Document:

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                            ASSET PURCHASE AGREEMENT

         THIS ASSET PURCHASE AGREEMENT ("AGREEMENT"), is entered into this
_____ day of _____________, 1999 ("EFFECTIVE DATE"), by and among Spearhead
Automated Systems, Inc., a Michigan corporation ("COMPANY"), Stephen R.
Howard and Liberty Tool and Engineering Corporation ("SHAREHOLDERS"), and
Flow International Corporation, a Washington corporation ("BUYER").

                                    RECITALS

         A.       Shareholders own all the issued and outstanding stock of
Company.

         B.       Buyer wishes to buy the assets of Company pursuant to the
terms and conditions set forth herein.

         INTENDING TO BE LEGALLY BOUND, and in consideration of the premises
and the mutual representations, warranties, covenants and agreements
contained herein, Buyer, Company, and Shareholders hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         For purposes of this Agreement, capitalized terms shall have the
following meanings:

         "AFFILIATE"--a Person (i) which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with, another Person, or (ii) which beneficially owns or holds 5% or
more of any class of the voting stock of another Person, or (iii) 5% or more
of the voting stock (or in the case of a Person which is not a corporation,
5% or more of the equity interest) of which is beneficially owned or held by
another Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities,
by contract or otherwise.

         "AGREEMENT" means this Asset Purchase Agreement.

         "ASSETS" shall have the meaning given in Section 2.1.

         "BUSINESS CONDITION" shall have the meaning given in Section 3.1.

         "BUYER" means Flow International Corporation, a Washington
corporation.

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         "BUYER DISCLOSURE SCHEDULE" means a document referring specifically
to the representations and warranties in this Agreement that is delivered by
Buyer to Shareholders within five (5) business days after the execution of
this Agreement.

         "BUYER REQUIRED STATUTORY APPROVALS" shall have the meaning given in
Section 4.2.

         "CHARTER DOCUMENTS" shall have the meaning given in Section 3.1.

         "CLAIM NOTICE" means a written notice in reasonable detail of the
facts and circumstances that form the basis of an indemnification claim
hereunder and setting forth an estimated amount of the potential Losses, if
possible, and the sections of this Agreement upon which the claim for
indemnification for such Losses is based.

         "CLOSING" means the closing of the Transaction.

         "CLOSING DATE" means the date of the Closing.

         "COMPANY" means Spearhead Automated Systems, Inc., a Michigan
corporation.

         "COMPANY DISCLOSURE SCHEDULE" means a document containing the
factual disclosures called for by the representations and warranties in this
Agreement that is delivered by Company and Shareholders to Buyer within five
(5) business days after the execution of this Agreement.

         "COMPANY FINANCIAL STATEMENTS" shall have the meaning given in
Section 3.4.

         "COMPANY INTELLECTUAL PROPERTY" shall have the meaning given in
Section 3.13.

         "COMPANY REQUIRED STATUTORY APPROVALS" shall have the meaning given
in Section 3.2.

         "COMPANY SHARES" means the issued and outstanding shares of capital
stock of Company.

         "CONFIDENTIAL INFORMATION" shall have the meaning given in Section
11.8.

         "CONSENT" means a consent, approval, Order, or authorization of, or
registration, declaration, or filing with, or exemption by a Governmental
Entity.

         "COUNTERNOTICE" means a written objection to a claim or payment
setting forth the basis for disputing such claim or payment.

         "DUE DILIGENCE" shall have the meaning set forth in Section 7.5.

         "ENVIRONMENTAL LAWS" shall have the meaning given in Section 3.17.

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         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

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         "ESCROW AGREEMENT" means the Escrow Agreement called for by Section
2.1.

         "GAAP" means generally accepted accounting principles consistently
applied.

         "GOVERNMENTAL ENTITY" means a court, administrative agency, or
commission or other governmental authority or instrumentality, whether
domestic or foreign.

         "HAZARDOUS SUBSTANCES" shall have the meaning given in Section 3.17.

         "KEY EMPLOYEES" shall mean those employees of Company who are employed
in managerial, technical or professional capacities..

         "KNOWLEDGE" in reference to Company means that Stephen R. Howard,
President of the Company, has reviewed the specific representation and warranty
and the related Company Disclosure Schedule to which such knowledge statement is
made, and, in so doing, has exercised reasonable due diligence, and based upon
the foregoing, he is not aware and has no reason to be aware of any inaccuracies
in such specific representation and warranty and related Company Disclosure
Schedule with respect to which such knowledge statement is made.

         "LEASED PROPERTY" shall have the meaning given in Section 3.16.

         "LIENS" means any mortgage, deed of trust, security interest, retention
of title or lease for security purposes, pledge, charge, encumbrance, equity,
claim, easement, right of way, covenant, condition or restriction, leasehold
interest or any right of any kind of any other Person in or with respect to any
property of Company.

         "LOSSES" shall mean direct and actual losses, damages, liabilities,
claims, judgments, settlements, fines, costs, and expenses (including reasonable
attorneys' fees) of any kind, net of any insurance proceeds, but excluding all
indirect and/or consequential damages of any kind.

         "ORDER" means a decree, judgment, injunction, ruling, or other order of
a Governmental Entity having jurisdiction, whether temporary, preliminary, or
permanent.

         "PAYMENT CERTIFICATE" shall mean a written claim for payment of Losses,
in reasonable detail and specifying the amount of such Losses.

         "PERSON" means an individual, partnership, corporation, trust or
unincorporated organization, or a Governmental Agency.

         "PLAN" shall mean an employee bonus, profit sharing, retirement, stock
purchase, stock option, recapitalization, insurance, medical, life, disability,
severance, or other benefit plan.

         "PURCHASE PRICE" shall have the meaning given in Section 2.1.

         "REAL PROPERTY" shall have the meaning given in Section 3.17.

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         "RETURNS" means all returns, information statements, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and any claims for refunds of Taxes, including any amendments or
supplements to any of the foregoing. The term "Return" means any one of the
foregoing Returns.

         "SCHEDULE OF EXCEPTIONS" shall mean a document containing all
exceptions to the representations and warranties in this Agreement, other than
those exceptions specifically set forth in this Agreement, that is delivered by
Company and Shareholders to Buyer prior to the execution of this Agreement.

         "SHAREHOLDERS" shall mean Stephen R. Howard and Liberty Tool and
Engineering Corporation.

         "STUB BALANCE SHEET" shall have the meaning given in Section 3.4.

         "STUB PERIOD DATE" shall have the meaning given in Section 3.4.

         "SUBSIDIARY" shall have the meaning given in Section 3.1.

         "TAX" or "TAXES" means any income, corporation, gross receipts,
profits, gains, capital stock, capital duty, franchise, withholding, social
security, unemployment, disability, property, wealth, welfare, stamp, excise,
occupation, sales, use, value added, alternative minimum, estimated or other
similar tax or obligation (including any fee, assessment or other charge in the
nature of or in lieu of any tax) imposed by any governmental entity (whether
national, local, municipal or otherwise) or political subdivision thereof, and
any interest penalties, additions to tax or additional amounts in respect of the
foregoing, and including any transferee or secondary liability in respect of any
tax (whether imposed by law, contractual agreement or otherwise) and any
liability in respect of any tax as a result of being a member of any affiliated,
consolidated, combined, unitary or similar group, including any liability for
taxes under Treas. Reg. Section 1.1502-6 (or any similar provision of state,
local or foreign law).

         "TAX PERIOD" means, with respect to any tax, the period for which the
Tax is reported as provided under applicable tax law.

         "TRANSACTION" shall mean the purchase of the Assets by Buyer pursuant
to the terms of this Agreement.

         "THRESHOLD AMOUNT" shall have the meaning given in Section 9.6.

         "VIOLATION" shall have the meaning given in Section 3.3.

         "YEAR 2000 COMPLIANT" shall have the meaning given in Section 3.13.

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                                   ARTICLE II

                               PURCHASE OF ASSETS

         2.1      PURCHASE OF ASSETS. Subject to the terms and conditions of
this Agreement, at the Closing, as defined below, Company shall sell, convey,
transfer, assign and deliver to Buyer, and Buyer shall purchase, acquire and
accept from Company, all of the operating assets of Company (the "Assets"),
which are currently owned by, or being used by the Company in its business,
except for those assets listed on Schedule 2.1. The Assets include, but are not
limited to the following:

         (a)      Office furniture and fixtures
         (b)      Equipment
         (c)      Inventory and Supplies
         (d)      Accounts Receivable
         (e)      Leasehold Improvements
         (f)      Goodwill and Going Concern Value
         (g)      Promotional and Proprietary Rights
         (h)      All jobs and work in progress
         (i)      Company's customer lists
         (j)      Company's interest in its contracts and leases
         (k)      Cash

         2.2      ASSUMPTION OF LIABILITIES. Buyer shall assume or pay at
Closing the liabilities of Company included on the Stub Balance Sheet, together
with such changes through Closing as may occur in the ordinary course of
Company's business.

         2.3      PURCHASE PRICE. In consideration for the sale, assignment and
transfer of the Assets and the representations, warranties, and covenants
contained herein, Buyer agrees to pay to Company the aggregate amount of Two
Million Eight Hundred Thousand Dollars ($2,800,000) together with the assumption
of liabilities in Section 2.2, ("PURCHASE PRICE"). Two Million Four Hundred
Fifty Thousand Dollars ($2,450,000) of the Purchase Price shall be payable at
Closing by wire transfer of immediately available funds. Two Hundred Fifty
Thousand Dollars ($250,000) of the Purchase Price shall be paid on the Effective
Date by wire transfer. One Hundred Thousand Dollars ($100,000) of the Purchase
Price shall be placed in escrow pursuant to the terms of an escrow agreement
("ESCROW AGREEMENT") in form and substance satisfactory to both Buyer and
Company to be held for six months following the Closing Date. Disbursement of
the funds placed in escrow shall be subject to offset rights in Section 9.7.

         2.4      CLOSING DATE. The Closing shall take place on September 1,
1999 (the "CLOSING DATE" or "CLOSING"), at the offices of Jaffe, Raitt, Heuer &
Weiss, unless another date or place is agreed to in writing by the parties
hereto.

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         2.5      CLOSING DATE DELIVERIES.

         (a)      On the Closing Date, Company and Shareholders shall deliver
to Buyer the following validly executed instruments:

                  (i)      certified copy of resolutions of the Board of
Directors and shareholders of Company authorizing the execution and performance
of this Agreement and the transaction contemplated hereby;

                  (ii)     validly executed assignments of all leases listed on
the Company Disclosure Schedule and all required lessor's consents to such
assignments, satisfactory in form and substance to Buyer;

                  (iii)    validly executed assignments of all contracts to be
assumed by Buyer as set forth on the Company Disclosure Schedule, together with
such additional contracts as the Company may have entered into between the
Effective Date and Closing, together with all necessary third party consents to
such assignments, satisfactory in form and substance to Buyer;

                  (iv)     bill of sale for all Assets being purchased by Buyer,
satisfactory in form and substance to Buyer;

                  (v)      an opinion of Jaffe, Raitt, Heuer & Weiss,
Professional Corporation, counsel to Company and Shareholders required by
Section 8.2.3;

                  (vi)     the closing certificate required by Sections 8.2.1
and 8.2.2;

                  (vii)    lien releases for any Assets being purchased
hereunder, subject to Buyer paying or assuming the related liabilities,
satisfactory in form and substance to Buyer;

                  (viii)   assignments in recordable form with the applicable
trademark, patent or copyright office of all Company Intellectual Property being
purchased or transferred hereunder, satisfactory in form and substance to Buyer;

                  (ix)     validly executed assignments of title for all
vehicles being purchased hereunder, so that the titles may be transferred to
Buyer;

                  (x)      the executed Escrow Agreement;

                  (xi)     the documents required by Sections 5.5(e) and (f)
herein;

                  (xii)    the Employment Agreement described in Section 8.2.5
hereof, executed by Stephen R. Howard;

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                  (xiii)   the Non-Compete Agreement described in Section 8.2.6
hereof, executed by Stephen R. Howard; and

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                 (xiv)    such other instruments or documents necessary or
reasonably desirable to consummate the Transaction, all satisfactory in form
and substance to Buyer.

         (b)      On the Closing Date, Buyer shall deliver to Company the
following validly executed instruments:

                  (i)      Two Million Four Hundred and Fifty Thousand Dollars
($2,450,000) payable to Company by wire transfer of immediately available funds;

                  (ii)     The Escrow Agreement;

                  (iii)    Certified copy of resolutions of the Board of
Directors of Buyer authorizing the execution and performance of this Agreement
and the Transaction contemplated hereby;

                  (iv)     Opinion of counsel to Buyer as required by Section
8.3.3;

                  (v)      The closing certificate required by Sections 8.3.1
and 8.3.2;

                  (vi)     The Employment Agreement described in Section 8.2.5
hereof signed by the Buyer;

                  (vii)    The Non-Compete Agreement described in Section 8.2.6
hereof signed by the Buyer;

                  (viii)   Assumption agreement for all liabilities being
assumed by Buyer, satisfactory in form and substance to Seller; and

                  (ix)     Such other instruments or documents necessary or
desirable to consummate the Transaction, all satisfactory in form and substance
to Buyer.

         (c)      On the Closing Date, Buyer shall deliver to Escrow Agent the
following validly executed instruments:

                  (i)      The executed Escrow Agreement; and

                  (ii)     One Hundred Thousand Dollars ($100,000) by wire
transfer.

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                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES
                           OF COMPANY AND SHAREHOLDERS

         Except as disclosed in a document referring specifically to the
representations and warranties in this Agreement which identifies by section
number the section and subsection to which such disclosure relates and is
delivered by Shareholders and Company to Buyer prior to the execution of this
Agreement (the "SCHEDULE OF EXCEPTIONS"), and whether or not the Schedule of
Exceptions is referred to in a specific section or subsection, Company and
Shareholders, jointly and severally, represent and warrant to Buyer as follows:

         3.1      ORGANIZATION, STANDING, AND POWER. Company is a corporation
duly organized, validly existing, and in good standing under the laws of
Michigan. Company has all requisite power and authority to own, lease, and
operate its properties and to carry on its businesses as now being conducted,
and is duly qualified, validly existing and in good standing (in such
jurisdictions in which good standing is applicable) to do business in each
jurisdiction in which a failure to so qualify would have a material adverse
effect on the Business Condition (as hereinafter defined) of Company. As used in
this Agreement, "BUSINESS CONDITION" with respect to any entity shall mean the
business, financial condition, results of operations or assets. In this
Agreement, a "SUBSIDIARY" of any corporation or other entity means a
corporation, partnership, limited liability company, or other entity of which
such corporation or entity directly or indirectly owns or controls voting
securities or other interests that are sufficient to elect a majority of the
Board of Directors or other managers of such corporation, partnership, limited
liability company or other entity. Company has no Subsidiary.

         3.2      AUTHORITY. Company and Shareholders have, or shall have prior
to the Closing, all requisite corporate power and authority to enter into this
Agreement and, subject to the Company's Required Statutory Approvals, to
consummate the transactions contemplated hereby. As used in this Agreement
"COMPANY'S REQUIRED STATUTORY APPROVALS" means such filings, authorizations,
Orders and approvals as may be required under federal or foreign laws, or
securities laws. The execution and delivery by Company and Shareholders of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Company and
Shareholders, including the approval of the Board of Directors and all
shareholders of Company. This Agreement has been duly executed and delivered by
Company and Shareholders and constitutes a valid and binding obligation of
Company and Shareholders enforceable in accordance with its terms, except that
such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, or other similar laws relating to enforcement of creditors'
rights generally and (ii) general equitable principles, including the
availability of specific performance, injunctive relief and other equitable
remedies.

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         3.3      COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS.

         (a)      Company holds, and at all times has held, all licenses,
permits, and authorizations from all Governmental Entities necessary for the
lawful conduct of its business pursuant to all applicable statutes, laws,
ordinances, rules, and regulations of all such authorities having jurisdiction
over it or any part of its operations, excepting, however, when such failure to
hold would not have a material adverse effect on Company's Business Condition.
To Company's Knowledge, there are and for the past three years there have been
no material violations or claimed material violations of any federal, state or
local license, permit, or authorization or any statute, law, ordinance,
judgment, decree, rule or regulation applicable to Company. Subject to the
satisfaction of the conditions set forth in Section 8, neither the execution and
delivery of this Agreement and all other agreements contemplated hereby by
Company nor the consummation of the transactions contemplated hereby and thereby
will conflict with or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation, or acceleration of any material obligation or to loss of a
material benefit under, or the creation of a lien, pledge, security interest,
charge, or other encumbrance on the assets or contracts of Company or the
Company Shares (any such conflict, violation, default, right, loss or creation
being referred to herein as a "VIOLATION") pursuant to, (i) any provision of the
Charter Documents of Company or the comparable governing instruments, or (ii)
any loan or credit agreement, note, bond, mortgage, indenture, contract, lease,
or other agreement or instrument, permit, concession, franchise, license, Order,
statute, law, ordinance, rule or regulation applicable to Company or its
respective properties or assets, other than, in the case of (ii), any such
Violation which individually or in the aggregate would not have a material
adverse effect on the Business Condition of Company.

