Document:

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                                                               EXHIBIT 10.2 (cc)

                               EXECUTIVES SERVICES
                               -------------------
                                    AGREEMENT
                                    ---------

                                     BETWEEN
                                     -------

                                  CATUITY INC.
                                  ------------

                                       AND
                                       ---

                            DAVID LANCELOT MACHATTIE
                            ------------------------
                                      SMITH
                                      -----

                                  (1 JUNE 2001)
                                  -------------

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                                TABLE OF CONTENTS

<TABLE>
<S>    <C>                                                                          <C>
1     DEFINITIONS AND INTERPRETATION                                                    4

   1.1   DEFINITIONS                                                                    4

2     EMPLOYMENT                                                                        5

3     TERM                                                                              5

4     DUTIES OF EXECUTIVE                                                               6

   4.1   GENERAL DUTIES                                                                 6

   4.2   DUTY TO REPORT                                                                 6

   4.3   OUTSIDE DIRECTORSHIPS                                                          6

5     REMUNERATION                                                                      6

   5.1   BASIC SALARY PACKAGE                                                           6

   5.2   STARTING SALARY PACKAGE                                                        7

   5.3   SALARY PACKAGE REVIEW                                                          7

   5.4   NO DECREASE IN BASIC SALARY PACKAGE                                            8

   5.5   DIRECTORS' FEES                                                                8

6     SUPERANNUATION                                                                    8

7     EXISTING LOAN AGREEMENT                                                           8

8     EXPENSES AND OTHER ENTITLEMENTS                                                   8

   8.1   EXPENSES                                                                       8

   8.2   ENTITLEMENTS                                                                   9

   8.3   FRINGE BENEFITS TAX                                                            9

9     MAINTENANCE OF REMUNERATION                                                      10

10    LEAVE ENTITLEMENTS                                                               10

11    PAYMENT DURING ABSENCE ON MEDICAL GROUNDS                                        10

12    CONFIDENTIALITY                                                                  11

   12.1    EXECUTIVE'S OBLIGATIONS                                                     11

   12.2    SURVIVAL OF OBLIGATIONS                                                     11

13    RESTRICTIONS ON OTHER ACTIVITIES OF THE EXECUTIVE                                11

   13.1    INDUCEMENTS                                                                 11

   13.2    OPTIONAL POST-EMPLOYMENT RESTRAINT                                          11

   13.3    USE OF THE COMPANY NAME                                                     12

14    TERMINATION                                                                      12

   14.1    TERMINATION BY THE EXECUTIVE                                                12

   14.2    TERMINATION BECAUSE OF INCAPACITY                                           13

   14.3    IMMEDIATE TERMINATION BY THE COMPANY                                        13
</TABLE>

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<TABLE>
<S>       <C>                                                                       <C>
   14.4    TERMINATION BY THE COMPANY                                                  13

   14.5    PAYMENTS ON TERMINATION OR FAILURE TO RENEW AGREEMENT                       13

   14.6    TERMINATION PAYMENTS                                                        13

   14.7    RESIGNATION AS DIRECTOR                                                     14

   14.8    OBLIGATIONS ON TERMINATION                                                  14

15    SHARES AND OPTIONS                                                               14

   15.1    CONFIRMATION                                                                14

   15.2    NEW OPTIONS                                                                 14

16    INDEMNITY                                                                        14

17    GENERAL                                                                          15

   17.1    NOTICES                                                                     15

   17.2    GOVERNING LAW AND JURISDICTION                                              15

   17.3    PROHIBITION, ENFORCEABILITY AND SEVERANCE                                   15

   17.4    WAIVER                                                                      16

   17.5    ENTIRE AGREEMENT                                                            16

   13.   TAXATION                                                                      22

   14.   UNEXERCISED OPTIONS                                                           22

   15.   CHANGE OF CONTROL                                                             23
</TABLE>

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THIS EXECUTIVE SERVICE AGREEMENT is made on 1 June 2001 between the following
parties:

CATUITY INC. of 2711 E Jefferson Drive, Detroit, Michigan 48207 USA ('COMPANY'),
AND

DAVID LANCELOT MACHATTIE SMITH of 24 View Street, Woollahra, New South Wales
2025 ('EXECUTIVE').

RECITALS

A.   The Company is in the business of developing, marketing and operating
     software solutions for loyalty programs integrated with the payment system
     over POS and Internet. (the 'BUSINESS').

B.   The Company and the Executive entered into an Employment Agreement dated 1
     May 1995 ('1995 Agreement'), Executive Services Agreement dated 14 May 1997
     ('1997 Agreement') and an Executive Services Agreement dated 1 June 1999
     ('1999 Agreement) under which the Executive has been employed as the
     Managing Director of the Company (the 'PREVIOUS AGREEMENTS').

C.   The Company and the Executive have agreed to enter into this Agreement to
     replace the Previous Agreements (only to the extent that this agreement
     conflicts with the Previous Agreements) and to clarify the terms and
     conditions of the Executive's continued employment as Chairman of the
     Company.

THE PARTIES AGREE, in consideration of, among other things, the mutual promises
contained in this agreement:

1        DEFINITIONS AND INTERPRETATION

1.1        DEFINITIONS

           In this agreement:

           'BOARD' means the board of directors of the Company,

           'GROUP' means the Company and any Group Company;

           'GROUP COMPANY' means a 'related body corporate' of the Company as
           that expression is defined in the Corporations Law;

           'INFORMATION' means any information in respect of the Company's
           Business which is not in the public domain and includes, but is not
           limited to, any document, book, account, process, patent,
           specification, drawing, design or know-how which is:

          (a)  supplied by the Company to the Executive; or

          (b)  generated by the Executive in the course of performing the
               Executive's obligations;

           'MONTH' means calendar month;

           'SALARY REVIEW DATE' means 1 May of each year that this Agreement is
in effect;

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           'SUBSIDIARY' means any 'subsidiary' of the Company as that expression
           is defined in the Corporations Law,.

1.2        INTERPRETATION

           In this agreement, headings are for convenience only and do not
           affect the interpretation of this agreement and, unless the context
           otherwise requires:

           (a)        a reference to termination of this agreement includes a
                      reference to termination of the Executive's contract of
                      employment;

           (b)        words importing the singular include the plural and vice
                      versa;

           (c)        words importing a gender include any gender;

           (d)        other parts of speech and grammatical forms of a word or
                      phrase defined in this agreement have a corresponding
                      meaning;

           (e)        an expression importing a natural person includes any
                      company, partnership, joint venture, association,
                      corporation or other body corporate and vice versa;

           (f)        a reference to any thing (including, but not limited to,
                      any right) includes a part of that thing;

           (g)        a reference to a party to a document includes that party's
                      successors and permitted assigns;

           (h)        a reference to a statute, regulation, proclamation,
                      ordinance or by-law includes all statutes, regulations,
                      proclamations, ordinances or by-laws varying,
                      consolidating or replacing it, and a reference to a
                      statute includes all regulations, proclamations,
                      ordinances and by-laws issued under that statute; and

           (i)        a reference to a document or agreement includes all
                      amendments or supplements to, or replacements or novations
                      of, that document or agreement.

2          EMPLOYMENT

           (a)        Under the Previous Agreements the Company appointed the
                      Executive as its Managing Director and the Executive
                      accepted that appointment with effect from 1 May 1995 (the
                      'Commencement Date'). The Executive became Chairman of the
                      Company in December 1999.

           (b)        The Executive continues to be employed as the Chairman of
                      the Company and from the date of this Agreement that
                      employment is on the terms contained in this Agreement.

3          TERM

           (a)        The appointment of the Executive as CEO & Managing
                      Director of the Company began on the Commencement Date
                      under the terms of the Previous Agreements and the
                      appointment of the Executive as Chairman was made in
                      December 1999.

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           (b)       The appointment of the Executive as an executive and,
                     subject to the board of Directors discretion, as Chairman
                     of the Company will continue until 1 June 2003, unless
                     terminated at some earlier time in accordance with the
                     terms of this Agreement.

4        DUTIES OF EXECUTIVE

4.1      GENERAL DUTIES

           Subject to clause 4.3, the Executive must:

           (a)        devote the whole of the Executive's time, attention and
                      skill during normal business hours, and at other times as
                      reasonably necessary, to the duties of office and the
                      Executive shall not be entitled to receive any
                      remuneration for work performed outside such normal
                      business hours;

           (b)        faithfully and diligently perform the duties and exercise
                      the powers:

                      (i)        consistent with the position of Chairman; and

                      (ii)       assigned to the Executive by the Board; and

           (c)        promote the interests of the Company and any Group
                      Company.

4.2      DUTY TO REPORT

           The Executive must:

           (a)        report directly to the Board or as directed by the Board;

           (b)        provide prompt and full information to the Board regarding
                      the conduct of the business of the Company by the
                      Executive; and

           (c)        comply with reasonable directions given to the Executive
                      by the Board.

4.3        OUTSIDE DIRECTORSHIPS

           The Executive may accept appointment to, receive and retain
           remuneration from and perform the reasonable duties associated with:

           (a)        one non executive directorship of an independent unrelated
                      company before 1 December 2001

           (b)        two non executive directorships of independent unrelated
                      companies after 1 December 2001;

5        REMUNERATION

5.1      BASIC SALARY PACKAGE

           (a)       During the period that the Executive serves the Company
                     under this

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                      Agreement, the Company must pay the Executive a basic
                      salary package, determined under this clause, the salary
                      component of which is payable fortnightly in arrears by
                      direct deposit into a bank account nominated by the
                      Executive, or as otherwise agreed between the parties.

           (b)        At the sole discretion of the Executive as to the nature
                      and amount of each component, payment by the Company of
                      the basic salary package may be by way of salary,
                      additional superannuation contributions, life insurance,
                      health and incapacity insurance, income protection
                      insurance or such other components as may otherwise be
                      agreed between the parties. Any fringe benefits tax
                      payable under the Fringe Benefits Tax Assessment Act 1986
                      (Cth) in respect of the nature of each component will be
                      included in the calculation of the basic salary package.

5.2      STARTING SALARY PACKAGE

           The basic salary package for the period commencing on the date of
           this Agreement is A$410,000.00 gross per annum.

5.3      SALARY PACKAGE REVIEW

           (a)        The basic salary package is subject to review on each
                      Salary Review Date or within 30 days of any Salary Review
                      Event.

           (b)        The basic salary package for the period after a review is
                      the amount per annum agreed between the parties.

           (c)        At each review, the basic salary package may be increased
                      having regard to:

                      (i)        the cost of living;

                      (ii)       the responsibilities of the Executive and
                                 remuneration available in the workforce outside
                                 the Company for a person with responsibilities
                                 and experience equivalent to those of the
                                 Executive;

                      (iii)      the performance of the Executive;

                      (iv)       the performance of the Company; and

                      (v)        any increases awarded to employees of the
                                 Company.

           (d)        In the absence of agreement under clause 5.3(b), the basic
           salary package for the period after a Salary Review Date will be the
           greater of.

                      (i)        an amount equal to any percentage increase in
                                 the All Groups Consumer Price Index ('CPI') for
                                 Sydney as published by the Australian Bureau of
                                 Statistics; or

                      (ii)       the average increase granted across the
                                 Company's employees, in respect of the 12-month
                                 period preceding the Salary Review Date.

                      (iii)      the basic salary specified in clause 5.2 plus
                                 ten percent (10%)

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           (e)       The parties must commence review of the basic salary
                     package 1 month before the Salary Review Date, with a view
                     to the parties reaching an agreement for the purposes of
                     clause 5.3(b), by the Salary Review Date.

           (f)       A Salary Review Event will be any event that increases the
                     issued capital of the Company by more than 50%.

5.4      NO DECREASE IN BASIC SALARY PACKAGE

           The basic salary package of the Executive must not decrease on any
           salary package review.

5.5      DIRECTORS' FEES

           The basic salary package includes directors' fees. In the event this
           Agreement is terminated for whatever reason and the Executive remains
           as a director of the Company, then director's fees shall be payable
           to the Executive on a similar basis to other non-executive directors
           or the Chairman as the case may be.

6        SUPERANNUATION

           (a)       The Company warrants that as at the date of this Agreement
                     the Company has fully complied with its obligations under
                     the Superannuation Guarantee Charge Legislation in relation
                     to the employment of the Executive since 1 May 1995.

           (b)       The Company must, during the continuation of this
                     Agreement, ensure that the minimum superannuation
                     contributions required to be made for the benefit of the
                     Executive by the Superannuation Guarantee Charge
                     Legislation are made to the trustees of a complying
                     superannuation fund (within the meaning of the Income Tax
                     Assessment Act 1936 (Cth)).

           (c)       The Company's superannuation contributions under this
                     clause 6 form part of the Executive's basic salary package
                     under clause 5 of this Agreement, except that any
                     increases after the date of this Agreement to the minimum
                     superannuation contribution required to be made for the
                     benefit of the Executive pursuant to the Superannuation
                     Guarantee Charge Legislation as at the date of this
                     Agreement will be paid by the Company in addition to, and
                     will not form part of, the Executive's basic salary
                     package under clause 5 of this Agreement. In addition the
                     Executive will be compensated (by way of increased basic
                     salary or otherwise) by the Company for any negative
                     financial impact of any other amendments to prevailing
                     superannuation legislation.

7        EXISTING LOAN AGREEMENT

(a)        The Company acknowledges that the Limited Recourse Loan Agreement (as
           amended by the 1999 Agreement) remains in force.

8        EXPENSES AND OTHER ENTITLEMENTS

8.1      EXPENSES

(a)        The Company must reimburse the Executive for all reasonable work
           related

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           out-of-pocket expenses (approved by another director) incurred by the
           Executive on Company Business, including but not limited to:

               -    telephone calls, rentals and charges; home facsimile
               charges; internet and stock market reporting expenses, travelling
               expenses; entertainment expenses; hotel expenses;

               -    car parking expenses;

               -    expenses associated with the use of the Executive's own car,
               calculated at the rates allowed by the Australian Taxation Office
               for the purposes of determining deductibility; and

               -    any other expenditure reasonably made by the Executive on
               behalf of the Company.

(b)        No amount may be reimbursed pursuant to clause 8.1 before the
           Executive has provided written evidence of expenses incurred to the
           Company.

(c)      The Executive will be entitled to full reimbursement of all overseas
         travel (business class), accommodation and other costs for the
         Executive's wife on two trips with the Executive (each trip not to
         exceed 30 days) at any time prior to 1 June 2004, notwithstanding the
         early termination of the agreement for whatever reason.

8.2      ENTITLEMENTS

(a)        In addition to the payments under clause 5, 6 and this clause 8, the
           Company agrees to provide the Executive the following benefits:

               -    the Company will provide the Executive with a portable
               computer, facsimile, mobile telephone, a high speed internet
               service (cable if available) and access to Bloomberg or similar
               stock market reporting services for use at home or out of the
               office;

               -    the Company will provide the Executive with car parking at
               or near the Company's premises;

               -    the Company will ensure that all overseas travel is at least
               business class

               -    for the duration of his employment by the Company, the
               Company will ensure that the Executive is covered by workers
               compensation insurance as required by legislation and directors'
               and officers' liability insurance world-wide; and

               -    the Company will pay all of the costs associated with the
               parties entering into this Agreement, including payment of stamp
               duty and up to $6,000 of the Executive's legal costs.

(b)        In relation to the benefits at clauses 8.2(a) the Company will pay
           all leasing and other costs associated therewith (including any
           fringe benefits tax). In the event that the Executive pays for any
           part of the costs associated with these benefits the Company will
           reimburse the Executive for such amounts.

(c)        In relation to the benefits at clause 8.2(a), on termination of this
           Agreement for whatever reason the Executive may at his sole
           discretion purchase such items from the Company at the depreciated
           value of the items at the time of termination.

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8.3      FRINGE BENEFITS TAX

The Company must pay any fringe benefits tax payable under the Fringe Benefits
Tax Assessment Act 1986 (Cth) in relation to any remuneration or benefit
provided by the Company to the Executive under this Agreement except as
specifically referred to in Clause 5.1 (b).

9        MAINTENANCE OF REMUNERATION

If there is any change in:

(a)     the corporate structure under which the Company or any Group Company
        operates the Business;

(b)     the accounting methods of the Company or its accountants or auditors,

which reduces or diminishes the total value of the remuneration payable to the
Executive, the Company must ensure that the total value of the remuneration
payable to the Executive is maintained at a level not less than that which
existed before the change.

10       LEAVE ENTITLEMENTS

(a)      The Executive is entitled to public holidays, long service leave and
         annual leave in conformity with statutory entitlements. The parties
         agree that annual leave and long service leave shall be taken at such
         time as is agreed by the parties provided that it does not unreasonably
         inconvenience or disrupt the Business or the Company. In addition to
         normal leave the Executive will be entitled to 2 working days of
         special holiday leave for each overseas trip exceeding 7 days, up to a
         maximum of 14 working days leave.

(b)      The Company acknowledges that, at the date of this agreement, the
         Executive is currently entitled to 42.3 working days holiday as part of
         annual leave and that the Executive is entitled to long service leave
         of 32.6 working days. If upon termination of the agreement for whatever
         reason, the Executive is entitled to annual leave, long service leave
         or special holiday leave, the Company will pay the Executive the full
         entitlement upon such termination. At the election of the Executive,
         such payments may be included in termination pay.

11       PAYMENT DURING ABSENCE ON MEDICAL GROUNDS

(a)      Where the Executive is at any time incapacitated from performing his
         duties for a period in excess of six months, where such incapacity is
         due to illness, injury, accident or any other circumstance, the Company
         may discontinue payment in whole or in part of the Executive's salary
         until such time as the incapacity shall cease or the Executive's
         employment is terminated in accordance with the terms of this
         Agreement.

(b)        The Company shall give written notice to the Executive of its
           intention to discontinue payment of salary and the notice shall
           specify the date from which payment of salary will be discontinued.
           The notice may be given at any time after the expiration of six
           months, so long as the incapacity remains.

(c)        The Executive shall be entitled to no more than six months' sick
           leave in total throughout the term of this Agreement and the Company
           must continue to pay the Executive's salary in full during this
           period.

