Document:

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                                 Exhibit 10.1

                               January 12, 2000

Prestolite Electric Incorporated
2100 Commonwealth Blvd, Suite 300
Ann Arbor, MI 48105

Attention: Ken Cornelius
           Chief Financial Officer

Dear Ken:

On behalf of Robert W. Baird & Co. Incorporated ("Baird") we wish to thank you
for the opportunity to represent Prestolite Electric Incorporated ("Prestolite"
or the "Company") in connection with the possible sale or other disposition of
certain of the Company's businesses. This letter confirms the agreement between
Baird and the Company under which Baird is engaged as financial advisor to the
Company in connection with the proposed Disposition(s) (as defined below).

     1.   Baird accepts this engagement and agrees to:

          (a)  become familiar, to the extent we deem appropriate, with the
               business, operations, properties, financial condition, and
               prospects of the Company;

          (b)  assist the Company in analyzing and evaluating the operations and
               financial position of certain businesses the Company is
               considering divesting;

          (c)  assist the Company and its other financial advisor, Lincoln
               Partners LLC, in the preparation and implementation of a
               marketing plan with respect to the proposed Disposition(s) and in
               the screening of interested prospective purchasers;

          (d)  assist the Company in evaluating proposals which are received
               from potential purchasers; counsel the Company as to strategy and
               tactics for negotiating with potential purchasers and, advise the
               Company with respect to the form and structure of, and
               consideration to be received in, the proposed Disposition(s).

          If Baird is asked to provide other services not specifically
          contemplated above, the Company and Baird shall enter into a separate
          agreement covering such additional services to be rendered and the fee
          payable by the Company.

     2.   Baird's engagement shall commence on the date of this letter and shall
          expire on January 3, 2001 unless extended by mutual written agreement,
          but may be terminated earlier by either the Company or Baird at any
          time upon 30 days'
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          written notice from one party to the other. Notwithstanding expiration
          or termination of Baird's engagement, the provisions of this letter
          concerning confidentiality, indemnification, contribution, legal
          matters and the Company's obligations to pay Baird's fees and
          reimburse Baird's expenses shall survive and remain in effect.

     3.   For the purposes of this letter:

          (a)  A "Disposition" means any transaction or a series of transactions
               which results, directly or indirectly, in the transfer of control
               of the Company's Battery Charger Business or DC Motor Business
               (as defined in your December 16, 1999 Board of Directors
               information package entitled, "Breakup and Sale of Prestolite")
               or any material part of their assets or businesses (a
               "Business"), including without limitation: (i) any merger,
               consolidation, reorganization, recapitalization or other business
               combination pursuant to which a Business is transferred to or
               combined with that of another non-affiliated entity; (ii) the
               acquisition by an acquirer (or a "group", as defined in Section
               13(d)(3) of the Securities Exchange Act of 1934, as amended) of
               beneficial ownership of more than 50% of any class of capital
               stock (or rights to acquire the same) of the Company or any of
               its affiliates or of all or substantially all of the assets of
               the DC Motor Business or the Battery Charger Business; or (iii) a
               lease of a material part of the assets of the DC Motor Business
               or the Battery Charger Business, with or without a purchase
               option, or the formation of a joint venture or partnership, or
               similar transaction with another party with respect to a
               Business.

          (b)  "Transaction Date" means the date of the closing of any
               Disposition.

          (c)  "Consideration" means the aggregate value, whether in cash,
               securities, assumption of (or purchase subject to) debt or
               liabilities (including, without limitation, indebtedness for
               borrowed money, pension liabilities, guarantees and other
               calculable liabilities but excluding trade liabilities and trade
               payables), or other property, obligations or services, paid or
               payable directly or indirectly (through an escrow or otherwise)
               or otherwise assumed in connection with a Disposition (including
               amounts paid to holders of any warrants, stock purchase rights or
               convertible securities of the Company and to holders of any
               options or stock appreciation rights issued by the Company,
               whether or not vested). For the purpose of computing the value of
               Consideration, the value of securities shall be determined as
               follows:

               (i)  the value of securities (whether debt or equity) that are
                    traded on a national securities exchange, the NASDAQ system
                    or the over-the-counter market shall be the last reported
                    sales price prior to the Transaction Date; and

               (ii) the value of other securities, indebtedness, obligations,
                    property and services (including assumed liabilities) shall
                    be their fair market value as of the Transaction Date, or
                    such other value as may be mutually agreed upon by the
                    Company and Baird.
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               If any part of the Consideration consists of contingent payments
               to be calculated by reference to uncertain future occurrences,
               such as future financial or business performance, then any
               portion of Baird's fees payable hereunder relating to such
               portion of the Consideration shall be payable upon the receipt of
               such portion of the Consideration.

