeding  against  it;  (b)  the  petition   commencing  the
     Insolvency  Proceeding  is  not  timely  controverted;   (c)  the  petition
     commencing  the Insolvency  Proceeding is not dismissed  within 45 calendar
     days of the date of the filing thereof; (d) an interim trustee is appointed
     to take  possession  of all or a substantial  portion of the  properties or
     assets of, or to operate all or any substantial portion of the business of,
     Company;  or (e) an order for  relief  shall  have been  issued or  entered
     therein;

VII. LENDER'S RIGHTS AND REMEDIES.

     A.   Rights and Remedies.

     Upon the occurrence,  and during the  continuation,  of an Event of Default
Lender may, at its election,  without notice of its election and without demand,
do any one or more of the following, all of which are authorized by Company:

          a. Declare all Obligations,  whether  evidenced by this Agreement,  by
     any of the other Loan Documents, or otherwise, immediately due and payable;

          b. Cease advancing money or extending  credit to or for the benefit of
     Company,  under any of the Loan  Documents,  or under  any other  agreement
     between Company and Lender;

          c. Terminate any of the Loan  Documents as to any future  liability or
     obligation of Lender,  but without  affecting  Lender's rights and security
     interests in the Collateral and without affecting the Obligations;

          d. Settle or adjust  disputes and claims directly with Account Debtors
     for amounts and upon terms which Lender considers advisable;

          e. Cause  Company to hold all returned  Inventory in trust for Lender,
     segregate all returned  Inventory  from all other property of Company or in
     Company's possession and conspicuously label said returned Inventory as the
     property of Lender;

          f.  Without  notice to or demand upon Company or any  guarantor,  make
     such payments and do such acts as Lender considers  necessary or reasonable
     to protect its security  interests  in the  Collateral.  Company  agrees to
     assemble the  Collateral if Lender so requires,  and to make the Collateral
     available to Lender as Lender may designate.  Company  authorizes Lender to
     enter the premises  where the  Collateral is located,  to take and maintain
     possession  of the  Collateral,  or any part of it,  and to pay,  purchase,
     contest,  or compromise any encumbrance,  charge,  or Lien that in Lender's
     determination  appears to conflict  with its security  interests and to pay
     all  expenses  incurred in  connection  therewith.  With  respect to any of
     Company's owned or leased premises,  Company hereby grants Lender a license
     to enter into  possession of such premises and to occupy the same,  without
     charge,  in order to exercise any of Lender's  rights or remedies  provided
     herein, at law, in equity, or otherwise;

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<PAGE>

          g. Without notice to Company (such notice being expressly waived), and
     without  constituting a retention of any collateral in  satisfaction  of an
     obligation  (within the meaning of Section  9505 of the Code),  set off and
     apply to the  Obligations  any and all (i) balances and deposits of Company
     held by Lender, or (ii) indebtedness at any time owing to or for the credit
     or the account of Company held by Lender;

          h. Hold,  as cash  collateral,  any and all  balances  and deposits of
     Company held by Lender to secure the full and final repayment of all of the
     Obligations;

          i. Ship, reclaim,  recover, store, finish,  maintain,  repair, prepare
     for sale,  advertise for sale, and sell (in the manner provided for herein)
     the  Collateral.  Lender is hereby granted a license or other right to use,
     without charge, Company's labels, patents, copyrights, rights of use of any
     name,  trade  secrets,   trade  names,   trademarks,   service  marks,  and
     advertising  matter, or any property of a similar nature, as it pertains to
     the  Collateral,  in completing  production of,  advertising  for sale, and
     selling any  Collateral  and  Company's  rights  under all licenses and all
     franchise agreements shall inure to Lender's benefit;

          j. Sell the Collateral at either a public or private sale, or both, by
     way of one or more contracts or transactions, for cash or on terms, in such
     manner  and  at  such  places  (including  Company's  premises)  as  Lender
     determines  is  commercially  reasonable.  It is  not  necessary  that  the
     Collateral be present at any such sale;

          k. Lender shall give notice of the  disposition  of the  Collateral as
     follows:

               (1)  Lender  shall  give  Company  and each  holder of a security
          interest in the Collateral who has filed with Lender a written request
          for notice,  a notice in writing of the time and place of public sale,
          or, if the sale is a private sale or some other disposition other than
          a  public  sale is to be made of the  Collateral,  then the time on or
          after which the private sale or other disposition is to be made;