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(d)      The Executive shall undertake such medical checks and blood tests as
         may be reasonably required to enable the Company to obtain Key Man
         insurance or other insurance coverage over the life of the Executive.

12       CONFIDENTIALITY

12.1     EXECUTIVE'S OBLIGATIONS

The Executive must:

(a)     keep any Information secret and confidential,

(b)     take all reasonable and necessary precautions to maintain the secrecy
        and prevent the disclosure of any Information; and

(c)     not disclose Information to any third party without first obtaining the
        written consent of the Board except, provided however that these
        obligations do not to apply to Information:

(d)     that is in the public domain other than through breach of this
        Agreement;

(e)     that the Executive is required by law to disclose;

(f)     that is required to be disclosed by the Executive in the ordinary and
        proper course of employment with the Company; or

(g)     that has been disclosed to the Executive by a third party who is not
        under any duty of confidentiality with respect to that Information.

12.2     SURVIVAL OF OBLIGATIONS

The Executive's obligations under this part survive the termination of the
Executive's employment with the Company.

13       RESTRICTIONS ON OTHER ACTIVITIES OF THE EXECUTIVE

13.1     INDUCEMENTS

Other than under this agreement or by mutual agreement with the Company, the
Executive must not accept any payment or other benefit as an inducement or
reward for any act in connection with the Business of the Company or any Group
Company.

13.2    OPTIONAL POST-EMPLOYMENT RESTRAINT

(a)     The Executive and the Company agree that notwithstanding termination of
        this agreement for whatever reason, the Company may, at its option
        exercisable on or before the termination date of this agreement, pay the
        Executive an additional one year's basic salary package as per clause 5
        of this Agreement in consideration for the Executive agreeing to the
        post-employment restraints in clause 13.2(d) of this Agreement.

(b)     The Executive may elect to have the amount payable under clause 13.2(a)
        paid monthly or in a lump sum on exercise of the option. If a lump sum
        is elected, the lump sum shall be discounted by the Discount Rate. For
        the purposes of this

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        paragraph, the Discount Rate shall be equal to the Bank Bill Interest
        Rate at the date of termination, plus three percentage points.

(c)     The total amount referred to in clause 13.2(a) is payable in addition to
        any other payment to the Executive under this Agreement.

(d)     On exercise of the option by the Company, the Executive agrees that for
        a period of 12 months from either:

        (i)     the expiry of the term of this Agreement; or

        (ii)    the date of termination (for any cause or by any means) of his
                employment with the Company,

        whichever is the first to occur, the Executive will not undertake or
        carry on (either alone or in partnership) or be employed or interested,
        whether directly or indirectly, in any capacity whatsoever, in the
        Restraint Area, in a business which is the same as or substantially
        similar to the Business or competes with the Company or the Business.

(e)     In clause 13.2(d), 'Restraint Area' means:

        (i)     all countries in which the Company, or any related body
                corporate of the Company, carry on business;

        (ii)    Australia;

        (iii)   New South Wales.

(f)      Clause 13.2(d) has the effect of several separate and individual
         covenants and restraints consisting of each separate covenant and
         restraint set out in clause 13.2(d) combined with each separate area
         set out in clause 13.2(e).

(g)        If any of the several separate and independent covenants and
           restraints referred to in clause 13.2(f) are or become invalid or
           unenforceable for any reason, then that invalidity or
           unenforceability will not effect the validity of enforceability of
           any of the other separate and independent covenants and restraints.

13.3    USE OF THE COMPANY NAME

The Executive agrees with the Company that at any time after termination (for
any cause or by any means) of his employment with the Company, he will not use
the name of the Company or any Group Company for any purpose, in connection with
his own or any other name, in any way which might suggest his continued
association with the Company or any Group Company (other than as a shareholder
or director of the Company, if he continues so to be).

14       TERMINATION

14.1     TERMINATION BY THE EXECUTIVE

This Agreement may be terminated by the Executive at any time by the Executive
giving six months' notice in writing to the Company. If any one entity or
person, acting alone or in association with others,

a)      lodges with the Company, or any parent of the Company, a substantial
        shareholders notice

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        indicating an interest or

b)      in any way obtains an interest in

more than 30% of the issued capital of the Company, or any parent of the
Company, then the Executive may terminate this agreement at any time for a
period of six months following such event on three months written notice to the
Company.

14.2     TERMINATION BECAUSE OF INCAPACITY

This Agreement will automatically terminate if the Company gives notice to the
Executive in accordance with clause 11.

14.3     IMMEDIATE TERMINATION BY THE COMPANY

The Company may terminate this Agreement immediately if the Executive:

(a)     is guilty of grave misconduct or wilful neglect in the unanimous opinion
        of all other directors; or

(b)     is of unsound mind or becomes liable to be dealt with under any law
        relating to mental health.

14.4    TERMINATION BY THE COMPANY

(a)     Subject to clauses 14.2 and 14.3, this Agreement may only be terminated
        by the Company in accordance with this clause 14.4.

(b)     If prior to 1 June 2003, the Company and the Executive have not entered
        into an agreement for the continued employment of the Executive, then
        this agreement will be deemed to have been terminated by the Company
        effective from 1 September 2003 and the Executive will cease to be an
        Executive of the Company from the 1 September 2003.

14.5     PAYMENTS ON TERMINATION OR FAILURE TO RENEW AGREEMENT

Upon termination of the Executive's employment by either party and for whatever
reason (including but not limited to clause 14.4), the Company shall:

(a)     pay the Executive his then prevailing basic salary package for 12 months
        from the effective date of termination notwithstanding that the
        Executive no longer provides any services under this Agreement and
        notwithstanding any other benefits or entitlements to which the
        Executive is entitled under other terms of this Agreement. That amount
        is to be paid monthly in advance in twelve equal instalments and is to
        be secured by a bank guarantee, or such other instalments (or lump sum)
        and security as otherwise mutually agreed by the parties.

(b)     immediately pay the Executive all outstanding entitlements under this
        Agreement including,but not limited to, unpaid salary due and payable up
        to the effective date of termination and a sum representing any holiday,
        special holiday or long service entitlements which have accrued, but not
        been taken, up to and including that date; and

(c)     facilitate the Executive in transferring to another superannuation fund
        the balance standing to the credit of his superannuation fund hereunder.

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14.6     TERMINATION PAYMENTS

The Company will ensure that all and any termination payments under this
agreement, including payments under clause 13.2 and 14.5, minimise the
Executives personal tax liability in respect of such payments, but the Company
shall not be obligated to make any payment in such a form as to be non tax
deductible to the Company.

14.7     RESIGNATION AS DIRECTOR

(a)        On termination of this Agreement by operation of clause 14.3, the
           Executive must resign from office as a director of the Company or any
           Group Company.

(b)        On termination of this Agreement for any reason other than under
           clause 14.3, the Executive shall be under no obligation to resign
           from office as a director of the Company or any Group Company, but is
           required to stand for reappointment as a director at the next meeting
           at which any other person is required to stand for appointment or
           reappointment as a director.

14.8     OBLIGATIONS ON TERMINATION

           On termination of this Agreement, the Executive must return to the
           Company immediately all tangible property of the Company or any Group
           Company including, but not limited to, all books, documents, papers,
           materials, credit cards, cars, computer records and keys held by the
           Executive or under the Executive's control.

15       SHARES AND OPTIONS

15.1     CONFIRMATION

         The Company and the Executive confirm that the Executive is entitled to
         all shares and options referred to in the Previous Agreements under the
         terms of such Previous Agreements and nothing in this agreement will
         alter or otherwise effect the Executives rights, title and interest in
         such shares and options. The Company further warrants that all shares
         issued to the Executive have been (and in the case of shares issued as
         a result of the exercise of option will be) registered with the US
         Securities and Exchange Commission and that such shares are (or within
         90 days in the case of shares issued as a result of the exercise of
         options will be) freely tradeable on both and ASX and the Nasdaq Stock
         Exchange.

         In order to clarify the Previous Agreements and to correct an
         administrative error, it is agreed by the parties that Schedule A of
         the 1999 Agreement should reflect the shareholder resolutions passed at
         the Annual Meeting of shareholders held in May 1999 and that Column 3,
         Option Expiry Date of Schedule A of the 1999 Agreement should have read

         (i)      24 June in replacement for 1 July in each case;

         (ii)     for the A$1.15 options, the year 2001 in replacement for 2002;
                  and

         (iii)    for the A$1.20 options, the year 2003 in replacement for 2004.

15.2     NEW OPTIONS

           The Company warrants to the Executive that the options detailed in
           Schedule A of

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14
<PAGE>

David Mac.Smith Services Contract                                  Confidential
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         this Agreement have been properly issued and will be issued under the
         Company's Employee Share Option Plan, the Directors Share Option Plan
         or such other plan as to ensure the shares issued as a result of the
         exercise of the options are registered immediately upon issue and not
         subject to any specific registration requirements of the SEC or any
         other trading restrictions.

16       INDEMNITY

         To the extent permitted by law, the Company indemnifies the Executive:

         (a)      against any liability incurred by him as an employee, officer
                  and or director of the Company, a subsidiary of the Company or
                  any parent of the Company to a person other than the Company
                  or a related body corporate of the Company; and

         (b)      against any loss, cost, damage, expense or liability which the
                  Executive suffers or incurs as a result of any litigation,
                  proceeding or judgment arising in connection with this
                  agreement, unless the liability, loss, cost, damage or expense
                  arises out of conduct on the part of the Executive which:

                  (a)      is in material breach of this agreement;

                  (b)      involves a lack of good faith, fraud, grave
                           misconduct or wilful neglect; or

                  (c)      is contrary to the Company's express written
                           instructions in relation to the management of the
                           Company's business.

17       GENERAL

17.1     NOTICES

                  Any notice or other communication including, but not limited
                  to, any request, demand, consent or approval, to or by a party
                  to this agreement:

                  (a)      must be in legible writing and in English addressed
                           as shown at the commencement of this agreement, or as
                           specified to the sender by any party by notice;

                  (b)      where the sender is a company, must be signed by an
                           officer or under the common seal of the sender;

                  (c)      is regarded as being given by the sender and received
                           by the addressee:

                           (i)      if by delivery in person, when delivered to
                                    the addressee;

                           (ii)     if by post, three Business Days from and
                                    including the date of postage/on delivery to
                                    the addressee; or

                           (iii)    if by facsimile transmission, whether or not
                                    legibly received, when received by the
                                    addressee, but if the delivery or receipt is
                                    on a day which is not a Business Day or is
                                    after 4.00 PM (addressee's time) it is
                                    regarded as received at 9.00 am on the
                                    following Business Day.

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15

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David Mac.Smith Services Contract                                  Confidential
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17.2     GOVERNING LAW AND JURISDICTION

                  (a)      This agreement is governed by the laws of New South
                           Wales.

                  (b)      The parties irrevocably submit to the exclusive
                           jurisdiction of the courts of New South Wales.

17.3     PROHIBITION, ENFORCEABILITY AND SEVERANCE

                  (a)      Any provision of, or the application of any provision
                           of, this agreement which is prohibited in any
                           jurisdiction is, in that jurisdiction, ineffective
                           only to the extent of that prohibition.

                  (b)      Any provision of, or the application of any provision
                           of, this agreement which is void, illegal or
                           unenforceable in any jurisdiction does not affect the
                           validity, legality or enforceability of that
                           provision in any other jurisdiction or of the
                           remaining provisions in that or any other
                           jurisdiction.

                  (c)      If a clause is void, illegal or unenforceable, it may
                           be severed without affecting the enforceability of
                           the other provisions in this agreement.

17.4     WAIVER

                  (a)      The failure of either party at any time to require
                           performance by the other party of any provision of
                           this agreement does not affect the party's right to
                           require the performance at any time.

                  (b)      The waiver by either party of a breach of any
                           provision must not be held to be a waiver of any
                           succeeding breach of the provision or a waiver of the
                           provision itself.

17.5     ENTIRE AGREEMENT

                  This agreement supersedes all previous agreements in respect
                  of the Executive's terms of employment by the Company and
                  embodies the entire agreement between the parties, except for
                  such terms of the Previous Agreements that relate to shares,
                  options and the Limited Recourse Loan.

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16

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David Mac.Smith Services Contract                                  Confidential
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EXECUTED by the parties as an agreement.

SIGNED BY CATUITY INC. by authority of the
Board of Directors by its duly authorised
representative A.S. Dawson Director
in the presence of

                                              A. S. Dawson; Director

Witness

SIGNED BY DAVID LANCELOT
MACHATTIE SMITH in the presence of

Signature of witness
                                              David Lancelot Machattie Smith

Name of witness (print)

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David Mac.Smith Services Contract                                  Confidential
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                                   SCHEDULE A
                                   ----------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                    DETAILS                                    COLUMN 1              COLUMN 2.             COLUMN 3.
                                                                NO. OF                 OPTION               OPTION
                                                               OPTIONS             EXERCISE PRICE         EXPIRY DATE
--------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                     <C>               <C>
Options to be unconditionally issued by the Company to          26,000                 A$7.75             1 June 2009
the Executive on 1 June 2001
--------------------------------------------------------------------------------------------------------------------------
Options to vest at the rate of 2000 per month  for the
duration of this agreement                                      48,000                 A$7.75             1 June 2009
--------------------------------------------------------------------------------------------------------------------------
Options to vest on 1 June 2002                                  26,000                 A$7.75             1 June 2009
--------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------
</TABLE>

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18

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David Mac.Smith Services Contract                                  Confidential
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                      OTHER TERMS AND CONDITIONS OF OPTIONS

The terms and conditions of the options are as follows:

1.       ENTITLEMENT

         The Option holder is entitled to subscribe for one fully paid share of
         common stock in the capital of the Company for each Option held.

2.       ISSUE PRICE

         No amount is payable on issue of the Options.

3.       EXERCISE PRICE

         The exercise price of each Option is the exercise price referred to in
         Column 2 of Schedule A.

4.       OPTION PERIOD

         Each Option may be exercised in whole or in part at any time prior to
         the Option Expiry Date set out in Column 3 of Schedule A. Any Option
         that is not exercised will automatically expire on the Option Expiry
         Date.

5.       TRANSFERABILITY

         The Options may be transferred at any time but only in accordance with
         the Articles of Association of the Company.

6.       PARTICIPATION IN BONUS ISSUES AND CASH ISSUES

6.1      If the Company makes a bonus issue of shares or other securities
         convertible into shares of common stock pro rata to holders of such
         shares (other than an issue in lieu of dividends or by way of dividend
         reinvestment pursuant to any shareholder election), the Option holder
         will be entitled to participate in such issue and the number and or
         exercise price of the Options will be varied so that the Option holder
         is not disadvantaged in any way from such issue of bonus shares or
         other securities.

1.2      If the Company makes an offer to subscribe for cash of shares of common
         stock pro rata to the holders of such shares the Option holder will be
         entitled to participate in such offer, and the number and or exercise
         price of the Options will be varied so that the Option holder is not
         disadvantaged in any way from such issue of shares for cash

6.3      The Company must notify the Option holder at least 12 business days
         before the books closing date for determining entitlements to an offer
         referred to in Clauses 6.1 or 6.2 of:

         a)       the proposed terms of the issue of the offer, and

         b)       the right to have the terms of the Options varied under Clause
                  6.1 or 6.2 (as the

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19

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David Mac.Smith Services Contract                                  Confidential
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                  case may be).

7.       ADJUSTMENTS FOR BONUS ISSUES AND CASH ISSUES

7.1      If the Company is listed on any Stock Exchange and makes an offer for
         cash of ordinary shares of common stock pro rata to the holders of
         shares of common stock, the exercise price of each Option shall be
         reduced by the value of the theoretical rights entitlement per cum
         rights share (E) provided that the exercise price of each Option shall
         not be reduced to less than the nominal value of the Company" shares of
         common stock, where E is calculated in accordance with the following
         formula:

                  E = P - (S + D)
                      -----------
                           N + 1

         Where:

         E = theoretical value of the rights entitlement attached to each share
         (quoted cum rights).

         P = the weighted average market price of fully paid shares of common
         stock of the Company sold in the ordinary course of trading on any
         Stock Exchange during the five trading days after the announcement of
         the rights issue

         S = subscription price (application money plus calls) for new shares

         D = any dividends due but not yet paid on existing shares which will
         not be payable in respect of new shares issued under the rights issue

         N = number of cum rights shares required to be held to receive a right
         to one new share

         No change will be made to the number of shares to which the Option
         holder is entitled.

7.2      If the Company makes a bonus issue of shares or other securities
         convertible into shares of common stock pro rata to holders of such
         shares (other than an issue in lieu of dividends or by way of dividend
         reinvestment pursuant to any shareholder election), the number of
         shares issued on exercise of each Option will include the number of
         bonus shares that would have been issued if the Option had been
         exercised prior to the books closing date for bonus shares. No change
         will be made to the exercise price.

8.       RECONSTRUCTION

         In the event of a reconstruction (including consolidation,
         sub-division, reduction or return) of the issued capital of the
         Company, the number of Options or the exercise price of Options or both
         shall be reconstructed (as appropriate) in a manner which would not
         result in any benefits being conferred on the Option holders which are
         not conferred on shareholders (subject to the provisions with respect
         to rounding of entitlements as sanctioned by the meeting of
         shareholders approving the reconstruction of capital) but in all
         respects the terms for the exercise of Options shall remain unchanged.

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David Mac.Smith Services Contract                                  Confidential
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9)       RANKING OF SHARES ALLOTTED ON EXERCISE OF OPTIONS

         All share allotted pursuant to the exercise of Options will, subject to
         the Memorandum and Articles of Association of the Company, rank in all
         respects (including rights relating to dividends) pari passu with the
         existing ordinary shares of the Company on issue at date of allotment.

10.      METHOD OF EXERCISE OF OPTIONS

10.1     Options may be exercised by written notice to the Secretary of the
         Company. The exercise notice must specify the number of shares required
         to be allotted, which number must be a multiple of 1,000 if only part
         of the Options are exercised, or if the total number of Options held is
         less than 1,000, then the total of all Options held must be exercised.
         Options will be deemed to have been exercised on the date that the
         application is lodged with the Secretary of the Company.

10.2     The Option holder must pay the exercise price in full to the Company on
         the date of the exercise of the Options.