               If all or any portion of the Consideration is paid in any
               currency other than United States Dollars, the value of such
               Consideration shall be converted into United States Dollars at
               the prevailing exchange rate on the Transaction Date.

          (d)  Notwithstanding (c) above, if a Disposition entails the sale or
               transfer of only a portion of the assets of the DC Motor Business
               or the Battery Charger Business and the retention (or sale to a
               party other than the acquiring party or parties) of cash, cash
               equivalents, securities, investments or receivables
               (collectively, "Liquid Assets"), then such Liquid Assets shall be
               deemed to be included in the Consideration and shall be valued in
               accordance with (c) above; provided, however, that the value of
               inventories and receivables shall be their book value.

     4.   Baird shall be entitled to the following compensation for its services
          hereunder:

          (a)  a non-refundable retainer fee of $15,000 with $1,500 payable
               promptly upon execution of this letter and with the balance
               payable in nine monthly installments of $1,500 beginning February
               1, 2000 through October 1, 2000 (the "Financial Advisory Fee").

          (b)  if a Disposition is consummated:

               (i)   during the term of Baird's engagement under this letter; or

               (ii)  during the 12 months following termination or expiration of
                     Baird's engagement with any person or entity (or any other
                     person or entity formed by or affiliated with such person
                     or entity) identified to the Company by Baird or involving
                     a person or entity or transaction as to which Baird has
                     performed services during the period of its engagement; or

               (iii) which results from, or completes a Disposition contemplated
                     by, an agreement in principle or a definitive agreement to
                     effect a Disposition which is entered into during the term
                     of Baird's engagement or the 12 months following
                     termination or expiration of Baird's engagement;

          then the Company shall pay to Baird in cash on the Transaction Date, a
          transaction fee (the "Transaction Fee") equal to the percentages
          specified below of the Consideration paid or payable in such
          Disposition.
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               Total Consideration Paid                             Percentage
               ------------------------                             ----------
               On the amount up to $35 million                         0.10%
               On the amount between $35 million and $40 million       0.30%
               On the amount over $40 million                          0.40%

          It is intended that the Transaction Fee payable to Baird shall be 10%
          of the success fee paid to Lincoln Partners LLC by the Company in
          connection with the proposed Disposition(s).

     5.   In addition to the fees payable to Baird, the Company shall reimburse
          Baird and its affiliates, upon request, for its and their reasonable
          out-of-pocket expenses incurred in connection with Baird's engagement.
          Out-of-pocket expenses may include, but are not limited to,
          transportation, lodging, meals, document services, data base services,
          facsimile charges, courier charges, word processing requirements and
          fees and expenses of third parties such as legal counsel.

     6.   The Company shall furnish all information reasonably requested by
          Baird for the purpose of rendering services hereunder (the
          "Information"). The Company recognizes and confirms that Baird (i)
          will use and rely on the Information and on other information
          available from generally recognized public sources in performing the
          services contemplated by this letter without any obligation to
          independently verify the Information or such other information; (ii)
          will not assume responsibility for the accuracy or completeness of the
          Information or such other information; and (iii) will not make an
          appraisal of any of the assets or liabilities of the Company or any
          other entity. To the best of the Company's knowledge, the Information
          will be true and correct in all material respects and will not contain
          any material misstatement of a fact or omit to state any material fact
          necessary to make the statements contained therein not misleading.

          Baird agrees as provided in this letter to keep all non-public
          Information provided to it by the Company confidential, except as
          required by law. Notwithstanding anything to the contrary in this
          letter, Baird may disclose non-public Information to its agents and
          advisors, who shall also be bound by the terms of this paragraph,
          whenever Baird determines that such disclosure is necessary or
          appropriate to provide the services contemplated in this letter. The
          Company acknowledges that all opinions and advice (written or oral)
          given by Baird to the Company in connection with Baird's engagement
          are intended solely for the benefit and use of the Company (including
          its management, directors and attorneys) in considering the
          transaction(s) to which they relate and the Company agrees that,
          except as specifically permitted hereunder, no such opinion or advice
          shall be used for any other purpose or reproduced, disseminated,
          quoted or referred to at any time, in any manner or for any purpose,
          nor shall any public references to Baird be made by the Company (or
          such persons), without the prior written consent of Baird, which
          consent shall not be unreasonably withheld.