         (b)      No Consent by any Governmental Entity is required by or with
respect to Company in connection with the execution and delivery of this
Agreement and all other agreements contemplated hereby by Company or the
consummation by Company of the transactions contemplated hereby.

         3.4      FINANCIAL STATEMENTS. Company has delivered to Buyer the
balance sheets and statements of income of Company, as of and for the years
ended November 30, 1996, 1997 and 1998 which have been compiled by Conway
MacKenzie & Dunleavy, Company's independent public accountants, whose reports
with respect to such financial statements are included. The Company has
delivered to Buyer financial statements of Company as of and for the period
ended May 31, 1999 (the "STUB PERIOD DATE"). The financial statements as
described above are the "COMPANY FINANCIAL STATEMENTS." The balance sheet as of
the Stub Period Date is the "STUB BALANCE SHEET." The Company Financial
Statements, (a) have been prepared in accordance with GAAP throughout the
periods indicated and in prior periods, (b) except for normal year-end
adjustments with regard to the Stub Balance Sheet, fairly present the financial
position of Company, as of the respective dates indicated and the results of its
operations for the respective periods indicated, and (c) were prepared from the
books and records of Company, which books and records are complete and correct
and accurately reflect in all material respects the transactions of and other
events applicable to Company. There are no material liabilities or obligations
except, (i) liabilities that are accrued or reserved against in the Stub Balance
Sheet, or

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(ii) additional liabilities reserved against since the Stub Period Date that
(x) have arisen in the ordinary course of business; and (y) are accrued or
reserved against on the books and records of Company.

         3.5      ACCOUNTS RECEIVABLE. All accounts receivable are not subject
to counterclaims or setoffs and are fully collectible within 90 days of the date
of Closing without any cost whatsoever to Buyer or Company in collection efforts
therefor, except in the case of accounts receivable shown on the Stub Balance
Sheet, to the extent of the appropriate reserves set forth on the Stub Balance
Sheet, and, in the case of accounts receivable arising since the date of the
Stub Balance Sheet, to a reasonable allowance for bad debt which does not
reflect a rate of bad debt more than that reflected by the reserve for bad debt
on the Stub Balance Sheet.

         3.6      INVENTORIES. The values at which the inventories are shown on
the Company Financial Statements have been determined in accordance with GAAP
and the normal valuation policy of Company. Said inventories (and items of
inventory acquired or manufactured subsequent to the date of the Company
Financial Statements), consist only of items of quality and quantity
commercially usable and salable in the ordinary course of business, except for
any items of obsolete material or material below standard quality, all of which
have been written down to realizable market value, or for which adequate
reserves have been provided, and the present quantities of all inventory are
reasonable in the present circumstances of its business.

         3.7      ABSENCE OF CERTAIN CHANGES AND EVENTS. Since May 31, 1999,
there has not been:

         (a)      Any change (or any development or combination of developments
of which, to the Company's Knowledge, is reasonably likely to result in such a
change) in Company's Business Condition, other than changes in the ordinary
course of business which in the aggregate have not been and will not have a
material adverse effect on Company's Business Condition; or, without limiting
the foregoing, any disposition, loss of or damage to any of the properties of
Company, whether or not insured, amounting to more than $25,000 in the
aggregate;

         (b)      Any declaration, payment, or setting aside of any dividend or
other distribution (including tax distributions) to or for any of the
shareholders of Company of any Company Shares or cash or payment obligations or
any payment of fees or costs to any Affiliate of an officer, director or
shareholder of the Company, including management fees, administrative fees,
royalties or license fees other than management fees, rental payments and tax
distributions paid to Liberty Tool and Engineering Corporation ("Liberty"),
payment of life insurance premiums on the life of a shareholder of Liberty and
transactions between the Company and Spearhead Development Technology, Inc.
("SDI"), Spearhead Trading, Inc. ("Trading"), Frimo, Inc. ("Frimo") and
Empowered Production Services, Inc. ("EPS"), as a supplier and customer, all of
which fees, rental payments and distributions have been made in the ordinary
course of business, consistent with past practice;

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         (c)      Any termination, modification, or rescission of, or waiver by
Company of rights under, any existing contract having or likely to have a
material adverse effect on Company's Business Condition other than in the
ordinary course of business;

         (d)      Capital expenditure or transaction by Company exceeding
$30,000;

         (e)      Entering into or assumption of any material contract or
obligation by Company, except in the ordinary course of business (none of which
would have a material adverse effect on the Company's Business Condition);

         (f)      Revaluation by Company of any of its assets or change in
accounting methods or practices;

         (g)      Granting of stock options, restricted stock awards, stock
bonuses, stock appreciation rights and similar equity based awards relating to
the capital stock of the Company;

         (h)      Except for normal yearly adjustments, none of which exceed
five percent (5%) per year, increase in the salary or other compensation payable
or to become payable by Company to any of its officers, directors or employees,
or the declaration, payment or commitment or obligation of any kind for the
payment of a bonus or other additional salary or compensation to any such
individual;

         (i)      Labor dispute or other event or condition with respect to the
officers or employees of Company; or

         (j)      Any mortgage, pledge, imposition of any security interest,
claim, encumbrance, or other restriction on any of the assets, tangible or
intangible, of Company having or likely to have a material adverse effect on
Company's Business Condition.

         3.8      TAXES.

         (a)      All Returns required to be filed on or prior to the date
hereof have been properly completed and filed on a timely basis (with
extensions) and in correct form in all material respects. As of the time of
filing, the foregoing Returns correctly reflected the facts regarding the
income, business, assets, operations, activities, status or other matters of
Company or any other information required to be shown thereon. In particular,
and without in any manner limiting the foregoing, none of the foregoing Returns
contains any position which is or would be subject to penalties under section
6662 of the Code (or any corresponding provision of state, local or foreign Tax
law). To the Knowledge of Company, there is no investigation or other proceeding
pending, threatened or expected to be commenced by any taxing authority for any
jurisdiction in which Company files or Company's predecessor has or should have
filed Returns and no issue or claim has been raised by any taxing authority
which, by application of similar principles, reasonably could be expected to
result in a proposed deficiency. To the Knowledge of Company, there is no
investigation or other proceeding pending, threatened or expected to be
commenced by any taxing authority for any jurisdiction in which Company does not
file tax

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returns that may lead to an assertion that Company is or may be subject to a
given Tax liability in such jurisdiction, and, to Company's Knowledge, there
is no meritorious basis for such an investigation or other proceeding that
would result in such an assessment..

         (b)      With respect to all amounts in respect of Taxes imposed upon
Company, or for which Company is or could be liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods (or portions thereof) ending on or before the Closing Date, all
applicable tax laws and agreements have been fully complied with, and all such
amounts required to be paid by Company to taxing authorities or others on or
before the date hereof have been paid. No issues have been raised (and are
currently pending) by any taxing authority in connection with any Returns of
Company. No waivers of statutes of limitation with respect to such Returns have
been given by or requested from Company. There are no outstanding rulings of, or
requests for rulings with, any Tax authority addressed to Company that are, or
if issued would be, binding on Company. The Company Disclosure Schedule sets
forth (i) the taxable years of the Company as to which the respective statutes
of limitations with respect to Taxes have not expired, and (ii) with respect to
such taxable years, sets forth those years for which examinations have been
completed, those years for which examinations are presently being conducted,
those years for which examinations have not been initiated, and those years for
which required Returns have not yet been filed. All deficiencies asserted or
assessments made as a result of any examinations have been fully paid, or are
fully reflected as a liability in the financial statements of Company, or are
being contested and an adequate reserve therefor has been established and is
fully reflected in the financial statements of the Company.

         (c)      There are no Liens for Taxes (other than for current Taxes not
yet due and payable) upon the assets of Company. Company is not a party to or
bound by (nor will Company, prior to the Closing, become a party to or bound by)
any tax indemnity, tax sharing or tax allocation agreement or arrangement other
than its current tax allocation arrangement with Liberty. Company is a member of
an affiliated group of corporations, within the meaning of section 1504 of the
Code, as a subsidiary.

         (d)      All material elections with respect to Taxes affecting Company
as of the date hereof are set forth in the Company Disclosure Schedule. None of
the assets of Company is property that Company is required to treat as being
owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former section 168(f)(8) of the Code. None of the assets of
Company directly or indirectly secures any debt the interest on which is tax
exempt under section 103(a) of the Code. None of the assets of Company is
"tax-exempt use property" within the meaning of section 168(h) of the Code.
Company has not made nor is bound by any election under Section 197 of the Code.
No consent or agreement has been made under section 341 of the Code by or on
behalf of Company or any predecessor thereof. Company has not participated in,
or cooperated with, an international boycott within the meaning of Section 999
of the Code.

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         (e)      Company is not a party to any agreement, contract, arrangement
or plan that has resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of section
280G of the Code or any similar provision of foreign, state or local law.
Company is not, and has not been, a United States real property holding
corporation (as defined in section 897(c)(2) of the Code) during the applicable
period specified in section 897(c)(1)(A)(ii) of the Code. Shareholders is not a
person other than a United States person within the meaning of the Code. The
transactions contemplated herein are not subject to the tax withholding
provisions of Code section 3406, or of subchapter A of Chapter 3 of the Code or
of any other provision of law. Company is not a party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.

         (f)      Company does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention between the United States of America and such foreign country.

         (g)      The unpaid Taxes of Company do not materially exceed the
reserve for Tax liability (excluding any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) set forth or included
in Company's Stub Balance Sheet as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company.

         (h)      Each asset with respect to which Company claims depreciation,
amortization or similar expense for Tax purposes is owned for Tax purposes by
Company. No material item of income or gain reported by Company for financial
accounting purposes in any pre-closing period is required to be included in
taxable income for a post-closing period.

         3.9      SUPPLIERS, TRADE CREDITORS. Except for utilities, the Company
Disclosure Schedule sets forth a complete and accurate list by amount of
purchases of the top ten, by dollar volume, suppliers from which Company
purchased goods or services from December 1, 1997 through the date hereof.
Company has no Knowledge indicating that any of its suppliers intends to cease
doing business, or materially restrict or adversely change the terms of the
business done, with Company. Company is not contesting the payment of any
material obligations to any trade creditors and has paid all amounts in the
ordinary course of business.

         3.10     EMPLOYEES. The Company Disclosure Schedule lists, (a) the
names, salaries and titles of all Key Employees of Company, and (b) all claims,
strikes, grievances, and dismissals and/or resignations of Key Employees after
December 31, 1997. Company does not have any written contract of employment or
other employment agreement with any of its employees that is not terminable at
will without payment of any consideration by Company. There are no pending, or
to Company's Knowledge, threatened, labor disputes or claims of any nature by
any former or current Company employees. Company is not a party to any
collective bargaining agreements. Company has complied in all material respects
with all applicable federal, state, and local laws, ordinances, rules, and
regulations and requirements relating to the employment of labor, including the
provisions thereof relating to wages, hours, collective bargaining, payment of

                                Page 15 of 44
<PAGE>

social security, unemployment, and withholding taxes, except when failure to
comply would not have a material adverse effect on the Company's Business
Condition. The consummation of the Transaction will not entitle any Company
employee to severance pay, unemployment compensation or any other payment or
accelerate the time of payment or vesting of or increase the amount of
compensation due to any Company employee.

         3.11     EMPLOYEE BENEFIT PLANS. Each employee benefit plan maintained
by Company ("PLAN") covering active, former, or retired employees of Company is
listed in the Company Disclosure Schedule. Company has provided to Buyer a copy
of each Plan, and where applicable, any related trust agreement, annuity, or
insurance contract, and to the extent applicable, the three most recent annual
reports (Form 5500) filed with the Internal Revenue Service. To the extent
applicable, each Plan either is exempt from or complies, in all material
respects, with the requirements of the Employee Retirement Income Security Act
of 1974 as amended ("ERISA"), and the Code, and any Plan intended to be
qualified under Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and has remained tax-qualified to this date
and its related trust is tax-exempt and has been so since its creation. No Plan
is covered by Title IV of ERISA or Section 412 of the Code. To Company's
knowledge, no "PROHIBITED TRANSACTION," as defined in ERISA Section 406 or Code
Section 4975 has occurred with respect to any Plan. Each Plan has been
maintained and administered in material compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Plans. There are no pending or, to Company's knowledge, anticipated claims
against or otherwise involving any of the Plans and no suit, action, or other
litigation (excluding claims for benefits incurred in the ordinary course of
Plan activities) has been brought against or with respect to any Plan. All
contributions, reserves, or premium payments to the Plan, accrued to the date
hereof have been made or provided for. Company has not incurred any liability
under Subtitle C or D of Title IV of ERISA with respect to any "SINGLE-EMPLOYER
PLAN," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by Company, or any entity which is considered one employer with
Company under Section 4001 of ERISA. Company has not incurred any withdrawal
liability under Subtitle E of Title IV of ERISA with respect to any
"MULTIEMPLOYER PLAN," within the meaning of Section 4001(a)(3) of ERISA. Company
has not engaged in or is a successor or parent corporation to an entity that has
engaged in a transaction described in ERISA Section 4069. Company does not have
any current or projected liability in respect of post-employment or
post-retirement welfare benefits for retired or former employees of Company
other than health care continuation benefits required to be provided under
applicable law. Company has not incurred any tax under Section 4980B of the Code
in respect of any Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.

         3.12     CERTAIN AGREEMENTS. Neither the execution and delivery of this
Agreement and all other agreements contemplated hereby, nor the consummation of
the transactions contemplated hereby will reasonably be expected to: (a) result
in any payment by Company (including, severance, unemployment compensation,
parachute payment, bonus or otherwise) becoming due to any director, employee,
or independent contractor of Company under any Plan, agreement, or otherwise,
other than payments to Stephen R. Howard pursuant to the Employment

                                Page 16 of 44
<PAGE>

Agreement (defined below) and the Non-Compete Agreement (defined below), (b)
increase any benefits otherwise payable under any Plan or agreement, or (c)
result in the acceleration of the time of payment or vesting of any such
benefits.

         3.13     TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS. All patents,
trademarks, trade names, service marks, copyrights and any renewal rights
therefor, software, mask works, net lists, schematics, technology, manufacturing
processes, supplier lists, trade secrets, know-how, moral rights, applications
for any of the foregoing, and all other tangible or intangible proprietary
information or materials that are or have been used in (including in the
development of) any product, technology or process (i) currently being or
formerly manufactured, developed or marketed by Company, or (ii) previously or
currently under development for possible future manufacturing, development,
marketing or other use by Company will hereinafter be referred to as the
"COMPANY INTELLECTUAL PROPERTY."

                  (a)      The Company Disclosure Schedule lists: (i) all
patents, copyrights, trademarks and any applications and registrations for any
of the foregoing included in the Company Intellectual Property, together with a
list of all of Company's currently manufactured products and currently published
software products, (ii) all licenses, sublicenses and other agreements to which
Company is a party and pursuant to which Company or any other person is
authorized to use any of the Company Intellectual Property, and (iii) all
development agreements entered into by Company.

                  (b)      The Company Intellectual Property consists solely of
items and rights which are: (i) owned by Company, (ii) in the public domain, or
(iii) rightfully used by Company and its successors pursuant to a valid written
license and, with respect to Company Intellectual Property owned by Company,
Company owns the entire right, title and interest in and to such Company
Intellectual Property free and clear of any Liens. To the Knowledge of Company,
Company has all rights in the Company Intellectual Property necessary to carry
out Company's current, former, and anticipated future (up to the Closing)
activities, including rights to make, use, exclude others from using, sell,
reproduce, modify, adapt, create derivative works based on, translate,
distribute (directly and indirectly), transmit, display and perform publicly,
license, rent, lease, assign, and sell the Company Intellectual Property in all
geographic locations and fields of use, and to sublicense any or all such rights
to third parties, including the right to grant further sublicenses.

                  (c)      All right and title in the patents and applications
thereto included in the Company Intellectual Property ("PATENTS") are owned
exclusively by Company. To the Knowledge of Company, the inventions which are
the subject of the Patents were not known or used by Company or its employees or
agents or by third parties in any country before the invention thereof by said
employees or agents. To the Knowledge of Company, the inventions which are the
subject of the Patents were not patented or described in a printed publication
in any country or placed in public use or on sale in any country more than one
year prior to the date of application for patents by Company. To the Knowledge
of Company there is no prior art more relevant to the inventions which are the
subject of the Patents than that considered by the relevant

                                Page 17 of 44
<PAGE>

patent office during the prosecution of the patent applications and patents
for the inventions which are the subject of the Patents.

                                Page 18 of 44

<PAGE>

                  (d)      Company is not, nor, as a result of the execution
or delivery of this Agreement, or performance of Company's obligations
hereunder, will Company be, in violation of any license, sublicense or
agreement to which Company is a party or otherwise bound. Company is not
obligated to provide any consideration (whether financial or otherwise) to
any third party, nor is any third party otherwise entitled to any
consideration with respect to any exercise of rights by Company or Buyer in
the Company Intellectual Property.