10.3     The exercise of less than all of the Option holder's Options will not
         prevent the Option holder from exercising an Option in respect of the
         whole or any part of the balance of the entitlement under his remaining
         Options.

10.4     On exercise of the Options the Option holder must surrender his Option
         certificate to the Company in respect of those Options being exercised.

10.5     If the Option holder exercises less than the total number of Options
         then registered in his name:

         a)       The Option holder must surrender his Option certificate to the
                  Company, and

         b)       the Company must cancel that Option certificate and issue to
                  the holder a new Option certificate in respect of the Option
                  holder's unexercised Options.

10.6     Within 10 days of receipt of the application for the exercise of
         Options and payment by the Option holder of the exercise price of such
         Options, the Company must issue and allot to the Option holder the
         number of fully paid shares of commo stock in the capital of the
         Company specified in the application.

10.7     If the Company is listed on the any Stock Exchange then it will as soon
         as practicable after issue do all things necessary for the shares
         issued upon exercise of Options by the Option holder to be granted
         official quotation and to be freely tradeable on all Stock Exchanges
         and. The Options are not to be listed on any Stock Exchange.

11.      COMPULSORY ACQUISITION

         If an entity ("Offeror") serves a notice on the option holder in
         accordance with section 703(4) of the Corporations Law, all options,
         which have not yet vested, become vested on the date that notice is
         served on the option holder, irrespective of any unfulfilled conditions
         of vesting.

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David Mac.Smith Services Contract                                  Confidential
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         All options (including all existing options and all options that have
         been vested by virtue of the preceding paragraph) will lapse on the
         date 3 months after delivery of that notice.

         Unless waived by written notice from the Company, the option holder
         must accept an offer to acquire all options which remain unexercised
         which is delivered in accordance with section 703(4) of the
         Corporations Law. This obligation is conditional on the terms offered
         by the Offeror being no less favourable than the offer price paid or
         payable by the Offeror in connection with the acquisition of ordinary
         shares in the Company under the Offeror's take-over scheme or take-over
         announcement, adjusted to reflect the offer for options rather than
         ordinary shares or on terms determined by a Court as contemplated by
         section 703(8) of the Corporations Law.

12.      OPTION EXPIRY DATE

         Subject to clause 11, the Option Expiry Date is the option expiry date
         referred to in Column 3 of Schedule A.

13.      TAXATION

         The Option holder is exclusively and solely responsible for all and any
         tax that may be payable as a result of the issue and or exercise of the
         Options and or the sale of shares resulting from the exercise of the
         Options. The issuer makes no warranty or representation in respect of
         any taxation that may be applicable to the issue and or exercise of the
         Options and or the sale of shares resulting from the exercise of the
         Options.

14.      UNEXERCISED OPTIONS

(a)      This clause 14 applies to all Unexercised Options. If there is any
         inconsistency between this clause and the other provisions of these
         Terms and Conditions in respect of the exercise of Unexercised Options,
         this clause prevails to the extent of this inconsistency.

(b)      If, at the time an Unexercised Option is exercised:

         i)       the Company is not listed on ASX; and

         ii)      the Company is a subsidiary of another company (the "Parent
                  Company") and

         iii)     the Parent Company is listed on ASX or any Approved Exchange

         the Company may, instead of issuing shares in the capital of the
         Company, elect to have the Parent Company issue one fully paid share of
         common stock in the Parent Company for each Unexercised Option held.

(c)      If the Company makes the election referred to in paragraph (b):

         i)       in lieu of the Option holder's entitlement under clause 1 to
                  subscribe for one fully paid share of common stock in the
                  capital of the Company for each Option held, the Option holder
                  will be issued one fully paid share of common stock of the
                  Parent Company for each Unexercised Option held;

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David Mac.Smith Services Contract                                  Confidential
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         ii)      in lieu of paying the exercise price to the Company in
                  accordance with Clause 10.2, the Option holder must pay the
                  full exercise price (which would have otherwise been payable
                  to the Company) to the Parent Company on the date of exercise
                  of the Unexercised Options and the Company is authorised to
                  pay over any such moneys received by it to the Parent Company
                  without further act or authority of the Option holder; and

         iii)     within 10 days of receipt of the application for the exercise
                  of the Unexercised Options and payment by the Option holder of
                  the exercise price of such Options, the Parent Company must
                  issue to the Option holder the number of fully paid shares of
                  common stock of the Parent Company specified in the
                  application; and

         iv)      to avoid doubt, the Option holder has no entitlement to be
                  issued or allotted any shares in the capital of the Company
                  upon exercise of the Unexercised Options.

(d)      In this Clause 14:

         "Unexercised Options" means all Options that have been granted but are
         unexercised

15.      CHANGE OF CONTROL

If any one entity or person, acting alone or in association with others,

a)       lodges with the Company, or any parent of the Company, a substantial
         shareholders notice indicating an interest or

b)       in any way obtains an interest in

more than 30% of the issued capital of the Company, or any parent of the
Company, then all options, which have not yet vested, become immediately vested,
irrespective of any unfulfilled conditions of vesting.

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23<PAGE>

                                                                    EXHIBIT 10.1

                                                                  EXECUTION COPY

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

                                CREDIT AGREEMENT

                                 BY AND BETWEEN

                        PRESTOLITE ELECTRIC INCORPORATED

                                       AND

                                  COMERICA BANK

                          DATED AS OF OCTOBER 31, 2001

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

<PAGE>

                                CREDIT AGREEMENT

         THIS CREDIT AGREEMENT, made as of the 31st day of October, 2001, by and
between PRESTOLITE ELECTRIC INCORPORATED, a Delaware corporation, of Ann Arbor,
Michigan (herein called "Company"), and COMERICA BANK, a Michigan banking
corporation, of Detroit, Michigan (herein called "Bank");

RECITALS:

         A. Company and Bank are parties to the Letter Loan Agreement dated as
of December 26, 2000 ("Prior Credit Agreement").

         B. Company has requested Bank to amend certain provisions of the Prior
Credit Agreement and increase the credit provided thereunder.

         C. Company and Bank wish to amend and restate the Prior Credit
Agreement on the terms and conditions provided herein.

         NOW, THEREFORE, Bank and Company agree that the Prior Credit Agreement
is amended and restated in its entirety as follows:

         1. DEFINITIONS

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

         "Account" shall have the meaning assigned to it in the Michigan Uniform
Commercial Code on the date of this Agreement.

         "Account Debtor" shall mean the party who is obligated on or under any
Account.

         "Advance" shall mean a borrowing requested by Company and made by Bank
under Section 2 of this Agreement, including any refunding or conversions of
such borrowings pursuant to Section 6.3 hereof, and shall include a
Eurodollar-based Advance and a Prime-based Advance.

         "Affiliate" shall mean, with respect to any Person, any other Person or
group acting in concert in respect of the first Person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with such first Person. For purposes of this
definition, "control" (including, with correlative meanings, the

<PAGE>

terms "controlled by" and "under common control with"), as used with respect to
any Person or group of Persons, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise. Unless otherwise specified to the contrary herein, or
the context requires otherwise, Affiliate shall refer to the Company's
Affiliates.

         "Alternate Base Rate" shall mean for any day a rate per annum (rounded
upwards, if necessary, to the next higher 1/16 of 1%) equal to the Federal Funds
Effective Rate in effect on such day plus one percent (1%).

         "Applicable Commitment Fee Percentage" shall mean as of the date of
determination thereof, the following per annum rate:

<TABLE>
<CAPTION>
                          If Funded Debt Ratio ("x") is:             The Applicable Commitment Fee Percentage is:
                  ------------------------------------------------ -------------------------------------------------

<S>                                                                <C>
                  x > 5.5                                                               .625%
                  ------------------------------------------------ -------------------------------------------------

                  5< x < 5.5                                                             .50%
                       -
                  ------------------------------------------------ -------------------------------------------------

                  4.5 < x < 5                                                           .375%
                          -
                  ------------------------------------------------ -------------------------------------------------

                  x < 4.5                                                                .25%
                    -
                  ------------------------------------------------ -------------------------------------------------
</TABLE>

         "Applicable Eurodollar Margin" shall mean, as of any date of
determination thereof, the following Margins:

<TABLE>
<CAPTION>
                  If Funded Debt Ratio ("x")
                              is:                              The Applicable Eurodollar Margin is:
                                               ---------------------------------------------------------------------
                                                                                              Non-Margin
                                                    Margin Reduction Period                Reduction Period
                  ---------------------------- ----------------------------------- ---------------------------------

<S>                                            <C>                                <C>
                  x > 5.5                                    3.25%                              3.50%
                  ---------------------------- ----------------------------------- ---------------------------------

                  5< x < 5.5                                  3.0%                              3.25%
                       -
                  ---------------------------- ----------------------------------- ---------------------------------

                  4.5 < x < 5                                2.75%                               3.0%
                          -
                  ---------------------------- ----------------------------------- ---------------------------------

                  x < 4.5                                    2.50%                              2.75%
                    -
                  ---------------------------- ----------------------------------- ---------------------------------
</TABLE>

         "Applicable Interest Rate" shall mean the Eurodollar-based Rate or the
Prime-based Rate, as selected by Company from time to time subject to the terms
and conditions of this Agreement.

                                       2
<PAGE>

         "Applicable Margin" shall mean the Applicable Eurodollar Margin or the
Applicable Prime-based Margin, as applicable.

         "Applicable Prime-based Margin" shall mean as of any date of
determination thereof, the following margins:

<TABLE>
<CAPTION>
                  If Funded Debt Ratio ("x")
                              is:                             The Applicable Prime-based Margin is:
                                               ---------------------------------------------------------------------
                                                                                              Non-Margin
                                                    Margin Reduction Period                Reduction Period
                  ---------------------------- ----------------------------------- ---------------------------------

<S>                                            <C>                                <C>
                  x > 5.5                                     .50%                               .75%
                  ---------------------------- ----------------------------------- ---------------------------------

                  5< x < 5.5                                  .25%                               .50%
                       -
                  ---------------------------- ----------------------------------- ---------------------------------

                  4.5 < x < 5                                  0                                 .25%
                          -
                  ---------------------------- ----------------------------------- ---------------------------------

                  x < 4.5                                      0                                  0
                    -
                  ---------------------------- ----------------------------------- ---------------------------------
</TABLE>

         "Approved Account Debtors" shall mean Ford Motor Company, General
Motors Corporation, Chrysler Corporation, Freightliner Corporation, Caterpillar
Corporation, Cummins Corporation, Western Star Corporation, Navistar
Corporation, or Thermo King Corporation, or any subsidiary thereof, or any other
Person approved in writing by Bank in its sole discretion.

         "Borrowing Base" shall mean as of any date of determination, (i) at all
times other than during a Margin Reduction Period the sum of (a) 80% of Eligible
Accounts plus (b) the lesser of 30% of Eligible Inventory or $4,500,000, and
(ii) during any Margin Reduction Period, 80% of Eligible Accounts.

         "Business Day" shall mean any day on which commercial banks are open
for domestic and international business (including dealings in foreign exchange)
in Detroit, London and New York.

         "Capital Expenditure" shall mean any payment made directly or
indirectly for the purpose of acquiring or constructing fixed assets, real
property or equipment which in accordance with GAAP would be added as a debit to
the fixed asset account of the Person making such expenditure, including,
without limitation, amounts paid or payable under any conditional sale or other
title retention agreement or under any lease or other periodic payment
arrangement which is of such a nature that payment obligations of the lessee or
obligor thereunder would be required by GAAP to be capitalized and shown as
liabilities on the balance sheet of such lessee or obligor.

                                       3
<PAGE>

         "Collateral Documents" shall mean the Security Agreement and any other
document or instrument of security executed and delivered by Company or any
Domestic Subsidiary after the date hereof.

         "Consolidated" or "consolidated" shall mean, when used with reference
to any financial term in this Agreement, the aggregate for two or more persons
of the amounts signified by such term for all such persons determined on a
consolidated basis in accordance with GAAP. Unless otherwise indicated herein,
"Consolidated" shall mean the consolidated accounts of PEI and its Subsidiaries.

         "Consolidated Capitalization" shall mean, as of any date of
determination, the sum of Consolidated Tangible Net Worth plus the principal
balance of the Senior Debt.

         "Consolidated Income Taxes" shall mean for any period the aggregate
amount of taxes based on income or profits for such period of the operations of
PEI and its Subsidiaries determined in accordance with GAAP (to the extent such
income and profits were included in computing Consolidated Net Income).

         "Consolidated Interest Expense" shall mean for any period the aggregate
gross interest expense (excluding amortization of original issue discount and
non-cash interest expense and including the interest component of capitalized
lease obligations) of PEI and its Subsidiaries for such period as determined in
accordance with GAAP (to the extent such interest expense was included in
computing Consolidated Net Income).

         "Consolidated Net Income" shall mean the net income (or loss) of PEI
and its Subsidiaries for any period determined in accordance with GAAP but
excluding in any event any gains or losses on the sale or other disposition, not
in the ordinary course of business, of investments or fixed or capital assets,
and any taxes on the excluded gains and any tax deductions or credits on account
of any excluded losses.

          "Default" shall mean any event or omission which, with the passage of
time, the giving of notice, or both, would constitute an Event of Default.

         "Domestic Subsidiary" shall mean any Subsidiary of PEI that is
incorporated under the laws of any state of the United States of America. For
purposes of this Agreement, 756780 Ontario Limited shall be deemed to be a
Domestic Subsidiary.

         "EBITDA" shall mean for any period the sum of Consolidated Net Income
for such period plus Consolidated Income Taxes, Consolidated Interest Expense
and Consolidated depreciation, amortization and other non-cash charges for such
period, plus the following charges to the extent they were taken during such
period: (a) severance charges incurred in 2001, (b) special charges associated
with actual or anticipated debt losses in Argentina incurred in 2001, (c)
charges related to the Thermadyne and/or AMETEK transactions incurred in

                                       4
<PAGE>

2001, and (d) any write-down associated with the sale of the manufacturing
facilities located in Decatur, Georgia, and San Lorenzo, Argentina; provided,
however, that the aggregate of all charges described in sub-sections (a) through
(c), shall not exceed $4,000,000.

         "Eligible Account" shall mean an Account (but shall not include
interest and service charges) arising in the ordinary course of Company's
business which meets each of the following requirements:

         (a)      it is not owing more than sixty (60) days after the due date
                  of the original invoice or other writing evidencing such
                  Account;

         (b)      it is not owing by an Account Debtor (other than an Approved
                  Account Debtor) who has failed to pay twenty-five percent
                  (25%) or more of the aggregate amount of its Accounts owing to
                  Company within sixty (60) days after the due date of the
                  respective invoices or other writings evidencing such Accounts
                  (provided, however, that this sub-section (b) shall apply only
                  during the continuance of an Event of Default);

         (c)      it arises from the sale or lease of goods and such goods have
                  been shipped or delivered to the Account Debtor under such
                  Account; or it arises from services rendered and such services
                  have been performed;

         (d)      it is evidenced by an invoice, dated not later than the date
                  of shipment or performance, rendered to such Account Debtor or
                  some other evidence of billing acceptable to Bank;

         (e)      it is not evidenced by any note, trade acceptance, draft or
                  other negotiable instrument or by any chattel paper;

         (f)      it is a valid, legally enforceable obligation of the Account
                  Debtor thereunder, and is not subject to any offset,
                  counterclaim or other defense on the part of such Account
                  Debtor or to any claim on the part of such Account Debtor
                  denying liability thereunder in whole or as to any portion
                  greater than 25% of such Account (provided, however, that any
                  offset asserted by such Account Debtor [up to 25% of the
                  amount of such Account] shall decrease the amount of such
                  Eligible Account by the amount of such claimed offset);

         (g)      it is not subject to any sale of accounts, any rights of
                  offset, assignment, lien or security interest whatsoever other
                  than to Bank;

         (h)      it is not owing by a subsidiary or affiliate of Company nor by
                  an Account Debtor which (i) does not maintain its chief
                  executive office in the United States of America or is not
                  described in sub-section (ii) of this Section (h), (ii) is not

                                       5
<PAGE>

                  organized under the laws of the United States of America, or
                  any state thereof (unless the Account Debtor is an Approved
                  Account Debtor, or unless the Account is covered by FCIA
                  insurance or a letter of credit issued by a bank which is
                  acceptable to Bank in the exercise of its sole discretion), or
                  (iii) is the government of any foreign country or sovereign
                  state, or of any state, province, municipality or other
                  instrumentality thereof;

         (i)      it is not an Account owing by the United States of America or
                  any state or political subdivision thereof, or by any
                  department, agency, public body corporate or other
                  instrumentality of any of the foregoing, unless all necessary
                  steps are taken to comply with the Federal Assignment of
                  Claims Act of 1940, as amended, or with any comparable state
                  law, if applicable, and all other necessary steps are taken to
                  perfect Bank's security interest in such Account (provided,
                  however, that this sub-section (i) shall apply only during the
                  continuance of a Default or Event of Default);

         (j)      it is not owing by an Account Debtor for which Company has
                  received a notice of (i) the death of the Account Debtor or
                  any partner of the Account Debtor, (ii) the dissolution,
                  liquidation, termination of existence, insolvency or business
                  failure of the Account Debtor, (iii) the appointment of a
                  receiver for any part of the property of the Account Debtor,
                  or (iv) an assignment for the benefit of creditors, the filing
                  of a petition in bankruptcy, or the commencement of any
                  proceeding under any bankruptcy or insolvency laws by or
                  against the Account Debtor;

         (k)      it is not an account billed in advance, payable on delivery,
                  for consigned goods, for guaranteed sales, for unbilled sales,
                  for progress billings, payable at a date more than ninety (90)
                  days after the invoice date in accordance with its terms,
                  subject to a retainage or holdback by the Account Debtor or
                  insured by a surety company; and

         (l)      it is not owing by any Account Debtor whose obligations Bank,
                  acting in its sole discretion, shall have notified Company are
                  not deemed to constitute Eligible Accounts.

         (m)      it is not a "core receivable", as currently identified on
                  Company's books and records.

An Account which is at any time an Eligible Account, but which subsequently
fails to meet any of the foregoing requirements, shall forthwith cease to be an
Eligible Account.