     7.   The Company hereby agrees to indemnify, hold harmless and reimburse
          Baird and each other Indemnified Party (as hereinafter defined) as
          follows:

          (a)  The Company agrees to indemnify and hold Baird, its affiliates
               and their respective directors, officers, partners, employees,
               agents and controlling
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               person (Baird and each such person being an "Indemnified Party")
               harmless from and against any and all losses, claims, damages and
               liabilities, joint or several, to which such Indemnified Party
               may become subject, relating to or arising out of the engagement
               of Baird, actions taken or omitted in connection therewith, or
               the matters contemplated by this letter (including amounts paid
               in settlement), and will reimburse each Indemnified Party for all
               expenses (including without limitation fees and expenses of legal
               counsel) as they are incurred in connection with investigating,
               preparing or defending, or providing evidence in, any pending or
               threatened claim or any action or proceeding arising therefrom,
               whether or not such Indemnified Party is a party and whether or
               not such claim, action or proceeding is brought by or on behalf
               of the Company; provided, however, that the Company shall not be
               liable pursuant to the foregoing indemnification provision in
               respect of any loss, claim, damage or liability that a court of
               competent jurisdiction shall have determined by final judgment
               (not subject to further appeal) to be the sole result of the
               willful misfeasance or gross negligence of such Indemnified
               Party.

          (b)  If indemnification is to be sought hereunder by an Indemnified
               Party, then such Indemnified Party shall notify the Company of
               the commencement of any litigation, proceeding or other action in
               respect thereof; provided, however, that the failure to notify
               the Company shall not relieve the Company from any liability or
               obligation that it may have under this paragraph or otherwise to
               such Indemnified Party. Following such notification, the Company
               may elect in writing to assume the defense of such litigation,
               proceeding or other action (and the costs related thereto) and,
               upon such election, the Company shall not be liable for any legal
               costs subsequently incurred by such Indemnified Party (other than
               costs of investigation or the production of documents or
               witnesses) unless (i) the Company has failed to provide legal
               counsel reasonably satisfactory to such Indemnified Party in a
               timely manner or (ii) such Indemnified Party shall have concluded
               that (A) the representation of such Indemnified Party by legal
               counsel selected by the Company would be inappropriate due to
               actual or potential conflicts of interest or (B) there may be
               legal defenses available to such Indemnified Party that are
               different from or additional to those available to the Company or
               any other Indemnified Party represented by such legal counsel.
               Nothing set forth herein shall preclude any Indemnified Party
               from retaining its own counsel at its own expense. The Company
               agrees that it will not, without the prior written consent of
               Baird, settle, compromise or consent to the entry of judgment in
               any pending or threatened claim, proceeding, or action in respect
               of which indemnification could be sought hereunder (whether or
               not any Indemnified Party is a party to such claim or proceeding)
               unless such settlement includes a provision unconditionally
               releasing Baird and all other Indemnified Parties from and
               holding them harmless against all liability in respect of claims
               by any releasing party related to or arising out of such matters
               or any transaction or conduct in connection therewith.

          (c)  If the indemnification and reimbursement provisions set forth
               above are unavailable or insufficient to hold an Indemnified
               Party harmless, then the Company shall nonetheless contribute to
               any such amounts paid or
<PAGE>

               payable by such Indemnified Party in a proportion that
               appropriately reflects the relative benefits received by the
               Company, on the one hand, and Baird, on the other hand, in
               connection with the matters to which such expenses or other
               amounts relate. If the foregoing allocation according to relative
               benefits is not permitted by applicable law, then amounts shall
               be contributed by the Company to the Indemnified Party in such
               proportion as appropriately reflects not only the relative
               benefits referred to above, but also so reflects the relative
               fault of the Company, on the one hand, and Baird, on the other
               hand, as well as any other relevant equitable considerations.