                  (e)      To the knowledge of Company, the Company
Intellectual Property does not infringe on any patent, copyright, trade
secret, trademark, service mark, trade name, firm name, logo, trade dress,
mask work, or moral rights, of any Person. No claims (i) challenging the
validity, effectiveness, or ownership by Company of any of the Company
Intellectual Property, or (ii) to the effect that the Company Intellectual
Property infringes or will infringe on any intellectual property or other
proprietary right of any person have been asserted against the Company or, to
the Knowledge of Company, are threatened by any person against the Company
nor to the Knowledge of Company are there any valid grounds for any bona fide
claim of any such kind against the Company. All granted or issued patents and
mask works and all trademarks and copyrights held by Company are valid,
enforceable and subsisting, and all patent applications, provisional patents,
copyright applications and trademark applications with respect to the Company
Intellectual Property are pending and in good standing, all without challenge
of any kind; and no aspect thereof is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any governmental authority
or arbitrator. To the Knowledge of Company, there is no material unauthorized
use, infringement or misappropriation of any of the Company Intellectual
Property by any third party, employee or former employee.

                  (f)      Company has secured from all parties who have
created any portion of, or otherwise have any rights in or to, the Company
Intellectual Property valid and enforceable written assignments of any such
work or other rights to Company.

                  (g)      All software included in the Company Intellectual
Property relating to any critical business function of the Company, other
than any software included in any products sold by the Company at any time
prior to a date one year prior to Closing, is year 2000 Compliant ("YEAR 2000
COMPLIANT"). All software included in any products sold by the Company was
purchased from and warranted by third party vendors. Year 2000 Compliant
means date information that accurately processes date/time data (including
storing, calculating, comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, the years 1999, 2000 and 2001
specifically, and the leap year calculations.

         3.14     PERSONAL PROPERTY. Company has good and marketable title,
free and clear of all title defects, security interests, pledges, options,
claims, Liens, and restrictions of any nature whatsoever (including leases,
chattel mortgages, conditional sale contracts, purchase money security
interests, collateral security arrangements, and other title or
interest-retaining agreements) to all inventory, receivables, furniture,
machinery, equipment, and other personal property, tangible or otherwise,
reflected on the balance sheet included in the Company Financial Statements
or used in Company's business as of the date of such balance sheet even if
not reflected thereon, except for acquisitions and dispositions since the
Stub Period Date in the

                                Page 19 of 44
<PAGE>

ordinary course of business and except for a security interest in favor of
Comerica Bank in substantially all of the Company's assets securing a line of
credit, leases on certain vehicles and a lease of the premises upon which the
Company conducts its business. The Company Disclosure Schedule lists all
personal property having a depreciated book value of $2,000 or more, which
are used by Company in the conduct of its business and all such equipment and
property, in the aggregate, is in good operating condition and repair,
reasonable wear and tear excepted.

         3.15     MAJOR CONTRACTS. The Company Disclosure Schedule sets forth
a complete and accurate list of any contract (other than contracts under
which no party thereto has any remaining liability, absolute or contingent
and other than contracts included or listed in another Schedule) to which
Company is a party other than, (a) purchase or sale contracts for the
purchase or sale of supplies or inventory entered into in the ordinary course
of business of Company, which do not commit Company for a period of more than
six (6) months or involve commitments for sale or purchase in excess of
$100,000 per contract, and (b) contracts entered into in the ordinary course
of business, no one of which involves obligations by or to Company of $50,000
or more and which, in the aggregate, do not involve obligations by Company of
more than $100,000. The contracts listed on the Company Disclosure Schedule
are, and upon purchase of the Assets by Buyer and satisfaction of the
conditions set forth in Section 8 hereof, shall remain, in full force and
effect and are valid and enforceable in accordance with their respective
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and by general equitable principles. To the
Knowledge of Company, no event has occurred and no condition exists which
constitutes, or with notice or lapse of time or both would constitute, a
material default by Company, or to the Knowledge of Company, by any other
party to such contracts.

         3.16     REAL PROPERTY. All real property deeds (for real property
owned by Company), leases and subleases as to which Company is a party
("LEASED PROPERTY") and any amendments or modifications thereof are listed on
the Company Disclosure Schedule are valid, in full force and effect and
enforceable, and there are no existing defaults, and Company has not received
or given notice of default or claimed default with respect to any lease, nor
is there any event that with notice or lapse of time, or both, would
constitute a default by Company thereunder. The Leased Property is not the
subject of any official complaint or notice of violation of any applicable
zoning, building or environmental protection code, and no such violation, to
the Knowledge of Company exists, except when such violation would not have a
material adverse effect on the Company's Business Condition.

         3.17     ENVIRONMENTAL MATTERS.

         (a)      Neither Company nor, to the Knowledge of Company, any previous
owner, tenant, occupant or user of real property, used, owned or leased by
Company (the "REAL PROPERTY has discharged or released on the Real Property any
Hazardous Material (as defined below) in violation of any federal, state or
local statute, regulation, rule or order applicable to health, safety and the
environment, including contamination of soil, groundwater or the environment,
generation, handling, storage, transportation or disposal of Hazardous Materials
or exposure to Hazardous Materials ("ENVIRONMENTAL LAWS"), except for those that
would not,

                                Page 20 of 44
<PAGE>

individually or in the aggregate have a material adverse effect on the
Business Condition of Company;

         (b)      No Hazardous Material has been used by Company in the
operation of Company's business and discharged or disposed of by the Company in
violation of Environmental Laws in amounts that would violate any Environmental
Laws;

         (c)      Company has not received from any Governmental Entity or third
party any request for information, notice of claim, demand letter, or other
notification, notice or information that Company is or may be potentially
subject to or responsible for any investigation or clean-up or other remediation
of Hazardous Material present on any Real Property;

         (d)      To the Knowledge of Company, there have been no environmental
investigations, studies, audits, tests, reviews, or other analyses, the purpose
of which was to discover, identify, or otherwise characterize the condition of
the soil, groundwater, air, or presence of asbestos at any of the Real Property
sites other than an environmental review conducted by Company's landlord in
connection with refinancing the office park that encompassed Company's facility

         (e)      To the Knowledge of Company, there is no asbestos present in
any Real Property presently owned or operated by Company, and no asbestos has
been removed from any Real Property while such Real Property was owned or
operated by Company; and

         (f)      To the Knowledge of Company, there are no underground storage
tanks on, in or under any of the Real Property and no underground storage tanks
have been closed or removed from any Real Property which are or have been in the
ownership of Company.

         "HAZARDOUS MATERIAL" means any substance (i) that is a "hazardous
waste" or "hazardous substance" under any federal, state or local statute,
regulation, rule, or order, (ii) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, or otherwise hazardous and is regulated by any
Governmental Entity, (iii) the presence of which on any of the Real Property
causes or threatens to cause a nuisance on any of the Real Property or to
adjacent properties or poses or threatens to pose a hazard to the health or
safety of persons on or about any of the Real Property, or (iv) the presence of
which on adjacent properties could constitute a trespass by Company or the then
current owner(s) of any of the Real Property.

         3.18     LITIGATION AND OTHER PROCEEDINGS. Neither Company nor any of
its officers, directors, or employees is a party to any pending or, to the
Knowledge of Company, threatened action, suit, labor dispute (including any
union representation proceeding), proceeding, investigation, or discrimination
claim in or by any court or governmental board, commission, agency, Governmental
Entity, department, or officer, or any arbitrator, arising from the actions or
omissions of Company or, in the case of an individual, from acts in his or her
capacity as an officer, director, or employee of Company, which individually or
in the aggregate would be have a material adverse effect on the Business
Condition of Company. Company is not subject to any order, writ, judgment,
decree, or injunction that has or will have a material adverse effect on
Company's Business Condition.

                                Page 21 of 44
<PAGE>

         3.19     PRODUCT LIABILITY. To the Knowledge of Company, each
product manufactured, sold or distributed by Company has been in material
conformity with all applicable contractual commitments and all express and
implied warranties and in material compliance with all applicable laws and
regulations. Since December 31, 1995, there is no existing liability, claim
or obligation arising from or alleged to arise from any actual or alleged
injury to persons or property as a result of the ownership, possession or use
of any product manufactured, sold or distributed by Company, nor, to the
Knowledge of Company, are there any reasonable basis for such claims. No
warranty costs for known claims will be incurred in excess of the amount
reserved for.

         3.20     CERTAIN TRANSACTIONS. Except for (a) relationships with
Company as an officer, director, or employee thereof (and compensation by
Company in consideration of such services) and (b) relationships with Company
as stockholders, no directors, officers, or shareholders of Company, or any
member of any of their families, is presently a party to, or was a party to
during the year preceding the date of this Agreement, any transaction with
Company, other than payment of certain management fees, tax distributions and
lease payments from the Company to Liberty, payment of life insurance
premiums on the life of a shareholder of Liberty, and transactions between
the Company and SDT, Trading, Frimo and EPS as a supplier and customer. None
of Company's officers or directors has any interest in any property, real or
personal, tangible or intangible, including inventions, copyrights,
trademarks, or trade names, used in or pertaining to the business of Company,
or any supplier, distributor, or customer of Company, except for (i) the
normal rights of a stockholder, (ii) rights under existing employee benefit
plans, and (iii) and the interest of Liberty as a shareholder in Frimo of
which Stephen R. Howard is President and the interest of Stephen R. Howard as
a shareholder, officer and director of SDT.

         3.21     INSURANCE AND BANKING FACILITIES. The Company Disclosure
Schedule contains a complete and correct list of (a) all contracts of
insurance or indemnity of Company in force at the date of this Agreement
(including name of insurer or indemnitor, agent, annual premium, coverage,
deductible amounts, and expiration date) and (b) the names and locations of
all banks in which Company has accounts or safe deposit boxes, the
designation of each such account and safe deposit box, and the names of all
persons authorized to draw on or have access to each such account and safe
deposit box. All premiums and other payments due from Company with respect to
any such contracts of insurance or indemnity have been paid, and Company does
not know of any fact, act, or failure to act which has or might cause any
such contract to be canceled or terminated. All known claims for insurance or
indemnity have been presented.

         3.22     GUARANTIES AND SURETYSHIPS. Company has no powers of
attorney outstanding (other than those issued in the ordinary course of
business with respect to tax matters), Company has no obligations or
liabilities (absolute or contingent) as guarantor, surety, cosigner,
endorser, co-maker, indemnitor, or otherwise respecting the obligations or
liabilities of any person, corporation, partnership, joint venture,
association, organization, or other entity.

         3.23     CERTAIN PAYMENTS. Neither Company, nor to the Knowledge of
Company, any person or other entity acting on behalf of Company has, directly
or indirectly, on behalf of or with respect to Company: (a) made an
unreported political contribution, (b) made or received

                                Page 22 of 44
<PAGE>

any payment which was not legal to make or receive, (c) engaged in any
material transaction or made or received any material payment which was not
properly recorded on the books of Company, or (d) created or used any
"off-book" bank or cash account or "slush fund". Neither Company, nor, to the
Knowledge of the Company, any director, officer, employee, or agent of
Company has been or is the subject of any investigation by any Governmental
Entity in connection with any such payment, provision of services, or
contribution.

         3.24     BOOKS AND RECORDS. All records of Company, including all
customer, intellectual property, supplier, accounting, personnel and computer
records, are maintained with reasonable completeness and accuracy.

         3.25     BROKERS AND FINDERS. Company has not retained any broker,
finder, or investment banker in connection with this Agreement or any of the
transactions contemplated by this Agreement, nor does or will Company owe any
fee or other amount to any broker, finder, or investment banker in connection
with this Agreement or the transactions contemplated by this Agreement.

         3.26     ASSETS SUFFICIENT TO OPERATE BUSINESS. The Assets, Company
Intellectual Property, agreements and instruments being acquired pursuant to
this Agreement include all assets, Company Intellectual Property, agreements and
instruments of Company, used in or intended for use in the Company's business
and are sufficient to operate Company's business as it was being conducted as of
the Stub Period Date.

         3.27     DISCLOSURE. Neither the representations or warranties made by
Company in this Agreement, nor the final Company Disclosure Schedule or any
other certificate executed and delivered by Company pursuant to this Agreement,
when taken together, contains any untrue statement of a material fact, or omits
to state a material fact necessary to make the statements or facts contained
herein or therein not misleading in light of the circumstances under which they
were furnished. To the Knowledge of Company, there are no fact or facts
pertaining to Company or its businesses which could have a material adverse
effect on the Business Condition of Company and which have not been disclosed to
Buyer by Company in writing.

         3.28     RELIANCE. The foregoing representations and warranties are
made by Company and Shareholders with the knowledge and expectation that Buyer
is placing reliance thereon.

                                   ARTICLE IV

                     REPRESENTATIONS AND WARRANTIES OF BUYER

         Except as disclosed in a document referring specifically to the
representations and warranties in this Agreement which identifies by section
number the section and subsection to which such disclosure relates and is
delivered by Buyer to Shareholders and Company prior to the execution of this
Agreement (the "BUYER DISCLOSURE SCHEDULE"), and whether or not the

                                Page 23 of 44
<PAGE>

Buyer Disclosure Schedule is referred to in a specific section or subsection,
Buyer represents and warrants to Company as follows:

         4.1      ORGANIZATION; STANDING AND POWER. Buyer is a corporation
duly organized, and validly existing under the laws of the state of
Washington, has all requisite power and authority to own, lease, and operate
its properties and to carry on its businesses as now being conducted, and is
duly qualified and in good standing to do business in each jurisdiction in
which a failure so to qualify would have a material adverse effect on the
Business Condition of Buyer.

         4.2      AUTHORITY. Buyer has, or shall have prior to the Closing,
all requisite corporate power and authority to enter into this Agreement and,
subject to the Buyer's Required Statutory Approvals, to consummate the
transactions contemplated hereby. As used in this Agreement "BUYER'S REQUIRED
STATUTORY APPROVALS" means such filings, authorizations, Orders and approvals
as may be required under federal or foreign laws, or securities laws. The
execution and delivery by Buyer of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer including the approval of the Board of
Directors of Buyer. This Agreement has been duly executed and delivered by
Buyer and constitutes a valid and binding obligation of Buyer enforceable in
accordance with its terms, except that such enforceability may be subject to
(i) bankruptcy, insolvency, reorganization, or other similar laws relating to
enforcement of creditors' rights generally and (ii) general equitable
principles, including the availability of specific performance, injunctive
relief and other equitable remedies.

         4.3      COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS.

         (a)      Buyer holds, and at all times has held, all licenses, permits,
and authorizations from all Governmental Entities necessary for the lawful
conduct of its business pursuant to all applicable statutes, laws, ordinances,
rules, and regulations of all such authorities having jurisdiction over it or
any part of its operations, excepting, however, when such failure to hold would
not have a material adverse effect on the Business Condition of Buyer. There are
no material violations or claimed material violations of any such license,
permit, or authorization or any such statute, law, ordinance, rule or
regulation. Subject to the satisfaction of the conditions set forth in Section
8, neither the execution and delivery of this Agreement and all other agreements
contemplated hereby by Buyer nor the consummation of the transactions
contemplated hereby and thereby will conflict with or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation, or acceleration of any obligation
or to loss of a material benefit under, or the creation of a lien, pledge,
security interest, charge, or other encumbrance on the assets or contracts of
Buyer pursuant to, (i) any provision of the Articles of Incorporation or Bylaws
of Buyer, or (ii) any loan or credit agreement, note, bond, mortgage, indenture,
contract, lease, or other agreement or instrument, permit, concession,
franchise, license, Order, statute, law, ordinance, rule or regulation
applicable to Buyer or its respective properties or assets, other than, in the
case of (ii), any such violation which individually or in the aggregate would
not have a material adverse effect on the Business Condition of Buyer.

                                Page 24 of 44
<PAGE>

         (b)      No Consent by any Governmental Entity, except for Buyer's
Required Statutory Approvals, is required by or with respect to Buyer in
connection with the execution and delivery of this Agreement and all other
agreements contemplated hereby by Buyer or the consummation by Buyer of the
transactions contemplated hereby.

         4.4      BROKERS AND FINDERS. Neither Buyer, nor any of its directors,
officers, or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
similar payments in connection with the transactions contemplated by this
Agreement.

         4.5      RELIANCE. The foregoing representations and warranties are
made by Buyer with the knowledge and expectation that Company is placing
reliance thereon.