         "Eligible Inventory" shall be valued at the lesser of cost or present
market value in accordance with GAAP, on a first in/first out basis, and shall
mean all of Company's

                                       6
<PAGE>

Inventory which is in good and merchantable condition, is not obsolete or
discontinued, and which would properly be classified as "raw materials", "work
in process" or as "finished goods inventory" under GAAP, excluding (a) cores,
consigned goods, inventory located outside the United States of America, (b)
Inventory covered by or subject to a seller's right to repurchase, or any
consensual or nonconsensual lien or security interest (including without
limitation purchase money security interests) other than in favor of Bank,
whether senior or junior to Bank's security interest, and (c) Inventory that
Bank, acting in its reasonable discretion, after having notified Company,
excludes.

         Inventory which is at any time Eligible Inventory, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be Eligible Inventory.

         "Environmental Laws" shall mean all federal, state and local laws
including statutes, regulations, ordinances, codes, rules, and other
governmental restrictions and requirements, relating to environmental pollution,
contamination or other impairment of any nature, any hazardous or other toxic
substances of any nature, whether liquid, solid and/or gaseous, including smoke,
vapor, fumes, soot, acids, alkalis, chemicals, wastes, by-products, and recycled
materials. These Environmental Laws shall include but not be limited to the
Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976, the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act of 1986,
regulations of the Environmental Protection Agency, regulations of the Nuclear
Regulatory Agency, regulations of any state department of natural resources or
state environmental protection agency now or at any time hereafter in effect and
local health department ordinances.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code.

         "Eurodollar-based Advance" shall mean an Advance which bears interest
at the Eurodollar-based Rate.

         "Eurodollar-based Rate" shall mean a per annum interest rate which is
equal to the sum of the Applicable Eurodollar Margin plus the quotient of:

         (a)      the per annum interest rate at which Bank's Eurodollar Lending
                  Office is offered deposits by other prime banks in the
                  eurodollar market in an amount comparable to the relevant
                  Eurodollar-based Advance and for a period equal to the
                  relevant Interest Period at approximately 11:00 a.m. Detroit
                  time two (2) Business Days prior to the first day of such
                  Interest Period; divided by

         (b)      a percentage equal to 100% minus the maximum rate on such date
                  at which Bank is required to maintain reserves on
                  "Euro-currency Liabilities"

                                       7
<PAGE>

                  as defined in and pursuant to Regulation D of the Board of
                  Governors of the Federal Reserve System or, if such regulation
                  or definition is modified, and as long as Bank is required to
                  maintain reserves against a category of liabilities which
                  includes eurodollar deposits or includes a category of assets
                  which includes eurodollar loans, the rate at which such
                  reserves are required to be maintained on such category;

all as conclusively determined by Bank, such sum to be rounded upward, if
necessary, to the nearest whole multiple of 1/16th of 1%.

         "Eurodollar Lending Office" shall mean Bank's office located at Grand
Cayman, British West Indies or such other branch of Bank, domestic or foreign,
as it may hereafter designate as its Eurodollar Lending Office by notice to
Company.

         "Event of Default" shall mean any of the Events of Default specified in
Section 13.1 and 13.2 hereof.

         "Facility Reserve" shall mean, as of any date, the principal balance
due to Bank under the $3,500,000 master Revolving Note dated December 26, 2000,
and the undrawn amount of all related letters of credit.

         "Federal Funds Effective Rate" shall mean, for any day, a fluctuating
interest rate per annum equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by Bank from three Federal funds brokers of recognized standing
selected by it.

         "Fixed Charge Coverage Ratio" shall mean as of any date of
determination, a ratio, the numerator of which is EBITDA for the four fiscal
quarters then ended and the denominator of which is the sum of all principal
payments paid or payable during such period with respect to any indebtedness
(including capital leases) of PEI and its Subsidiaries, plus Consolidated
Interest Expense for such period.

         "Funded Debt" shall mean, as of any date of determination, all
indebtedness of PEI and its Subsidiaries for borrowed money or on account of
capitalized lease obligations as of such date, as determined in accordance with
GAAP, but excluding Company's indebtedness incurred in connection with the
closing of the MOSAL Transaction.

         "Funded Debt Ratio" shall mean, as of any date of determination
thereof, a ratio, the numerator of which shall be Funded Debt as of such date
and the denominator of which shall be EBITDA for the four fiscal quarters then
ended.

                                       8
<PAGE>

         "GAAP" shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied, as in effect on
the date of this Agreement.

         "Guaranty" shall mean the unconditional guaranty of the Indebtedness
dated October 25, 1994, executed and delivered by PEI to the Bank.

         "Indebtedness" shall mean all loans, advances, fees, indebtedness,
obligations and liabilities of Company to Bank under this Agreement, together
with all other indebtedness, obligations and liabilities whatsoever of Company
to Bank arising under or in connection with this Agreement, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising.

         "Interest Period" shall mean a period of one (1), two (2), or three (3)
months, as selected by Company pursuant to the provisions of this Agreement,
commencing on the day a Eurodollar-based Advance is made, or on the effective
date of an election of the Eurodollar-based Rate made under Section 6.

         "Inventory" shall have the meaning assigned to it in the Michigan
Uniform Commercial Code on the date of this Agreement.

         "Letter(s) of Credit" shall mean any standby and commercial letters of
credit issued by Bank for the account of Company pursuant to Section 2.7 hereof.

         "Letter of Credit Reserve" shall mean, as of any applicable date of
determination, an amount equal to the aggregate undrawn amount of all Letters of
Credit minus all cash collateral held by Bank as security for Letters of Credit.

         "Loan Documents" shall mean collectively, this Agreement, the Note, the
Security Agreement, the Letters of Credit, and any other instruments or
agreements executed at any time pursuant to or in connection with any such
documents.

         "Margin Reduction Period" is defined in Section 3.1(c).

         "Material Adverse Effect" shall mean, with respect to any Person, a
material adverse effect on (a) the business, operations, property, or financial
condition of such Person, or (b) the ability of such Person to perform its
obligations under the Loan Documents.

         "MOSAL Transaction" shall mean the purchase by Company, through its
Argentinian Subsidiary Prestolite Indiel Argentina S.A., of all of the stock of
Moteres de San Luis S.A. ("MOSAL"), in order to obtain certain tax benefits held
by MOSAL. If consummated, under the MOSAL Transaction, Company will pay to the
current owners of MOSAL (a) up to

                                       9
<PAGE>

$500,000 cash at closing, (b) up to $3,500,000 on a deferred basis pursuant to a
mutually agreed payment schedule, and (c) interest on the deferred amount of not
more than 12% per annum.

         "Offering Circular" shall mean the Confidential Offering Circular dated
January 16, 1998, relating to the Senior Debt.

         "PEI" shall mean Prestolite Electric Holding, Inc., a Delaware
corporation.

         "Pension Plans" shall mean all pension plans of Company or any Domestic
Subsidiary which are subject to ERISA.

         "Permitted Liens" shall mean with respect to any Person:

                           (a) liens for taxes not yet due and payable or which
are being contested in good faith by appropriate proceedings diligently pursued,
provided that provision for the payment of all such taxes has been made on the
books of such Person as may be required by GAAP;

                           (b) mechanics', materialmen's, banker's, carriers',
warehousemen's and similar liens and encumbrances arising in the ordinary course
of business and securing obligations of such Person that are not overdue for a
period of more than 60 days or are being contested in good faith by appropriate
proceedings diligently pursued, provided that in the case of any such contest
(i) any proceedings commenced for the enforcement of such liens and encumbrances
shall have been duly suspended; and (ii) such provision for the payment of such
liens and encumbrances has been made on the books of such Person as may be
required by GAAP;

                           (c) liens arising in connection with worker's
compensation, unemployment insurance, old age pensions and social security
benefits and similar statutory obligations which are not overdue or are being
contested in good faith by appropriate proceedings diligently pursued, provided
that in the case of any such contest (i) any proceedings commenced for the
enforcement of such liens shall have been duly suspended; and (ii) such
provision for the payment of such liens has been made on the books of such
Person as may be required by GAAP;

                           (d) (i) liens incurred in the ordinary course of
business to secure the performance of statutory obligations arising in
connection with progress payments or advance payments due under contracts with
the United States government or any agency thereof entered into in the ordinary
course of business and (ii) liens incurred or deposits made in the ordinary
course of business to secure the performance of statutory obligations, bids,
leases, fee and expense arrangements with trustees and fiscal agents and other
similar obligations (exclusive of obligations incurred in connection with the
borrowing of money, any lease-purchase

                                       10
<PAGE>

arrangements or the payment of the deferred purchase price of property),
provided that full provision for the payment of all such obligations set forth
in clauses (i) and (ii) has been made on the books of such Person as may be
required by GAAP;

                           (e) minor survey exceptions or minor encumbrances,
easements or reservations, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use of real
properties, which do not materially interfere with the business of such Person;
and

                           (f) liens described in attached Schedule 11.7.

         "Permitted Prepayments" shall mean (a) prepayments made while no
Default or Event of Default has occurred and is then continuing (either before
or after giving effect thereto) at any time that an asset distribution permitted
by Section 11.2, or as to which Bank has otherwise consented, requires a
mandatory prepayment of the Senior Debt and (b) prepayments of debt permitted by
Section 11.4(d) made while no Default or Event of Default has occurred and is
then continuing.

         "Person" shall mean a natural person, corporation, limited liability
company, partnership, limited liability partnership, trust, incorporated or
unincorporated organization, joint venture, joint stock company, or a government
or any agency or political subdivision thereof or other entity of any kind.

         "Prestolite China" shall mean Prestolite Electric (Beijing) Limited.

         "Prime Rate" shall mean the per annum interest rate established by Bank
as its prime rate for its borrowers as such rate may vary from time to time,
which rate is not necessarily the lowest rate on loans made by Bank at any such
time.

         "Prime-based Advance" shall mean an Advance which bears interest at the
Prime-based Rate.

         "Prime-based Rate" shall mean for any day a per annum interest rate
which is equal to the greater of (i) the Prime Rate plus the Applicable
Prime-based Margin, and (ii) the Alternate Base Rate.

         "Request for Advance" shall mean a Request for Advance issued by
Company under this Agreement in the form annexed to this Agreement as Exhibit
"B".

         "Revolving Credit" shall mean the revolving credit facility provided by
Bank to Company under Section 2 of this Agreement.

         "Revolving Credit Maturity Date" shall mean July 31, 2003.

                                       11
<PAGE>

         "Revolving Credit Note" shall mean the Note described in Section 2.1
hereof made by Company to Bank in the form annexed to this Agreement as Exhibit
"A".

         "Senior Debt" shall mean the indebtedness of Company evidenced by the
Senior Notes.

         "Security Agreement" shall mean the Security Agreement (Accounts,
Chattel Paper, and Inventory) dated October 25, 1994, executed and delivered by
Company to Bank.

         "Senior Debt Documents" shall mean the Senior Notes, the Senior Debt
Indenture, and all other documents and agreements to evidence the Senior Debt,
as the same may be amended from time to time (subject to the terms of this
Agreement), and any and all other documents executed in exchange therefor or
replacement or renewal thereof.

         "Senior Debt Indenture" shall mean the Indenture relating to the Senior
Notes.

         "Senior Notes" shall mean the 9-_% Senior Notes of Company due February
1, 2008 in the original principal amount of $125,000,000, and the notes of
Company issued in exchange therefor pursuant to the Registration Rights
Agreement entered into in connection with the Senior Debt Documents.

         "Subsidiary(ies)" shall mean any corporation, association, joint stock
company, business trust, limited liability company or any other business entity
of which more than fifty percent (50%) of the outstanding voting stock, share
capital, membership or other interests, as the case may be, is owned either
directly or indirectly by any Person or one or more of its Subsidiaries, or the
management of which is otherwise controlled, directly, or indirectly through one
or more intermediaries, or both, by any Person and/or its Subsidiaries. Unless
otherwise specified to the contrary herein, Subsidiary(ies) shall refer to PEI's
Subsidiary(ies) but shall not include Prestolite Electric (Beijing) Limited.

         2. THE INDEBTEDNESS: REVOLVING CREDIT

         2.1 Bank agrees to make Advances to Company at any time and from time
to time from the effective date hereof until the Revolving Credit Maturity Date,
not to exceed Ten Million Dollars ($10,000,000) in aggregate principal amount at
any one time outstanding. Advances under this Section 2 shall be evidenced by
the Revolving Credit Note under which advances, repayments and readvances may be
made, subject to the terms and conditions of this Agreement.

         2.2 The Revolving Credit Note shall mature on the Revolving Credit
Maturity Date and each Advance from time to time outstanding thereunder shall
bear interest at its Applicable Interest Rate. The amount and date of each
Advance, its Applicable Interest Rate, its Interest Period, and the amount and
date of any repayment shall be noted on Bank's records, which records will be
presumed correct absent manifest error. The Applicable Margins shall initially
be 3.25% for Eurodollar-based Advances and

                                       12
<PAGE>

 .50% for Prime-based Advances. Adjustments to the Applicable Margin based on the
Funded Debt Ratio shall be implemented as follows:

                  (a)      Such Applicable Margin adjustments shall be given
                           prospective effect only on a semi-annual basis,
                           effective (i) on the first Business Day of the month
                           following delivery of Company's annual financial
                           statements and compliance certificate and (ii) on the
                           first Business Day of the month following delivery of
                           Company's quarterly financial statements and
                           compliance certificate for the second fiscal quarter
                           as to any Prime-based Advance, and as to any
                           Eurodollar-based Advance, effective upon the
                           expiration of the applicable Interest Period(s), if
                           any, in effect on the first Business Day of the month
                           following the date of delivery of such financial
                           statements and compliance certificate, as the case
                           may be, establishing applicability of the appropriate
                           adjustments, with no retroactivity or claw-back
                           (provided, however, that if Company fails to timely
                           deliver such financial statements and compliance
                           certificate, the Applicable Margins shall be 3.25% or
                           3.50%, as applicable, for Eurodollar-based Advances
                           and 0.50% or .75%, as applicable, for Prime-based
                           Advances for the number of days such financial
                           statements and certificate were not delivered within
                           the applicable time period specified in Section 11.1,
                           commencing on the first Business Day after the latest
                           due date for such financial statements and
                           certificate and continuing until the first Business
                           Day after delivery of such financial statements and
                           certificate;

                  (b)      An adjustment hereunder, after becoming effective,
                           shall remain in effect only through the end of the
                           applicable Interest Period(s) in effect on the
                           delivery of subsequent financial statements and
                           certificates, as aforesaid, demonstrating any change
                           in such Funded Debt Ratio or the occurrence of any
                           event which under the terms hereof causes such
                           adjustment no longer to be applicable; and any such
                           subsequent adjustment or no adjustment, as the case
                           may be, shall apply (and said pricing shall thereby
                           be adjusted up or down, as applicable), effective
                           with the commencement of the Interest Period
                           immediately following such change or event; and

                  (c)      Such Applicable Margin adjustments under this Section
                           2.2 shall be made irrespective of, and in addition
                           to, any other interest rate adjustments hereunder.

                                       13
<PAGE>

         2.3 Company may request an Advance under this Section 2 upon the
delivery to Bank of a Request for Advance executed by an authorized officer of
Company, subject to the following:

         (a)      each such Request for Advance shall set forth the information
                  required on the Request for Advance form annexed hereto as
                  Exhibit "B";

         (b)      each such Request for Advance shall be delivered to Bank by
                  11:00 a.m. (Detroit, Michigan time) on the day of the proposed
                  date of Advance;

         (c)      the principal amount of such Advance, plus the amount of any
                  outstanding indebtedness to be then combined therewith having
                  the same Applicable Interest Rate and Interest Period, if any,
                  shall be, in the case of a Eurodollar-based Advance, at least
                  $250,000 or any larger amount in $100,000 increments; and

         (d)      a Request for Advance, once delivered to Bank, shall not be
                  revocable by Company after Bank has funded or committed in
                  accordance with Bank's internal procedures to fund the
                  applicable Advance.

         Bank may, at its option, lend under this Section 2 upon Company's
telephone or facsimile request upon execution by Company of a Borrower's
Telephone and Facsimile Authorization in the form of Exhibit "E" attached
hereto.

         2.4 The aggregate principal amount at any one time outstanding under
the Revolving Credit Note plus the Letter of Credit Reserve and the Facility
Reserve shall never exceed the Borrowing Base. Company shall immediately make
all payments necessary to comply with this provision.

         2.5 Letters of Credit and proceeds of Advances under the Revolving
Credit Note shall be used solely for (a) general corporate and working capital
purposes and (b) investments permitted by Section 11.6 hereof.

         2.6 Company shall pay to Bank a non-refundable revolving credit
commitment fee on the daily average amount by which $10,000,000 exceeds the
aggregate amount of Advances outstanding from time to time. The revolving credit
commitment fee shall initially be .50% equal to the amount of such excess times
the Applicable Commitment Fee Percentage computed on a daily basis. The
revolving credit commitment fee shall be payable quarterly in arrears on the
first day of each January, April, July and October, commencing January 1, 2002,
and at the Revolving Credit Maturity Date, and shall be computed on the basis of
a year of 360 days and assessed for the actual number of day elapsed. The
revolving credit commitment fee shall initially be .50% per annum. Adjustments
thereto shall be given prospective effect, effective on delivery of the
financial statements and compliance certificate referred to in Section 2.2(a)
establishing applicability of the appropriate adjustments, with no retroactivity
or claw-back; provided,

                                       14
<PAGE>

that if Company fails to timely deliver such financial certificate, the
revolving credit commitment fee shall be .625% per annum for the number of days
such financial statements and certificate was not timely delivered, commencing
on the first day of such next fiscal quarter. For purposes of calculating the
revolving credit commitment fee, the face amount of outstanding Letters of
Credit shall be considered to be outstanding Advances.