          (d)  If multiple claims are asserted against an Indemnified Party in
               any action or other proceeding, including an arbitration, and
               indemnification as to at least one of such claims is permitted
               under applicable law and provided for under this agreement, the
               Company agrees that any judgment or award shall be conclusively
               deemed to be based on claims as to which indemnification is
               permitted and provided for, except to the extent the judgment or
               award expressly states that the judgment or award, or any portion
               thereof, is based solely on a claim or claims as to which
               indemnification is not available.

          (e)  In connection with Baird's engagement hereunder, Baird may also
               be engaged to act for the Company in one or more additional
               capacities, and the terms of any such additional engagement may
               or may not be embodied in one or more separate written
               agreements. The provisions of this paragraph shall (i) apply to
               the original engagement, any such additional engagement, and any
               modification of the original engagement or such additional
               engagement, (ii) remain in full force and effect whether or not
               any of the transactions contemplated by this engagement or such
               additional engagement are consummated, (iii) survive the
               expiration or termination of the period of Baird's engagement,
               and (iv) be in addition to any liability that the Company might
               otherwise have to any Indemnified Party. The Company also agrees
               that no Indemnified Party (including Baird) shall have any
               liability (direct or indirect, in contract or tort or otherwise)
               to the Company or its security holders, creditors or affiliates
               in connection with any matter relating to the engagement of Baird
               hereunder, except to the extent that a court having competent
               jurisdiction shall have determined by final judgment (not subject
               to further appeal) that such liability resulted solely from the
               willful misfeasance or gross negligence of such Indemnified
               Party. In no event shall the aggregate amount of liability of all
               Indemnified Parties hereunder be in excess of the fees (exclusive
               of expense reimbursement) actually paid to Baird under this
               letter.

     8.   If a Disposition is effected and the Company is not the surviving
          entity after such Disposition or in the event of a sale of all or
          substantially all of the assets of the Company, the Company shall
          cause the acquirer or acquirers to assume and honor the obligations
          and liabilities of the Company in this letter, including without
          limitation the Company's obligations and liabilities pursuant to
          provisions concerning indemnification, contribution and the Company's
          obligations to pay Baird's fees and to reimburse Baird's expenses.
<PAGE>

     9.   The Company acknowledges that Baird is a full service securities firm
          and as such Baird and its affiliates may from time to time hold long
          or short positions or effect transactions, for its own account or the
          accounts of customers, in securities or options on securities of the
          Company or other parties that might be involved in transactions with
          the Company.

     10.  The Company and Baird agree and acknowledge that (i) this letter is
          solely for the benefit of the parties to this letter, (ii) Baird shall
          owe no duty to any person or entity other than the Company, and (iii)
          no other person or entity, including without limitation the Company's
          shareholders and the Company and its shareholders' respective
          employees, officers, directors, trustees, affiliates and agents, shall
          be deemed a third party beneficiary of this letter or have any rights
          with respect to Baird's engagement.

     11.  This letter may not be amended or modified except in writing executed
          by the Company and Baird. This letter may be executed in counterparts,
          each of which shall be deemed an original and all of which shall
          constitute one and the same instrument. Solely for purposes of
          enforcing this agreement, the Company consents to personal
          jurisdiction, service and venue in any court in which any claim,
          action or proceeding which is subject to this agreement (including
          without limitation the indemnification provisions) is brought against
          Baird or any other Indemnified Party. Any right to trial by jury with
          respect to any claim, action or proceeding related to or arising out
          of Baird's engagement, any transaction or conduct in connection
          therewith or this agreement is hereby waived. This letter shall be
          governed by and construed in accordance with the internal laws of the
          State of Illinois without reference to principles of conflicts of law.

Please confirm that the foregoing is in accordance with the Company's
understanding by signing and returning to Baird the enclosed duplicate of this
letter.

                                           Very truly yours,

                                           ROBERT W. BAIRD & CO. INCORPORATED

                                           By: /s/ Steven G. Booth
                                               --------------------------------
                                           Its: Managing Director
                                                -------------------------------

Accepted and agreed to as of
the date first written above

PRESTOLITE ELECTRIC INCORPORATED

By:  /s/ Kenneth C. Cornelius
     -----------------------------
Its: /s/ Vice President
     -----------------------------<PAGE>

                                  Exhibit 10.2

December 31, 1999

Mr. Kenneth C. Cornelius
Senior Vice President & CFO
Prestolite Electric Incorporated
2100 Commonwealth Blvd.
Ann Arbor, Michigan 48105

Dear Mr. Cornelius:

This Letter Agreement confirms our mutual understanding regarding the retention
of Lincoln Partners L.L.C. ("Lincoln") by Prestolite Electric Incorporated
("Prestolite" or the "Company") to act as its exclusive investment banking
representative in connection with the proposed sale of the Wagoner DC motor
business, the Battery Charger business and the Material Handling motor business
(the "Businesses").