                                    ARTICLE V

                              COVENANTS OF COMPANY

         During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Closing Date, Company
and Shareholders agree (except as expressly contemplated by this Agreement or
with Buyer's prior written consent, which will not be unreasonably withheld or
delayed) that:

         5.1      CONDUCT OF BUSINESS.

                  5.1.1    ORDINARY COURSE. Company shall carry on its business
in the usual, regular, and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to preserve intact
its present business organization, keep available the services of its present
officers, consultants, and employees, and preserve its relationships with
customers, suppliers, distributors and others having business dealings with it.
Company shall promptly notify Buyer of any event or occurrence or emergency not
in the ordinary course of business of Company that is material and adverse to
the Business Condition of Company. Company shall not:

                           (a)      Grant any severance or termination pay to
         any officer or director or, except in the ordinary course of business
         consistent with past practices to any employee of Company;

                           (b)      Commence a lawsuit other than: (i) for the
         routine collection of bills; (ii) in such cases where Company in good
         faith determines that failure to commence suit would result in a
         material impairment of a valuable aspect of Company's business,

                                Page 25 of 44
<PAGE>

         provided Company consults with Buyer prior to filing such suit; or
         (iii) for a breach of this Agreement;

                           (c)      Enter into any contract, commitment, or
         transaction not in the usual and ordinary course of its business;

                           (d)      Make any capital expenditures in excess of
         $5,000 for any single item or $10,000 in the aggregate, or enter into
         any leases of capital equipment or property under which the annual
         lease charge is in excess of $1,000; or

                           (e)      Sell or dispose of any capital assets not in
         the ordinary course of business.

                  5.1.2    DIVIDENDS; CHANGES IN STOCK. Company shall not: (a)
declare or pay any dividends on or make other distributions (whether in cash,
stock, or property) in respect to any of its capital stock; (b) split, combine,
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock; (c) repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock; or (d) propose any of the foregoing.

                  5.1.3    NO ACQUISITIONS. Company shall not acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association, or other business organization or
division thereof or otherwise acquire or agree to acquire any assets that are
material, individually or in the aggregate, to the Business Condition of
Company.

                  5.1.4    NO DISPOSITIONS. Company shall not sell, lease,
license, transfer, mortgage, encumber, or otherwise dispose of any of its assets
or cancel, release, or assign any indebtedness or claim, except in the ordinary
course of business or in amounts which are not material, individually or in the
aggregate, to the Business Condition of Company.

                  5.1.5    INDEBTEDNESS. Company shall not incur any
indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, or otherwise, except in
the ordinary course of business or in amounts that are not material,
individually or in the aggregate, to the Business Condition of Company.

                  5.1.6    PLANS; EMPLOYEES. Company shall not adopt or amend in
any material respect any Plan, or pay any pension or retirement allowance not
required by any existing Plan. Company shall not enter into any employment
contracts, pay any special bonuses or special remuneration to officers,
directors, or employees, or increase the salaries, wage rates, or fringe
benefits of its officers or employees other than pursuant to scheduled reviews
under Company's normal compensation review cycle, in all cases consistent with
Company's existing policies and past practice.

                                Page 26 of 44
<PAGE>

                  5.1.7    CLAIMS. Company shall not settle any claim, action,
or proceeding, except in the ordinary course of business or in amounts that are
not material, individually or in the aggregate, to the Business Condition of
Company.

                  5.1.8    AGREEMENT. Company shall not agree to take any of the
actions prohibited by this Section 5.1.

         5.2      BREACH OF REPRESENTATION AND WARRANTIES. Company and
Shareholders shall not take any action that would cause or constitute a breach
of any of the representations and warranties set forth in this Agreement or that
would cause any of such representations and warranties to be inaccurate in any
material respect. In the event of, and promptly after becoming aware of, the
occurrence of or the pending or threatened occurrence of any event that would
cause or constitute such a breach or inaccuracy, Company will give detailed
notice thereof to Buyer and will use reasonable efforts to prevent or promptly
remedy such breach or inaccuracy.

         5.3      CONSENTS. Company will promptly apply for or otherwise seek,
and use reasonable efforts to obtain, all consents and approvals, and make all
filings, required with respect to Company for the consummation of the
Transaction, except such consents and approvals as Buyer and Company agree that
Company shall not seek to obtain.

         5.4      REASONABLE EFFORTS. Company will use reasonable efforts to
effectuate the transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement, provided that Company
shall in no event be required to agree to the imposition of, or comply with, any
condition, obligation, or restriction on Company of the type referred to in
Section 8.1.3 hereof.

         5.5      TAXES.

         (a)      PREPARATION AND FILING OF RETURNS. Between the date hereof and
the Closing Date, Shareholders shall cause Company to prepare and file on or
before the due date therefor all Returns required to be filed by Company (except
for any Return for which an extension has been granted as permitted hereunder)
on or before the Closing Date, and shall pay, or cause Company to pay, all Taxes
(including estimated Taxes) due on such Return (or due with respect to Returns
for which an extension has been granted as permitted hereunder) or which are
otherwise required to be paid at any time prior to or during such period. Such
Returns shall be prepared in accordance with the most recent Tax practices as to
elections and accounting methods except for new elections that may be made
therein that were not previously available, subject to Buyer's consent (not to
be unreasonably withheld or delayed).

         (b)      NOTIFICATION OF TAX PROCEEDINGS. Between the date hereof and
the Closing Date, to the extent Shareholders or Company has knowledge of the
commencement or scheduling of any Tax audit, the assessment of any Tax, the
issuance of any notice of Tax due or any bill for collection of any Tax due for
Taxes, or the commencement or scheduling of any other administrative or judicial
proceeding with respect to the determination, assessment or collection of any
Tax of Company, Shareholders shall provide prompt notice to Buyer of such
matter,

                                Page 27 of 44

<PAGE>

setting forth information (to the extent known) describing any asserted Tax
liability in reasonable detail and including copies of any notice or other
documentation received from the applicable Tax authority with respect to such
matter.

         (c)      TAX ELECTIONS, WAIVERS AND SETTLEMENTS. Company and
Shareholders shall not, and Shareholders shall cause Company not to, take any of
the following actions: (i) make, revoke or amend any Tax election; (ii) execute
any waiver of restrictions on assessment or collection of any Tax; or (iii)
enter into or amend any agreement or settlement with any Tax authority.

         (d)      NONFOREIGN AFFIDAVIT. Shareholders shall furnish Buyer an
affidavit, stating, under penalty of perjury, the transferor's United States
taxpayer identification number and that the transferor is not a foreign person,
pursuant to section 1445(b)(2) of the Code.

                                   ARTICLE VI

                       NONCOMPETITION AND NONSOLICITATION

         6.1      NONCOMPETITION. At the Closing, Shareholders shall enter into
a Non-Compete Agreement with the Buyer (the "Non-Compete Agreement"), in the
form of Exhibit 8.2.6 attached hereto.

         6.2      SPEARHEAD TRADING COMPANY. Following the Closing Date,
Shareholders shall ensure that Spearhead Trading Company will cease selling
spare parts to Company and Company's customers.

                                   ARTICLE VII

                              ADDITIONAL AGREEMENTS

         In addition to the foregoing, Buyer and Company each agree to take the
following actions after the execution of this Agreement.

         7.1      ACCESS TO INFORMATION. Company shall, subject to applicable
law, afford to Buyer and its respective accountants, counsel, and other
representatives, reasonable access during normal business hours (a) to all of
its properties, books, contracts, commitments, and records, and (b) to all other
information concerning the business, properties and personnel of Company, and
(c) to conduct an environmental assessment of Company as Buyer may reasonably
request and as is necessary to complete the Transaction and prepare for an
orderly transition to operations after the Closing. Shareholders and Buyer
further agree that (i) Buyer shall only be provided access to the Company's
books, records, contracts and commitments at the officers of Conway, MacKenzie &
Dunleavy, 401 South Old Woodward Ave., Suite 340, Birmingham, Michigan 48009,
(ii) inspection of the Company's tangible assets shall only take

                                Page 28 of 44
<PAGE>

place by prior appointment made with Stephen R. Howard only, (iii) Buyer
shall not contact any customers, suppliers, creditors or employees of the
Company without the Company's prior written consent, and (iv) Company shall
not be obligated to give Buyer access to its active quote log or similar
data, customer lists or any contract with motoman supplier. Buyer agrees to
return all information received from the Company, including all copies made
of any such information, upon termination of this Agreement. No information
or knowledge obtained in any investigation pursuant to this Section 7.1 shall
affect or be deemed to modify any representation or warranty contained herein
or the conditions to the obligations of the parties to consummate the
Transaction.

         7.2      EXPENSES. Whether or not the Transaction is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expense.

         7.3      ADDITIONAL AGREEMENTS. In case at any time after the Closing
Date any further action is reasonably necessary or desirable to carry out the
purposes of this Agreement or to vest Buyer with full title to all properties,
assets, rights, approvals, immunities, and franchises, the proper officers and
directors of each party to this Agreement shall take all such necessary action.

         7.4      PUBLIC ANNOUNCEMENTS. Buyer, Shareholders and Company shall
cooperate with each other in releasing information concerning this Agreement and
the Transaction, and no release of information shall be made without the consent
of both Stephen R. Howard and Buyer. Where practicable each of the parties shall
furnish to the other drafts of all releases prior to publication. Buyer
represents to the Company that the execution of this Agreement will not require
it to make any public disclosure of the existence of this Agreement. Nothing
contained herein shall prevent either party at any time from furnishing any
information to any Governmental Entity or from issuing any release when it
believes it is legally required to do so, provided such party gives the other
party prompt notice of such Order, if applicable, and complies with any
protective order (or equivalent) imposed on such disclosure.

         7.5      DUE DILIGENCE. Buyer will perform a due diligence review ("DUE
DILIGENCE") with regard to the Company. Buyer shall commence its review after it
receives the Company Disclosure Schedule and complete its review within two (2)
weeks of beginning the review (the "Due Diligence Period"). Shareholders and
Company will cooperate with Buyer in this review. Buyer shall, upon execution of
this Agreement, deliver to Company by wire transfer to Fidelity Bank, 1040
Maple, Birmingham, Michigan 48009, ABA Routing No. 072412655, for credit to
Conway, MacKenzie & Dunleavy, Account No. 00-809-593, as a non-refundable
deposit, the sum of Two Hundred Fifty Thousand Dollars ($250,000) (the
"Deposit"). If Buyer notifies the Company in writing within the Due Diligence
Period that it is not satisfied with its due diligence (the "Due Diligence
Notice"), this Agreement shall terminate, the Company shall retain the Deposit,
together with any interest thereon, and neither the Company, the Shareholders
nor the Buyer shall have any further obligations to each other, except that the
provisions of Sections 7.2, 7.4, 10.2, 11.7, 11.8 and 11.9 shall survive any
such termination. In the event of such termination, Company shall retain the
Deposit, unless Buyer's decision is specifically attributable to a material
breach of one of the representations and warranties in this Agreement

                                Page 29 of 44
<PAGE>

and, as a result of such breach, Buyer will be unable to operate the business
of Company as it is operated at the Effective Date. If Buyer does not send
the Due Diligence Notice within the Due Diligence Period, Buyer shall be
deemed to be satisfied with its Due Diligence and shall be deemed to have
waived the condition to Buyer's obligations set forth in Section 8.2.7 of
this Agreement without further action on the part of Buyer. Notwithstanding
the above, Buyer may terminate this Agreement, and Company shall return the
Deposit, if Buyer is not reasonably satisfied with the results of a Phase I
environmental audit to be commenced during the Due Diligence Period and
completed no more than one week after completion of the Due Diligence Period.

         7.6       POST-CLOSING EMPLOYEE AND EMPLOYEE BENEFIT MATTERS.

                           (a)      Subject to the provisions of this Section
7.6, as of the Closing Date, Buyer shall offer employment on substantially the
same terms and conditions (including, without limitation, substantially the same
positions, seniority and responsibilities and compensation and fringe benefits
that in the aggregate are of comparable value to the compensation and benefits
received from Company) to all individuals then employed by the Company, whether
or not such individuals are active or inactive, including, without limitation,
such individuals employed by the Company who are absent from active employment
on the Closing Date by reason of an approved leave of absence, sickness,
disability, lay off, or vacation. For purposes of this Agreement, employees of
the Company who, on or after the Closing Date, become employees of Buyer shall
be referred to herein as the "Hired Employees."

                           (b)      Effective as of the Closing Date, Buyer
shall cover each Hired Employee under new or existing Plans of Buyer
(collectively the "Buyer Plans" and individually a "Buyer Plan"). With respect
to each Buyer Plan that on or after the Closing Date covers Hired Employees,
employment with the Company prior to the Closing Date shall be considered as
employment with Buyer for purposes of eligibility to participate, waiting or
elimination periods, preexisting condition limitation periods, eligibility to
receive benefits (including early retirement and disability benefits), vesting
and benefit accrual. With respect to each such Buyer Plan that is a defined
contribution profit sharing or savings plan and that is intended to be qualified
under Section 401(a) of the Code, Buyer shall cause such plan to accept
qualifying rollover contributions with respect to the Hired Employees upon
evidence satisfactory to Buyer that the transferring plan is tax-qualified under
Section 401(a) of the Internal Revenue Code.

                           (c)      For purposes of determining the rate of
future vacation accruals under each vacation policy of Buyer that, on or after
the Closing Date, covers Hired Employees, employment with the Company prior to
the Closing Date shall be considered as employment with Buyer.

                           (d)      With respect to each Buyer Plan that is an
employee welfare benefit plan (as such term is defined in Section 3(1) of ERISA)
("Buyer Welfare Plan") that on or after the Closing Date covers Hired Employees,
Buyer shall cause each such Buyer Welfare Plan to credit each Hired Employee
with such employee's 1999 year-to-date deductibles and co-payments paid under
the Company's Plans that are employee welfare benefit plans. Buyer shall

                                Page 30 of 44
<PAGE>

cause one or more Buyer Plans that are group health plans to provide benefits
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"), to each individual who, as of the Closing Date, is
considered a "qualified beneficiary" (as such term is defined in COBRA) under
EACH Company Plan that is a group health plan and who, as of such date, is
either receiving or entitled to receive COBRA benefits or who, as of such
date, is entitled to elect to receive such benefits. Buyer shall timely
provide COBRA notices to each Company employee who does not become a Hired
Employee on or after the Closing Date and each other individual who, as of
the Closing Date, is otherwise entitled to receive a COBRA notice by reason
of having been a participant in a Company Plan that is a group health plan
and having experienced a "qualifying event" (as such term is defined in
COBRA) whether or not such qualifying event is attributable, directly or
indirectly, to any transaction contemplated by this Agreement.

                                  ARTICLE VIII

                              CONDITIONS PRECEDENT

         8.1      CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
TRANSACTION. The respective obligation of each party to effect the Transaction
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:

                  8.1.1    CONSENTS. All Consents legally required for the
consummation of the Transaction shall have been filed, occurred, or been
obtained, other than such Consents, the failure of which to obtain would not
have a material adverse effect on the consummation of the Transaction
contemplated hereby or on the Business Condition of Buyer or Company.

                  8.1.2    NO RESTRAINTS. No statute, rule, regulation, or Order
shall have been enacted, entered, promulgated, or enforced by any Governmental
Entity of competent jurisdiction that enjoins or prohibits the consummation of
the Transaction and that is then in effect.

                  8.1.3    NO BURDENSOME CONDITION. There shall not be any
action taken, or any statute, rule, regulation, or Order enacted, entered,
enforced, or deemed applicable to the Transaction by any Governmental Entity
which, in connection with the grant of any Required Statutory Approval, imposes
any restriction, condition or obligation upon Buyer or Company which would have
a material adverse effect on the economic or business benefits of the
transactions contemplated by this Agreement.

         8.2      CONDITIONS OF OBLIGATIONS OF BUYER. The obligations of Buyer
to effect the Transaction are subject to the satisfaction of the following
conditions, unless waived by Buyer in writing:

                  8.2.1    REPRESENTATIONS AND WARRANTIES OF COMPANY AND
SHAREHOLDERS. The representations and warranties of Company and Shareholders set
forth in this Agreement shall be true and correct as of the date of this
Agreement and as of the Closing Date as though made on

                                Page 31 of 44
<PAGE>

and as of the Closing Date, except: (a) as otherwise contemplated by this
Agreement, or (b) in respects that do not have a material adverse effect on
the Business Condition of Company or on the benefits of the transactions
provided for in this Agreement. Buyer shall have received a certificate
signed on behalf of Company by an authorized officer to such effect on the
Closing Date.

                  8.2.2    PERFORMANCE OF OBLIGATIONS OF COMPANY AND
SHAREHOLDERS. Company and Shareholders shall have performed all agreements and
covenants required to be performed by them under this Agreement prior to the
Closing Date, except for breaches that do not have a material adverse effect on
the Business Condition of Company or on the benefits of the transactions
provided for in this Agreement. Buyer shall have received a certificate signed
on behalf of Company by an officer of Company to such effect.

                  8.2.3    OPINION OF COMPANY'S COUNSEL. Buyer shall have
received an opinion dated the Closing Date of Jaffe, Raitt, Heuer & Weiss,
Professional Corporation, counsel to Company in form and substance acceptable to
Buyer.

                  8.2.4    NO MATERIALLY ADVERSE CHANGE. No materially adverse
change shall have occurred between the Stub Period Date and the Closing.