               (2) The notice shall be personally  delivered or mailed,  postage
          prepaid,  to Company as provided in Section 10, at least 5 days before
          the date fixed for the sale,  or at least 5 days before the date on or
          after which the private sale or other  disposition  is to be made;  no
          notice  needs to be given prior to the  disposition  of any portion of
          the Collateral that is perishable or threatens to decline  speedily in
          value or that is of a type  customarily  sold on a recognized  market.
          Notice to Persons  other than  Company  claiming  an  interest  in the
          Collateral  shall be sent to such  addresses as they have furnished to
          Lender;

               (3) If the sale is to be a public  sale,  Lender  also shall give
          notice of the time and place by  publishing a notice one time at least
          5 days  before  the  date  of  the  sale  in a  newspaper  of  general
          circulation in the county in which the sale is to be held;

          l. Lender may credit bid and purchase at any public sale; and

          m. Any deficiency  that exists after  disposition of the Collateral as
     provided  above will be paid  immediately  by  Company.  Any excess will be
     returned,  without interest and subject to the rights of third Persons,  by
     Lender to Company.

     B.   Remedies Cumulative.

     Lender's rights and remedies under this Agreement,  the Loan Documents, and
all other agreements shall be cumulative. Lender shall have all other rights and
remedies not  inconsistent  herewith as provided  under the Code,  by law, or in
equity.  No  exercise  by  Lender  of one  right or  remedy  shall be  deemed an
election,  and no waiver by  Lender  of any Event of  Default  shall be deemed a
continuing  waiver. No delay by Lender shall constitute a waiver,  election,  or
acquiescence by it.

                                       -8-


<PAGE>

VIII. TAXES AND EXPENSES.

     If Company fails to pay any monies (whether taxes,  assessments,  insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third  Persons,  or fails to make any deposits
or furnish any required  proof of payment or deposit,  all as required under the
terms of this Agreement,  then,  Lender may do any or all of the following:  (a)
make  payment  of the same or any  part  thereof;  or (b)  obtain  and  maintain
insurance  policies of the type  described  in Section  4.2, and take any action
with respect to such policies as Lender deems prudent.  Company shall  reimburse
Lender for any such amounts  paid by Lender.  Any such  payments  made by Lender
shall not  constitute  an agreement  by Lender to make  similar  payments in the
future  or a waiver by Lender of any  Event of  Default  under  this  Agreement.
Lender  need not inquire as to, or contest the  validity  of, any such  expense,
tax,  or Lien and the  receipt  of the usual  official  notice  for the  payment
thereof shall be conclusive evidence that the same was validly due and owing.

IX.  WAIVERS; INDEMNIFICATION.

     A.   Demand; Protest; etc.

     Company waives  demand,  protest,  notice of protest,  notice of default or
dishonor,  notice of payment and  nonpayment,  nonpayment at maturity,  release,
compromise,   settlement,   extension,   or  renewal  of  accounts,   documents,
instruments,  chattel paper,  and guarantees at any time held by Lender on which
Company may in any way be liable.

     B.   Lender's Liability for Collateral.

     So long as Lender complies with its obligations, if any, under Section 9207
of the Code, Lender shall not in any way or manner be liable or responsible for:
(a) the safekeeping of the Collateral;  (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause;  (c) any  diminution  in the
value thereof; or (d) any act or default of any carrier,  warehouseman,  bailee,
forwarding  agency, or other Person. All risk of loss, damage, or destruction of
the Collateral shall be borne by Company.

     C.   Indemnification.

     Company shall pay,  indemnify,  defend,  and hold Lender, and each of their
respective    officers,    directors,    employees,    counsel,    agents,   and
attorneys-in-fact  (each,  an  "Indemnified  Person")  harmless  (to the fullest
extent  permitted by law) from and against any and all claims,  demands,  suits,
actions, investigations,  proceedings, and damages, and all reasonable attorneys
fees and  disbursements  and  other  costs and  expenses  actually  incurred  in
connection  therewith (as and when they are incurred and irrespective of whether
suit is brought), at any time asserted against, imposed upon, or incurred by any
of them in  connection  with or as a  result  of or  related  to the  execution,
delivery, enforcement, performance, and administration of this Agreement and any
other Loan Documents or the transactions  contemplated  herein, and with respect
to any investigation,  litigation,  or proceeding related to this Agreement, any
other Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any act,
omission,  event  or  circumstance  in  any  manner  related  thereto  (all  the
foregoing,  collectively, the "Indemnified Liabilities").  Company shall have no
obligation to any Indemnified  Person under this Section 9.3 with respect to any
Indemnified Liability that a court of competent  jurisdiction finally determines
to have  resulted  from the  gross  negligence  or  willful  misconduct  of such
Indemnified  Person.  This  provision  shall  survive  the  termination  of this
Agreement and the repayment of the Obligations.