Lincoln Services and Role

1.   Lincoln will assist Prestolite's management in:
     (a)  developing a list of corporations, partnerships, individuals or other
          entities (each, together with its affiliates, a "Prospective
          Purchaser") who might be interested in entering into a Transaction (as
          defined in the next paragraph) with the Company;
     (b)  preparing a descriptive memorandum that describes the Businesses'
          operations, management, results of operations and financial condition
          and that incorporates current financial data and other information
          deemed relevant by Prestolite (as amended and supplemented from time
          to time) (the "Offering Memorandum");
     (c)  formulating and recommending a strategy for the sale of the
          Businesses;
     (d)  contacting and eliciting interest from Prospective Purchasers;
     (e)  conveying information desired by serious Prospective Purchasers not
          contained in the Offering Memorandum (the "Supplemental Information");
     (f)  investigating the financial capability of Prospective Purchasers;
     (g)  reviewing and analyzing proposals, both preliminary and firm, that are
          received from Prospective Purchasers; and
     (h)  negotiating, to the extent requested by Prestolite, with Prospective
          Purchasers. The initial list of Prospective Purchasers will be
          submitted in writing by Lincoln to Prestolite as will any subsequent
          list of Prospective Purchasers.
<PAGE>

2.        As used in this Letter Agreement, the term "Transaction" shall mean:
          (a) the acquisition, directly or indirectly, by a Prospective
          Purchaser in a single transaction or a series of transactions, of (i)
          all or substantially all of the assets or operations of the Businesses
          or (ii) fifty percent (50%) or more of the outstanding stock of
          another entity owned by Prestolite which owns the assets of the
          Businesses; or (b) any merger, consolidation, reorganization,
          recapitalization, business combination or other transaction pursuant
          to which the Businesses are acquired by, or combined with, a
          Prospective Purchaser.

3.        In order that Prestolite and Lincoln best coordinate their efforts to
          effect a Transaction during the period of Lincoln's engagement,
          Prestolite and Lincoln agree that Lincoln will be the sole and
          exclusive representative of Prestolite in the sale of the Businesses.
          In the event Prestolite initiates discussions relating to the possible
          sale of the Businesses other than through Lincoln, Prestolite agrees
          to coordinate these discussions with Lincoln and each of those
          entities so contacted will be deemed to be a Prospective Purchaser. In
          the event Prestolite receives an unsolicited inquiry concerning
          matters covered by this Letter Agreement, Prestolite will refer any
          such inquiry to Lincoln and each of these unsolicited inquiries will
          be deemed to be a Prospective Purchaser. Lincoln will not contact any
          Prospective Purchaser without each being approved in advance by
          Prestolite.

Information
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4.        In connection with Lincoln's activities on Prestolite's behalf,
          Prestolite will furnish Lincoln with information and data concerning
          Prestolite and the Businesses (the "Information"). To the best of
          Prestolite's knowledge all Information: (a) made available to Lincoln
          by Prestolite; or (b) contained in any Offering Memorandum or
          Supplemental Information will, at all times during the period of
          engagement of Lincoln hereunder, be complete and correct in all
          material respects and will not contain any untrue statement of a
          material fact or omit to state a material fact necessary in order to
          make the statements therein not misleading in the light of the
          circumstances under which such statements are made. Further, any
          projections provided by Prestolite to Lincoln contained in the
          Offering Memorandum or Supplemental Information will be prepared in
          good faith and will be based upon assumptions which, in the light of
          the circumstances under which they are made, are reasonable.
          Prestolite will promptly notify Lincoln if it learns of any material
          inaccuracy or misstatement in, or omission from, any Information
          previously delivered to Lincoln. The Offering Memorandum and every
          item of Supplemental Information will be specifically approved in
          advance by Prestolite. In rendering its services hereunder, including,
          without limitation, assisting Prestolite's management in the
          preparation of the Offering Memorandum, Lincoln will be using and
          relying on the Information (and information available from public
          sources and other sources deemed reliable by Lincoln) without
          independent verification thereof or independent appraisal of any of
          the Businesses' assets. Lincoln does not assume responsibility for the
          accuracy or completeness of the Information or any other information
          regarding Prestolite or the Businesses.
<PAGE>