                  8.2.5    HOWARD EMPLOYMENT AGREEMENT. Company and Stephen R.
Howard shall have entered into an employment agreement providing for, among
other things, a term of one year, renewable for two additional years in Stephen
R, Howard's discretion and substantially in the form attached as EXHIBIT 8.2.5
(the "Employment Agreement").

                  8.2.6    NON-COMPETE AGREEMENT Company and Stephen R. Howard
shall have entered into a non-compete agreement substantially in the form
attached hereto as Exhibit 8.2.6 (the "Non-Compete Agreement").

                  8.2.7    DUE DILIGENCE. Buyer's satisfaction, in its
reasonable discretion with its Due Diligence, including the completion of a
Phase I environmental review.

         8.3      CONDITIONS OF OBLIGATIONS OF COMPANY. The obligation of
Company to effect the Transaction is subject to the satisfaction of the
following conditions unless waived by Company in writing:

                  8.3.1    REPRESENTATIONS AND WARRANTIES OF BUYER. The
representations and warranties of Buyer set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except: (a) as otherwise contemplated
by this Agreement, or (b) in respects that do not have a material adverse effect
on the Business Condition of Buyer or on the benefits of the transactions
provided for in this Agreement. Company shall have received a certificate signed
on behalf of Buyer by an authorized officer and Controller of Buyer to such
effect on the Closing Date.

                                Page 32 of 44
<PAGE>

                  8.3.2    PERFORMANCE OF OBLIGATIONS OF BUYER. Buyer shall have
performed all agreements and covenants required to be performed by them under
this Agreement prior to the Closing Date except for breaches that do not have a
material adverse effect on the Business Condition of Buyer or on the benefits of
the transactions provided for in this Agreement, and Company shall have received
a certificate signed on behalf of Buyer by an authorized officer of Buyer to
such effect.

                  8.3.3    OPINION OF BUYER'S COUNSEL. Shareholders shall have
received an opinion dated the Closing Date of counsel to Buyer, in form and
substance acceptable to Company.

                  8.3.4    EMPLOYMENT AND NON-COMPETE AGREEMENTS. Company and
Stephen R. Howard shall have entered into the Employment Agreement and the
Non-Compete Agreement.

                                   ARTICLE IX

                                 INDEMNIFICATION

         9.1      INDEMNIFICATION BY SHAREHOLDERS. Subject to Sections 9.5 and
9.6, Shareholders shall defend, indemnify, and hold Buyer and its employees,
officers, directors and agents (and, following the Closing Date, Company and its
employees, officers, directors and agents) harmless from and against, and
reimburse Buyer with respect to, any and all Losses incurred by Buyer, or
Company by reason of or arising out of or in connection with (a) any breach, or
any third party claim that if true, would constitute a breach, by Company or
Shareholders of any representation or warranty of Company or Shareholders
contained in this Agreement or in any certificate delivered to Buyer pursuant to
the provisions of this Agreement and/or (b) the failure, partial or total, of
Company or Shareholders to perform any agreement or covenant required by this
Agreement to be performed by it. Neither Shareholders nor any of its Affiliates
shall make any claim against Company, its employees, officers, directors and
agents after the Closing Date for any breach of representation, warranty or
covenant under this Agreement or seek contribution or indemnification from
Company, its employees, officers, directors and agents with respect to any such
breach.

         9.2      INDEMNIFICATION BY BUYER. Subject to Sections 9.5 and 9.6,
Buyer shall defend, indemnify, and hold Shareholders harmless from and against,
and reimburse Shareholders with respect to, any and all Losses incurred by
Shareholders by reason of or arising out of or in connection with: (a) any
breach, or any third party claim that if true, would constitute a breach by
Buyer of any representation or warranty of Buyer contained in this Agreement or
in any certificate delivered to Shareholders pursuant to the provisions of this
Agreement and/or (b) the failure, partial or total, of Buyer to perform any
agreement or covenant required by this Agreement to be performed by it.

         9.3      NOTICE OF CLAIMS. All claims for indemnification under this
Agreement shall be resolved in accordance with the following procedures:

                                Page 33 of 44
<PAGE>

                  (a)      If an indemnified party reasonably believes that
it may incur any Losses, it shall deliver a Claim Notice to the indemnifying
party for such Losses. If an indemnified party receives notice of a
third-party claim for which it intends to seek indemnification hereunder, it
shall give the indemnifying party prompt written notice of such claim, so
that the indemnifying party's defense of such claim under Section 9.4
hereunder may be timely instituted.

                  (b)      When Losses are actually incurred or paid by an
indemnified party or on an indemnified party's behalf or otherwise fixed or
determined, the indemnified party shall deliver a Payment Certificate to the
indemnifying party for such Losses. If a Claim Notice or Payment Certificate
refers to any claim, action, suit, or proceeding made or brought by a third
party, the Claim Notice or Payment Certificate shall include copies of the
claim, any process served, and all legal proceedings with respect thereto.

                  (c)      If, after receiving a Claim Notice or Payment
Certificate, the indemnifying party desires to dispute such claim or the amount
claimed in the Claim Notice or Payment Certificate, it shall deliver to the
indemnified party a Counternotice as to such claim or amount. Such Counternotice
shall be delivered within thirty (30) days after the date the Claim Notice or
Payment Certificate to which it relates is received by the indemnifying party.
If no such Counternotice is received within the aforementioned 30-day period,
the indemnifying party shall have waived any further objection to the Claim
Notice or Payment Certificate or the Losses described in it, and the indemnified
party shall be entitled to prompt payment for such Losses from the indemnifying
party.

                  (d)      If, within thirty (30) days after receipt by the
indemnified party of the Counternotice to a Claim Notice or Payment Certificate,
the parties shall not have reached agreement as to the claim or amount in
question, the claim for indemnification shall be decided in accordance with the
provisions of Section 11.10.

                  (e)      With respect to any Losses based upon an asserted
liability or obligation to a person or entity not a party to this Agreement for
which indemnification is being claimed, the obligations of the indemnifying
party hereunder shall not be reduced as a result of any action by the party
furnishing the notice of third party claim responding to such claim if such
action is reasonably required to minimize damages or to avoid a forfeiture or
penalty or to comply with a requirement imposed by law.

         9.4      DEFENSE OF THIRD PARTY CLAIMS. The indemnifying party under
this Article IX shall have the right to conduct and control, through counsel of
its own choosing, any third-party claim, action, or suit or compromise or
settlement thereof. The indemnified party may, at its election, participate in
the defense of any such claim, action, or suit through counsel of its choosing,
but the fees and expenses of such counsel shall be at the expense of the
indemnified party, unless the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it that are
different from or in addition to those available to the indemnifying party (in
which case, if the indemnified party notifies the indemnifying party in writing
that it elects separate counsel at the expense of the indemnifying party, the

                                Page 34 of 44
<PAGE>

indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party with respect to such defenses). If
the indemnifying party shall fail to defend any such third-party action,
claim, or suit, then the indemnified party may defend, through counsel of its
own choosing, such action, claim, or suit and may settle such action, claim,
or suit and recover from the indemnifying party the amount of such settlement
or of any judgment and the costs and expenses of such defense; provided,
however, that the indemnifying party shall not be liable to pay any such
settlement unless the indemnified party shall have given the indemnifying
party written notice of the terms of the proposed settlement and the
indemnifying party shall have failed, within twenty (20) days of receipt of
such notice, to undertake the defense of such action, claim, or suit. The
indemnifying party shall not compromise or settle any third-party action,
claim, or suit which includes any term that shall require any act or
forbearance by the indemnified party from all liability in respect of such
claim, action, or suit without the prior written consent of the indemnified
party, which consent shall not be unreasonably withheld or delayed.
Assumption by an indemnifying party of control of any such defense,
compromise, or settlement shall not be deemed a waiver by it of its right to
challenge its obligation to indemnify the indemnified party. Buyer, Company
and Shareholders shall cooperate in all reasonable respects with each other
in connection with the defense, negotiation, or settlement of any legal
proceeding, claim, or demand referred to in this Section 9.4.

         9.5      TIME LIMIT. The provisions of this Article IX shall apply only
to Losses that are incurred or relate to claims, demands, or liabilities that
are asserted or threatened within two (2) years of the Closing Date, except for
Tax Losses and Losses with respect to breaches of Section 3.13 and Section 3.17
which shall survive for the applicable statute of limitations; provided,
however, that the indemnification obligations for such claims for which a Claim
Notice is given within the time period set forth above shall continue until the
final resolution of each such claim.

         9.6      LIMITATIONS. Except for breaches of Section 3.8, 3.13 and 3.17
which shall not be subject to any Threshold Amount, the indemnified party shall
be entitled to indemnification only if the aggregate Losses exceed Twenty Five
Thousand Dollars ($25,000) (the "THRESHOLD AMOUNT"). Once the Threshold Amount
has been exceeded, the indemnified party shall be entitled to indemnification
for all amounts including the Threshold Amount. The aggregate amount to which an
indemnified party shall be entitled to be indemnified will not exceed the
Purchase Price. The sole remedy of Buyer, Shareholders and Company for breaches
of this Agreement shall be claims made in accordance with and subject to the
limitations of this Article IX.

         9.7      OFFSET. Subject to Sections 9.3, 9.5 and 9.6, Buyer shall have
the right to offset from the amount held pursuant to the Escrow Agreement, if
any,, any amounts representing Losses resulting to Buyer as a result of any
indemnification claim contained in this Agreement. Buyer's exercise of its
offset rights shall not limit Buyer's right to recover any amounts owed it that
exceed the amount obtained by exercise of those rights and such exercise shall
not be in substitution of or in any way limit Buyer's exercise of its other
rights and remedies. Shareholders acknowledges and agrees that Buyer's exercise
of its rights pursuant to this section shall not limit Buyer's right to recover
any amounts owed to it that exceed the amount obtained by exercise of

                                Page 35 of 44
<PAGE>

those rights and, subject to Sections 9.5 and 9.6, such exercise shall not
limit Buyer's exercise of its other rights and remedies under this Agreement.

         9.8      LIABILITY FOR FAILURE TO CLOSE. If all conditions to Closing
specified in Article VIII have been satisfied or, in the case of the conditions
specified by Section 8.2, waived by Buyer, or, in the case of the conditions
specified by Section 8.3, waived by Shareholders, and either Buyer or
Shareholders fail or refuse to consummate this Transaction, then the party that
fails or refuses to consummate this Transaction shall be liable to the other
party for all direct and actual losses and damages, including indirect and
consequential damages, and expenses (including attorneys fees and related
expenses), provided that, should Buyer commence its Due Diligence and elect to
terminate this Agreement as provided in Section 7.5 hereof, the Company shall
retain the Deposit, subject to the conditions of Section 7.5 hereof.

                                    ARTICLE X

                        TERMINATION, AMENDMENT AND WAIVER

         10.1     TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval of matters presented
in connection with the Transaction by Company:

                           (a)      by mutual consent of Buyer and Company;

                           (b)      by either Buyer or Company (provided that
the terminating party is not then in material breach of any representation,
warranty, covenant, or agreement contained in this Agreement) if there has been
a breach of any representation, warranty, covenant, or agreement that has a
material adverse effect on the Business Condition of the Company, on one hand,
or Buyer, on the other hand, as the case may be, or on the benefits of the
transaction provided for in this Agreement, and such breach has not been cured,
or reasonable efforts are not being employed to cure such breach, within ten
(10) days after written notice thereof is given to the party committing such
breach;

                           (c)      by either Buyer or Company if the
Transaction shall not have been consummated before September 1, August 20],
1999; or

                           (d)      by either Buyer or Company if any permanent
injunction or other Order of a court or other competent authority preventing the
Transaction shall have become final and non-appealable.

         10.2     EFFECT OF TERMINATION. In the event of termination of this
Agreement by Buyer or Company as provided in Section 10.1, this Agreement shall
forthwith become void and have no effect, and there shall be no liability or
obligation on the part of the Buyer, Shareholders or Company or their respective
officers or directors, except that (i) the provisions of Sections 7.2, 7.4,
10.2, 11.7, 11.8 and 11.9 shall survive any such termination and abandonment,
(ii) no party

                                Page 36 of 44
<PAGE>

shall be released or relieved from any liability arising from the
willful breach by such party of any of its representations, warranties,
covenants, or agreements as set forth in this Agreement, and (iii) the Deposit
shall be treated in accord with Section 7.5.

                                   ARTICLE XI

                               GENERAL PROVISIONS

         11.1     SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties, and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement survive the Closing as provided
herein

         11.2     NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed sufficiently given and served for all purposes
when personally delivered or given by telex or machine-confirmed facsimile or
three business days after a writing is deposited in the United States mail,
first class postage or other charges prepaid and registered, return receipt
requested, addressed as follows (or at such other address for a party as shall
be specified by like notice):

                  (a)      if to Buyer:

                           Flow International Corporation
                           23500 - 64th Avenue South
                           P.O. Box 97040
                           Kent, WA  98032
                           Attention:  John Leness
                           Phone:  (253) 850-3500
                           Fax:  (253) 813-3280

                           WITH A COPY TO:

                           Preston Gates & Ellis LLP
                           5000 Columbia Center
                           701 Fifth Ave.
                           Seattle, WA  98104-7078
                           Attention:  Robert S. Jaffe
                           Phone:  (206) 623-7580
                           Fax:  (206) 623-7022

                  b)       if to Company:

                               Page 37 of 44
<PAGE>

                           Spearhead Automated Systems, Inc.
                           41211 Vincinti Court
                           Novi, MI  48876
                           Attention:  Stephen R. Howard
                           Phone:  (248) 474-5263
                           Fax:  248-474-5286

                           WITH A COPY TO:

                           Jaffe, Raitt, Heuer & Weiss
                           One Woodward Ave., Suite 2400
                           Detroit, MI  48226
                           Attention:  Stephen G. Schafer
                           Phone: (313) 961-8380
                           Fax: (313) 961-8358

         11.3     INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit to this
Agreement unless otherwise indicated. The words "INCLUDE", "INCLUDES", and
"INCLUDING" when used therein shall be deemed in each case to be followed by the
words "WITHOUT LIMITATION". The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the language hereof
will not be construed for or against either party. A reference to a Section or
an Exhibit will mean a section in, or exhibit to, this Agreement unless
otherwise explicitly set forth.

         11.4     COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to each of the other parties, it being understood that
all parties need not sign the same counterpart.

         11.5     MISCELLANEOUS. This Agreement and the documents referred to
herein (a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.

         11.6     NO JOINT VENTURE. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee, or legal representative of any other party. No party will have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each

                               Page 38 of 44
<PAGE>

other. No party will have any power or authority to bind or commit any other.
No party will hold itself out as having any authority or relationship in
contravention of this Section.

         11.7     TRANSACTIONAL EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated, each of Buyer, Shareholders and
Company shall pay its own fees and expenses incident to the negotiation,
preparation, execution, delivery and performance hereof, including, without
limitation, the fees and expenses of its counsel, accountants and other experts.

         11.8     CONFIDENTIALITY. Each party ("Receiving Party") acknowledges
that the Confidential Information of the other party ("Disclosing Party") is the
valuable confidential property of the Disclosing Party. Each party agrees to
hold Confidential Information received or otherwise obtained from the other in
confidence. The Receiving Party shall not disclose the Confidential Information
of the Disclosing Party to any third persons or use it in any manner except as
contemplated by this Agreement. The parties further agree that Confidential
Information of the Disclosing Party shall be disclosed to the Receiving Party's
officers, employees, and third-party consultants, only on a reasonable
need-to-know basis and only with instructions to such persons that they comply
with the restrictions of this provision. "CONFIDENTIAL INFORMATION" means all
information, including all technical and commercial information and data,
disclosed by one party to this Agreement to the other or otherwise obtained,
directly or indirectly, by one party from the other, in the course of this
transaction with respect to Buyer, Company or Shareholders which, at the time it
was disclosed to or otherwise obtained by a party, was not rightfully in that
party's possession and was not common general public knowledge. This transaction
and its terms and conditions shall be treated as Confidential Information. The
restrictions of this section shall not, (i) apply to Confidential Information of
the Disclosing Party (a) which enters into the public domain through no fault of
the Receiving Party, (b) which is disclosed to the Receiving Party by a third
party with no restriction on disclosure, or (c) which is independently developed
by the Receiving Party; or (ii) prohibit disclosure of Confidential Information
of the Disclosing Party when required by a court or governmental agency of
competent jurisdiction so long as the Receiving Party takes appropriate steps to
attempt to obtain a protective or other such order with respect to such
Confidential Information and advises the Disclosing Party as soon as reasonably
possible of the requirement to make such disclosure; or (iii) restrict Buyer in
its due diligence. This confidentiality and nondisclosure section shall, except
as provided herein, survive termination of this Agreement and the Closing.

         Notwithstanding the foregoing, the limitations on the use of
Confidential Information shall not be construed to limit Buyer's right to make
full use of the assets of the Company after the Closing. Except as otherwise
provided in this Agreement, the terms of this Agreement and the Transaction
shall not be disclosed by either party except to confirm that a sale has
occurred after consummation of the Transaction.