X.   NOTICES.

     Unless otherwise provided in this Agreement,  all notices or demands by any
party  relating to this Agreement or any other Loan Document shall be in writing
and (except for financial statements and other informational documents which may
be sent by first-class mail,  postage prepaid) shall be personally  delivered or
sent  by  registered  or  certified  mail  (postage   prepaid,   return  receipt
requested),  overnight courier, or telefacsimile to Company or to Lender, as the
case may be, at its address set forth below:

                                      -9-


<PAGE>

If to Company:                2703 College Avenue
                              Goshen, Indiana  46526
                              Attn:  ...........................................
                              Fax No............................................
If to Lender:                 2703 College Avenue
                              Goshen, Indiana  46526
                              Attn:  ...........................................
                              Fax No............................................

     The  parties  hereto may  change  the  address at which they are to receive
notices  hereunder,  by notice in writing in the  foregoing  manner given to the
other.  All notices or demands  sent in  accordance  with this Section 10, other
than notices by Lender in  connection  with  Sections  9504 or 9505 of the Code,
shall be deemed  received on the earlier of the date of actual receipt or 3 days
after the  deposit  thereof in the mail.  Company  acknowledges  and agrees that
notices  sent by Lender in  connection  with  Sections  9504 or 9505 of the Code
shall be deemed sent when  deposited in the mail or  personally  delivered,  or,
where permitted by law,  transmitted  telefacsimile  or other similar method set
forth above.

XI.  CHOICE OF LAW AND VENUE;  JURY TRIAL  WAIVER.

     THE  VALIDITY  OF THIS  AGREEMENT  AND THE  OTHER  LOAN  DOCUMENTS  (UNLESS
EXPRESSLY   PROVIDED  TO  THE  CONTRARY  IN  AN  ANOTHER  LOAN  DOCUMENT),   THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING  HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED  UNDER,  GOVERNED
BY, AND  CONSTRUED  IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF  INDIANA.  THE
PARTIES AGREE THAT ALL ACTIONS OR  PROCEEDINGS  ARISING IN CONNECTION  WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS  SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF ELKHART,  STATE OF INDIANA OR,
AT THE SOLE OPTION OF Lender,  IN ANY OTHER COURT IN WHICH Lender SHALL INITIATE
LEGAL OR EQUITABLE  PROCEEDINGS AND WHICH HAS SUBJECT MATTER  JURISDICTION  OVER
THE MATTER IN  CONTROVERSY.  EACH OF BORROWER AND Lender  WAIVES,  TO THE EXTENT
PERMITTED  UNDER  APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON  CONVENIENS  OR TO OBJECT TO VENUE TO THE EXTENT ANY  PROCEEDING IS
BROUGHT IN  ACCORDANCE  WITH THIS SECTION 11.  BORROWER AND Lender  HEREBY WAIVE
THEIR  RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION  BASED
UPON OR  ARISING  OUT OF ANY OF THE LOAN  DOCUMENTS  OR ANY OF THE  TRANSACTIONS
CONTEMPLATED  THEREIN,  INCLUDING CONTRACT CLAIMS,  TORT CLAIMS,  BREACH OF DUTY
CLAIMS,  AND ALL OTHER  COMMON LAW OR  STATUTORY  CLAIMS.  EACH OF BORROWER  AND
Lender  REPRESENTS  THAT IT HAS  REVIEWED  THIS  WAIVER AND EACH  KNOWINGLY  AND
VOLUNTARILY  WAIVES  ITS JURY TRIAL  RIGHTS  FOLLOWING  CONSULTATION  WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION,  A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

XII. DESTRUCTION OF BORROWER'S DOCUMENTS.

     All documents,  schedules,  invoices,  agings, or other papers delivered to
Lender may be destroyed  or otherwise  disposed of by Lender 4 months after they
are delivered to or received by Lender, unless Company requests, in writing, the
return of said documents,  schedules, or other papers and makes arrangements, at
Company's expense, for their return.

XIII. GENERAL PROVISIONS.

     A.   Effectiveness.

     This  Agreement  shall be binding  and deemed  effective  when  executed by
Company and Lender.

                                      -10-


<PAGE>

     B.   Successors and Assigns.

     This  Agreement  shall  bind and  inure to the  benefit  of the  respective
successors and assigns of each of the parties;  provided,  however, that Company
may not assign this Agreement or any rights or duties hereunder without Lender's
prior written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment by Lender shall release  Company from its  Obligations.
Lender may assign  this  Agreement  and its rights and duties  hereunder  and no
consent  or  approval  by  Company  is  required  in  connection  with  any such
assignment.  Lender reserves the right to sell, assign, transfer,  negotiate, or
grant  participations  in all or any part of, or any interest in Lender's rights
and benefits hereunder. In connection with any such assignment or participation,
Lender may disclose all documents and information  which Lender now or hereafter
may have  relating to Company or Company's  business.  To the extent that Lender
assigns  its  rights  and  obligations  hereunder  to  a  third  Person,  Lender
thereafter shall be released from such assigned obligations to Company.  Without
limiting  the  foregoing,  Company  acknowledges  that  Lender has  collaterally
assigned Lender's rights under the Loan Documents to Lender Capital Corporation.