5.        In evaluating Prospective Purchasers, as requested by Prestolite,
          Lincoln will be using publicly available information; information
          contained in public reports provided by third party vendors (such as
          Dun & Bradstreet, Inc.); and other information furnished to Lincoln by
          such Prospective Purchasers. Lincoln does not assume responsibility
          for the accuracy or completeness of any information regarding
          Prospective Purchasers contained in public sources or provided by
          Prospective Purchasers.

6.        Prestolite will provide Lincoln with access to Prestolite's employees,
          independent accountants and legal counsel and other third parties
          having a relationship with Prestolite to the extent Lincoln shall deem
          reasonably necessary in connection with the performance of its
          services hereunder.

Compensation and Reimbursement of Expenses
------------------------------------------

7.        In consideration of Lincoln's services pursuant to this Letter
          Agreement, Lincoln shall be entitled to receive, and Prestolite agrees
          to pay Lincoln, the following compensation:

          (a)  An initial cash retainer of $25,000 payable to Lincoln upon the
               execution of this Letter Agreement for services rendered over the
               next six months.

          (b)  For the first eight months of the Engagement only, a monthly cash
               retainer of $7,500 paid quarterly in arrears.

          (c)  Provided a transaction or Transaction or Transactions are
               completed, a Success Fee equal to the higher of (i) an amount
               determined according to the following schedule:
                           1.0% of the Sale Price up to $35 million (the "First
                           Hurdle Price"); plus 3.0% of the amount above the
                           First Hurdle Price and below $40 million (the "Second
                           Hurdle Price"); plus 4.0% of the Sale Price in excess
                           of the Second Hurdle Price.
               or (ii) $250,000

Lastly, Lincoln agrees to allow up to 10% of the Success Fee computed in section
7(c) to be paid to another investment bank of Prestolite's choice.

The Success Fee shall be earned, due and payable in cash at the time of the
closing of the Transaction, except in the case where any portion(s) of the
Success Fee are associated with contingent portion(s) of the Sale Price or notes
issued to Prestolite (as defined in the next paragraph). The Success Fee for
that portion of the Sale Price received at closing shall be computed consistent
with the next paragraph. Portion(s) of the Sale Price or notes shall be due and
payable in cash at the time of the collection of such future payment(s) or
collection of the notes. Notwithstanding the preceding sentence, Prestolite and
Lincoln may mutually agree on an amount to be paid in cash at the closing in
lieu of any future payments to Lincoln.
<PAGE>

8.        For the foregoing purposes the "Sale Price" shall be calculated as the
          sum of the following values identified in (a) through (g) less (h) at
          closing:

          (a)  Cash and cash equivalents paid to Prestolite;

          (b)  Market value of any common stock issued to Prestolite;

          (c)  The par value of any preferred stock issued to Prestolite, unless
               market value is easily determinable;

          (d)  The face value of any notes issued to Prestolite, unless the
               market value is easily determinable;

          (e)  The face value of any debt owed by Prestolite which is assumed
               and/or forgiven by the Purchaser, unless the market value is
               easily determinable;

          (f)  Consideration paid or payable under covenants not to compete,
               earn-outs, royalties, and management or consulting arrangements
               (such terms not to encompass employment agreements) between
               Prestolite and the Purchaser;

          (g)  Trade accounts receivable or lease receivables associated with
               the Businesses' business (at fair market value) or other of the
               Businesses assets listed on the Businesses' balance sheets,
               prepared in a manner consistent with past practices, but retained
               by Prestolite after closing; and less

          (h)  Accounts payable and accrued liabilities associated with the
               Businesses' business or any third party (i.e. non-Prestolite)
               liabilities on the Businesses' balance sheet, prepared in a
               manner consistent with past practices, which are not assumed by
               the Purchaser as of the closing date of the sale of the
               Businesses.

9.        Notwithstanding termination of this Letter Agreement or Lincoln's
          engagement hereunder, in the event Prestolite enters into a
          Transaction with the Prospective Purchaser or Prestolite enters into a
          definitive sale agreement with the Prospective Purchaser (which
          subsequently results in a Transaction) within twelve months of the
          termination date of this Letter Agreement, Lincoln shall be entitled
          to the Success Fee as set forth above.