         11.9     GOVERNING LAW. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
state of Michigan.

                               Page 39 of 44
<PAGE>

         11.10    ARBITRATION. This paragraph shall control the disposition of
any claim, controversy, or dispute between the parties to this Agreement and
arising out of or related to this Agreement (a "Claim"). Prior to the
institution of formal arbitration, a party who has or believes it has a claim
shall notify the other party of such Claim and include a short statement of the
facts and circumstances supporting the Claim. Both parties shall then meet and
in good faith attempt to resolve the Claim within twenty (20) days thereof. In
the event the parties cannot resolve the Claim within such period of time,
either party may submit the Claim to the American Arbitration Association in
accordance with its Commercial Arbitration Rules and Expedited Procedures except
as specified below. The parties shall cooperate and endeavor to appoint a
single, mutually acceptable arbitrator within twenty (20) days of filing of a
Claim. Such arbitrator need not be a member of the American Arbitration
Association Commercial Panel. In the event the parties are unable to agree to
the appointment of such an arbitrator within such time, they shall request the
American Arbitration Association to furnish a list of ten (10) of its approved
commercial arbitrators. Within twenty (20) days of the receipt of such list, the
parties shall have the opportunity to strike three (3) proposed arbitrators and
shall rank the remaining proposed arbitrators in order of preference (one being
first preference). The American Arbitration Association shall appoint the person
with the lowest total score who does not have a conflict. That person shall be
the sole arbitrator in arbitrating the Claim or Claims. the arbitrator shall
allow and order such reasonable discovery as the parties request, consistent
with the parties' desire to have an efficient but fair resolution of any
Claim(s). the arbitrator shall be required to schedule a hearing on any claim as
soon as possible after the completion of any necessary discovery and issue an
award within thirty (30) days of such hearing. Such a ruling shall, as the
arbitrator deems appropriate, apportion costs of the arbitration. the decision
of the arbitrator shall be binding and conclusive as to all parties hereto and a
judgment upon such award may be entered in any court of competent jurisdiction.
The arbitration shall take place in Southfield, Michigan and no other place.

         (THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)

                               Page 40 of 44
<PAGE>

                    SIGNATURE PAGE - ASSET PURCHASE AGREEMENT

         IN WITNESS WHEREOF, Buyer, Company, and Shareholders have caused this
Agreement to be executed by their respective and duly authorized officers, have
duly executed this Agreement, all as of the date first written above.

FLOW INTERNATIONAL CORPORATION                SPEARHEAD AUTOMATED SYSTEMS, INC.

By ______________________________             By ______________________________
    Ronald Tarrant, Chairman,                 Its  ____________________________
    Chief Executive Officer and President

LIBERTY TOOL AND ENGINEERING
CORPORATION

By ______________________________             _________________________________
Its  ____________________________             Stephen R. Howard

                               Page 41 of 44
<PAGE>

                                    EXHIBITS

Exhibit 8.2.5 - Employment Agreement
Exhibit 8.2.6 -- Non-Compete Agreement

                               Page 42 of 44
<PAGE>

                                  SCHEDULE 2.1

1.       Desk and furnishings in Stephen R. Howard's office

2.       Artwork and artifacts in Stephen R. Howard's office

3.       Framed travel and sports posters in office

4.       Framed auto prints in superintendent's office

5.       Rights to season tickets to the Detroit Red Wings and Detroit Tigers

6.       Trophy case in lobby (owned by Stephen R. Howard)

                               Page 43 of 44
<PAGE>

                                  SCHEDULE 2.2

1.       All liabilities set forth on May 31, 1999 Balance Sheet, as adjusted
         through the Closing Date as a result of transactions in the ordinary
         course of business

                               Page 44 of 44<PAGE>

                                                                   Exhibit 10.1

[LOGO]

                                   PROMISSORY NOTE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
  Principal       Loan Date      Maturity      Loan No.    Call   Collateral    Account      Officer    Initials
<S>              <C>            <C>            <C>         <C>    <C>         <C>            <C>        <C>
$5,000,000.00    06-01-2000     05-31-2001                           000      00709056974      368
----------------------------------------------------------------------------------------------------------------
                          References in the shaded area are for Lender's use only and
                 do not limit the applicability of this document to any particular loan or item.
----------------------------------------------------------------------------------------------------------------
Borrower:  COASTCAST CORPORATION                      Lender:  IMPERIAL BANK
           3025 E. Victoria Street                             Apparel & Textile Industries Group
           Rancho Dominguez, CA 90221-5616                     201 N. Figueroa Street, Suite 1425
                                                               Los Angeles, CA 90012-2623
----------------------------------------------------------------------------------------------------------------
</TABLE>

Principal Amount: $5,000,000.00                     Date of Notice: June 1, 2000
                             Initial Rate: 9.500%

PROMISE TO PAY. COASTCAST CORPORATION ("Borrower") promises to pay to
Imperial Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Five Million & 00/100 Dollars
($5,000,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan to one payment of all outstanding
principal plus all accrued unpaid interest on May 31, 2001. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning July 1, 2000, and all subsequent interest payments are due on the
same day of each month after that. The annual interest rate for this Note is
computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied
first to any unpaid collection costs and any late charges, then to any unpaid
interest, and any remaining amount to principal.

VARIABLE INTEREST RATE. Subject to designation of a different interest rate
index by Borrower as provided below, the interest rate on this Note is
subject to change from time to time based on changes in an index which is the
Imperial Bank Prime Rate (the "Index"). The Prime Rate is the rate announced
by Lender as its Prime Rate of interest from time to time. Lender will tell
Borrower the current index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each day. The Index currently is
9.500%. The interest rate to be applied to the unpaid principal balance of
this Note will be at a rate equal to the Index, resulting in an initial rate
of 9.500%. NOTICE: Under no circumstances will the interest rate on this Note
be more than the maximum rate allowed by applicable law.

INTEREST RATE OPTIONS. The following interest rate options are available
under this Note:

    (a) DEFAULT OPTION. The interest rate margin and index described in the
    "VARIABLE INTEREST RATE" paragraph above (the "Default Option").

    (b) LIBOR. A margin of 2.000 percentage points over LIBOR. For purposes of
    this Note, LIBOR shall mean London Inter-Bank Offered Rate as provided in
    the LIBOR ADDENDUM TO NOTE attached hereto and made a part hereof.

When the interest rate is based on a fixed rate, the rate shall be in effect
for a period of the number of days or months as indicated in the rate option
description (the "Interest Period"), in any case extended to the next
succeeding business day when necessary, beginning on a borrowing date,
conversion date or expiration date of the then current Interest Period.
Adjustments in the interest rate due to changes in the maximum nonusurious
interest rate allowed (the "Highest Lawful Rate") shall be made on the
effective day of any change in the Highest Lawful Rate.

Provided Borrower is not in default under this Note, Borrower may designate
in advance which of the above interest rate indexes shall be applicable to
any loan advance under this Note and shall designate any optional Interest
Period applicable to any fixed rate loan or advance. In the absence of any
such designation the interest rate option shall be the Default Option.
Thereafter unpaid principal balances under this Note may be converted (at the
end of an Interest Period if the index used to determine the interest rate
therefore is a fixed rate) to another of the above interest rate options, or
continued for an additional interest period, when applicable, as designated
by Borrower in advance; and in the absence of sufficient advance designation
as to conversion to or continuation of a fixed rate index, the index shall be
converted to the Default Option. Notwithstanding the foregoing, a fixed rate
index may not be elected for a loan or advance under this Note, nor any
conversion to or continuation of a fixed rate index be elected, if the
Interest Period thereof would extend beyond the maturity of this Note.

PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is
entitled to a MINIMUM INTEREST CHARGE OF $250.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, they will reduce the principal balance due.

LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT.

DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect either now or at the time made or
furnished. (d) Borrower becomes insolvent, a receiver is appointed for any
part of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to
take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (f) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Note. (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is
impaired. (h) Lender in good faith deems itself insecure.

If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within ten (10)
days; or (b) if the cure requires more than ten (10) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to
pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Note to 5.000 percentage points over the index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any
increased rate). Lender may hire or pay someone else to help collect this
Note if Borrower does not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums
provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS
ANGELES COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE THE
RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY
EITHER LENDER OR BORROWER AGAINST THE OTHER. (INITIAL HERE HB) THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00. If Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.

RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent

<PAGE>

                                 (Continued)
===============================================================================

permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorized
person. All oral requests shall be confirmed in writing on the day of the
request. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: NORMAN FUJITAKI, SECRETARY,
and HANS J. BUEHLER, CHIEF EXECUTIVE OFFICER. Borrower agrees to be liable
for all sums either: (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced
by endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under
this Note if: (a) Borrower or any guarantor is in default under the terms of
this Note or any agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of this Note; (b)
Borrower or any guarantor ceases doing business or is insolvent; (c) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.

CREDIT AGREEMENT. This Note is subject to the provisions of the Credit
Agreement dated June 1, 2000, and all amendments thereto and replacements
therefor.

GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this
Note, whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.

BORROWER:

COASTCAST CORPORATION

X     /s/ HANS H. BUEHLER
 ---------------------------------
        Authorized Officer

===============================================================================

<PAGE>

                                  CREDIT AGREEMENT

This Credit Agreement ("Agreement") is made and entered into on June 1, 2000,
by and between Coastcast Corporation, a California corporation, ("Borrower")
and Imperial Bank, a California banking corporation, ("Bank").

Subject to the terms and conditions of this Agreement, any security
agreement(s) executed by Borrower in favor of Bank, any note(s) executed by
Borrower in favor of Bank, or any other agreements executed in conjunction
therewith (collectively, the "Loan Documents"), Bank shall make the loan(s)
and or advance(s) (individually a "Loan" and collectively "Loans") referred
to below to Borrower.

In consideration of mutual covenants and conditions hereof, the parties
hereto agree as follows:

1.       AMOUNT AND TERMS OF CREDIT

1.01          REVOLVING CREDIT COMMITMENT.

(a)           REVOLVING LINE OF CREDIT. Subject to the terms and conditions
of this Agreement, provided that no event of default then has occurred and is
continuing, Bank shall, upon Borrower's request make advances ("Revolving
Loans") to Borrower, for cash flow timing differences and the issuance of
letters of credit, in an amount not to exceed $5,000,000 (the "Revolving Line
of Credit") until May 31, 2001 (the "Revolving Line of Credit Maturity
Date"). Revolving Loans may be repaid and reborrowed, provided that all
outstanding principal and accrued interest on the Revolving Loans shall be
payable in full on the Revolving Credit Maturity Date.

(b)           REVOLVING NOTE. The interest rate, payment terms maturity date
and certain other terms of the Revolving Loan will be contained in a
promissory note dated the date of this agreement, as such may be amended or
replaced from time to time.

(c)           LETTER OF CREDIT USAGE AND SUBLIMIT. Subject to availability
under the Revolving Line of Credit, at any time and from time to time from
the date hereof through the banking day immediately prior to the Revolving
Line of Credit Maturity Date, Bank shall issue for the account of Borrower
such standby and commercial letters of credit ("Letters of Credit") as
Borrower may request, which requests shall be made by delivering to Bank a
duly executed letter of credit application on Bank's standard form; provided,
however, that the outstanding and undrawn amounts under all such Letters of
Credit (i) shall not at any time exceed $5,000,000 ("Letter of Credit
Sublimit") and (ii) shall be deemed to constitute Revolving Loans for the
purpose of calculating availability under the Revolving Line of Credit.
Unless agreed to in writing by Bank, no Letter of Credit shall have an
expiration date that is later than the Revolving Line of Credit Maturity
Date. All Letters of Credit shall be in form and substance acceptable to Bank
in its sole discretion and shall be subject to the terms and conditions of
Bank's form application and letter of credit agreement and other agreements
required by Bank. Borrower will pay all usual issuance and other fees that
Bank notifies Borrower it will be charged for issuing and processing Letters
of Credit for Borrower.

                                       1
<PAGE>

1.02          DOCUMENTATION FEE, COSTS AND EXPENSES. In addition to any other
amounts due, or to become due, concurrently with the execution hereof,
Borrower agrees to pay to Bank a documentation fee in the amount of $150.00,
and all other costs and expenses incurred by the Bank in the preparation of
this Agreement, the other Loan Documents and the perfection of any security
interest granted to Bank by Borrower.

1.03          COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
interest, fees, costs, and/or expenses due under this Agreement by charging
Borrower's demand deposit account number 09-105-433 with Bank, or any other
demand deposit account maintained by Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency
shall be immediately due and payable by Borrower.

2.       REPRESENTATIONS OF BORROWER

Borrower represents and warrants that:

2.01          EXISTENCE AND RIGHTS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the state of California,
which shall survive at least five years beyond the maturity of any Loans
hereunder; Borrower is authorized and in good standing to do business in the
state of its incorporation; Borrower has the appropriate powers and adequate
authority, rights and franchises to own its property and to carry on its
business as now conducted, and is duly qualified and in good standing in each
state in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary; and Borrower has
the power and adequate authority to make and carry out this Agreement.
Borrower has no investment in any other business entity unless specified in
writing to Bank.

2.02          AGREEMENT AUTHORIZED. The execution, delivery and performance
of this Agreement and the Loan Documents are duly authorized and do not
require the consent or approval of any governmental body or other regulatory
authority; are not in contravention of or in conflict with any law or
regulation or any term or provision of Borrower's articles of incorporation,
or similar document as the case may be, and this Agreement is the valid,
binding and legally enforceable obligation of Borrower in accordance with its
terms; subject only to bankruptcy, insolvency or similar laws affecting
creditors rights generally.

2.03          NO CONFLICT. The execution, delivery and performance of this
Agreement and the Loan Documents are not in contravention of or in conflict
with any agreement, indenture or undertaking to which Borrower is a party or
by which it or any of its property may be bound or affected, and do not cause
any lien, charge or other encumbrance to be created or imposed upon any such
property by reason thereof.

2.04          LITIGATION. Except as disclosed in writing to Bank by Borrower,
there is no litigation or other proceeding pending or threatened against or
affecting Borrower which if determined adversely to Borrower or its interest
would have a material adverse effect on the financial condition of Borrower,
and Borrower is not in default with respect to any order, writ, injunction,
decree or demand of any court or other governmental or regulatory authority.

                                       2
<PAGE>

2.05          FINANCIAL CONDITION. The balance sheet of Borrower as of
December 31, 1999, and the related profit and loss statement for the
twelve-month period ended as of that date, a copy of which has heretofore
been delivered to Bank by Borrower, and all other statements and data
submitted in writing by Borrower to Bank in connection with this request for
credit are true and correct, and said balance sheet truly presents the
financial condition of Borrower as of the date thereof, and has been prepared
in accordance with generally accepted accounting principles on a basis
consistently maintained. Since such date there have been no material adverse
changes in the financial condition or business of Borrower.  Borrower has no
knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected in said
balance sheet, other than in the ordinary and normal course of its business,
which may have a materially adverse effect upon its financial condition,
operations or business as now conducted.

2.06          TITLE TO ASSETS. Borrower has good title to its assets, and the
same are not subject to any liens or encumbrances other than those permitted
by Section 5.03 hereof.

2.07          TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes, and, if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.

2.08          TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses
all necessary trademarks, trade names, copyrights, patents, patent rights,
and licenses to conduct its business as now operated, without any known
conflict with the valid trademarks, trade names, copyrights, patents and
license rights of others.

2.09          REGULATION U. None of the proceeds of any Loan shall be used to
purchase or carry margin stock (as defined within Regulation U of the Board
of Governors of the Federal Reserve system).

2.10          ERISA. All defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of Section
302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA has occurred with respect to any such plan.

3.       CONDITIONS PRECEDENT TO LOAN

              Prior to Bank being obligated to make any Loan pursuant to this
Agreement, Bank must receive all of the following, each of which must be in
form and substance satisfactory to Bank:

3.01          PROMISSORY NOTE. Original, executed promissory note as
applicable.

3.02          INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage required pursuant to the Agreement to Provide Insurance
executed by Borrower, in form, substance, amounts, covering risks and issued
by companies satisfactory to Bank, and where required by Bank, with Lenders
Loss Payable endorsement in favor of Bank.

                                        3
<PAGE>

3.03          ORGANIZATIONAL DOCUMENTS. Copies of the articles of
incorporation, or similar document as the case may be, of the any Borrower.

3.04          AUTHORIZATIONS. Certified copies of all action taken by any
Borrower to authorize the execution, delivery and performance of the Loan
Documents.

3.05          GOOD STANDING. Good standing certificates from the appropriate
secretary of state of the state in which any Borrower is organized and in
each state in which it is required to be qualified to do business.

3.06          CREDIT AGREEMENT. This Agreement executed by Borrower.

3.07          ADDITIONAL DOCUMENTS. Such other documents as Bank may
reasonably deem necessary.

4.       AFFIRMATIVE COVENANTS OF BORROWER

Borrower agrees that so long as it is indebted to Bank, under borrowings, or
other indebtedness, or so long as Bank has any obligation to extend credit to
Borrower it will, unless Bank shall otherwise consent in writing:

4.01          RIGHTS AND FACILITIES. Maintain and preserve all rights,
franchises and other authority adequate for the conduct of its business;
maintain its properties, equipment and facilities in good order and repair;
conduct its business in an orderly manner without voluntary interruption and,
if a corporation or partnership, maintain and preserve its existence.