         2.7 In addition to Advances under the Revolving Credit Note to be
provided to Company by Bank under and pursuant to Section 2.1 of this Agreement,
Bank further agrees to issue, or commit to issue, from time to time, standby
Letters of Credit for the account of Company in aggregate undrawn amounts not to
exceed Two Million Dollars ($2,000,000) at any one time outstanding; provided,
however, that the sum of the aggregate amount of Advances outstanding under the
Revolving Credit Note plus the Letter of Credit Reserve shall not exceed the
lesser of Ten Million Dollars ($10,000,000) or the Borrowing Base at any time;
provided further, that except as described in the following proviso, no Letter
of Credit shall, by its terms, have an expiration date which extends beyond the
earlier to occur of one year after issuance or the Revolving Credit Maturity
Date; and provided further, that in the event any Letter of Credit has an
expiration date later than the Revolving Credit Maturity Date, Company shall
deliver to Bank on demand cash collateral in an amount equal to the maximum
undrawn amount of such Letter of Credit. In addition to the terms and conditions
of this Agreement, the issuance of any Letters of Credit shall also be subject
to the terms and conditions of any letter of credit applications and agreements
executed and delivered by Company to Bank with respect thereto. Company shall
pay to Bank annually in advance a fee of two percent (2%) per annum of the
amount of each Letter of Credit.

         3. MARGIN REDUCTION OPTION

         3.1 Margin Reduction Option. (a) From time to time and at any time
during which no Default or Event of Default has occurred and is then continuing,
Company may elect (the "Margin Reduction Option") to reduce the Applicable
Prime-based Margin and the Applicable Eurodollar-based Margin by delivery to
Bank of a notice in the form of Exhibit "C" attached hereto. From and after the
delivery of such notice, and until such notice is revoked as provided in
subsection (b), the "Applicable Prime-based Margin", the "Applicable Eurodollar
Margin" and the "Borrowing Base" shall be as described in such definitions.

         (b) Company may revoke any effective exercise of the Margin Reduction
Option by delivery to Bank of a notice in the form of Exhibit "D" attached
hereto. From and after delivery of such notice, the "Applicable Prime-based
Margin", the "Applicable Eurodollar Margin" and the "Borrowing Base" shall be as
described in such definitions.

         (c) Company may exercise the Margin Reduction Option no more frequently
than twice in any calendar year. Any period during which a Margin Reduction
Option shall be in effect is referred to herein as a "Margin Reduction Period."

                                       15
<PAGE>

         4. [RESERVED]

         5. [RESERVED]

         6. INTEREST, INTEREST PERIODS, CONVERSIONS, PREPAYMENTS.

         6.1 Interest. Advances under the Revolving Credit Note shall bear
interest from the date thereof on the unpaid principal balance thereof from time
to time outstanding, at a rate per annum equal to the Prime-based Rate or the
Eurodollar-based Rate, as the Company may elect subject to the provisions of
this Agreement. With respect to Prime-based Advances, interest shall be payable
monthly on the first day of each month, commencing on the first day of the month
following the month during which such Advance is made, and at maturity. With
respect to Eurodollar-based Advances, interest shall be payable on the last day
of each Interest Period applicable thereto. Notwithstanding the foregoing, from
and after the occurrence of any Event of Default, the Advances shall bear
interest, payable on demand, at a rate per annum equal to: (i) in the case of
Prime-based Advances, three percent (3%) above the Prime-based Rate; and (ii) in
the case of a Eurodollar-based Advance, three percent (3%) above the rate which
would otherwise be applicable under this Section 6.1 until the end of the then
current Interest Period, at which time such Advance shall bear interest at the
rate provided for in clause (i) of this Section 6.1. Interest on all Advances
shall be calculated on the basis of a 360 day year for the actual number of days
elapsed. The interest rate with respect to any Prime-based Advance shall change
on the effective date of any change in the Prime-based Rate.

         6.2 Interest Periods. Each Interest Period for a Eurodollar-based
Advance shall commence on the date such Eurodollar-based Advance is made or is
converted from an Advance of another type pursuant to Section 6.3 hereof or on
the last day of the immediately preceding Interest Period for such
Eurodollar-based Advance, and shall end on the date one, two, or three months
thereafter, as the Company may elect as set forth below, subject to the
following:

              (i) no Interest Period shall extend beyond the Revolving Credit
         Maturity Date; and

              (ii) any Interest Period which would otherwise end on a day which
         is not a Business Day shall be extended to the next succeeding Business
         Day unless the next succeeding Business Day falls in another calendar
         month, in which case such Interest Period shall end on the immediately
         preceding Business Day and when an Interest Period begins on a day
         which has no numerically corresponding day in the calendar month during
         which such Interest Period is to end, it shall end on the last Business
         Day of such calendar month.

The Company shall elect the initial Interest Period applicable to a
Eurodollar-based Advance by its Request for Advance given to the Bank pursuant
to Section 2.3 or by its

                                       16
<PAGE>

notice of conversion given to the Bank pursuant to Section 6.3, as the case may
be. Provided that no Event of Default shall have occurred and be continuing, the
Company may elect to continue an Advance as a Eurodollar-based Advance by giving
irrevocable written, telephonic or telegraphic notice thereof to the Bank, not
later than 11:00 a.m. (Detroit, Michigan time) on the last day of the then
current Interest Period applicable to such Eurodollar-based Advance, specifying
the duration of the succeeding Interest Period therefor. If the Bank does not
receive timely notice of the election and the Interest Period elected by the
Company, the Company shall be deemed to have elected to convert such
Eurodollar-based Advance to a Prime-based Advance at the end of the then current
Interest Period.

         6.3 Conversion of Advances. Provided that no Event of Default shall
have occurred and be continuing, the Company may, on any Business Day, convert
any outstanding Advance into an Advance of another type in the same aggregate
principal amount, provided that any conversion of a Eurodollar-based Advance
shall be made only on the last Business Day of the then current Interest Period
applicable to such Advance. If the Company desires to convert an Advance, it
shall give the Bank telephonic or telegraphic notice by 11:00 a.m. (Detroit,
Michigan time) on the proposed date of conversion, specifying the date of such
conversion, the Advances to be converted, the type of Advance elected and, if
the conversion is into a Eurodollar-based Advance, the duration of the first
Interest Period therefor.

         6.4 Prepayments. Company may prepay all or part of the outstanding
balance of the Prime-based Advance(s) under the Revolving Credit Note at any
time without premium or penalty. Upon three (3) Business Days prior notice to
Bank, Company may prepay all or part of any Eurodollar-based Advance, provided
that the amount of any such partial prepayment shall be at least $250,000 and
the unpaid portion of such Advance which is refunded or converted under Section
6.3 shall be subject to the limitations of Section 2.3(c). Any prepayment of a
Prime-based Advance or any prepayment of a Eurodollar-based Advance on the last
day of the Interest Period therefor made in accordance with this Section shall
be without premium, penalty or prejudice to Company's right to reborrow under
the terms of this Agreement. Any other prepayment shall be subject to the
provisions of Section 7.1 hereof.

                                       17
<PAGE>

         7. SPECIAL PROVISIONS, CHANGES IN CIRCUMSTANCES AND YIELD PROTECTION.

         7.1 If Company makes any payment of principal with respect to any
Eurodollar-based Advance on any day other than the last day of the Interest
Period applicable thereto (whether voluntarily, by acceleration, or otherwise),
or if Company fails to borrow any Eurodollar-based Advance after notice has been
given by Company to Bank in accordance with the terms hereof requesting such
Advance, or if Company fails to make any payment of principal or interest when
due in respect of a Eurodollar-based Advance, Company shall reimburse Bank on
demand for any resulting loss, cost or expense incurred by Bank as a result
thereof, including, without limitation, any such loss, cost or expense incurred
in obtaining, liquidating, employing or redeploying deposits from third parties,
whether or not Bank shall have funded or committed to fund such Advance. Such
amount payable by Company to Bank may include, without limitation, an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, refunded or converted, for
the period from the date of such prepayment or of such failure to borrow, refund
or convert, through the last day of the relevant Interest Period, at the
applicable rate of interest for said Advance(s) provided under this Agreement,
over (b) the amount of interest (as reasonably determined by Bank) which would
have accrued to Bank on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank eurodollar market.
Calculation of any amounts payable to Bank under this paragraph shall be made as
though Bank shall have actually funded or committed to fund the relevant
Eurodollar-based Advance through the purchase of an underlying deposit in an
amount equal to the amount of such Advance and having a maturity comparable to
the relevant Interest Period; provided, however, that Bank may fund any
Eurodollar-based Advance in any manner it deems fit and the foregoing
assumptions shall be utilized only for the purpose of the calculation of amounts
payable under this paragraph. Upon the written request of Company, Bank shall
deliver to Company a certificate setting forth the basis for determining such
losses, costs and expenses, which certificate shall be conclusively presumed
correct, absent manifest error.

         7.2 For any Interest Period for which the Applicable Interest Rate is
the Eurodollar-based Rate, if Bank shall designate a Eurodollar Lending Office
which maintains books separate from those of the rest of Bank, Bank shall have
the option of maintaining and carrying the relevant Advance on the books of such
Eurodollar Lending Office.

         7.3 If with respect to any Interest Period Bank determines that, by
reason of circumstances affecting the foreign exchange and interbank markets
generally, deposits in Eurodollars in the applicable amounts are not being
offered to the Bank for such Interest Period, then Bank shall forthwith give
notice thereof to the Company. Thereafter, until Bank notifies Company that such
circumstances no longer exist, the

                                       18
<PAGE>

obligation of Bank to make Eurodollar-based Advances, and the right of Company
to elect the Eurodollar-based Rate for any Advance, shall be suspended.

         7.4 If, after the date hereof, the introduction or implementation of,
or any change in, any applicable law, rule or regulation or in the
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, shall make it unlawful or impossible
for the Bank (or its Eurodollar Lending Office) to honor its obligations
hereunder to make or maintain any Advance with interest at the Eurodollar-based
Rate, Bank shall forthwith give notice thereof to Company. Thereafter (a) the
obligation of Bank to make Eurodollar-based Advances and the right of Company to
elect the Eurodollar-based Rate for any Advance shall be suspended and
thereafter Company may select as Applicable Interest Rates only those which
remain available, and (b) if Bank may not lawfully continue to maintain an
Advance at the Eurodollar-based Rate to the end of the then current Interest
Period applicable thereto, the Prime-based Rate shall be the Applicable Interest
Rate for the remainder of such Interest Period.

         7.5 If the adoption or implementation after the date hereof of, or any
change after the date hereof in, any applicable law, rule or regulation of any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not having
the force of law) made by any such authority, central bank or comparable agency
after the date hereof:

         (a)      shall subject Bank (or its Eurodollar Lending Office) to any
                  tax, duty or other charge with respect to any Advance or the
                  Revolving Credit Note or shall change the basis of taxation of
                  payments to Bank (or its Eurodollar Lending Office) of the
                  principal of or interest on any Advance or the Revolving
                  Credit Notes or any other amounts due under this Agreement in
                  respect thereof (except for changes in the rate of tax on the
                  overall net income of Bank or its Eurodollar Lending Office
                  imposed by any jurisdiction in which Bank is organized or
                  engaged in business); or

         (b)      shall impose, modify or deem applicable any reserve
                  (including, without limitation, any imposed by the Board of
                  Governors of the Federal Reserve System), special deposit or
                  similar requirement against assets of, deposits with or for
                  the account of, or credit extended by Bank (or its Eurodollar
                  Lending Office) or shall impose on Bank (or its Eurodollar
                  Lending Office) or the foreign exchange and interbank markets
                  any other condition affecting any Advance or the Revolving
                  Credit Note;

and the result of any of the foregoing is to increase the costs to Bank of
maintaining any part of the Indebtedness or to reduce the amount of any sum
received or receivable by

                                       19
<PAGE>

Bank under this Agreement or the Revolving Credit Note, by an amount deemed by
the Bank to be material, then, within fifteen days after demand by Bank, Company
agrees to pay to Bank such additional amount or amounts as will compensate Bank
for such increased cost or reduction. A certificate of Bank setting forth the
basis for determining such additional amount or amounts necessary to compensate
Bank shall be presumed to be correct save for manifest error.

         7.6 In the event that at any time after the date of this Agreement any
change in law such as described in Section 7.5 hereof shall, in the opinion of
Bank, require that the credit provided under this Agreement be treated as an
asset or otherwise be included for purposes of calculating the appropriate
amount of capital to be maintained by Bank or any corporation controlling Bank
and such change has or would have the effect of reducing the rate of return on
Bank's or Bank's parent's capital or assets as a consequence of the Bank's
obligations hereunder to a level below that which Bank or Bank's parent would
have achieved but for such change, then Bank shall notify Company and demand
compensation therefor and, within fifteen days after demand by Bank, Company
agrees to pay to Bank such additional amount or amounts as will compensate Bank
for such reduction. A certificate of Bank setting forth the basis for
determining such additional amount or amounts necessary to compensate Bank shall
be presumed to be correct save for manifest error.

         8. CONDITIONS; SECURITY

         8.1 Company agrees to furnish Bank prior to the initial borrowing under
this Agreement, in form and substance to be satisfactory to Bank, with (i)
certified copies of resolutions of the Board of Directors of Company evidencing
approval of the borrowings and transactions contemplated hereunder; (ii) a
certificate of good standing from the states of Michigan and Delaware; (iii) an
opinion of counsel to Company; and (iv) such other documents and instruments as
Bank may reasonably require.

         8.2 Company reaffirms and ratifies all of its obligations to Bank under
the Collateral Documents, and agrees that the Collateral Documents shall secure
the Indebtedness in accordance with their terms.

         8.3 Concurrently with the execution of this Agreement, Company pays to
Bank (a) a non-refundable loan extension fee in the amount of $10,000 and (b) a
non-refundable loan origination fee in the amount of $25,000 (in connection with
the $5,000,000 increase in availability).

         9. REPRESENTATIONS AND WARRANTIES

         Company represents and warrants and such representations and warranties
shall be deemed to be continuing representations and warranties during the
entire life of this Agreement:

                                       20
<PAGE>

         9.1 Company and each Domestic Subsidiary is a corporation duly
organized and existing in good standing under the laws of the jurisdiction of
its incorporation; Company and each Domestic Subsidiary is in good standing in
each jurisdiction in which it is required to be qualified to do business;
execution, delivery and performance of this Agreement and other documents and
instruments required under this Agreement, and the issuance of the Revolving
Credit Note by Company, are within its corporate powers, have been duly
authorized, are not in contravention of law or the terms of Company's
Certificate of Incorporation or Bylaws, and do not require the consent or
approval of any governmental body, agency or authority; and this Agreement and
other documents and instruments required under this Agreement and the Revolving
Credit Note, when issued and delivered, will be valid and binding on the Company
in accordance with their terms.

         9.2 The execution, delivery and performance of this Agreement and any
other documents and instruments required under this Agreement, and the issuance
of the Revolving Credit Note by Company, are not in contravention of the
unwaived terms of any indenture, agreement or undertaking to which Company is a
party or by which it is bound.

         9.3 No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of the officers of Company
is threatened against Company or any Domestic Subsidiary, the outcome of which
could materially impair Company's or any Domestic Subsidiary's financial
condition or the ability of Company or any Domestic Subsidiary to carry on its
business.

         9.4 There are no security interests in, liens, mortgages, or other
encumbrances on any of Company's or any Domestic Subsidiary's assets, except to
Bank or as otherwise permitted by this Agreement.

         9.5 Neither Company nor any Domestic Subsidiary maintains or
contributes to any employee pension benefit plan subject to title IV of the
"Employee Retirement Income Security Act of 1974" (herein called "ERISA"),
except those set forth in attached Schedule 9.5. Except as set forth on Schedule
9.5, there was no unfunded past service liability of any Pension Plan as of
September 30, 2001, and there is no accumulated funding deficiency within the
meaning of ERISA, or any existing material liability with respect to any pension
plan owed to the Pension Benefit Guaranty Corporation ("PBGC") or any successor
thereto, except any funding deficiency for which an application to the PBGC for
waiver is pending or for which a waiver has been granted by the PBGC.

         9.6 The audited financial statements of PEI and its consolidated
Subsidiaries dated December 31, 2000, previously furnished Bank, are complete
and correct and fairly present the financial condition of PEI and its
consolidated Subsidiaries in accordance with GAAP as of such date; the unaudited
financial statements of PEI and its consolidated Subsidiaries dated June 30,
2001, previously furnished Bank, are complete and correct and, to the best of
the knowledge of Company's officers, fairly present the financial condition of
PEI and its

                                       21
<PAGE>

consolidated Subsidiaries as of such date; since June 30, 2001 there has been no
material adverse change in the financial condition of PEI and its Subsidiaries
(taken as a whole); and to the best of the knowledge of Company's officers,
neither Company nor any Subsidiary has any material contingent obligations
(including any liability for taxes) not disclosed by or reserved against in said
balance sheets, and at the present time there are no material unrealized or
anticipated losses from any present commitment of Company or any Subsidiary.

         9.7 Reserved.

         9.8 All tax returns and tax reports of Company and each Domestic
Subsidiary required by law to have been filed have been duly filed or extensions
obtained, and all taxes, assessments and other governmental charges or levies
(other than those presently payable without penalty and those currently being
contested in good faith for which adequate reserves have been established) upon
Company or any Domestic Subsidiary (or any of its properties) which are due and
payable have been paid. The charges, accruals and reserves on the books of
Company and the Domestic Subsidiaries in respect of the Federal income tax for
all periods are adequate in the opinion of Company.

         9.9 There are no Subsidiaries of PEI, except as set forth in attached
Schedule 9.9.

         9.10 Company and each Domestic Subsidiary are, in the conduct of their
business, in compliance in all material respects with all federal, state or
local laws, statutes, ordinances and regulations applicable to any of them, the
enforcement of which, if Company or any Domestic Subsidiary were not in
compliance, would have a Material Adverse Effect on Company and the Domestic
Subsidiaries (taken as a whole). Company and each Domestic Subsidiary have all
approvals, authorizations, consents, licenses, orders and other permits of all
governmental agencies and authorities, whether federal, state or local, required
to permit the operation of their business as presently conducted, except such
approvals, authorizations, consents, licenses, orders and other permits with
respect to which the failure to have can be cured without having a Material
Adverse Effect on Company and the Domestic Subsidiaries (taken as a whole).