10.       In addition to the fees described above, Prestolite agrees to promptly
          reimburse Lincoln, upon request from time to time, for all reasonable
          out-of-pocket expenses incurred by Lincoln in connection with the
          matters contemplated by this Letter Agreement commencing with expenses
          incurred December 21, 1999.
<PAGE>

Indemnification
---------------

11.       Prestolite agrees to separately indemnify Lincoln in accordance with
          the indemnification provisions (the "Indemnification Provisions")
          attached to this Letter Agreement in Exhibit I, which Indemnification
          Provisions are incorporated herein and made part hereof.

Other Terms
-----------

12.       Either party hereto may terminate this Letter Agreement at any time
          upon written notice, without liability or continuing obligation except
          as set forth in this paragraph 12. Neither the termination of this
          Letter Agreement nor Lincoln's engagement hereunder shall affect: (a)
          any compensation earned by Lincoln up to the date of termination or
          completion, or after termination, as the case may be, pursuant to
          paragraph seven or paragraph nine; (b) the reimbursement of expenses
          incurred by Lincoln up to the date of termination or completion, as
          the case may be, pursuant to paragraph ten; (c) the attached
          Indemnification Provisions; and (d) the provisions of paragraph 15 of
          this Letter Agreement, all of which shall remain operative and in full
          force and effect.

13.       Lincoln makes no representations express or implied that its efforts
          on behalf of Prestolite will result in a Transaction.

14.       Lincoln agrees that there will be no obligation on the part of
          Prestolite to negotiate with or accept any offer from a Prospective
          Purchaser unless, in Prestolite's sole discretion, the terms and
          conditions shall be acceptable to Prestolite's management and/or Board
          of Directors.

15.       Any advice rendered by Lincoln pursuant to this Letter Agreement shall
          not be disclosed publicly without Lincoln's prior written consent.

16.       Lincoln may publish, at its own expense, an advertisement announcing
          the completion of the Transaction and Lincoln's role therein, subject
          to receiving Prestolite's written approval which will not be
          unreasonably withheld.
<PAGE>

If the foregoing correctly sets forth our understanding, please confirm this by
signing and returning to us the duplicate copy of this Letter Agreement. We look
forward to working with you towards the successful conclusion of this
assignment.

                                                  Very truly yours,

                                                  LINCOLN PARTNERS L.L.C.

                                                  By: /s/ L. James Lawson, III
                                                      -------------------------
                                                        L. James Lawson, III
                                                        Managing Director

The above is agreed to this
4/th/ day of January 2000

Prestolite Electric Incorporated

By: /s/ Kenneth C. Cornelius
    ---------------------------------
      Kenneth C. Cornelius
      Senior Vice President & CFO
<PAGE>

INDEMNIFICATION PROVISIONS

     1.   Indemnification. Prestolite (as such term is defined in the attached
          ---------------
Letter Agreement) on its own behalf as well as on the behalf of its successors
or assigns, agrees that since Lincoln (as such term is defined in the attached
Letter Agreement) will be acting on Prestolite's behalf, Prestolite (the
"Indemnifying Party") will indemnify and hold harmless Lincoln and each of its
officers, directors, agents, employees and affiliates and each person, if any,
who controls Lincoln within the meaning of the federal securities laws (Lincoln
and each such entity and person being referred to hereinafter as an "Indemnified
Party") from and against any and all losses, claims, damages, and liabilities,
as incurred, joint or several (including all legal or other expenses reasonably
incurred by any Indemnified Party in connection with the preparation for or
defense of any claim, action, or proceeding, whether or not instituted or
resulting in any liability), to which each Indemnified Party may become subject
under any applicable federal or state law or otherwise, caused by or arising out
of Lincoln's engagement (as such term is defined in the attached Letter
Agreement) or Lincoln's role in connection therewith (i) caused by or arising
out of any untrue statement or alleged untrue statement of a material fact
contained in the Information, Offering Memorandum or Supplemental Information
(as such terms are defined in the attached Letter Agreement) or the omission or
the alleged omission to state therein a material fact necessary in order to make
the statements therein not misleading in light of the circumstances under which
they were made or (ii) otherwise caused by or arising out of or in connection
with Lincoln acting pursuant to the Letter Agreement except to the extent that a
court of competent jurisdiction shall have determined by a final judgement that
such losses, claims, damages or liabilities resulted primarily from the gross
negligence, bad faith, or willful misconduct of Lincoln or any Indemnified Party
in which case this clause (ii) shall not be applicable.