4.02          USE OF PROCEEDS. Use the proceeds of the Loans only for
purposes specified in Section 1 of this Agreement.

4.03          INSURANCE. Maintain public liability, property damage and
workers' compensation insurance and insurance on all its insurable property
against fire and other hazards with responsible insurance carriers to the
extent usually maintained by similar businesses and/or in the exercise of
good business judgment, and as required by that Agreement to Provide
Insurance executed by Borrower, with the Bank to be shown as Lenders Loss
Payee on such policies.

4.04          TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long
as:

(a)      The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse effect upon
its financial condition or the loss of any right of redemption from any sale
thereunder; and

                                       4
<PAGE>

(b)      It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by it to be
adequate with respect thereto.

4.05          RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access
to, and to examine its properties, books and records at all reasonable times
and upon reasonable notice during normal business hours; and furnish Bank:

(a)           QUARTERLY FINANCIAL STATEMENT. As soon as available, and in any
event within forty-five (45) days after the close of each quarter, a balance
sheet, profit and loss statement and reconciliation of Borrower's capital
balance accounts as of the close of such period and covering operations for
the portion of Borrower's fiscal year ending on the last day of such period,
all in reasonable detail and reasonably acceptable to Bank, in accordance with
generally accepted accounting principles on a basis consistently maintained
by Borrower and certified by an appropriate officer of Borrower.

(b)           ANNUAL FINANCIAL STATEMENT. As soon as available, and in any
event within one hundred twenty (120) days after and as of the close of each
fiscal year of Borrower, a report of audit of Company, all in reasonable
detail accompanied by Form 10-K, submitted on an "Unqualified" basis by an
independent certified public accountant selected by Borrower and reasonably
acceptable to Bank, in accordance with generally accepted accounting
principles on a basis consistently maintained by Borrower and certified by an
appropriate officer of Borrower;

(c)           AUDIT REPORTS. Promptly after the receipt thereof by Borrower,
copies of any detailed audit reports submitted to Borrower by independent
accountants in connection with each annual or interim work on the accounts of
Borrower made by such accountants;

(d)           STOCKHOLDER, SECURITY AND EXCHANGE COMMISSION STATEMENTS AND
REPORTS. Promptly after the same are available, copies of all such proxy
statements, financial statements and reports as Borrower or any subsidiary
shall send to its members or stockholders as appropriate, if any, and copies
of all reports which Borrower or any subsidiary may file with the Securities
and Exchange Commission.

(e)           OTHER INFORMATION. Such other information relating to the
affairs of Borrower as the Bank reasonably may request from time to time.

4.06          CURRENT RATIO. Maintain on a quarterly basis a minimum ratio of
total current assets (excluding all amounts due from stockholders, officers
and affiliates) divided by total current liabilities (including all amounts
due to stockholders, officers and affiliates) of 3.00 to 1.00

4.07          DEBT TO TANGIBLE NET WORTH. Maintain on a quarterly basis a
ratio of total liabilities to Tangible Net Worth (defined as stockholder's
equity less any value for goodwill, trademarks, patents, copyrights,
leaseholds, organization expense and other similar intangible items, and any
amounts due from stockholders, officers and affiliates) of not greater than
1.00 to 1.00.

4.08          OUT OF DEBT. The unpaid balance of the Revolving Loans shall be
$0 for at least thirty (30) consecutive days prior to each anniversary date to
this Agreement.

                                       5
<PAGE>

4.09          PROFITABILITY. Maintain, profitable operations (meaning a net
profit after taxes) of at least $5,000,000 on an basis.

4.10          ERISA. Cause all defined benefit pension plans, as defined in
ERISA, of Borrower to, at all times, meet the minimum funding standards of
Section 302 of ERISA, and ensure that no Reportable Event or Prohibited
Transaction, as defined in ERISA, will occur with respect to any such plan.

4.11          LAWS. At all times comply with, or cause to be complied with,
all laws, statutes, rules, regulations, orders and directions of any
governmental authority having jurisdiction over Borrower or Borrower's
business.

4.12          GAAP. Compliance with all financial covenants shall be
calculated based on generally accepted accounting principles applied on a
consistent basis as maintained by Borrower.

4.13          OPERATING ACCOUNTS. Maintain all primary accounts and banking
relationship with the Bank.  Maintain, or cause to be maintained, on deposit
with Bank, non-interest bearing demand deposit balances sufficient to
compensate Bank for all services provided by Bank.  Balances shall be
calculated after reduction for the reserve requirement of the Federal Reserve
Board and uncollected funds.  Any deficiencies shall be charged directly to
the Borrower on a monthly basis.

4.14          NOTICES. Promptly notify Bank in writing of (i) the occurrence
of any Event of Default hereunder or any event which upon notice and lapse of
time would be an Event of Default; (ii) all litigation affecting Borrower
where the amount is $50,000 or more; any substantial dispute which may exist
between Borrower and any governmental regulatory body or law enforcement
authority; any change in Borrower's name or principal place of business; or
any other matter which has resulted or might result in a material adverse
change in Borrower's financial condition or operations.

5.            NEGATIVE COVENANTS OF BORROWER

Borrower agrees that so long as it is indebted to Bank, or so long as Bank
has any obligation to extend credit to Borrower, it will not, without Bank's
written consent:

5.01          TYPE OF BUSINESS. Make any substantial change in the character
of its business.

5.02          OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist
any indebtedness for borrowed moneys other than Loans from the Bank except
obligations now existing as shown in the financial statement dated December
31, 1999, excluding those obligations being refinanced by Bank, or sell or
transfer, either with or without recourse, any accounts or notes receivable or
any moneys due or to become due.

5.03          LIENS AND ENCUMBRANCES. Create, incur, permit to exist, or
assume any mortgage, pledge, encumbrance, lien or charge of any kind upon any
asset now owned or hereafter acquired by it,

                                       6
<PAGE>

other than liens for taxes not delinquent and liens in Bank's favor and other
than liens agreed to in writing by Bank.

5.04          LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or
advances to any person or other entity other than in the ordinary and normal
course of its business as now conducted or make any investment in the
securities of any person or other entity other than the United States
Government; or guarantee or otherwise become liable upon the obligation of
any person or other entity, except by endorsement of negotiable instruments
for deposit or collection in the ordinary and normal course of its business.

6.       EVENTS OF DEFAULT

The occurrence of any of the following events of default ("Events of
Default") shall, at Bank's option, terminate Bank's commitment to lend and
make all sums of principal and interest then remaining unpaid on all
Borrower's indebtedness to Bank immediately due and payable, all without
demand, presentment or notice, all of which are hereby expressly waived:

6.01          FAILURE TO PAY. Failure to pay any installment of principal or
of interest on any indebtedness of Borrower to bank within five (5) days of
its due date.

6.02          BREACH OF COVENANT. Failure of Borrower to perform any other
term or condition of this Agreement of any Loan Document binding upon
Borrower.

6.03          BREACH OF WARRANTY. Any of Borrower's representations or
warranties made herein or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith shall be false or
misleading in any respect.

6.04          INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become
insolvent; or admit its inability to pay its debts as they mature; or make an
assignment for the benefit of creditors; or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business.

6.05          JUDGMENTS, ATTACHMENTS. Any money judgment in excess of
$50,000 writ or warrant of attachment or similar process shall be entered or
filed against Borrower or any of its assets and shall remain unvacated,
unbonded or unstayed for a period of ten (10) days or in any event later than
five (5) days prior to the date of any proposed sale thereunder.

6.06          BANKRUPTCY.  Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or against
Borrower and, if instituted against it, shall not be dismissed within thirty
(30) days thereafter.

6.07          CESSATION OF BUSINESS. Borrower shall voluntarily suspend its
business.

6.08          ADVERSE CHANGE. Any change which, in the opinion of Bank, is
materially adverse to the financial condition of Borrower or any Guarantor;
or should Bank, for any reason, believe that the

                                       7
<PAGE>

prospect of Borrower's payment or performance hereunder or under any other
agreement or instrument with Bank be impaired.

6.09          OTHER DEFAULTS. Borrower, or any Guarantor of Borrower's
obligations to Bank, shall commit or do or fail to commit or do any act or
thing which would constitute an event of default under any of the terms of
any other agreement, document or instrument executed or to be executed by it
concerning the obligation to pay money.

6.10          ADVANCES. Notwithstanding anything to the contrary contained
herein, Bank shall have no duty to make advances while any event of default
exists notwithstanding any cure period provided for herein.

7.       MISCELLANEOUS PROVISIONS

7.01          FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of Bank or any holder of notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.  All rights and remedies existing under this Agreement or any
note(s) issued in connection with a Loan that Bank may make hereunder, are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.

7.02          COUNTERPARTS; ENTIRE AGREEMENT. This Agreement may be executed
by the parties hereto in several counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but one and the
same agreement.  This Agreement, and the other Loan Documents constitute the
entire understanding among the parties hereto with respect to the subject
matter hereof and supersedes any prior agreements, written or oral, with
respect thereto.

7.03          ATTORNEY'S FEES. Borrower will pay promptly to Bank without
demand after notice, with interest thereon from the date of expenditure at
the rate applicable to the Loan, reasonable attorneys' fees and all costs and
expenses paid or incurred by Bank in collecting or compromising the Loan
after the occurrence of an Event of Default, whether or not suit is filed.
If suit is brought to enforce any provision of this Agreement, the prevailing
party shall be entitled to recover its reasonable attorneys' fees and court
costs in addition to any other remedy or recovery awarded by the court.

7.04          ADDITIONAL REMEDIES. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in
addition to all rights, powers and remedies given to Bank by law against
Borrower or any other person, including but not limited to Bank's rights of
setoff or banker's lien.

7.04          INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.

7.06          APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the state of California, to the
jurisdiction of whose courts the parties hereby agree to submit.

                                       8
<PAGE>

7.07          OFFSET. In addition to and not in limitation of all rights of
offset that Bank or other holder of the Loan may have under applicable law,
Bank or other holder of any note issued hereunder shall, upon the occurrence
of any Event of Default or any event which with the passage of time or notice
would constitute such an Event of Default, have the right to appropriate and
apply to the payment of the Loan any and all balances, credits, deposits,
accounts or monies of Borrower then or thereafter with Bank or other holder,
within ten (10) days after the Event of Default, and notice of the occurrence
of any Event of Default by Bank to Borrower.

7.08          SEVERABILITY. Should any one or more provisions of the
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective.

7.09          TIME OF THE ESSENCE. Time is hereby declared to be of the
essence of this Agreement and of every part hereof.

7.10          ACCOUNTING. All accounting terms shall have the meanings
applied under generally accepted accounting principles unless otherwise
specified.

7.11          REFERENCE PROVISION.

(a)      Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real of personal property; or (ii)
the appointment of a receiver, or the exercise of other provisional remedies
(any and all of which may be initiated pursuant to applicable law), each
controversy, dispute or claim between the parties arising out of or relating
to this Credit Agreement, any security agreement executed by Borrower in
favor of Bank or any note executed by Borrower in favor of Bank or any other
agreement or instrument issued in favor of Bank by Borrower (collectively in
this Section, the "Agreement") which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "CLAIM DATE" (defined as
the date on which a party subject to this Agreement gives written notice to
all other parties that a controversy, dispute or claim exists), will be
settled by a reference proceeding in California in accordance with the
provisions of Section 638 ET SEQ. of the California Code of Civil Procedure,
or their successor section ("CCP"), which shall constitute the exclusive
remedy for the settlement of any controversy, dispute or claim concerning
this Agreement, including whether such controversy, dispute or claim is
subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against each
other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Los Angeles County if
none (the "COURT"). The referee shall be a retired Judge of the Court
selected by mutual agreement of the parties, and if they cannot so agree
within forty-five (45) days after the Claim Date, the referee shall be
promptly selected by the Presiding Judge of the Court (or his
representative).  The referee shall be appointed to sit as a temporary judge,
with all of the powers for a temporary judge, as authorized by law, and upon
selection should take and subscribe to the oath of office as provided for in
Rule 244 of the California Rules of Court (or any subsequently enacted Rule).
 Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing
within sixty (60) days after the date of selection of the referee and (b) try
any and all issues of law or fact and report a statement of decision upon
them, if possible, within ninety (90) days of the Claim Date.  Any decision
rendered by the referee will be final, binding and conclusive and judgment
shall be entered pursuant to CCP Section 644 in any court in the

                                       9
<PAGE>

state of California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a
petition for a hearing and/or trial.  All discovery permitted by this
Agreement shall be completed no later than fifteen (15) days before the first
hearing date established by the referee. The referee may extend such period
in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness.  No
party shall be entitled to "priority" in conducting discovery.  Depositions
may be taken by either party upon seven (7) days written notice, and request
for production or inspection of documents shall be responded to within ten
(10) days after service.  All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose decision
shall be final and binding upon the parties. Pending appointment of the
referee as provided herein, the Superior Court is empowered to issue
temporary and/or provisional remedies, as appropriate.

(b)      Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence,
and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the
referee, except for trial, shall be conducted without a court reporter except
that when any party so requests, a court reporter will be used at any hearing
conducted before the referee.  The party making such a request shall have the
obligation to arrange for and pay for the court reporter.  The costs of the
court reporter at the trial shall be borne equally by the parties.

(c)      The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the state of California.
The rules of evidence applicable to proceedings at law in the state of
California will be applicable to the reference proceeding.  The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will
be binding upon the parties.  The referee shall issue a single judgment at
the close of the reference proceeding which shall dispose of all of the
claims of the parties that are the subject of the reference.  The parties
hereto expressly reserve the right to contest or appeal from the final
judgment or any appealable order or appealable judgment entered by the
referee.  The parties hereto expressly reserve the right to findings of fact,
conclusions of laws, a written statement of decision, and the right to move
for a new trial or a different judgment, which new trial, if granted, is also
to be a reference proceeding under this provision.

(d)      In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration.  The arbitration will be conducted by a retired judge of the
Court, in accordance with the California Arbitration Act, Section 1280
through Section 1294.2 of the CCP as amended from time to time.  The
limitations with respect to discovery as set forth hereinabove shall apply to
any such arbitration proceeding.

7.12          THIS AGREEMENT MAY BE MODIFIED ONLY BY A WRITING SIGNED BY ALL
PARTIES HERETO.

                                       10
<PAGE>

This Agreement is executed on behalf of the parties by duly authorized
officers as of the date first above written.

IMPERIAL BANK                             COASTCAST CORPORATION
("BANK")                                  ("BORROWER")

By: /s/ DONALD D. DOUTHWRIGHT             By: /s/ HANS H. BUEHLER
   --------------------------                ------------------------
    SVP/RPM                              Its: Chairman & CEO
                                             ------------------------

                                       11
<PAGE>

                                              LIBOR ADDENDUM
[LOGO]                                        TO NOTE

    This Libor Addendum ("Addendum") is dated as of JUNE 1, 2000, and is by
and between COASTCAST CORPORATION ("Borrower") and Imperial Bank ("Bank").
This Addendum amends and supplements the NOTE to which it is attached (the
"Note") and forms a part of and is incorporated into the Note.

    In the event of any inconsistency between the terms herein and the terms
of the Note, the terms herein shall in all cases govern and control.  All
capitalized terms herein, unless otherwise defined herein, shall have the
meanings set forth in the Note.

    1.   ADVANCES.

    1.1  PRIME LOANS. Advances permitted pursuant to the terms of the Note
or this Addendum which bear interest in relation to Bank's Prime Rate shall
be referred to herein as "Prime Loans" and each such advance shall be a
"Prime Loan." Each Prime Loan shall bear interest at an annual rate equal to
the sum of 0.000% plus the Bank's Prime Rate.  "Prime Rate" shall mean
the rate of interest publicly announced by Bank from time to time in
Inglewood, California, as its prime rate for lending.  The Prime Rate is not
intended to be the lowest rate of interest charged by Bank in connection with
extensions of credit to borrowers.

   1.2   LIBOR LOANS. Advances permitted pursuant to the terms of the Note or
this Addendum which bear interest in relation to the Libor Rate shall be
referred to herein as "Libor Loans" and each such advance shall be a "Libor
Loan."  Each Libor Loan shall bear interest at the Libor Rate, as defined
below.  A Libor Loan shall be in the minimum amount of FIVE HUNDRED THOUSAND
DOLLARS ($500,000) of such greater amount which is an integral
multiple of FIFTY THOUSAND DOLLARS ($50,000). No Libor Loan shall be made after
the last Business Day that is at least THREE (3) MONTHS prior to the Maturity
Date described in the Note.

    2.   INTEREST ON LIBOR LOANS.

    2.1  RATE OF INTEREST. Each Libor Loan shall bear interest on the unpaid
principal amount thereof from the Loan Date through the date paid (whether by
acceleration or otherwise) at a rate equal to the sum of 2.000% per annum
plus the Libor Rate for the Interest Period.