         9.11 Neither Company nor any Domestic Subsidiary is a party to any
litigation or administrative proceeding, nor so far as is known by Company is
any litigation or administrative proceeding threatened against Company or any
Domestic Subsidiary, the outcome of which could have a Material Adverse Effect
on Company and the Domestic Subsidiaries (taken as a whole) which in either case
(A) asserts or alleges that Company or any Domestic Subsidiary violated
Environmental Laws, (B) asserts or alleges that Company or any Domestic
Subsidiary is required to clean up, remove, or take remedial or other response
action due to the disposal, depositing, discharge,

                                       22
<PAGE>

leaking or other release of any hazardous substances or materials, (C) asserts
or alleges that Company or any Domestic Subsidiary is required to pay all or a
portion of the cost of any past, present, or future cleanup, removal or remedial
or other response action which arises out of or is related to the disposal,
depositing, discharge, leaking or other release of any hazardous substances or
materials by Company or any Domestic Subsidiary.

         9.12 Neither Company nor any Domestic Subsidiary is in violation of any
Environmental Laws which would subject Company or any Domestic Subsidiary to
damages, penalties, injunctive relief or cleanup costs under any applicable
Environmental Laws or which require or are likely to require cleanup, removal,
remedial action or other response pursuant to applicable Environmental Laws by
Company or any Domestic Subsidiary, except for such violations which are not
likely to have a Material Adverse Effect on Company and the Domestic
Subsidiaries (taken as a whole).

         9.13 Neither Company nor any Domestic Subsidiary is subject to any
judgment, decree, order or citation related to or arising out of applicable
Environmental Laws which could have a Material Adverse Effect on Company and the
Domestic Subsidiaries (taken as a whole) and to the best knowledge of the
Company, neither Company nor any Domestic Subsidiary has been named or listed as
a potentially responsible party by any governmental body or agency in a matter
arising under any applicable Environmental Laws, the result of which is likely
to have a Material Adverse Effect on Company and the Domestic Subsidiaries
(taken as a whole).

         9.14 Company and each Domestic Subsidiary has all permits, licenses and
approvals required under applicable Environmental Laws.

         9.15 Neither Company nor any Domestic Subsidiary is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Neither Company nor any Domestic Subsidiary is engaged principally, or as one of
its important activities, directly or indirectly, in the business of extending
credit for the purpose of purchasing or carrying margin stock, and none of the
proceeds of any of the loans hereunder will be used, directly or indirectly, for
any purpose which would violate the provisions of Regulation U or X of the Board
of Governors of the Federal Reserve System. Terms for which meanings are
provided in Regulation U of the Board of Governors of the Federal Reserve System
or any regulations substituted therefor, as from time to time in effect, are
used in this paragraph with such meanings.

         9.16 Company has good and valid title to the collateral covered by the
Collateral Documents, subject only to Permitted Liens.

         10. AFFIRMATIVE COVENANTS

         Company covenants and agrees that it will, so long as Bank may make any
Advance under this Agreement and thereafter so long as any Indebtedness remains
outstanding under this Agreement:

                                       23
<PAGE>

         10.1     Furnish Bank:

         (a)      within ninety (90) days after and as of the end of each fiscal
                  year of PEI, detailed consolidated and consolidating financial
                  statements of PEI and its consolidated Subsidiaries, audited
                  and certified by independent certified public accountants
                  satisfactory to Bank;

         (b)      within thirty (30) days after and as of the end of each month
                  other than December, and within sixty (60) days after the end
                  of each December, a consolidated balance sheet and
                  consolidated statement of profit and loss and surplus
                  reconciliation of PEI and the Subsidiaries presented in the
                  form previously submitted to Bank, certified by an authorized
                  officer of Company as being correct and accurate to the best
                  of his knowledge;

         (c)      within twenty (20) days after and as of the end of each month,
                  including the last month of each fiscal year, the monthly
                  aging of Company's Accounts and accounts payable and an
                  ineligible Accounts report and an inventory report;

         (d)      during any Margin Reduction Period, within twenty (20) days
                  after and as of the end of each month (and at such other times
                  as Bank may request), a schedule identifying each Eligible
                  Account as of the end of such month and any such schedule
                  shall be accompanied, if so requested by Bank, by a true and
                  correct copy of the invoices evidencing such Eligible Account
                  and by evidence of shipment or performance;

         (e)      at all times other than during a Margin Reduction Period, on
                  or before Wednesday of each week and as of Friday of the
                  preceding week (and at such other times as Bank may request),
                  a schedule identifying each Eligible Account as of such Friday
                  and any such schedule shall be accompanied, if so requested by
                  Bank, by a true and correct copy of the invoices evidencing
                  such Eligible Account and by evidence of shipment or
                  performance;

         (f)      within ninety (90) days after the beginning of each fiscal
                  year of PEI, financial projections for PEI and the
                  Subsidiaries (on a month by month basis) for such fiscal year;

         (g)      such information as required by the terms and conditions of
                  any security agreements referred to in this Agreement;

         (h)      simultaneously with the delivery of any financial statements
                  or reports, certificates, notices of default or other material
                  correspondence to the holders of the Senior Debt, copies
                  thereof; and

                                       24
<PAGE>

         (i)      promptly, and in form to be satisfactory to Bank, such other
                  information as Bank may reasonably request from time to time.

         10.2 Pay and discharge, and cause each Domestic Subsidiary to pay and
discharge, all taxes and other governmental charges before the same shall become
overdue, unless and to the extent only that such payment is being contested in
good faith.

         10.3 Maintain, and cause each Domestic Subsidiary to maintain,
insurance coverage on their physical assets and against other business risks in
such amounts and of such types as are customarily carried by companies similar
in size and nature, and in the event of acquisition of additional property, real
or personal, or of incurrence of additional risks of any nature, increase such
insurance coverage in such manner and to such extent as prudent business
judgment and present practice would dictate; and in the case of all policies
covering property hereafter mortgaged or pledged to Bank or property in which
Bank shall have a security interest of any kind whatsoever, other than those
policies protecting against casualty liabilities to strangers, all such
insurance policies shall provide that the loss payable thereunder shall be
payable to Company (or the Domestic Subsidiary) and Bank (as mortgagee) as their
respective interests may appear, all said policies or copies thereof, including
all endorsements thereon and those required hereunder, to be deposited with
Bank.

         10.4 Permit, and cause each Domestic Subsidiary to permit, Bank through
its authorized attorneys, accountants and representatives, to examine Company's
and each Domestic Subsidiary's books, accounts, records, ledgers and assets of
every kind and description at all reasonable times upon oral or written request
of Bank, which shall include but shall not be limited to collateral audits of
Company conducted by Bank or representatives of Bank, at Company's cost and
expense (provided that so long as Company shall not be in default, Company shall
be obligated to pay for no more than two (2) collateral audits of its North
American operations per year).

         10.5 Promptly notify Bank of any Default or Event of Default, and
promptly inform Bank of the existence or occurrence of any condition or event
(other than conditions having an effect on the economy in general) which could
have a material adverse effect upon Company's or any Subsidiary's financial
condition.

         10.6 Maintain, and cause each Domestic Subsidiary to maintain, in good
standing all licenses required by any state or any agency thereof, or other
governmental authority that may be necessary or required for Company and the
Domestic Subsidiaries to carry on their general business objects and purposes.

         10.7 Reserved.

                                       25
<PAGE>

         10.8 Comply, and cause each Domestic Subsidiary to comply, with all
material requirements imposed by ERISA as presently in effect or hereafter
promulgated, including but not limited to, the minimum funding requirements of
any Pension Plan.

         10.9 Promptly notify Bank after the occurrence thereof in writing of
any of the following events:

         (a)      the termination of a Pension Plan pursuant to Subtitle C of
                  Title IV of ERISA or otherwise;

         (b)      the appointment of a trustee by a United States District Court
                  to administer a Pension Plan;

         (c)      the commencement by the Pension Benefit Guaranty Corporation,
                  or any successor thereto of any proceeding to terminate a
                  Pension Plan;

         (d)      the failure of a Pension Plan to satisfy the minimum funding
                  requirements for any plan year as established in Section 412
                  of the Internal Revenue Code of 1954, as amended or any
                  similar provision under the Internal Revenue Code of 1986, as
                  amended;

         (e)      the withdrawal of Company or any Domestic Subsidiary from a
                  Pension Plan; or

         (f)      a reportable event, within the meaning of Title IV of ERISA.

         10.10 Furnish to the Bank concurrently with the delivery of each of the
financial statements required by Section 10.1(a) and each financial statement
required by Section 10.1(b) for the months of March, June, September and
December, a statement prepared and certified by the chief financial officer of
Company (or in his absence, a responsible senior officer of Company) (a) setting
forth all computations necessary to show compliance by Company with the
financial covenants contained in Sections 10.11 10.12 hereof, (b) stating that
as of the date thereof, no Default or Event of Default hereunder has occurred
and is continuing, or if any such event or condition has occurred and is
continuing or exists, specifying in detail the nature and period of existence
thereof and any action taken with respect thereto taken or contemplated to be
taken by Company and (c) stating that the signer has personally reviewed this
Agreement and that such certificate is based on an examination sufficient to
assure that such certificate is accurate.

         10.11 Maintain, as of the last day of each fiscal quarter, a Fixed
Charge Coverage Ratio of not less than 1 to 1.

         10.12 Maintain, as of the last day of each fiscal quarter, a Funded
Debt Ratio of not more than 7 to 1 until (and including) the quarter ending on
September 30, 2002, and 6.5 to 1 thereafter.

                                       26
<PAGE>

         10.13 Except as otherwise agreed by Bank in writing, maintain, and
cause the Domestic Subsidiaries to maintain, all cash collection and general
disbursement accounts with Bank, other than the existing disbursement accounts
with NBD Bank/Toronto.

         10.14 Comply, and cause each Domestic Subsidiary to comply, in all
material respects with all applicable laws, rules, regulations and orders of any
governmental authority (such compliance to include, without limitation, paying
before the same become delinquent all taxes, assessments and governmental
charges imposed upon it or upon its property), except to the extent that
compliance with any of the foregoing is then being contested in good faith by
appropriate legal proceedings and with respect to which adequate financial
reserves have been established on the books and records of the Company or such
Domestic Subsidiary.

         10.15 Pay and discharge, and cause each Domestic Subsidiary to pay and
discharge, all contractual obligations calling for the payment of money (other
than trade payables incurred in the ordinary course of business) before the same
shall become overdue, unless and to the extent only that such payment is being
contested in good faith.

         10.16 In the event that, at any time while this Agreement is in effect,
Company shall issue any indebtedness for borrowed money which is not by its
terms subordinate and junior to the Indebtedness and such indebtedness shall
include, or be issued pursuant to a trust indenture or other agreement which
includes, financial covenants which are not substantially identical to the
financial covenants set forth in this Agreement, or in the event Company desires
to amend the Senior Debt Documents to revise any financial covenants or to add
any new financial covenants, Company shall so advise Bank in writing. Such
notice shall be accompanied by a copy of the applicable agreement containing
such financial covenants. If Bank determines in its sole discretion that some or
all of the financial covenants set forth in such agreement are more favorable to
the lender thereunder than the financial covenants set forth in this Agreement
("More Favorable Terms") and that Bank desires that this Agreement be amended to
incorporate the More Favorable Terms, then Bank shall give written notice of
such determination to Company. Thereupon, and in any event within thirty (30)
days following the date of notice by Bank to Company, Company and Bank shall
enter into an amendment to this Agreement incorporating, on terms and conditions
acceptable to Bank, the More Favorable Terms.

         11. NEGATIVE COVENANTS

         Company covenants and agrees that, so long as Bank may make any
Advances under this Agreement and thereafter so long as any Indebtedness remains
outstanding under this Agreement, it will not, and it will not permit any of the
Domestic Subsidiaries to, without the prior written consent of Bank:

                                       27
<PAGE>

         11.1 Purchase, acquire or redeem any of its capital stock or other
securities or make any material change in its capital structure or general
business objectives or purpose, except that Company may redeem stock options, or
capital stock issued as a result of the exercise of such options, or capital
stock purchased by Company's management, in an amount not to exceed $1,000,000
in any fiscal year if no Event of Default has occurred and is then continuing,
either before or as a result of such redemption.

         11.2 Enter into any merger or consolidation or sell, lease, transfer,
or dispose of all, substantially all, or any material part of its assets, except
in the ordinary course of its business.

         11.3 Guarantee, endorse, or otherwise become secondarily liable for or
upon the obligations of others, except by endorsement for deposit in the
ordinary course of business and guaranties in favor of Bank and except for
guaranties incurred while no Default or Event of Default has occurred and is
then continuing of liabilities not to exceed $1,000,000 in the aggregate at any
time.

         11.4 Become or remain obligated for any indebtedness for borrowed
money, or for any indebtedness incurred in connection with the acquisition of
any property, real or personal, tangible or intangible, except:

         (a)      indebtedness to Bank;

         (b)      current unsecured trade, utility or non-extraordinary accounts
                  payable arising in the ordinary course of Company's or any
                  Domestic Subsidiary's business; and

         (c)      Senior Debt, and any renewals, refundings or refinancings
                  thereof in amounts not exceeding the original Senior Debt less
                  all permitted prepayments thereof;

         (d)      other indebtedness incurred while no Default or Event of
                  Default has occurred and is continuing, not to exceed
                  $1,000,000 in the aggregate at any time; and

         (e)      indebtedness described in attached Schedule 11.4.

         11.5 Purchase or otherwise acquire or become obligated for the purchase
of all or substantially all of the assets or business interests of any person,
firm or corporation or any shares of stock of any corporation, trusteeship or
association or in any other manner effectuate an expansion of present business
by acquisition, other than any acquisition of a domestic (U.S.) Person in which
the sum of the total consideration paid by Company and the Domestic Subsidiaries
(including cash paid, indebtedness assumed and all other consideration), plus
the total consideration paid in connection

                                       28
<PAGE>

with all other acquisitions consummated during the same fiscal year, does not
exceed $1,000,000.

         11.6 Make or allow to remain outstanding any investment (whether such
investment shall be of the character of investment in shares of stock, evidences
of indebtedness or other securities or otherwise) in, or any loans or advances
to, any Person, except (a) Company's existing investment in the Subsidiaries
(including (i) investments in equity stock of Auto Ignition, Ltd. in India, not
to exceed $730,000 and (ii) technology contributions and cash investments in
stock of Prestolite China in amounts which do not exceed $2,600,000 in the
aggregate), (b) investments in the stock of MOSAL in connection with Company's
contemplated closing of the MOSAL Transaction, and (c) other investments made
while no Default or Event of Default has occurred and is continuing, not to
exceed $2,000,000 in the aggregate at any time; provided, however, that Company
shall not invest more than $1,000,000 in any Person (directly or indirectly).
Transactions expressly permitted by the provisions of Sections 11.5 and 11.10
shall be excluded in determining Company's compliance with the investment
limitations in this Section 11.6.

         11.7 Affirmatively pledge or mortgage any of its assets, whether now
owned or hereafter acquired, or create, suffer or permit to exist any lien,
security interest in, or encumbrance thereon, except:

         (a)      to Bank; and

         (b)      the Permitted Liens.

         11.8 Sell, assign, transfer or confer a security interest in any
account, contract, note, trade acceptance or other receivable, except to Bank.

         11.9 Enter into, maintain, or make contribution to, directly or
indirectly, any employee pension plan that is subject to Title IV of ERISA,
except the Pension Plans.

         11.10 Make loans, advances of credit or extensions of credit to any of
its Affiliates or to its officers, directors or shareholders or any member of
their immediate families or any entity controlled by any of the foregoing or to
any other Person, except for (a) sales on open account or in the ordinary course
of business, (b) advances to employees in an amount not exceeding $100,000 at
any time outstanding (provided that loans made to employees of Company with
respect to their purchase of equity interests of PEI shall not be considered
loans within the meaning of this Section 11.10 if such loans are accounted for
in a manner consistent with the accounting treatment of such loans in PEI's
Consolidated financial statements for the year ended December 31, 1997), (c)
loans or advances made pursuant to and included under Section 11.6, (d) loans or
advances to Prostolite Indiel Argentina S.A. to refinance any of its existing
debt, and (e) loans or advances to Subsidiaries made after September 29, 2001
while

                                       29
<PAGE>

no Default or Event of Default is then continuing, not to exceed $4,000,000 in
the aggregate at any time outstanding.

         11.11 Declare or pay any dividends or make any other distribution upon
its shares of capital stock, except (a) dividends payable in the capital stock
of Company, and (b) dividends by Subsidiaries to Company.

         11.12 Make any Capital Expenditure during any fiscal year if, after
giving effect thereto, the aggregate amount of all Capital Expenditures made by
PEI and its Subsidiaries during such calendar year would exceed $15,000,000.

         11.13 Pay any management, consulting or similar fees to Genstar Capital
Corporation or Genstar Investment Corporation or any of their Affiliates during
any fiscal year if, after giving effect thereto, the aggregate amount of such
payments during such calendar year would exceed the greater of $900,000 or
three-tenths of one percent (0.3%) of PEI's Consolidated net sales for the
preceding fiscal year.

         11.14 Enter into any transaction with any of its stockholders or
officers, or its or their Affiliates, except in the ordinary course of business
and on terms not materially less favorable than would be usual and customary in
similar transactions between Persons dealing at arm's length, and except as
permitted by Section 11.13 and Section 11.10(b).

         11.15 Enter into or become subject to any agreement (other than loan
documents evidencing or otherwise related to the Senior Debt) (i) prohibiting
the guaranteeing by Company or any Subsidiary of any obligations, (ii)
prohibiting the creation or assumption of any lien or encumbrance upon the
properties or assets of Company or any Subsidiary, whether now owned or
hereafter acquired, or (iii) requiring an obligation to become secured (or
further secured) if another obligation is secured or further secured.

         11.16 Except for Permitted Prepayments, prepay, purchase, redeem or
defease any debt for money borrowed, excluding, subject to the terms hereof, the
Indebtedness.