     C.   Section Headings.

     Headings  and  numbers  have been set forth  herein for  convenience  only.
Unless the contrary is compelled  by the context,  everything  contained in each
section applies equally to this entire Agreement.

     D.   Interpretation.

     Neither this  Agreement nor any  uncertainty  or ambiguity  herein shall be
construed  or  resolved  against  Lender or Company,  whether  under any rule of
construction or otherwise.  On the contrary, this Agreement has been reviewed by
all parties and shall be  construed  and  interpreted  according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto.

     E.   Severability of Provisions.

     Each  provision  of this  Agreement  shall be  severable  from every  other
provision  of  this  Agreement  for  the  purpose  of   determining   the  legal
enforceability of any specific provision.

     F.   Amendments in Writing.

     This  Agreement can only be amended by a writing  signed by both Lender and
Company.

     G.   Counterparts; Telefacsimile Execution.

     This  Agreement  may be  executed  in any  number  of  counterparts  and by
different  parties on separate  counterparts,  each of which,  when executed and
delivered,  shall be deemed to be an  original,  and all of  which,  when  taken
together,  shall  constitute  but one and the  same  Agreement.  Delivery  of an
executed  counterpart  of this  Agreement by  telefacsimile  shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile also
shall deliver an original executed counterpart of this Agreement but the failure
to deliver  an  original  executed  counterpart  shall not affect the  validity,
enforceability, and binding effect of this Agreement.

     H.   Revival and Reinstatement of Obligations.

     If the incurrence or payment of the Obligations by Company or any guarantor
of the  Obligations  or the transfer by either or both of such parties to Lender
of any  property  of  either  or both  of such  parties  should  for any  reason
subsequently  be declared to be void or voidable  under any state or federal law
relating to  creditors'  rights,  including  provisions of the  Bankruptcy  Code
relating  to  fraudulent  conveyances,   preferences,   and  other  voidable  or
recoverable  payments  of  money  or  transfers  of  property  (collectively,  a
"Voidable Transfer"), and if Lender is required to repay or restore, in whole or
in part,  any such  Voidable  Transfer,  or elects to do so upon the  reasonable
advice of its counsel,  then,  as to any such Voidable  Transfer,  or the amount
thereof  that Lender is  required  or elects to repay or restore,  and as to all
reasonable costs,  expenses,  and attorneys fees of Lender related thereto,  the
liability  of  Company  or  such  guarantor   automatically  shall  be  revived,
reinstated,  and restored and shall exist as though such  Voidable  Transfer had
never been made.

                                      -11-


<PAGE>

     I.   Integration.

     This Agreement, together with the other Loan Documents, reflects the entire
understanding  of the  parties  with  respect to the  transactions  contemplated
hereby and shall not be contradicted or qualified by any other  agreement,  oral
or written, before the date hereof.

     J.   Subordination Agreement.

     Notwithstanding  anything contained in this Agreement to the contrary,  the
rights and  remedies of Lender are subject to the terms and  conditions  of that
certain  Subordination  Agreement  of even  date  herewith  (the  "Subordination
Agreement") between the Lender and Foothill Capital Corporation. In the event of
a  conflict  between  this  Agreement  on the one  hand,  and the  Subordination
Agreement  on the other hand,  the terms of the  Subordination  Agreement  shall
govern.

                                      -12-


<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed in Goshen,  Indiana,  effective the date first above mentioned, on this
12 day of December, 2000.

                                        COMPANY:

                                        STARCRAFT AUTOMOTIVE GROUP, INC.

                                        An Indiana corporation

                                        By: /s/ Michael H. Schoeffler
                                           -----------------------------------
                                        Title:  President
                                              --------------------------------


                                        STARCRAFT CORPORATION,
                                        an Indiana corporation

                                        By: /s/ Michael H. Schoeffler
                                           -----------------------------------
                                        Title:  President
                                              --------------------------------

                                        LENDER:

                                          /s/ Kelly L. Rose
                                        --------------------------------------
                                        Kelly L. Rose

                                          /s/ G. Ray Stults
                                        --------------------------------------
                                        G. Ray Stults

                                      -13-


<PAGE>



SCHEDULES

Schedule P-1               Permitted Liens
Schedule 3.2               Location of Inventory and Equipment




                                      -14-