         (a)  "Loan Date" shall mean the date on which (i) a Libor Loan is
made, a Libor Loan is continued, or a Prime Loan is converted to a Libor Loan.

         (b)  "Interest Period" shall mean a period of THIRTY (30), SIXTY
(60) OR NINETY (90) DAYS, commencing on the applicable Loan Date, as selected
by Borrower pursuant to Section 2.2; PROVIDED HOWEVER that Borrower may not
select an Interest Period that would otherwise extend beyond the Maturity
Date of the Loan.  Borrower may also select a twelve (12) month Interest
Period if and when Bank notifies Borrower that such Interest Period is
available, as determined by Bank in its sole discretion.  During a Libor
Interest Period, interest shall be payable on the last day of the Interest
Period, provided that for any Interest Period longer than 3 months, interest
shall be payable quarterly and on the last day of the Interest Period.

         (c)  "Libor Rate" shall mean, for the applicable Interest Period for
a Libor Loan, a rate per annum (rounded upwards, if necessary, to the nearest
1/16 or 1%) equal to (i) the Libor Base Rate for such Interest Period divided
by (ii) 1.00 minus the Reserve Requirement Rate (expressed as a decimal
fraction) for such Interest Period.

         (d)  "Libor Base Rate" shall mean with respect to any Interest
Period, the rate equal to the arithmetic mean (rounded upwards, if necessary,
to the nearest 1/16 of 1%) of:

              (i)  the offered rates per annum for deposits in U.S. Dollars
for a period equal to such Interest Period which appears at 11:00 a.m.,
London time, on the Reuters Screen LIBOR Page on the Business Day that is two
(2) Business Days before the first day of such Interest Period, in each case
if at least four (4) such offered rates appear on such page, or

              (ii) if clause (i) is inapplicable, (x) the offered rate per
annum for deposits in U.S. Dollars for a period equal to such Interest Period
which appears as of 11:00 a.m., London time on the Telerate Monitor on
Telerate Screen 3750 on the Business Day which is two (2) Business Days
before the first day of such Interest Period; or (y) if clause (x) above is
inapplicable, the arithmetic mean (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the interest rates per annum offered by at least three
(3) prime banks selected by Bank at approximately 11:00 a.m. London time, on
the Business Day which is two (2) Business Days before such date for deposits
in U.S. Dollars to prime banks in the London interbank market, in each case
for a period equal to such Interest Period in an amount equal to the amount
to which the Libor Rate applies.

                                  Page 1 of 4
<PAGE>

         (e)  "Business Day" means any day on which Bank is open for business
in the State of California.

         (f)  "Reuters Screen LIBOR Page" means the display designated as page
LIBOR on the Reuters Monitor Money Rates Service or such other page as may
replace the LIBOR page on that service for the purpose of displaying London
interbank offered rates of major banks.

         (g)  "Reserve Requirement Rate" means, for any Interest Period, the
aggregate of the rates, effective as of the Business Day which is two (2)
Business Days before the first day of the Interest Period, at which:

              (i)  reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is used
in Regulation D) by member banks of the Federal Reserve System; and

              (ii) any additional reserves are required to be maintained by
Bank by reason of any Regulatory Change against (x) any category of
liabilities which includes deposits by reference to which the Libor Rate is
to be determined as provided in the definition of "Libor Base Rate;" of (y)
any category of extensions of credit or other assets which include Libor
Loans.

         (h)  "Regulatory Change" means, with respect to Bank, any change on
or after the date of the Note and this Addendum in any Governmental
Regulation, including the introduction of any new Governmental Regulation or
the decision of existing Governmental Regulation.

         (i)  "Governmental Regulation" means any (i) United States Federal,
state or foreign law or regulation (including without limitation Regulation
D); and (ii) the adoption or making of any interpretation, application,
directive or request applying to a class of lenders, including Bank, of or
under any United States Federal, state, or any foreign law or regulation
(whether or not having the force of law) by any court or by any governmental,
central banking, monetary or taxing authority charged with the interpretation
or administration of such law or regulation.

    2.2  DETERMINATION OF INTEREST RATES. Subject to the terms and conditions
of the Note and this Addendum, Borrower, at its option, may request an
advance in the form of a Libor Loan, a continuation of a Libor Loan, or a
conversion of a Prime Loan into a Libor Loan, only upon delivery to Bank of
an irrevocable written notice received by Bank at least three (3) Business
Days prior to the requested Loan Date, specifying (i) the principal amount of
such Libor Loan, (ii) the requested Loan Date, and (iii) the selected
Interest Period. Upon receiving such notice, Bank shall determine (which
determination shall be in accordance with Section 2.1 and shall, absent
manifest error, be final, conclusive and binding upon all parties hereto) the
Libor Rate applicable to such Libor Loan two (2) Business Days prior to the
Loan Date, and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to Borrower.  If Borrower shall fail to notify Bank of
its selected Interest Period for a Libor Loan (including the continuation of
an existing Libor Loan or the conversion of a Prime Loan into a Libor Loan),
the Borrower shall be deemed or have selected an Interest Period of three (3)
months.

    2.3  COMPUTATION OF INTEREST AND FEES. All computations of interest and
fees payable pursuant to the Note shall be calculated on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed (less the
date of repayment).

    2.4  RECORDATION BY BANK. Bank is hereby authorized to record the Loan
Date, the applicable Interest Period, the principal amount, and the interest
rate of each Libor Loan made (or continued or converted) by Bank, and the date
and amount of each payment or prepayment of principal thereof, in Bank's
records. Any such recordation shall constitute PRIMA FACIE evidence of the
accuracy of the information recorded; PROVIDED that the failure to make any
such recordation shall not in any way affect the Borrower's obligations
hereunder.

    3.   CONVERSION TO PRIME LOANS.

    3.1  ELECTION BY BORROWER. Subject to all the terms and conditions of this
Addendum, Borrower may elect from time to time to convert a Libor Loan to a
Prime Loan by giving Bank at least three (3) Business Days' prior irrevocable
notice of such election, and any such conversion of a Libor Loan shall be made
on the last day of the Interest Period with respect thereto.

    3.2  FAILURE OF NOTICE BY BORROWER. If Borrower otherwise fails to give
notice specifying its requests with respect to any Libor Loans that are
scheduled to become due, such failure shall be deemed, in the absence of any
notice from Borrower to the contrary, to be notice of a requested advance in
the form of a Prime Loan in a principal amount equal to the amount of said
Libor Loan.

    4.   PREPAYMENTS.

    4.1  VOLUNTARY PREPAYMENT BY BORROWER. Subject to the terms and conditions
of the Note and this Addendum, Borrower may, upon at least three (3) Business
Days' irrevocable notice to Bank as provided herein, at any time and from time
to time on any Business Day prepay any Prime Loan or Libor Loan in whole or in
part, without penalty or premium, other than customary actual "Breakage Fees"
and "Prepayment Costs" as defined below, resulting from prepayment of any
Libor Loan prior to the expiration of the Interest Period relating thereto.
The notice of prepayment shall specify the date and amount of the prepayment,
and the Loan to which the

                                 Page 2 of 4

<PAGE>

prepayment applies. Each partial prepayment of a Libor Loan shall be in an
amount not less than FIFTY THOUSAND DOLLARS ($50,000) or such greater amount
which is an integral multiple of FIFTY THOUSAND DOLLARS ($50,000); PROVIDED,
that unless a Libor Loan is prepaid in full, no prepayment shall be made if,
after giving effect to such prepayment, the aggregate principal amount of
Libor Loans having the same Interest Period shall be less than FIVE HUNDRED
THOUSAND DOLLARS ($500,000). Notice of prepayment having been delivered as
aforesaid, the principal amount of the prepayment specified in such notice
shall become due and payable on the prepayment date set forth in such notice.
All payments of principal under this Section 4 shall be accompanied by
accrued but unpaid interest on the amount being prepaid through the date of
such prepayment.

    4.2  BREAKAGE FEES. If for any reason (including voluntary or mandatory
prepayment, voluntary or mandatory conversion of a Libor Loan into a Prime
Loan, or acceleration), Bank receives all or part of the principal amount of
a Libor Loan prior to the last day of the Interest Period for such Loan,
Borrower shall immediately notify Borrower's account officer at Bank and, on
demand by Bank, pay Bank the Breakage Fees, defined as the amount (if any) by
which (i) the additional interest which would have been payable on the amount
so received had it not been received until the last day of such Interest
Period exceeds (ii) the interest which would have been recoverable by Bank
(without regard to whether Bank actually so invests said funds) by placing
the amount so received on deposit in the certificate of deposit markets or
the offshore currency interbank markets or United States Treasury investment
products, as the case may be, for a period starting on the date on which it
was so received and ending on the last day of such Interest Period at the
interest rate determined by Bank in its reasonable discretion. Bank's
determination as to such amount shall be conclusive and final, absent
manifest error.

    4.3  PREPAYMENT COSTS. Borrower shall pay to Bank, upon the demand of
Bank, such other amount or amounts as shall be sufficient (in the sole good
faith opinion of Bank) to compensate it for any loss, costs or expense
incurred by it as a result of any prepayment by Borrower (including voluntary
or mandatory prepayment, voluntary or mandatory conversion of a Libor Loan
into a Prime Loan, or prepayment due to acceleration) of all or part of the
principal amount of a Libor Loan prior to the last day of the Interest Period
for such Loan (including without limitation any failure by Borrower to borrow
a Libor Loan on the Loan Date for such borrowing specified in the relevant
notice of borrowing hereunder). Such costs shall include, without limitation,
any interest or fees payable by Bank to lenders of funds obtained by it in
order to make or maintain its loans based on the London interbank eurodollar
market. Bank's determination as to such costs shall be conclusive and final,
absent manifest error.

    5.   REMEDIES UPON EVENTS OF DEFAULT.

    5.1  CONVERSION TO PRIME LOANS. If any Event of Default has occurred and
is continuing under the Note or this Addendum, then in addition to all other
remedies available to Bank under the Note, at the option of Bank and without
demand or notice, all Libor Loans then outstanding shall be automatically
converted to Prime Loans on the last day of each respective Interest Period
for each Libor Loan.

    5.2  INDEMNITY. Borrower agrees to pay and indemnify Bank for, and to
hold Bank harmless from, any and all cost, loss or expense (including without
limitation any such cost, loss or expense arising from interest or fees
payable by Bank to lenders of funds obtained by it in order to maintain its
Libor Loans hereunder, or in its reemployment of funds obtained in connection
with the making or maintaining of Libor Loans) which Bank may sustain or
incur as a consequence of any default by Borrower in connection with or
related to: (a) payment of the principal amount of or interest on Libor
Loans, (b) making a borrowing or conversion of a Libor Loan after Borrower
has given a notice thereof in accordance with this Addendum, or (c) making a
prepayment of a Libor Loan after Borrower has given a notice thereof in
accordance with this Addendum, or any prepayment (whether optional or
mandatory) of any Libor Loan prior to the end of the applicable Interest
Period for such Loan.

    6.   ADDITIONAL PROVISIONS REGARDING LIBOR LOANS.

    6.1  LIBOR RATE TAXES. All payments of principal, interest, fees, costs,
expenses and all other amounts payable by Borrower pursuant to the Note and
this Addendum shall be made free and clear of and without reduction by reason
of all present and future income, stamp and other taxes or other charges
whatsoever imposed, assessed, levied or collected by any national government
or any political subdivision or taxing authority thereof or any organization
of which it is a member (excluding (i) any taxes imposed on or measured by
the overall net income or gross receipts of Bank by any such entity, and (ii)
any taxes which would have been imposed even if no provisions for Libor Loans
had appeared in this Addendum) (collectively, "Libor Taxes").

         If any Libor Taxes are required to be withheld from any amounts
payable to Bank, Borrower shall pay such additional amounts as may be
necessary so as to yield to Bank a net amount equal to the total amount of the
payments provided for in this Addendum or under the Note which Bank would have
received if such amounts had not been subject to Libor Taxes.

         If any Libor Taxes are payable directly by Borrower, they shall be
paid by Borrower prior to the date on which penalties attach for failure to
timely pay such Libor Taxes. Within forty five (45) days after the date on
which payment of any such Libor Taxes is due pursuant to applicable law,
Borrower will furnish Bank the original receipt for the full payment of such
Libor Taxes or, if such is not available, evidence of such payment
satisfactory in form and substance to Bank. Borrower shall indemnify and hold
Bank harmless against, and will reimburse to Bank, upon demand, any
incremental taxes, interest or penalties that may become payable by Bank as a
result of any failure by Borrower to pay any Libor Taxes when due.

                                 Page 3 of 4

<PAGE>

    6.2  INABILITY TO DETERMINE FAIR INTEREST RATE. If at any time Bank, in
its sole and absolute discretion, determines that: (i) the amount of the Libor
Loans for periods equal to the corresponding Interest Periods are not
available to Bank in the offshore currency interbank markets, (ii) the Libor
Rate does not accurately reflect the cost to Bank of lending the Libor Loan,
or (iii) by reason of any changes arising after the date of the Note affecting
the London interbank eurodollar market, adequate and fair means do not exist
for ascertaining the applicable interest rate on the basis provided for in
Sections 2.1 and 2.2 above, then Bank shall promptly give notice thereof to
Borrower. Upon the giving of such notice, Bank's obligation to make Libor
Loans shall terminate unless Bank and the Borrower agree in writing to a
different interest rate applicable to Libor Loans, or until such time as Bank
notifies Borrower that the circumstances giving rise to Bank's notice no
longer exist. While such circumstances continue to exist, (x) any requested
Libor Loan shall be treated as a request for a Prime Loan, (y) any Prime Loan
that was to have been converted to a Libor Loan shall be continued as a Prime
Loan, and (z) any outstanding Libor Loan shall be converted retroactively, on
the first day of the then current Interest Period with respect thereto, to a
Prime Loan.

    6.3  ILLEGALITY OR IMPRACTICABILITY. If (i) due to any Governmental
Regulation it shall become unlawful for Bank to continue to fund or maintain
any Libor Loans, or to perform its obligations hereunder, or (ii) due to any
contingency occurring after the date of the Note which has a material adverse
effect on the London interbank eurodollar market, it has become impracticable
for Bank to continue to fund or maintain any Libor Loans, or to perform its
obligations hereunder, then Bank shall promptly give notice thereof to
Borrower. Upon the giving of such notice, Bank's obligation to make Libor
Loans shall terminate, and in such event, (x) any requested Libor Loan shall
be treated as a request for a Prime Loan, (y) any Prime Loan that was to have
been converted to a Libor Loan shall be continued as a Prime Loan, and (z) any
outstanding Libor Loan shall be converted retroactively, on the first day of
the then current Interest Period with respect thereto, to a Prime Loan.

    6.4  GOVERNMENTAL REGULATIONS; INCREASED COSTS. Borrower shall pay to
Bank, within 15 days after demand by Bank, from time to time such amounts as
Bank may determine to be necessary to compensate it for any increased costs
incurred by Bank that Bank determines are attributable to its making or
maintaining of any Libor Loans to Borrower (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:

         (a) imposes a new tax or changes the basis of taxation of any amounts
payable to Bank under the Note or this Addendum in respect of any Libor Loans
(other than changes which affect taxes measured by or imposed on the overall
net income of Bank by the jurisdiction in which such Bank has its principal
office); or

         (b) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits or other liabilities with or for the account of Bank (including any
Libor Loans or any deposits referred to in the definition of Libor Base Rate);
or

         (c) imposes any other condition affecting the Note (or any of such
extensions of credit or liabilities); or

         (d) imposes or modifies a Governmental Regulation regarding capital
adequacy which has or would have the effect of reducing the rate of return on
capital of Bank or any person or entity controlling Bank ("Parent") as a
consequence of its obligations hereunder to a level below that which Bank (or
its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by
an amount deemed by Bank to be material.

    Bank will notify Borrower of any event occurring after the date of the
Note which will entitle Bank to Additional Costs pursuant to this Section 6.4
as promptly as practicable after it obtains knowledge thereof and determines
to request such compensation. Bank will furnish Borrower with a statement
setting forth the basis and amount of each request by Bank for Additional
Costs under this Section 6.4. Determinations and allocations by Bank for
purposes of this Section 6.4 of the effect of any Regulatory Change on its
costs of maintaining its obligations to make Libor Loans or of making or
maintaining Libor Loans or on amounts receivable by it in respect of Libor
Loans, and of the additional amounts required to compensate Bank in respect of
any Additional Costs, shall be conclusive and final, absent manifest error.

    This Addendum is executed as of the date first written above.

BORROWER                              BANK

COASTCAST CORPORATION                 IMPERIAL BANK
                                      a California banking corporation

By /s/ HANS H. BUEHLER                By /s/ DONALD D. DOUTHWRIGHT
  --------------------------------      ---------------------------------------
                                        for Gina Loose

                                        Its Assistant Vice President
                                            -----------------------------------
By
  --------------------------------

                                 Page 4 of 4

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