         11.17 Amend, modify or otherwise alter (or suffer to be amended,
modified or altered) or waive (or permit to be waived) in any material respect,
any documents or instruments evidencing or otherwise related to Senior Debt so
as to shorten the original maturity date or amortization thereof or increase the
interest rate applicable thereto, or amend, modify or otherwise alter (or suffer
to be amended, modified or altered) any documents or instruments evidencing or
otherwise related to Senior Debt to limit the maximum amount of the Indebtedness
to an amount less than the amount permitted by the Senior Debt Documents as in
effect on the date hereof or to include any covenants or other provisions, that
require, for the amendment of any term or provision of this Agreement, or the
waiver of any term or provision hereof, the approval or consent of any other
creditor of Company or any Subsidiary; provided, however, that any increase

                                       30
<PAGE>

in the interest rate applicable to the Senior Debt (not in excess of 0.5% per
annum) as a result of the failure to file or lack of effectiveness of the Shelf
Registration Statement or the Exchange Offer Registration Statement described in
the Offering Circular shall not be a violation of this Section 11.17.

         12. ENVIRONMENTAL PROVISIONS

         12.1 Company shall comply, and cause the Domestic Subsidiaries to
comply, in all material respects with all applicable Environmental Laws.

         12.2 Company shall provide to Bank, immediately upon receipt, copies of
any correspondence, notice, pleading, citation, indictment, complaint, order,
decree, or other document from any source asserting or alleging a circumstance
or condition which requires or may require a financial contribution by Company
or any Domestic Subsidiary in respect of a cleanup, removal, remedial action, or
other response by or on the part of Company or any Domestic Subsidiary under
applicable Environmental Laws or which seeks damages or civil, criminal or
punitive penalties from Company or any Domestic Subsidiary for an alleged
violation of Environmental Laws; provided, however, that no such copies shall be
required to be delivered unless it reasonably appears that the matter may result
in a Material Adverse Effect on Company and the Domestic Subsidiaries (taken as
a whole).

         12.3 Company shall promptly notify Bank in writing as soon as Company
becomes aware of the occurrence or existence of any condition or circumstance
which makes the environmental warranties contained in this Agreement incomplete
or inaccurate in any material respect as of any date.

         12.4 In the event of any condition or circumstance that makes any
environmental warranty, representation and/or agreement incomplete or inaccurate
in any material respect as of any date, Company shall, at the request of Bank
(but only in cases in which Bank reasonably believes there may be a Material
Adverse Effect on Company and the Domestic Subsidiaries (taken as a whole)), at
its sole expense, retain an environmental professional consultant, reasonably
acceptable to Bank, to conduct a thorough and complete investigation regarding
the changed condition and/or circumstance and any environmental concerns arising
from that changed condition and/or circumstance. A copy of the environmental
consultant's report will be promptly delivered to both Bank and Company upon
completion.

         12.5 At any time Company or any Domestic Subsidiary, directly or
indirectly through any professional consultant or other representative,
determines to undertake an environmental audit, assessment or investigation,
Company shall promptly provide Bank with written notice of the initiation of the
environmental audit, fully describing the purpose and intended scope of the
environmental audit. Upon receipt, Company will promptly provide to Bank copies
of all final findings and conclusions of any such environmental investigation.

                                       31
<PAGE>

         12.6 Company hereby indemnifies, saves and holds Bank and any of its
past, present and future officers, directors, shareholders, employees,
representatives and consultants harmless from any and all loss, damages, suits,
penalties, costs, liabilities and expenses (including but not limited to
reasonable investigation, environmental audit(s), and legal expenses) arising
out of any claim, loss or damage of any property, injuries to or death of
persons, contamination of or adverse affects on the environment, or any
violation of any applicable Environmental Laws, caused by or in any way related
to any property owned or operated by Company or any Subsidiary, or due to any
acts of Company or any Subsidiary or such person's, officers, directors,
shareholders, employees, consultants and/or representatives; provided, however,
that the foregoing indemnification shall not be applicable when arising from
events or conditions occurring while the Bank is in sole possession (subject to
the rights of any creditors of Company) of such property. In no event shall
Company be liable hereunder for any loss, damages, suits, penalties, costs,
liabilities or expenses arising from any act of gross negligence of Bank, or its
agents or employees.

         It is expressly understood and agreed that the indemnifications granted
herein are intended to protect Bank, its past, present and future officers,
directors, shareholders, employees, consultants and representatives from any
claims that may arise by reason of the security interest, liens and/or mortgages
granted to Bank, or under any other document or agreement given to secure
repayment of any indebtedness from Company, whether or not such claims arise
before or after Bank has foreclosed upon and/or otherwise become the owner of
any such property. All obligations of indemnity as provided hereunder shall be
secured by the Collateral Documents until payment in full of all indebtedness of
Company to Bank, unless there is a then known violation of the Environmental
Laws and Bank has asserted in writing a claim for indemnification from Company,
in which event the same shall continue until the violation is remediated.

         It is expressly agreed and understood that the provisions hereof shall
and are intended to be continuing and shall survive the repayment of any
indebtedness from Company to Bank.

         12.7 Company and the Domestic Subsidiaries shall maintain all permits,
licenses and approvals required under applicable Environmental Laws.

         13. EVENTS OF DEFAULT

         13.1 Upon non-payment of any installment of the principal or interest
on the Note when due in accordance with the terms thereof, or upon non-payment
of any other outstanding Indebtedness when due in accordance with the terms
thereof, and continuance in either case of such non-payment for five (5) days or
more, the Note may at Bank's option become immediately due and payable, and
thereafter Bank's

                                       32
<PAGE>

commitment to make further Advances and to issue additional Letters of Credit
under this Agreement shall automatically terminate.

         13.2     Upon occurrence of any of the following events of default:

         (a)      default in the observance or performance of any of the
                  conditions, covenants or agreements of Company set forth in
                  Sections 2.4, 10.2, 10.3, 10.4, 10.5, 10.9, 10.11, 10.12, 11
                  or 12 herein;

         (b)      default in the observance or performance of any of the
                  conditions, covenants or agreements of Company set forth in
                  Sections 10.1 or 10.10, and continuance thereof for five (5)
                  Business Days after written notice to Company by Bank;

         (c)      default in the observance or performance of any of the other
                  conditions, covenants or agreements of Company herein set
                  forth, and continuance thereof for thirty (30) days after
                  written notice to Company by Bank;

         (d)      any material representation or warranty made by Company herein
                  or in any instrument submitted pursuant hereto proves untrue
                  in any material respect when made or deemed made;

         (e)      default in the observance or performance of any of the
                  conditions, covenants or agreements of Company set forth in
                  any collateral document of security which may be given to
                  secure the indebtedness hereunder or in any other collateral
                  document related to or connected with this Agreement or the
                  indebtedness hereunder and lapse of any applicable notice or
                  cure period;

         (f)      default in the payment of any other obligation of Company or
                  any Subsidiary for borrowed money in an aggregate amount in
                  excess of One Hundred Thousand Dollars ($100,000), or in the
                  observance or performance of any conditions, covenants or
                  agreements related or given with respect thereto, and lapse of
                  any applicable notice, grace or cure period;

         (g)      judgment(s) for the payment of money in excess of the sum of
                  One Hundred Thousand Dollars ($100,000) in the aggregate shall
                  be rendered against Company or any Subsidiary and any such
                  judgment(s) shall remain unpaid, unvacated, unbonded or
                  unstayed by appeal or otherwise for a period of thirty (30)
                  consecutive days from the date of its entry and such judgment
                  is not covered by insurance from a solvent insurer who is
                  defending such action without reservation of rights;

                                       33
<PAGE>

         (h)      the occurrence of any "reportable event", as defined in the
                  Employee Retirement Income Security Act of 1974 and any
                  amendments thereto, which is determined to constitute grounds
                  for termination by the Pension Benefit Guaranty Corporation of
                  any employee pension benefit plan maintained by or on behalf
                  of Company or any Subsidiary for the benefit of any of its
                  employees or for the appointment by the appropriate United
                  States District Court of a trustee to administer such plan and
                  such reportable event is not corrected and such determination
                  is not revoked within thirty (30) days after notice thereof
                  has been given to the plan administrator or Company; or the
                  institution of proceedings by the Pension Benefit Guaranty
                  Corporation to terminate any such employee benefit pension
                  plan or to appoint a trustee to administer such plan; or the
                  appointment of a trustee by the appropriate United States
                  District Court to administer any such employee benefit pension
                  plan;

         (i)      if there shall be any change for any reason whatsoever in the
                  ownership of Company or any Subsidiary which shall in the
                  reasonable judgment of Bank adversely affect future prospects
                  for the successful operation of Company or any Subsidiary;

         (j)      if PEI shall revoke its Guaranty or disavow any of its
                  obligations thereunder;

         (k)      if Company shall, or become obligated to, redeem, repurchase
                  or prepay any Senior Debt as a result of or in connection with
                  an actual or proposed change in control of Company, PEI or any
                  Subsidiary;

then, or at any time thereafter, unless such default is remedied, Bank may give
notice to Company declaring all outstanding indebtedness hereunder and under the
Note to be due and payable, whereupon all indebtedness then outstanding
hereunder and under the Note shall immediately become due and payable without
further notice or demand, and Bank shall not be obligated to make any further
Advances or issue any Letter of Credit hereunder.

         13.3 If a creditors' committee shall have been appointed for the
business of Company or any Subsidiary; or if Company or any Subsidiary shall
have made a general assignment for the benefit of creditors or shall have been
adjudicated bankrupt, or shall have filed a voluntary petition in bankruptcy or
for reorganization or to effect a plan or arrangement with creditors; or shall
file an answer to a creditor's petition or other petition filed against it,
admitting the material allegations thereof for an adjudication in bankruptcy or
for reorganization; or shall have applied for or permitted the appointment of a
receiver, or trustee or custodian for any of its property or assets; or such
receiver, trustee or custodian shall have been appointed for any of its property
or assets (otherwise than upon application or consent of Company or a
Subsidiary, as applicable) and such receiver, trustee or custodian so appointed
shall not have been discharged

                                       34
<PAGE>

within sixty (60) days after the date of his appointment or if an order shall be
entered and shall not be dismissed or stayed within sixty (60) days from its
entry, approving any petition for reorganization of Company or any Subsidiary;
then the Note and all indebtedness then outstanding hereunder shall
automatically become immediately due and payable, and Bank shall not be
obligated to make any further Advances or issue any Letters of Credit under this
Agreement.

         13.4 Upon the occurrence of an Event of Default, unless all of the
Indebtedness is then immediately fully paid, Bank shall have and may exercise
any one or more of the rights and remedies for which provision is made for a
secured party under the UCC, under the Collateral Documents, or under any other
document contemplated hereby or for which provision is provided by law or in
equity, including, without limitation, the right to take possession and sell,
lease or otherwise dispose of any or all of the collateral and to set off
against the Indebtedness any amount owing by Bank to Company and/or any property
of Company in possession of Bank. Company agrees, upon request of Bank, to
assemble the collateral and make it available to Bank at any place designated by
Bank which is reasonably convenient to Bank and Company.

         13.5 All of the Indebtedness shall constitute one loan secured by
Bank's security interest in the collateral and by all other security interests,
mortgages, liens, claims, and encumbrances now and from time to time hereafter
granted from Company to Bank. Upon the occurrence of an Event of Default, Bank
may in its sole discretion apply the collateral to any portion of the
Indebtedness. The proceeds of any such sale or other disposition of the
Collateral authorized by this Agreement shall be applied by Bank, first upon all
expenses authorized by the Michigan Uniform Commercial Code (or other applicable
law) or otherwise in connection with the sale and all reasonable attorneys' fees
and legal expenses incurred by Bank; the balance of the proceeds of such sale or
other disposition shall be applied in the payment of the Indebtedness, first to
interest, then to principal, then to other Indebtedness and the surplus, if any,
shall be paid over to Company or to such other Person or Persons as may be
entitled thereto under applicable law. Company shall remain liable for any
deficiency, which Company shall pay to Bank immediately upon demand.

         13.6 The remedies provided for herein are cumulative to the remedies
for collection of the Indebtedness as provided by law, in equity or by any
mortgage, security agreement or other document contemplated hereby. Nothing
herein contained is intended, nor shall it be construed, to preclude Bank from
pursuing any other remedy for the recovery of any other sum to which Bank may be
or become entitled for the breach of this Agreement by Company.

         13.7 Upon the occurrence of any Event of Default, Company shall
immediately upon demand by Bank deposit with Bank cash collateral in the amount
equal to the maximum amount available to be drawn at any time under any Letter
of Credit then outstanding.

                                       35
<PAGE>

         14. MISCELLANEOUS

         14.1 This Agreement shall be binding upon and shall inure to the
benefit of Company and Bank and their respective successors and assigns, except
that the credit provided for under this Agreement and no part thereof and no
obligation of Bank hereunder shall be assignable or otherwise transferable by
Company.

         14.2 Company shall pay all closing costs and expenses, including, by
way of description and not limitation, reasonable outside attorney fees, audit
and appraisal fees, lien search fees, approval fees and title policy fees
incurred by Bank in connection with the commitment, consummation and closing of
this Agreement. All of said amounts required to be paid by Company may, at
Bank's option, be charged by Bank as an advance against the proceeds of the
Revolving Credit Note. All costs, including reasonable attorney fees incurred by
Bank in protecting or enforcing any of its or any of the Bank's rights against
Company or any Guarantor or any collateral or in defending Bank from any claims
or liabilities by any party or otherwise incurred by Bank in connection with an
event of default or the enforcement of this Agreement or the related documents,
including by way of description and not limitation, such charges in any court or
bankruptcy proceedings or arising out of any claim or action by any person
against Bank which would not have been asserted were it not for Bank's
relationship with Company hereunder, shall also be paid by Company.

         14.3 Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, it shall be done in accordance with GAAP unless otherwise agreed to
by Company and Bank.

         14.4 No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall any
single or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under this
Agreement are cumulative and not exclusive of any right or remedies which Bank
would otherwise have.

         14.5 All notices with respect to this Agreement shall be deemed to be
completed upon mailing by certified mail to the following or to such other
address as may be designated by Company or Bank in a notice that complies as to
delivery with the terms of this Section 14.5:

                  To Company:
                  2100 Commonwealth Boulevard
                  Suite 300
                  Ann Arbor, Michigan 48105
                  Attention: Chief Financial Officer

                  To Bank:

                                       36
<PAGE>

                  One Detroit Center
                  500 Woodward Avenue
                  Mail Code 3259
                  Detroit, Michigan 48226
                  Attention: Comerica Business Credit--S.E. Michigan

         14.6 This Agreement and the other Loan Documents have been delivered at
Detroit, Michigan, and shall be governed by and construed and enforced in
accordance with the laws of the State of Michigan. Whenever possible each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

         14.7 No amendments or waiver of any provisions of this Agreement nor
consent to any departure by Company therefrom shall in any event be effective
unless the same shall be in writing and signed by the Bank, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No amendment, waiver or consent
with respect to any provision of this Agreement shall affect any other provision
of this Agreement.

         14.8 All sums payable by Company to Bank under this Agreement or the
other documents contemplated hereby shall be paid directly to Bank at its
principal office set forth in Section 14.5 hereof in immediately available
United States funds, without set off, deduction or counterclaim. Bank may charge
any and all deposit or other accounts (including without limit an account
evidenced by a certificate of deposit) of Company with Bank for all or a part of
any Indebtedness then due; provided, however, that this authorization shall not
affect Company's obligation to pay, when due, any Indebtedness whether or not
account balances are sufficient to pay amounts due.

         14.9 Any payment of the Indebtedness made by mail will be deemed
tendered and received only upon actual receipt by Bank at the address designated
for such payment, whether or not Bank has authorized payment by mail or any
other manner, and shall not be deemed to have been made in a timely manner
unless received on the date due for such payment, time being of the essence.
Company expressly assumes all risks of loss or liability resulting from
non-delivery or delay of delivery of any item of payment transmitted by mail or
in any other manner. Acceptance by Bank of any payment in an amount less than
the amount then due shall be deemed an acceptance on account only, and the
failure to pay the entire amount then due shall be and continue to be an Event
of Default, and at any time thereafter and until the entire amount then due has
been paid, Bank shall be entitled to exercise any and all rights conferred upon
it herein upon the occurrence of an Event of Default. Company waives the right
to direct the application of any and all payments at any time or times hereafter
received by Bank from or on behalf of Company. Company agrees that Bank shall
have the

                                       37
<PAGE>

continuing exclusive right to apply and to reapply any and all payments received
at any time or times hereafter against the Indebtedness in such manner as Bank
may deem advisable, notwithstanding any entry by Bank upon any of its books and
records. Company expressly agrees that to the extent that Bank receives any
payment or benefit and such payment or benefit, or any part thereof, is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or is required to be repaid to a trustee, receiver, or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then to the
extent of such payment or benefit, the Indebtedness or part thereof intended to
be satisfied shall be revived and continued in full force and effect as if such
payment or benefit had not been made and, further, any such repayment by Bank,
to the extent that Bank did not directly receive a corresponding cash payment,
shall be added to and be additional Indebtedness payable upon demand by Bank.

         14.10 In the event Company's obligation to pay interest on the
principal balance of any of the Notes is or becomes in excess of the maximum
interest rate which Company is permitted by law to contract or agree to pay,
giving due consideration to the execution date of this Agreement, then, in that
event, the rate of interest applicable shall be deemed to be immediately reduced
to such maximum rate and all previous payments in excess of such maximum rate
shall be deemed to have been payments in reduction of principal and not of
interest.

         14.11 This Agreement shall become effective upon the execution hereof
by Bank and Company.

         14.12 This Agreement constitutes an amendment and restatement of the
Prior Credit Agreement, which is fully superceded and amended and restated in
its entirety hereby; provided, however, that the Indebtedness governed by the
Prior Credit Agreement shall remain outstanding and in full force and effect and
provided further that this Agreement does not constitute a novation of such
Indebtedness.

         14.13 COMPANY AND BANK HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH
COMPANY AND BANK ARE PARTIES ARISING OUT OF THIS AGREEMENT OR THE OTHER
DOCUMENTS CONTEMPLATED HEREBY.

         WITNESS the due execution hereof as of the day and year first above
written.