     2.   Notification by Indemnifying Party. Promptly after the Indemnifying
          ----------------------------------
Party's knowledge of the commencement of any action, suit, proceeding or
investigation against an Indemnified Party relating to this Letter Agreement,
the Indemnifying Party agrees to notify Lincoln of the assertion against the
Indemnified Party.

     3.   Notification by Lincoln. If any action, suit, proceeding or
          -----------------------
investigation is commenced, as to which Lincoln proposes to demand
indemnification, Lincoln shall in writing promptly notify the Indemnifying
Party; provided, however, that any failure by Lincoln to notify the Indemnifying
       --------  -------
Party shall not relieve the Indemnifying Party from its obligations hereunder
except to the extent such failure prejudices the defense for which
indemnification is claimed.
<PAGE>

     4.   Selection of Counsel for Indemnified Party. In the event an action or
          ------------------------------------------
proceeding arising out of this Letter Agreement shall be commenced against an
Indemnified Party and the Indemnifying Party shall decline or fail to assume the
defense of such matter with counsel reasonably satisfactory to Lincoln or
Lincoln's legal counsel shall determine that defenses may be available to an
Indemnified Party that are different from those available to the Indemnifying
Party, then the Indemnified Party may employ separate counsel to represent or
defend it or any Indemnified Party in any such action or proceeding in which it
or such Indemnified Party may become involved or is named as defendant and the
Indemnifying Party shall pay currently the reasonable fees and disbursements of
such separate counsel; provided that the Indemnifying Party shall not be
obligated to pay the fees and disbursements of more than one such separate
counsel for any one such action or proceeding in any one jurisdiction.

     5.   Contribution. The Indemnifying Party and Lincoln agree that if any
          ------------
indemnification or reimbursement sought by an Indemnified Party pursuant to the
Letter Agreement is held by a court to be unavailable for any reason (other than
as a consequence of a court of competent jurisdiction having determined by a
final judgement that such losses, claims, damages or liabilities resulted
primarily from the gross negligence, bad faith or willful misconduct of Lincoln
or any Indemnified Party), then (whether or not Lincoln is the Indemnified
Party) the Indemnifying Party and Lincoln shall contribute to the losses,
claims, damages, liabilities and expenses for which such indemnification or
reimbursement is held unavailable in such proportion as is appropriate to
reflect the relative benefits and fault of the Indemnifying Party on the one
hand, and Lincoln on the other hand, in connection with the transaction
contemplated by the Letter Agreement, subject to the limitation that Lincoln's
aggregate contribution shall not exceed the amount of fees actually received by
Lincoln pursuant to the Letter Agreement.

     6.   Agreement to Testify. In the event of administrative proceedings or
          --------------------
litigation in connection with the services provided under this Letter Agreement,
Lincoln agrees that its representatives will testify or otherwise assist the
Indemnifying Party in preparing for testimony at the reasonable request of the
Indemnifying Party. If Lincoln is not a co-defendant in such proceeding or
litigation, the Indemnifying Party will pay Lincoln reasonable and customary
additional compensation as agreed upon by Lincoln and the Indemnifying Party to
cover testifying in connection with such proceedings or litigation and the
preparation for such litigation, proceeding or testimony. In any circumstance in
which Lincoln or its representatives takes any of such actions, regardless of
whether it is a co-defendant, the Indemnifying Party will reimburse Lincoln for
all out-of-pocket expenses reasonably incurred by Lincoln and its
representatives in connection therewith, including the reasonable fees and
disbursements of its separate legal counsel.
<PAGE>

     7.   Survival.  Neither the termination nor completion of the Letter
          --------
Agreement or of the engagement of Lincoln referred to therein shall affect the
indemnification provided for hereunder, which shall remain operative and in full
force and effect.

Accepted and agreed to this
4/th/ day of January 2000

Prestolite Electric Incorporated

By: /s/  Kenneth C. Cornelius
    ---------------------------------
      Kenneth C. Cornelius
      Senior Vice President and CFO

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