COMERICA BANK                                                         PRESTOLITE
                                                           ELECTRIC INCORPORATED

                                       38
<PAGE>

By:                                         By:
   ----------------------------------------    --------------------------------

Its:                                        Its:
    ----------------------------------------    -------------------------------

                                            By:
                                               --------------------------------

                                            Its:
                                                -------------------------------

                                       39
<PAGE>

                              CONSENT OF GUARANTOR

         The undersigned Guarantor hereby consents to the execution and delivery
by Company of the attached Credit Agreement and reaffirms and ratifies all of
its obligations to the Bank under or in respect of the Guaranty.

                                            PRESTOLITE ELECTRIC HOLDING, INC.

                                            By:
                                               --------------------------------

                                            Its:
                                                -------------------------------

                                            By:
                                               --------------------------------

                                            Its:
                                                -------------------------------

                                       40
<PAGE>

                                LIST OF SCHEDULES

           Schedule 9.5 -    Pension Plans

           Schedule 9.9 -    Subsidiaries

           Schedule 9.4 -    Permitted Debt

           Schedule 9.7 -    Permitted Liens

           Schedule 9.9 -    Subsidiaries

                         LIST OF EXHIBITS

           Exhibit A -       Revolving Credit Note

           Exhibit B -       Request for Advance

           Exhibit C -       Notice of Election of Margin Reduction Option

           Exhibit D -       Notice of Revocation of Margin Reduction Option

<PAGE>

                                  SCHEDULE 9.4

                                 PERMITTED DEBT

1.       Capital Leases. Capital Leases as allowed under the definition of
         Capital Expenditures for fixed assets, real property or equipment which
         in accordance with GAAP are to be capitalized and shown as liabilities
         on the balance sheet. Current Leases outstanding as of September 29,
         2001 are as follows:

         (a)      Equipment Leases.

                  Lathe and Turning Center at Arcade - Lessor: Bank One

         (b)      Real Property Leases.

                  Arcade, New York - Agency Lease Agreement dated February 28,
                  1994 with Wyoming County Industrial Development Agency.

                  Ann Arbor, Michigan - Lease Agreement dated September 3, 1993
                  with First Properties Associates Limited Partnership
                  (administrative offices). This facility has been subleased to
                  Unigraphics Solutions, Inc.

                  Ann Arbor, Michigan - Lease Agreement dated March 8, 1994 with
                  Green Road Associates Limited Partnership (research and
                  development).

                  Dearborn Heights, Michigan - Lease with Raymond and Larry
                  Boes.

                  Florence, Kentucky - Lease Agreement dated June 28, 1996 with
                  Duke Realty Limited Partnership.

                  Garfield, New Jersey - Lease Agreement dated January 13, 1999
                  with Robert J. DeBello. The lease contemplated relocation of
                  the operation from a facility owned by the landlord in Saddle
                  Brook, New Jersey to another facility owned by the landlord in
                  Garfield, New Jersey.

2.       Other.

         (a)      Indebtedness related to deferred compensation agreements with
                  certain executive employees.

         (b)      Promissory Note to the Wyoming County Industrial Development
                  Agency dated February 28, 1994 for the sum of One Hundred
                  Eighty-Five Thousand and No/100 Dollars ($185,000.00) payable
                  as follows: Ninety-Six (96) monthly installments commencing
                  April 1, 1994.

<PAGE>

         (c)      The New York State Urban Development Corporation
                  infrastructure loan in the amount of $72,704 for the
                  Improvements to the Arcade facility.

         (d)      Annual or periodic financing arrangements required for the
                  financing of insurance premiums.

         (e)      Loans or advances permitted by Section 11.10.

         (f)      Guaranty Agreement dated May 22, 2001 with respect to the
                  obligations of Thermal Arc, Inc. under a Lease Agreement dated
                  May 22, 2001 with MV Limited One LLC for 105,550 square feet
                  in the Troy, Ohio facility. (As part of the AMETEK
                  Transaction, Company's 1996 and 1997 leases were terminated,
                  AMETEK entered into its own direct lease with the landlord for
                  its space, and Thermal Arc, Inc. entered into its own direct
                  lease with the landlord for its space. Company was required by
                  the landlord to guaranty the Thermal Arc lease - in essence,
                  the form of Company's exposure regarding Thermal Arc was
                  changed from landlord/tenant to Guarantor, but the extent of
                  the exposure remained the same.)

         (g)      Transition, indemnification and other obligations of Company
                  to AMETEK arising in connection with that certain asset
                  purchase agreement dated as of August 4, 2000 between Company
                  and AMETEK.

                                       2
<PAGE>

                                  SCHEDULE 9.5

                                  PENSION PLANS

<TABLE>
<CAPTION>
PLAN            EIN NO.           PLAN NAME
----            -------           ---------
<S>             <C>             <C>
001             94-3142032        Prestolite Incorporated Retirement Savings Plan for
                                  Non-Union Employees (data as of 12/31/2000)

                                  Active Participants                                          507

                                  Net Trust Assets as of 12/31/2000                            $35,600,977

                                  Retired or separated receiving benefits                      1

                                  Retired or separated entitled to future benefits             105

                                  Deceased whose beneficiaries are receiving or are entitled   4
                                  to receive benefits

                                  Participants with account balances                           578

                                  Participants terminated during the plan year
                                  with accrued benefits less than 100% vested                  11

007             94-3143032        Prestolite Electric Incorporated Pension Plan for Union
                                  Employees

                                  No. Participants

                                  Active                                                       -

                                  Retirees/Beneficiaries                                       216

                                  Vested Terminations                                          333
</TABLE>

Note: Effective December 31, 1998, the Cleveland Plan (No. 006), the Gainesville
Plan (No. 008), and the OPEIU Plan (No. 003) were merged into one plan, the
Cleveland Kelley Plan (No. 007) and the plan was renamed The Prestolite Electric
Incorporated Pension Plan for Union Employees.

<TABLE>
<CAPTION>
                Projected         Assets as Market Value                                       Excess of Assets
                Benefit           ----------------------                                       over Projected
                Obligation                                                                     Benefit Obligation
                ----------                                                                     ------------------
<S>           <C>               <C>                                                          <C>
1-Jan-01        2,808,801         3,020,724                                                    211,923
</TABLE>

Note: Data from Actuarial Valuation as of 1-January-2001

                                  SCHEDULE 9.7

                                      LIENS

1.       Leases as described in Schedule 7.4

2.       The following described Uniform Commercial Code lease filings:

A.       Michigan Secretary of State

<TABLE>
<CAPTION>
======================================== ===================================== =====================================
         Secured Party/Lessor                       Filing Number                        Covered Property
---------------------------------------- ------------------------------------- -------------------------------------
<S>                                      <C>                                   <C>
           Banc One Leasing                            D670099                          Specific Equipment
---------------------------------------- ------------------------------------- -------------------------------------

           Banc One Leasing                            D769960                          Specific Equipment
======================================== ===================================== =====================================
</TABLE>

B.       Cuyahoga County, Ohio

<TABLE>
<CAPTION>
=============================================== ============================== =====================================
           Secured Party/Lessor                         Filing Number                    Covered Property
----------------------------------------------- ------------------------------ -------------------------------------
<S>                                             <C>                            <C>
Forsythe/McArthur Associates, Inc.              1213966 and 1351150            Computer, data processing and other
                                                                               equipment referred to in Master
                                                                               Lease
</TABLE>

<PAGE>

<TABLE>
<S>                                             <C>                            <C>
----------------------------------------------- ------------------------------ -------------------------------------

NBD Bank assignee of NBD Equipment Finance,     1306646                        Computer Equipment
Inc.
=============================================== ============================== =====================================
</TABLE>

C.       Ohio Secretary of State

<TABLE>
<CAPTION>
=============================================== ============================== =====================================
           Secured Party/Lessor                         Filing Number                    Covered Property
----------------------------------------------- ------------------------------ -------------------------------------
<S>                                             <C>                            <C>
A T & T Credit Corp.                            AK86479                        A T & T System 75 /Merlin Legend
----------------------------------------------- ------------------------------ -------------------------------------

Forsythe/McArthur Associates, Inc.              AH14387 and 8089601709         Computer, data processing and other
                                                                               equipment referred to in Master
                                                                               Lease
----------------------------------------------- ------------------------------ -------------------------------------

NBD Bank, N.A., assignee of                     AL67983                        Computer Equipment
NBD Equipment Finance, Inc.
=============================================== ============================== =====================================
</TABLE>

D.       Alabama Secretary of State

<TABLE>
<CAPTION>
=============================================== ============================== =====================================
           Secured Party/Lessor                         Filing Number                    Covered Property
----------------------------------------------- ------------------------------ -------------------------------------
<S>                                             <C>                            <C>
Forsythe/McArthur Associates, Inc.              9200597                        Computer equipment
----------------------------------------------- ------------------------------ -------------------------------------

Fullerton Metals Co.                            9312739                        Stainless steel
=============================================== ============================== =====================================

Ervin Leasing Company                           B 94-33855                     2 CNC Machines
=============================================== ============================== =====================================

NBD Bank                                        B 94-45232                     Computer Equipment
=============================================== ============================== =====================================

NBD Equipment Finance                           B 95-16620                     Forklift
=============================================== ============================== =====================================

Comerica Leasing Corp.                          B 95-29132                     Telephone System
=============================================== ============================== =====================================

LCA Division of Associates Commercial Corp.     B 96-32296                     2 Air Compressors
=============================================== ============================== =====================================
</TABLE>

E.       New York Department of State

                                       3

<PAGE>

<TABLE>
<CAPTION>
============================================= ============================ =========================================
          Secured Party/Lessor                       Filing Number                    Covered Property
--------------------------------------------- ---------------------------- -----------------------------------------
<S>                                           <C>                          <C>
Forsythe McArthur Associates, Inc.            010412 and 157495            Computer Equipment
--------------------------------------------- ---------------------------- -----------------------------------------

U.S. Bancorp Leasing & Financial              219228 and 007056            Tooling Equipment
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    057661                       Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    057662                       Forklift
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    057663                       Forklift Truck, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    057667                       Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    057669                       Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    057672                       Forklift, Battery & Charger
============================================= ============================ =========================================

Clarklift of Buffalo, Inc.                    057674                       Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

NBD Bank, N.A., assignee of NBD Equipment     241495                       Computer Equipment
Finance, Inc.
--------------------------------------------- ---------------------------- -----------------------------------------

Xerox Corporation                             118636                       Photocopier
============================================= ============================ =========================================
</TABLE>

F.       Boone County, Kentucky

<TABLE>
<CAPTION>
============================================= ============================ =========================================
          Secured Party/Lessor                       Filing Number                    Covered Property
--------------------------------------------- ---------------------------- -----------------------------------------
<S>                                           <C>                          <C>
Forsythe McArthur Associates, Inc..           187970                       Computer equipment
--------------------------------------------- ---------------------------- -----------------------------------------

Scot Leasing Co.                              209329                       Scale and computer equipment
--------------------------------------------- ---------------------------- -----------------------------------------

Pitney Bowes Credit Corp.                     213757                       Office equipment
--------------------------------------------- ---------------------------- -----------------------------------------

NBD Bank, N.A., assignee of NBD Equipment     221976                       Computer Equipment
Finance, Inc.
--------------------------------------------- ---------------------------- -----------------------------------------

NBD Equipment Finance                         229287                       Duplicator, Controller, Cabinet,
                                                                           Feeder, Module and Interface Kit
============================================= ============================ =========================================
</TABLE>

                                        4
<PAGE>

G.       Wagoner County, Oklahoma

<TABLE>
<CAPTION>
============================================= ============================ =========================================
          Secured Party/Lessor                       Filing Number                    Covered Property
--------------------------------------------- ---------------------------- -----------------------------------------
<S>                                           <C>                          <C>
El Camino Resources, Ltd.                     649                          IBM Controller
--------------------------------------------- ---------------------------- -----------------------------------------

Salem Group, Inc.                             149                          IBM Controller
============================================= ============================ =========================================
</TABLE>

H.       Kentucky Secretary of State

<TABLE>
<CAPTION>
============================================= ============================ =========================================
          Secured Party/Lessor                       Filing Number                    Covered Property
--------------------------------------------- ---------------------------- -----------------------------------------
<S>                                           <C>                          <C>
Forsythe/McArthur Associates, Inc.            130814                       Computer Equipment
============================================= ============================ =========================================
</TABLE>

I.       Wyoming County, New York

<TABLE>
<CAPTION>
============================================= ============================ =========================================
          Secured Party/Lessor                       Filing Number                    Covered Property
--------------------------------------------- ---------------------------- -----------------------------------------
<S>                                           <C>                          <C>
U. S. Bancorp Leasing & Financial             931363                       Tooling Equipment
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    96301                        Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    96302                        Forklift
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    96303                        Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    96304                        Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    96305                        Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    96306                        Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Clarklift of Buffalo, Inc.                    96307                        Forklift, Battery & Charger
--------------------------------------------- ---------------------------- -----------------------------------------

Xerox Corporation                             97651                        Photocopier
============================================= ============================ =========================================
</TABLE>

                                       5
<PAGE>

                                  SCHEDULE 9.9

                               See Attached Chart

<PAGE>

                                   EXHIBIT "A"

                              REVOLVING CREDIT NOTE

                                                               Detroit, Michigan
$10,000,000                                                     October __, 2001

         On or before the Revolving Credit Maturity Date, FOR VALUE RECEIVED,
Prestolite Electric Incorporated, a Delaware corporation (herein called
"Company") promises to pay to the order of COMERICA BANK, a Michigan banking
corporation (herein called "Bank") at its Main Office at 500 Woodward Avenue,
Detroit, Michigan 48226, in lawful money of the United States of America the
indebtedness or so much of the sum of Ten Million Dollars ($10,000,000) as may
from time to time have been advanced and then be outstanding hereunder pursuant
to the Second Amended and Restated Credit Agreement dated as of October 31,
2001, made by and between Company and Bank (herein called "Agreement"), together
with interest thereon as hereinafter set forth.

         Each of the Advances hereunder shall bear interest at the Applicable
Interest Rate from time to time applicable thereto under the Agreement or as
otherwise determined thereunder, and interest shall be computed, assessed and
payable as set forth in the Agreement.

         This Note is a note under which advances, repayments and readvances may
be made from time to time, subject to the terms and conditions of the Agreement.
This Note evidences borrowing under, is subject to, is secured in accordance
with, and may be matured under, the terms of the Agreement, to which reference
is hereby made. As additional security for this Note, Company grants Bank a lien
on all property and assets including deposits and other credits of the Company,
at any time in possession or control of or owing by Bank for any purpose.

         Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, or
forbearance granted by any holder of this Note to any party now or hereafter
liable hereon. Any transferees of, or endorser, guarantor or surety paying this
Note in full shall succeed to all rights of Bank, and Bank shall be under no
further responsibility for the exercise thereof or the loan evidenced hereby.
Nothing herein shall limit any right granted Bank by other instrument or by law.

<PAGE>

         All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Agreement.

                                            PRESTOLITE ELECTRIC INCORPORATED

                                            By:
                                               --------------------------------

                                            Its:
                                                -------------------------------

                                            By:
                                               --------------------------------

                                            Its:
                                                -------------------------------

<PAGE>

                                   EXHIBIT "B"

                               REQUEST FOR ADVANCE

         Pursuant to the Second Amended and Restated Credit Agreement dated as
of October 31, 2001 (herein called "Agreement"), the undersigned hereby requests
COMERICA BANK ("Bank") to make a(an)           (1) Advance to the undersigned on
, 200  , in the amount of TEN MILLION DOLLARS, ($        ) under the $10,000,000
Revolving Credit Note dated October 31, 2001 issued by the undersigned to Bank
(herein called "Note"). The Interest Period for the requested Advance, if
applicable, shall be           (2). The last day of the Interest Period for the
amounts being converted or refunded hereunder, if applicable, is        , 200  .

         The undersigned certifies that no event has occurred or condition
exists which constitutes, or with the passage of time and/or giving of notice
would constitute, a default under the Agreement or the Note, and none will exist
upon the making of the Advance requested hereunder. The undersigned further
certifies that upon advancing the sum requested hereunder, the aggregate
principal amount outstanding under the Note will not exceed the face amount
thereof or any advance formula applicable to Advances under such Note. If the
amount advanced to the undersigned under the Note shall at any time exceed the
face amount thereof or any advance formula applicable to Advances under such
Note, the undersigned will pay such excess amount on demand.

         The undersigned hereby authorizes said Bank to disburse the proceeds of
this Request for Advance by crediting the account of the undersigned with Bank
separately designated by the undersigned or as the undersigned may otherwise
direct, unless this Request for Advance is being submitted for a conversion or
refunding, in which case it shall refund or convert that portion stated above of
the existing outstandings under the Note.

         Dated this _____ day of _______________, 200___.

                                            PRESTOLITE ELECTRIC INCORPORATED

                                            By:
                                               --------------------------------

                                            Its:
                                                -------------------------------

--------
     (1) Insert, as applicable, "Eurodollar-based", or "Prime-based".

     (2) For a Eurodollar-based Advance insert, as applicable, "1, 2, or 3
months".

<PAGE>

                                   EXHIBIT "C"

                  NOTICE OF ELECTION OF MARGIN REDUCTION OPTION

To:      Comerica Bank

         Pursuant to Section 3.1(a) of the Credit Agreement dated as of October
31, 2001, between the undersigned and the Bank, the undersigned hereby elects
the Margin Reduction Option as provided therein. The undersigned hereby
certifies that no Default or Event of Default has occurred and is continuing as
of the date hereof.

         Dated this _____ day of _______________, 200__.

                                            PRESTOLITE ELECTRIC INCORPORATED

                                            By:
                                               --------------------------------

                                            Its:
                                                -------------------------------

<PAGE>

                                   EXHIBIT "D"

                 NOTICE OF REVOCATION OF MARGIN REDUCTION OPTION

To:      Comerica Bank

         Pursuant to Section 3.1(b) of the Second Amended and Restated Credit
Agreement dated as of October 31, 2001 between the undersigned and the Bank, the
undersigned hereby revokes the Notice of Election of Margin Reduction Option
dated _________, 200___, delivered by the undersigned to the Bank.

         Dated this _____ day of _______________, 200___.

                                            PRESTOLITE ELECTRIC INCORPORATED

                                            By:
                                               --------------------------------

                                            Its:
                                                -------------------------------

                                     Page 2

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